IMMUNE RESPONSE CORP, S-3/A, 1996-09-13

IMMUNE RESPONSE CORP
S-3/A, 1996-09-13
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996

REGISTRATION NO. 333-05393
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 2

TO
Form S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

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THE IMMUNE RESPONSE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 33-0255679
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
</TABLE>

5935 DARWIN COURT, CARLSBAD, CA 92008, (619) 431-7080
Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices

DENNIS J. CARLO, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE IMMUNE RESPONSE CORPORATION
5935 DARWIN COURT
CARLSBAD, CA 92008
(619) 431-7080
Name, address, including zip code and telephone number, including area code, of
agent for service

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Copies to:

<TABLE>
<S> <C>
THOMAS E. SPARKS, JR., ESQ. JAMES C.T. LINFIELD, ESQ.
JOHN L. DONAHUE, ESQ. ERIC J. LOUMEAU, ESQ.
GEORGE A. GUCKER, ESQ. Cooley Godward Castro Huddleson & Tatum
Pillsbury Madison & Sutro LLP 2595 Canyon Boulevard, Suite 250
P.O. Box 7880 Boulder, CO 80302
San Francisco, CA 94120
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter became effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1996

PROSPECTUS

2,900,000 SHARES

LOGO

THE IMMUNE RESPONSE CORPORATION
COMMON STOCK

All of the 2,900,000 shares of Common Stock offered hereby are being sold
by The Immune Response Corporation ("Immune Response" or the "Company"). Bayer
Corporation ("Bayer") may purchase $4,000,000 of the Common Stock offered hereby
at the public offering price. Bayer is a party to a collaboration agreement with
the Company. The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "IMNR." On September 12, 1996, the last reported sale price for
the Common Stock was $8.75 per share. See "Price Range of Common Stock and
Dividend Policy."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1)(2) COMPANY (3)
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Per Share.................................... $ $ $
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Total (4).................................... $ $ $
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</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) The Underwriters will not receive any Underwriting Discount on any shares
sold to Bayer.

(3) Before deducting estimated expenses payable by the Company estimated at
$300,000.

(4) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 435,000
additional shares of Common Stock on the same terms and conditions set forth
herein solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance of such shares by them. The Underwriters
reserve the right to reject any order in whole or in part. It is expected that
the shares will be ready for delivery at the office of the agent of Hanifen,
Imhoff Inc. in New York, New York on or about , 1996.

HANIFEN, IMHOFF INC. CRUTTENDEN ROTH
INCORPORATED

The date of this Prospectus is , 1996
<PAGE> 3

[FOUR GRAPHICS: SEE APPENDIX I FOR DESCRIPTION.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS OR OTHER SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

REMUNE(TM) and GENEDRUG(TM) are trademarks of the Company. This Prospectus
also contains trademarks of other companies which are owned by the respective
companies.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors."

THE COMPANY

Immune Response is a biopharmaceutical company with proprietary
technologies in four core areas: Human Immunodeficiency Virus ("HIV"),
autoimmune disease, gene therapy and cancer. The Company is conducting clinical
trials for potential immune-based therapies for HIV, psoriasis, rheumatoid
arthritis, multiple sclerosis and colon cancer, and preclinical studies for
brain and prostate cancers. The Company has potential gene therapies in
preclinical studies for cardiovascular disease, hemophilia and hepatitis. The
Company intends to retain ownership of its core technologies and to license
selected applications.

HIV. The Company's most advanced therapy under development, REMUNE, is
based on an approach first proposed by the late Dr. Jonas Salk, a co-founder of
the Company. REMUNE is an immune-based therapy intended to treat HIV-infected
individuals and prevent or delay the progression to Acquired Immune Deficiency
Syndrome ("AIDS"). REMUNE is designed to stimulate an HIV-infected individual's
immune system to attack HIV and can be used alone or in combination with
existing antiviral drug therapies for HIV. The Company believes that clinical
trials conducted since 1987 have suggested that REMUNE is safe and well
tolerated and may have a favorable impact on multiple markers of HIV disease
progression including viral burden, CD4 cell count, HIV-specific cell-mediated
immunity, antibody production and weight gain. In March 1996, the Company
initiated a pivotal Phase III clinical trial for REMUNE which is designed to
include up to 3,000 HIV-infected individuals at over 50 leading clinical centers
throughout the United States. Subsequent to the start of the Phase III clinical
trial, the United States Food and Drug Administration ("FDA") granted expanded
access approval for those individuals who are ineligible to enroll in this
trial. The Company expects to dedicate a substantial portion of its resources to
the REMUNE program. See "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

The Company is also conducting trials in additional patient populations. In
March 1996, the Company's licensee, Trinity Medical Group Co., Ltd. ("Trinity")
of Bangkok, Thailand, initiated a Phase II clinical trial with REMUNE in
Thailand. In May 1996, the Company initiated a Phase I clinical trial with the
National Institutes of Health ("NIH") to treat HIV-infected children. See
"Business -- REMUNE HIV Therapy."

Autoimmune Disease. Immune Response is using its proprietary autoimmune
disease technology to develop treatments for certain autoimmune diseases,
particularly psoriasis, rheumatoid arthritis and multiple sclerosis. Currently
approved therapies treat only the symptoms of these diseases. The Company's
technology is designed to inhibit the destructive activity of the specific
autoreactive T cells that the Company believes cause each disease by generating
an immune response against the unique markers on the autoreactive T cells. The
Company is currently conducting separate Phase II clinical trials for treatments
for psoriasis and rheumatoid arthritis. Results from these trials are expected
to be available by the end of 1996. In addition, the Company has completed a
Phase I clinical trial for multiple sclerosis. See "Business -- Autoimmune
Disease Technology."

Gene Therapy. The Company's proprietary GeneDrug technology under
development is designed to replace missing or defective genes to treat disease.
This technology uses a unique system intended to deliver genes specifically to
the liver after a single intravenous injection. In preclinical studies for
cardiovascular disease, a potential GeneDrug product was successfully delivered
to the liver which reduced the low density lipoprotein ("LDL"), the so-called
"bad cholesterol," by 30%. In preclinical studies, a potential GeneDrug product
was also successfully used for Factor VIII to produce therapeutic levels of this
blood clotting factor for 60 days. If similar results can be obtained in humans,
the Company believes that this therapy could provide significant advantages over
the current treatments for hemophilia. Additionally, a potential GeneDrug for
interferon-alpha ("IFN(LOGO)a") also has been used in preclinical studies to
induce production of significant levels of IFN(LOGO)a within the liver as a
potential treatment for hepatitis. See "Business -- Gene Therapy Technology."

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<PAGE> 5

Cancer. The Company is also developing new therapies for the treatment of
cancer. These technologies are designed (i) to increase immune system
recognition of cancers, (ii) to inhibit cancer evasion of the immune system, and
(iii) to sensitize cancer to conventional therapies. The Company is conducting a
Phase I clinical trial for colon cancer which is expected to be completed by the
end of 1996, with data available in early 1997. Additional trials for colon,
prostate and brain cancers are planned for 1997. See "Business -- Cancer
Treatment Technology."

RECENT DEVELOPMENTS

In July 1996, Immune Response entered into an agreement with Bayer
Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen,
Germany, to develop gene therapy products for the treatment of hemophilia A, a
blood clotting disorder. Bayer is a market leader in the treatment of this
hereditary blood coagulation disorder. Bayer made an initial license payment to
Immune Response of $6 million upon signing this agreement. Bayer has also
indicated that it may purchase $4 million of Immune Response Common Stock in
this public offering. In addition, during the term of the agreement, the Company
will receive research funding from Bayer for Immune Response's hemophilia A
program and may receive milestone payments and royalties on future sales, if a
product is developed and commercialized. In July 1996, the Company received $1
million as its first research payment under the agreement. Under the agreement,
Bayer is responsible for all medical and regulatory activities associated with
developing any potential hemophilia A products, and will also be responsible for
commercial-scale manufacturing and commercialization of any such product
developed. The agreement provides Bayer with a worldwide exclusive license to
the Company's GeneDrug technology for the delivery of the Factor VIII gene and
the option to enter into negotiations with the Company to use this technology to
treat other blood coagulation disorders.

In May 1996, a United States patent application was indicated allowable
that expands the Company's technology for the targeted delivery of a soluble
molecular complex to any receptor on any mammalian cell, in addition to liver
cells. In addition, the soluble molecular complex is not limited to the delivery
of DNA, but may include any polynucleotide, such as RNA, oligonucleotides or
ribozymes.

In April 1996, the Company received a $5 million equity investment from
Trinity in exchange for shares of the Company's Common Stock at a price of $15
per share. Trinity has agreed to make additional equity investments of up to $10
million based on the achievement of certain regulatory and commercial milestones
and governmental approvals. There can be no assurance that any such milestones
or approvals will be achieved or obtained. In September 1995, Trinity licensed
the rights to develop, market and distribute REMUNE in Thailand and certain
other Southeast Asian countries.

In March 1996, Immune Response obtained an exclusive license from the
Sidney Kimmel Cancer Center for a potential cancer therapy that has indicated in
a preclinical study that it may be useful in the treatment of brain tumors. The
Company expects to begin a Phase I clinical trial for brain cancer with this
potential therapy during 1997.

The Company was incorporated in Delaware on October 1, 1986. The Company's
executive offices are located at 5935 Darwin Court, Carlsbad, California 92008,
and its telephone number is (619) 431-7080. The Company is not related to a
company called "Immune Response, Inc." which, according to publicly available
reports, is an Englewood, Colorado based company that "intends to perform
research and provide testing facilities for disorders of the immune system" and
has certain securities traded in the over-the-counter market.
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This Prospectus contains forward-looking statements. Such statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere in this Prospectus.

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THE OFFERING

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<S> <C>
Common Stock offered by the Company.......... 2,900,000 shares
Common Stock to be outstanding after 20,201,891 shares(1)
offering...................................
Use of proceeds.............................. For clinical trials and research and
development of biopharmaceutical products and
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................ IMNR
</TABLE>

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(1) Based on shares outstanding at June 30, 1996. Excludes 4,532,683 shares of
Common Stock reserved but unissued under the Company's stock plans under
which there were options to purchase an aggregate of 3,929,293 shares of
Common Stock outstanding at June 30, 1996 (at a weighted average price of
$4.38 per share). See "Capitalization" and Note 5 in Notes to Consolidated
Financial Statements.

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research revenue.......... $ 4,768 $ 6,035 $ 1,561 $ 1,477 $ --
Licensed research revenue.......... -- 1,000 -- -- --
---------- ---------- ---------- ---------- ----------
4,768 7,035 1,561 1,477 --
Expenses:
Research and development........... 11,854 13,511 19,489 8,527 12,769
General and administrative......... 4,119 5,608 3,684 1,986 1,787
---------- ---------- ---------- ---------- ----------
15,973 19,119 23,173 10,513 14,556
Other revenue and expense:
Investment income.................. 4,320 2,554 2,960 1,467 1,323
Equity in operations of joint
venture......................... (8,853) (7,869) (1,284) (1,284) --
---------- ---------- ---------- ---------- ----------
(4,533) (5,315) 1,676 183 1,323
---------- ---------- ---------- ---------- ----------
Net loss............................. $ (15,738) $ (17,399) $ (19,936) $ (8,853) $ (13,233)
========== ========== ========== ========== ==========
Net loss per share................... $ (0.95) $ (1.05) $ (1.19) $ (0.53) $ (0.78)
========== ========== ========== ========== ==========
Weighted average number of shares
outstanding........................ 16,549,816 16,613,547 16,750,460 16,742,616 16,963,239
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
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ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................... $37,316 $ 61,002
Working capital..................................................... 35,159 58,845
Total assets........................................................ 42,898 66,584
Total stockholders' equity.......................................... 40,124 63,810
</TABLE>

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(1) Adjusted to give effect to the receipt of the net proceeds from the sale of
2,900,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $8.75 per share. See "Use of Proceeds."

5
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RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of Common Stock
offered by this Prospectus.

UNCERTAINTY OF PRODUCT DEVELOPMENT AND CLINICAL TESTING. The Company has
not completed the development of any products and there can be no assurance any
products will be successfully developed. The Company's potential HIV, autoimmune
disease, gene therapy and cancer products currently under development will
require significant additional research and development efforts and regulatory
approvals prior to potential commercialization.

The Company's potential HIV product, REMUNE, is in a Phase III clinical
trial designed to provide evidence of efficacy based on clinical endpoints;
however there can be no assurance that the results of such clinical trial will
demonstrate that REMUNE is safe and efficacious or, that even if the results of
the clinical trial are considered successful by the Company, that the FDA will
not require the Company to conduct additional large scale clinical trials with
REMUNE before the FDA will consider approving REMUNE for commercial sale. In
addition, REMUNE is being tested in a Phase II clinical trial in Thailand and in
a pediatric Phase I clinical trial in the United States. Failure of these trials
to demonstrate the safety and effectiveness of REMUNE could have a material
adverse effect on the regulatory approval process for this potential product.
The Company's other potential products and technologies are at a much earlier
stage of development than REMUNE. The Company's gene therapy technology and
certain of its technologies for the treatment of cancer have not yet been tested
in humans and there can be no assurance that human testing of potential products
based on such technologies will be permitted by regulatory authorities or, that
even if human testing is permitted, that products based on such technologies
will be shown to be safe or efficacious. Potential products based on the
Company's autoimmune technology and certain of its cancer technologies are at an
early stage of clinical testing and there can be no assurance that such products
will be shown to be safe or efficacious.

There can be no assurance that the results of the Company's preclinical
studies and clinical trials will be indicative of future clinical trial results.
A commitment of substantial resources to conduct time-consuming research,
preclinical studies and clinical trials will be required if the Company is to
develop any products. Delays in planned patient enrollment in the Company's
current clinical trials or future clinical trials may result in increased costs,
program delays or both. There can be no assurance that any of the Company's
potential products will prove to be safe and effective in clinical trials, that
FDA or other regulatory approvals will be obtained or that such products will
achieve market acceptance. Any products resulting from these programs are not
expected to be successfully developed or commercially available for a number of
years, if at all. See "Business -- REMUNE HIV Therapy," "-- Autoimmune Disease
Technology," "-- Gene Therapy Technology," "-- Cancer Treatment Technology" and
"-- Government Regulation."

There can be no assurance that unacceptable toxicities or side effects will
not occur at any time in the course of human clinical trials or, if any products
are successfully developed and approved for marketing, during commercial use of
the Company's products. The appearance of any such unacceptable toxicities or
side effects could interrupt, limit, delay or abort the development of any of
the Company's products or, if previously approved, necessitate their withdrawal
from the market. Furthermore, there can be no assurance that disease resistance
will not limit the efficacy of potential products.

LENGTHY APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS. Clinical testing, manufacture, promotion and sale of the
Company's drug products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies. The Company believes that
REMUNE and most of its other potential immune-based therapies will be regulated
by the FDA as biological drug products under current regulations of the FDA. In
general, the regulatory framework for biological drug products is more rigorous
than that for nonbiological drug products. The Federal Food, Drug, and Cosmetic
Act ("FDC Act"), the Public Health Service Act ("PHS Act") and other federal and
state statutes and regulations govern or influence the testing, manufacture,
safety, effectiveness, labeling, storage, recordkeeping, approval, advertising,
distribution and promotion of biological prescription drug products.
Noncompliance with applicable requirements can result in,

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<PAGE> 8

among other things, fines, injunctions, seizure of products, total or partial
suspension of product marketing, failure of the government to grant premarket
approval, withdrawal of marketing approvals and criminal prosecution.

The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive and
there can be no assurance that necessary FDA clearances will be obtained in a
timely manner, if at all. There can be no assurance as to the length of the
clinical trial period or the number of patients the FDA will require to be
enrolled in the clinical trials in order to establish the safety and efficacy of
the Company's products. The Company may encounter significant delays or
excessive costs in its efforts to secure necessary approvals, and regulatory
requirements are evolving and uncertain. Future United States or foreign
legislative or administrative acts could also prevent or delay regulatory
approval of the Company's products. There can be no assurance that the Company
will be able to obtain the necessary approvals for clinical trials,
manufacturing or marketing of any of its products under development. Even if
commercial regulatory approvals are obtained, they may include significant
limitations on the indicated uses for which a product may be marketed. In
addition, a marketed product is subject to continual FDA review. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product
or withdrawal of the product from the market, as well as possible civil or
criminal sanctions. Failure of the Company to obtain marketing approval for
REMUNE or any of its other products under development on a timely basis, or FDA
withdrawal of marketing approval once obtained, could have a material adverse
effect on the Company's business, financial condition and results of operations.

The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an
investigational new drug ("IND") application with the FDA. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a product license application ("PLA") for
approval for marketing and commercial shipment. Submission of a PLA does not
assure FDA approval for marketing. The PLA review process may take a number of
years to complete, although reviews of applications for treatments of AIDS,
cancer and other life-threatening diseases may be accelerated or expedited.
Failure of the Company to receive FDA marketing approval for REMUNE or any of
its other products under development on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition to obtaining approval for each biological drug product,
an establishment license application ("ELA") usually must be filed and approved
by the FDA.

Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the FDA's drug Good Manufacturing Practices
("GMP") requirements specifically for biological drugs, as well as for other
drugs. In complying with the FDA's drug GMP requirements, manufacturers must
continue to expend time, money and effort in production, recordkeeping and
quality control to assure that the product meets applicable specifications and
other requirements. Failure to comply with the FDA's drug GMP requirements
subjects the manufacturer to possible FDA regulatory action. There can be no
assurance that the Company or its contract manufacturers, if any, will be able
to maintain compliance with the FDA's drug GMP requirements on a continuing
basis. Failure to maintain such compliance could have a material adverse effect
on the Company's business, financial condition and results of operations.

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<PAGE> 9

The Company believes its proprietary GeneDrug and cancer treatment
therapies will likely be regulated more like traditional biological products,
subject to both PLA and ELA requirements. As with the Company's other potential
products, the gene therapy and cancer products will be subject to extensive FDA
regulation throughout the product development process, and there can be no
assurance that any of these products will be successful at securing the
requisite FDA marketing approval on a timely basis, if at all.

A number of procedures are available to expedite approval or to allow
expanded access to investigational drugs. Certain investigational drugs,
including products for the treatment of AIDS, can be distributed outside of
traditional IND requirements on a "treatment IND" basis. Generally, the FDA may
permit an investigational drug, including an investigational biological drug, to
be used under a "treatment IND" for patients outside of controlled clinical
trials under certain conditions. Although the FDA has granted expanded access to
REMUNE for those patients who are ineligible to enroll in the Phase III clinical
trial, the FDA has to date not designated expanded access protocols for REMUNE
as "treatment" protocols. Either expanded access or a treatment protocol
designation might permit third party reimbursement of some of the costs
associated with making REMUNE available to patients in such an expanded access
context. There can be no assurance that the FDA will determine that REMUNE meets
all of the FDA's criteria for use of an investigational drug for treatment use
or that, even if the product is allowed for treatment use, that third party
payers will provide reimbursement for any of the costs of treatment with REMUNE.

The FDA also has issued regulations to accelerate the approval of or to
expedite the review of new biological drug products for serious or
life-threatening illnesses that provide meaningful therapeutic benefit to
patients over existing treatments. Under the accelerated approval program, the
FDA may grant marketing approval for a biological or nonbiological drug product
earlier than would normally be the case. In addition to the accelerated approval
process, the FDA has established procedures designed to expedite the
development, evaluation and marketing of new therapies intended to treat persons
with life-threatening and severely-debilitating illnesses, especially when no
satisfactory alternative therapy exists. There can be no assurance that the FDA
will consider REMUNE or any other of the Company's products under development to
be an appropriate candidate for accelerated approval or expedited review.

To market any drug products outside of the United States, the Company is
also subject to numerous and varying foreign regulatory requirements,
implemented by foreign health authorities, governing the design and conduct of
human clinical trials and marketing approval. The approval procedure varies
among countries and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA approval. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not ensure
approval by the health authorities of any other country. See
"Business -- Government Regulation."

HISTORY OF OPERATING LOSSES. As of June 30, 1996, the Company had an
accumulated deficit of $112.1 million. The Company has not generated revenues
from the commercialization of any products and expects to incur substantial net
operating losses over the next several years. There can be no assurance that the
Company will be able to generate sufficient product revenue to become profitable
at all or on a sustained basis. The Company expects to have quarter-to-quarter
fluctuations in expenses, some of which could be significant, due to expanded
research, development and clinical trial activities.

ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL. The Company may
need to raise additional funds to conduct research and development, preclinical
studies and clinical trials necessary to bring its potential products to market
and establish manufacturing and marketing capabilities. The Company anticipates
that the REMUNE Phase III clinical trial costs will be approximately $10 million
per year, with an additional $10 million cost per year for manufacturing,
research and all other costs associated with the product for up to three years.
The anticipated costs with respect to REMUNE will depend on many factors,
including the successful enrollment of the Phase III clinical trial, the
availability of third party reimbursement based on gaining "treatment" IND
status for the expanded access protocols for REMUNE, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the Company's
financial resources in this program. The Company's future capital requirements
will depend on many factors, including continued scientific progress in its
research and

8
<PAGE> 10

development programs, the scope and results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the cost of manufacturing scale-up,
effective commercialization activities and arrangements and other factors not
within the Company's control. The Company intends to seek additional funding
through public or private financings, arrangements with corporate collaborations
or other sources. Adequate funds may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to scale
back or eliminate some or all of its research and development programs or
license to third parties products or technologies that the Company would
otherwise seek to develop itself. The Company anticipates that its existing
resources, including proceeds of this offering and interest thereon, will enable
the Company to maintain its current and planned operations through mid-1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

PATENTS AND PROPRIETARY TECHNOLOGY. The Company has filed, or participated
as licensee, in the filing of a number of patent applications in the United
States and many international countries. The Company files applications as
appropriate for patents covering its products and processes. The Company has
been issued patents, or has licensed patents, covering certain aspects of its
proposed HIV, autoimmune disease, gene therapy and cancer technologies. The
Company's success may depend in part on its ability to obtain patent protection
for its products and processes. The Company is aware that a group working with
Connective Therapeutics, Inc. has filed patent applications related to
autoimmune disease research that covers technology similar to that used by the
Company. There can be no assurance that the Company's patent applications will
be issued as patents or that any of its issued patents, or any patent that may
be issued in the future, will provide the Company with adequate protection for
the covered products, processes or technology.

The patent positions of biotechnology and pharmaceutical companies can be
highly uncertain, and involve complex legal and factual questions. Therefore,
the breadth of claims allowed in biotechnology and pharmaceutical patents cannot
be predicted. The Company also relies upon unpatented trade secrets and know
how, and no assurance can be given that others will not independently develop
substantially equivalent trade secrets or know how. In addition, whether or not
the Company's patents are issued, or issued with limited coverage, others may
receive patents which contain claims applicable to the Company's product. There
can be no assurance that any of the Company's patents, or any patents issued to
the Company in the future, will afford meaningful protection against
competitors. Defending any such patent could be costly to the Company, and there
can be no assurance that the patent would be held valid by a court of competent
jurisdiction.

The Company also relies on protecting its proprietary technology in part
through confidentiality agreements with its corporate collaborators, employees,
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently discovered by its competitors.

It is possible that the Company's products or processes will infringe, or
will be found to infringe, patents not owned or controlled by the Company. If
any relevant claims of third-party patents are upheld as valid and enforceable,
the Company could be prevented from practicing the subject matter claimed in
such patents, or would be required to obtain licenses or redesign its products
or processes to avoid infringement. There can be no assurance that such licenses
would be available at all or on terms commercially reasonable to the Company or
that the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to the Company or to protect trade secrets. Such litigation could
result in substantial costs and diversion of management efforts regardless of
the results of such litigation and an adverse result could subject the Company
to significant liabilities to third parties, require disputed rights to be
licensed or require the Company to cease using such technology.

TECHNOLOGICAL CHANGE AND COMPETITION. The biotechnology industry continues
to undergo rapid change and competition is intense and is expected to increase.
There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or which would render the Company's
technology and

9
<PAGE> 11

products obsolete and noncompetitive. Many of the Company's competitors have
substantially greater experience, financial and technical resources and
production, marketing and development capabilities than the Company.
Accordingly, certain of the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly or effectively than the Company.
If the Company commences commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and sales and marketing
capabilities, areas in which it currently has no experience.

DEPENDENCE ON THIRD PARTIES. The Company's strategy for the research,
development and commercialization of its products requires entering into various
arrangements with corporate collaborators (such as the Company's agreement with
Bayer), licensors, licensees and others, and the Company's commercial success is
dependent upon these outside parties performing their respective contractual
responsibilities. The amount and timing of resources such third parties will
devote to these activities may not be within the control of the Company. There
can be no assurance that such parties will perform their obligations as expected
or that the Company will derive any revenue from such arrangements. Although the
Company has collaborative agreements with several universities and research
institutions, the Company's agreement with Bayer is the only collaborative
agreement that will provide the Company with any contract revenues. There can be
no assurance that these collaborations will result in the development of any
commercial products. Immune Response intends to seek additional collaborative
arrangements to develop and commercialize certain of its products. There can be
no assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, or at all, in the future, or that its current
or future collaborative arrangements will be successful.

LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE. The Company has
a manufacturing facility for REMUNE located in King of Prussia, Pennsylvania,
and a pilot manufacturing facility in Carlsbad, California for its other
products. The Company has not yet manufactured its product candidates in
commercial quantities. No assurance can be given that the Company, on a timely
basis, will be able to make the transition from manufacturing clinical trial
quantities to commercial production quantities successfully or be able to
arrange for contract manufacturing. The Company believes it will be able to
manufacture REMUNE for initial commercialization, if the product obtains FDA
approval, but it has not yet demonstrated the capability to manufacture REMUNE
in commercial quantities, or its autoimmune disease, gene therapy and cancer
treatments in large-scale clinical or commercial quantities. The Company has no
experience in the sales, marketing and distribution of pharmaceutical products.
There can be no assurance that the Company will be able to establish sales,
marketing and distribution capabilities or make arrangements with its
collaborators, licensees or others to perform such activities or that such
efforts will be successful.

The manufacture of the Company's products involves a number of steps and
requires compliance with stringent quality control specifications imposed by the
Company itself and by the FDA. Moreover, the Company's products can only be
manufactured in a facility that has undergone a satisfactory inspection by the
FDA. For these reasons, the Company would not be able quickly to replace its
manufacturing capacity if it were unable to use its manufacturing facilities as
a result of a fire, natural disaster (including an earthquake), equipment
failure or other difficulty, or if such facilities are deemed not in compliance
with the FDA's drug GMP requirements and the non-compliance could not be rapidly
rectified. The Company's inability or reduced capacity to manufacture its
products would have a material adverse effect on the Company's business and
results of operations.

The Company may enter into arrangements with contract manufacturing
companies to expand its own production capacity in order to meet requirements
for its products, or to attempt to improve manufacturing efficiency. If the
Company chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Further, contract manufacturers must also operate in compliance with the FDA's
drug GMP requirements; failure to do so could result in, among other things, the
disruption of product supplies. Until recently, biologic product licenses could
not be held by any company unless it performed significant manufacturing
operations. The FDA recently amended its regulations in this regard, and the
Company believes that under these new regulations it can now hold licenses for
its biological products without performing significant manufacturing steps.

10
<PAGE> 12

Nonetheless, the Company's potential dependence upon third parties for the
manufacture of its products may adversely affect the Company's profit margins
and its ability to develop and deliver such products on a timely and competitive
basis. See "Business -- Government Regulation."

UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS. The
Company's ability to earn sufficient returns on its products will depend in part
on the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers, managed care organizations and other
organizations. Third party payors are increasingly challenging the price of
medical products and services. If purchasers or users of the Company's products
are not able to obtain adequate reimbursement for the cost of using such
products, they may forego or reduce such use. Significant uncertainty exists as
to the reimbursement status of newly approved health care products, and there
can be no assurance that adequate third party coverage will be available.

PRODUCT LIABILITY EXPOSURE. The Company faces an inherent business risk of
exposure to product liability and other claims in the event that the development
or use of its technology or prospective products is alleged to have resulted in
adverse effects. While the Company has taken, and will continue to take, what it
believes are appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. Although the Company currently carries
product liability insurance for clinical trials, there can be no assurance that
the Company has sufficient coverage, or can obtain sufficient coverage, at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
the Company. A product liability claim could have a material adverse effect on
the Company's business, financial condition and results of operations.

HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. Although the Company does not
currently manufacture commercial quantities of its product candidates, it
produces limited quantities of such products for its clinical trials. The
Company's research and development processes involve the controlled storage, use
and disposal of hazardous materials, biological hazardous materials and
radioactive compounds. The Company is subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
There can be no assurance that the Company will not be required to incur
significant costs to comply with current or future environmental laws and
regulations nor that the operations, business or assets of the Company will not
be materially or adversely affected by current or future environmental laws or
regulations.

VOLATILITY OF STOCK PRICE AND ABSENCE OF DIVIDENDS. The market price of
Immune Response's Common Stock, like that of the common stock of many other
biopharmaceutical companies in the development stages, has been and is likely to
be highly volatile. Factors such as the results of preclinical studies and
clinical trials by the Company, its collaborators or its competitors, other
evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new products by the
Company or its competitors, governmental regulatory actions, developments with
the Company's collaborators, developments concerning patent or other proprietary
rights of the Company or its competitors (including litigation), concern as to
the safety of the Company's products, period-to-period fluctuations in the
Company's operating results, changes in estimates of the Company's performance
by securities analysts, market conditions for biopharmaceutical stocks in
general and other factors not within the control of the Company could have a
significant adverse impact on the market price of the Common Stock. The Company
has never paid cash dividends on its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. See "Price Range of Common Stock
and Dividend Policy."

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation and Bylaws include provisions that could discourage potential
takeover attempts and make attempts by stockholders to

11
<PAGE> 13

change management more difficult. The approval of 66 2/3 percent of the
Company's voting stock is required to approve certain transactions and to take
certain stockholder actions, including the calling of special meetings of
stockholders and the amendment of any of the anti-takeover provisions contained
in the Company's Certificate of Incorporation. Further, pursuant to the terms of
its stockholder rights plan, the Company has distributed a dividend of one right
for each outstanding share of Common Stock. These rights will cause substantial
dilution to the ownership of a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors and may have the effect
of deterring hostile takeover attempts.

DILUTION. Investors participating in this offering will incur immediate
and substantial dilution. In addition, such investors will experience additional
dilution on the exercise of outstanding stock options. See "Dilution."

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$23,685,625 ($27,244,468 if the Underwriters' over-allotment option is exercised
in full), assuming a public offering price of $8.75 per share and after
deducting the estimated underwriting discount and expenses of this offering.

The Company anticipates that the net proceeds of this offering will be used
to fund the on-going Phase III clinical trial with REMUNE, the research and
development of its gene therapy and cancer treatments, clinical trials for its
rheumatoid arthritis, psoriasis, multiple sclerosis and colon cancer products,
future clinical trials, the anticipated capital requirements needed to enhance
manufacturing capacity and for other general corporate purposes. The amount and
timing of these expenditures will depend on numerous factors, including the
progress of the Company's research and development programs, the success of
clinical trials, and the timing of any regulatory approval. Pending application
of the funds to such uses, the net proceeds of this offering will be invested in
interest-bearing, investment grade securities.

The Company believes that its existing capital resources, together with the
net proceeds from this offering, including investment income, will be sufficient
to satisfy its current and projected funding requirements through mid-1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the Nasdaq National Market ("NNM")
under the symbol "IMNR." The following table sets forth the range of high and
low sales prices for the Common Stock on the NNM for the periods indicated since
January 1, 1994.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
First Quarter.................................... $13.75 $10.00
Second Quarter................................... 12.50 9.50
Third Quarter.................................... 10.25 6.88
Fourth Quarter................................... 8.75 5.38
YEAR ENDED DECEMBER 31, 1995
First Quarter.................................... $ 8.00 $ 2.66
Second Quarter................................... 6.75 2.69
Third Quarter.................................... 8.44 4.00
Fourth Quarter................................... 7.63 3.63
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................... $ 8.50 $ 4.75
Second Quarter................................... 15.25 5.94
Third Quarter (through September 12, 1996)....... 11.38 7.13
</TABLE>

On September 12, 1996, the closing sale price of the Company's Common Stock
as reported by the NNM was $8.75 per share. As of September 12, 1996, there were
approximately 1,100 stockholders of record of the Common Stock.

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, for future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth, as of June 30, 1996, the actual
capitalization of the Company and the capitalization of the Company, as adjusted
to give effect to the sale by the Company of 2,900,000 shares of Common Stock
offered hereby at an assumed public offering price of $8.75 per share, and the
receipt of the estimated net proceeds therefrom. This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Stockholders' equity(1):
Preferred stock, 5,000,000 shares authorized; none issued........... $ -- $ --
Common stock, $.0025 par value, 40,000,000 shares authorized,
17,301,891 issued and outstanding and 20,201,891 issued and
outstanding as adjusted(2)....................................... 43 50
Additional paid-in capital.......................................... 152,280 175,959
Unrealized (loss) on available-for-sale securities.................. (50) (50)
Accumulated deficit................................................. (112,149) (112,149)
--------- ---------
Total stockholders' equity....................................... 40,124 63,810
--------- ---------
Total capitalization........................................ $ 40,124 $ 63,810
========= =========
</TABLE>

- ---------------

(1) The Company does not have any long-term debt. See Note 4 in Notes to
Consolidated Financial Statements for information about the Company's
commitments.

(2) Excludes 4,532,683 shares of Common Stock reserved but unissued under the
Company's stock plans under which there were options to purchase an
aggregate of 3,929,293 shares of Common Stock, at a weighted average price
of $4.38 per share, outstanding at June 30, 1996. See Note 5 in Notes to
Consolidated Financial Statements.

14
<PAGE> 16

DILUTION

The net tangible book value of the Company's Common Stock as of June 30,
1996 was $40,123,682, or approximately $2.32 per share. Net tangible book value
per share represents the amount of the Company's stockholders' equity less
intangible assets divided by 17,301,891 shares of Common Stock outstanding as of
June 30, 1996.

Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the sale
of 2,900,000 shares of Common Stock in this offering by the Company at an
assumed public offering price of $8.75 and the receipt of the estimated net
proceeds therefrom, the as adjusted net tangible book value of the Company as of
June 30, 1996 would have been $63,809,307, or $3.16 per share. This represents
an immediate increase in net tangible book value of $0.84 per share to existing
stockholders and an immediate dilution in net tangible book value of $5.59 per
share to purchasers of Common Stock in this offering, as illustrated in the
following table.

<TABLE>
<S> <C> <C>
Assumed public offering price per share(1).................... $8.75
Net tangible book value per share at June 30, 1996.......... $2.32
Increase per share attributable to new investors............ 0.84
------
As adjusted net tangible book value per share after this
offering.................................................... 3.16
------
Net tangible book value dilution per share to new investors... $5.59
======
</TABLE>

At June 30, 1996, there were options to purchase an aggregate of 3,929,293
shares of Common Stock, at a weighted average exercise price of $4.38 per share,
outstanding under the Company's stock plans. The foregoing computations assume
no exercise of these stock options. To the extent these options are exercised,
there will be further dilution to new investors. See "Capitalization" and Note 5
in Notes to Consolidated Financial Statements.

- ---------------

(1) Before deduction of the estimated underwriting discount and offering
expenses.

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the three years in the period
ended December 31, 1995, and with respect to the consolidated balance sheets at
December 31, 1994 and 1995, are derived from consolidated financial statements
that have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus and are qualified by reference to such
financial statements. The statement of operations data for the years ended
December 31, 1991 and 1992, and the balance sheet data at December 31, 1991,
1992 and 1993, are derived from audited consolidated financial statements not
included in this Prospectus. The selected financial data set forth below as of
June 30, 1996 and for the six months ended June 30, 1995 and 1996 are derived
from unaudited consolidated financial statements of the Company which are
included elsewhere in this Prospectus and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the results of operations
for such interim periods. Operating results for the six months ended June 30,
1996 are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1996. The data presented below should be read in
conjunction with the consolidated financial statements, related notes, and other
financial information included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research revenue.......... $ 4,253 $ 4,035 $ 4,768 $ 6,035 $ 1,561 $ 1,477 $ --
Licensed research revenue.......... -- -- -- 1,000 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
4,253 4,035 4,768 7,035 1,561 1,477 --
Expenses:
Research and development........... 6,367 7,620 11,854 13,511 19,489 8,527 12,769
General and administrative......... 2,360 3,578 4,119 5,608 3,684 1,986 1,787
Acquired in-process research and
development(1)................... -- 29,768 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
8,727 40,966 15,973 19,119 23,173 10,513 14,556
Other revenue and expense:
Investment income.................. 3,732 7,021 4,320 2,554 2,960 1,467 1,323
Equity in operations of joint
venture.......................... (2,259) (3,843) (8,853) (7,869) (1,284) (1,284) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,473 3,178 (4,533) (5,315) 1,676 183 1,323
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss............................. $ (3,001) $ (33,753) $ (15,738) $ (17,399) $ (19,936) $ (8,853) $ (13,233)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss per share................... $ (0.23) $ (2.19) $ (0.95) $ (1.05) $ (1.19) $ (0.53) $ (0.78)
========== ========== ========== ========== ========== ========== ==========
Weighted average number of shares
outstanding........................ 13,115,610 15,427,667 16,549,816 16,613,547 16,750,460 16,742,616 16,963,239
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments......................... $ 103,888 $ 90,362 $ 75,359 $ 59,328 $ 44,610 $ 37,316
Working capital....................... 104,391 91,004 75,691 59,226 43,586 35,159
Total assets.......................... 109,713 103,128 86,680 68,483 50,429 42,898
Total stockholders' equity............ 108,284 100,576 84,915 67,086 48,441 40,124
</TABLE>

- ---------------

(1) Charge for acquired in-process research and development associated with the
acquisition of the Company's gene therapy technology.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Immune Response is a biopharmaceutical company engaged in the development
of proprietary products in the areas of HIV, autoimmune disease, gene therapy
and cancer.

This discussion contains forward-looking statements concerning the
Company's operating results and timing of anticipated expenditures. Such
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. Factors that could cause or
contribute to such differences include those discussed under "Risk Factors," as
well as those discussed elsewhere in this Prospectus. The following should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.

The Company has not been profitable since inception and had an accumulated
deficit of $112.1 million as of June 30, 1996. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through June
30, 1996 were earned in connection with contract research, a licensing
agreement, and investment income. The Company expects its operating losses to
continue to increase during 1996 and beyond, as well as to have
quarter-to-quarter expense fluctuations, some of which could be significant, due
to expanded research, development and clinical trial activities.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1995 and 1996

Contract research revenue for the six months ended June 30, 1995 was $1.5
million. The Company had no contract research revenue during the six months
ended June 30, 1996. Contract research revenue for the six months ended June 30,
1995 primarily included reimbursement for research and development and certain
administrative expenses from the Company's former joint venture with
Rhone-Poulenc Rorer Inc. ("Joint Venture"). In March 1995, the Company acquired
Rhone-Poulenc Rorer's rights in the Joint Venture. From March 1995 through June
30, 1996, the Company had no agreements that resulted in significant contract
revenue. The Company has not received any revenue from the commercial sale of
products and does not expect to derive revenue from the sale of products for the
next several years, if at all.

Investment income decreased to $1.3 million for the six months ended June
30, 1996, from $1.5 million during the same period in 1995. This decrease was
the result of the decrease in cash available for investment during the first
half of 1996 compared to the first half of 1995.

Research and development expenditures of $12.8 million during the first six
months of 1996 exceeded such expenditures during the same period in 1995 of $8.5
million. This increase was due primarily to the expansion of clinical testing
and regulatory management of REMUNE, expansion of the Company's autoimmune
disease research programs, including Phase II clinical trials for a rheumatoid
arthritis treatment and a psoriasis treatment, as well as increased staffing
levels and purchases of laboratory materials and supplies related to the
assumption of the manufacturing of REMUNE from the Joint Venture. In addition,
research and development expenditures increased related to research using gene
therapy and cancer treatments. Research and development expenses are expected to
continue to rise in the foreseeable future due to expanding preclinical and
clinical testing of the proposed autoimmune disease, gene therapy and cancer
treatments. Research and development expenses are also expected to increase due
to the Company beginning a large scale Phase III clinical trial with REMUNE in
March 1996.

General and administrative expenses for the first six months of 1996
declined to $1.8 million from $2.0 million for the same period in 1995. This
decrease was due primarily to the additional costs incurred in 1995 related to
the Company's acquisition of Rhone-Poulenc Rorer's interest in the Joint
Venture. General and administrative expenses for the remainder of 1996 necessary
to support the Company's expanded research and development activities are
expected to remain consistent with the first half of 1996.

17
<PAGE> 19

For the six months ended June 30, 1996, the Company's net loss was $13.2
million, or $.78 per share, as compared to a net loss of $8.9 million, or $.53
per share, for the same period in 1995.

Years Ended December 31, 1993, 1994 and 1995

Contract research revenues of $4.8 million in 1993, $6.0 million in 1994
and $1.6 million in 1995 were primarily derived from a research and development
agreement with the Joint Venture. Revenues derived from this agreement included
reimbursement for research and development costs and certain administrative
expenses. The decrease in revenue received from the Joint Venture during 1995
was the result of the Joint Venture incurring costs for only two months in 1995.

Investment income was $4.3 million in 1993, $2.6 million in 1994 and $3.0
million in 1995. The fluctuation in investment income over the past three years,
despite the Company's cash position decreasing over that time period, was due to
higher interest rates during 1995 compared to 1994.

The Company's research and development expenses have increased
substantially over the past three years from $11.9 million in 1993 to $13.5
million in 1994 and to $19.5 million in 1995. These increases were primarily due
to the expansion of clinical testing and regulatory management of REMUNE,
expansion of the Company's autoimmune disease research programs, including Phase
II clinical trials with a rheumatoid arthritis treatment and a psoriasis
treatment, as well as increased staffing levels and purchases of laboratory
materials and supplies related to the assumption of the manufacturing of REMUNE
from the Joint Venture. In addition, research and development expenditures have
increased related to research using gene therapy and cancer treatments.

The Company's costs incurred for the development of REMUNE during 1993,
1994 and 1995 were $4.5 million, $5.3 million and $11.3 million, respectively.
Costs incurred for the development of potential products in the autoimmune
disease program were $3.8 million, $3.7 million and $4.1 million for the years
1993, 1994 and 1995, respectively. The gene therapy program incurred costs in
1993, 1994 and 1995 of $3.5 million, $4.3 million and $3.7 million,
respectively.

General and administrative expenses were $4.1 million in 1993, $5.6 million
in 1994 and $3.7 million in 1995. The decrease in general and administrative
expenses from 1994 to 1995 is primarily attributable to the reduction in costs
attributed to a subsidiary of the Company being relocated to California in the
fourth quarter of 1994, as well as to the reduction of approximately $1.1
million of expenses that were incurred in 1994 related to an arbitration
proceeding with Rhone-Poulenc Rorer related to the management of the research
and development activities of the Joint Venture.

The Company's allocable share of the Joint Venture's losses was $8.9
million in 1993, $7.9 million in 1994 and $1.3 million in 1995. The decrease in
expenses from 1994 to 1995 was a result of the Joint Venture incurring costs for
only two months in 1995. Since acquiring Rhone-Poulenc Rorer's interest in the
Joint Venture in March 1995, the Company ceased receiving allocations of
revenues and expenses from the Joint Venture.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception principally through
the sale of equity securities, contract research revenues from the Joint Venture
and by leasing its office and research facilities and laboratory equipment. Due
to the Company acquiring Rhone-Poulenc Rorer's interest in the Joint Venture in
March 1995, the Company will receive no further revenue from the Joint Venture.
In connection with acquiring Rhone-Poulenc Rorer's interest in the Joint
Venture, the Company agreed to pay Rhone-Poulenc Rorer up to $3 million in
royalties on future commercial sales of REMUNE, or upon certain transactions
involving licensing rights for REMUNE to a future corporate partner.
Rhone-Poulenc Rorer will provide no further funding for the development of
REMUNE.

As of June 30, 1996, the Company had working capital of $35.2 million,
including $37.3 million of cash, cash equivalents and short-term investments.
This compares with working capital at December 31, 1995 of

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$43.6 million, including $44.6 million of cash, cash equivalents and short-term
investments. The decrease in working capital was due to the costs of operating
the business.

In April 1996, the Company received $5 million from Trinity for the
purchase of the Company's common stock at $15 per share. Trinity has also agreed
to make additional equity investments of up to $10 million based on the
achievement of certain regulatory and commercial milestones and governmental
approvals. There can be no assurance that any such milestones or approvals will
be achieved or obtained. In addition, during July 1996, the Company received a
$6 million license fee and a $1 million research payment from Bayer. The Company
will also receive funding from Bayer for the Company's hemophilia A research
program. Regardless of whether such additional funds are received from Trinity,
and despite the funding to be received from Bayer, the Company may need to raise
additional funds for expanding research and development activities in gene
therapy and cancer, conducting the Phase III clinical trial for REMUNE initiated
in March 1996, and enhancing the manufacturing facility to enable production of
commercial quantities of the Company's products. In particular, the Company
anticipates that the Phase III REMUNE clinical trial costs will be approximately
$10 million per year, with an additional $10 million cost per year for
manufacturing, research and all other costs associated with the product for up
to three years. The anticipated costs with respect to REMUNE will depend on many
factors, including the successful enrollment of the Phase III clinical trial,
the availability of third party reimbursement based on gaining "treatment" IND
status for the expanded access protocols for REMUNE, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the Company's
financial resources in this program. To obtain such funding, the Company may
consider collaborative arrangements and public or private financings. There can
be no assurance that such arrangements or funds will be available. The Company
believes that its current capital resources, plus the proceeds of this offering,
will meet its anticipated requirements through mid-1998.

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BUSINESS

GENERAL

Immune Response is a biopharmaceutical company with proprietary
technologies in four core areas: HIV, autoimmune disease, gene therapy and
cancer. The Company is conducting clinical trials for potential immune-based
therapies for HIV, psoriasis, rheumatoid arthritis, multiple sclerosis and colon
cancer and preclinical studies for brain and prostate cancers. The Company has
potential gene therapies in preclinical studies for cardiovascular disease,
hemophilia and hepatitis. The Company intends to retain ownership of its core
technologies and to license selected applications.

TREATMENTS UNDER DEVELOPMENT(1)

[TABLE]

- ---------------

(1) The table is not intended to depict the relative lengths of time of any of
the stages of drug discovery and preclinical and clinical development. The
amount of time spent in any phase of development will vary substantially
from product to product and there can be no assurance that any of the
products will proceed beyond the phase depicted or will receive regulatory
approval. See "Government Regulation."

REMUNE HIV THERAPY

Background. The World Health Organization estimates there are
approximately 20 million individuals, including 1.5 million children, around the
world infected with HIV, which has been identified as the cause of AIDS. In the
United States, the number of HIV-infected individuals is estimated at 1.5
million. The HIV

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epidemic represents a significant societal threat to both developed and
developing nations since most of the HIV-infected individuals are expected to
ultimately develop AIDS, creating a significant burden on healthcare systems and
economies around the world.

Shortly after an individual is infected with HIV, the virus multiplies
rapidly and can be detected in the blood. The immune system responds by
producing an antibody and cellular immune response capable of attacking HIV.
While this and other responses are usually sufficient to temporarily arrest
progress of the infection and reduce levels of virus in the blood, the virus
continues to replicate and slowly destroy the immune system by infecting and
killing critical T cells, known as CD4 cells, which are needed to maintain the
immune system. As the infection progresses, the immune system control of HIV
levels weakens, the level of virus in the blood rises and the level of CD4 cells
declines to a fraction of normal levels. These events are followed by
progression of the disease and the collapse of the immune system, leaving the
body susceptible to fatal infections and cancers. AIDS represents the "end
stage" of the HIV infection, and is characterized by pneumonia and other
infectious diseases of the pulmonary system, central nervous system,
gastrointestinal tract and skin, as well as cancers such as Kaposi's sarcoma and
lymphoma.

Product Description. The Company's most advanced therapy in clinical
trials, REMUNE, is based upon an approach first suggested by the late Dr. Jonas
Salk, a co-founder of the Company. REMUNE is composed of inactivated HIV,
depleted of its outer coat (envelope, gp120) ("envelope"), and emulsified in
Incomplete Freund's Adjuvant ("IFA"), an agent which elicits a more potent
immune response by more effectively presenting the inactivated virus to the
immune system. REMUNE is manufactured by first culturing HIV-infected human T
cells. The virus is then purified from this cell culture and inactivated using
two separate procedures. The virus is first inactivated with betapropiolactone,
a chemical agent commonly used for viral inactivation, and then physically
inactivated with irradiation. Each of these procedures alone is capable of
inactivating HIV. During processing and purification, the outer envelope protein
of the virus, known as gp120, is depleted from the inactivated HIV. The final
envelope-depleted HIV is emulsified in IFA and is filled in syringes for
intramuscular administration. When introduced into HIV-infected individuals,
REMUNE stimulates an immune system response, which the Company believes may
provide a safe, effective and long-lasting benefit to these individuals.

The Company believes that REMUNE has certain potential advantages relative
to other HIV therapies approved or in development. In particular, antiviral
therapies (reverse transcriptase inhibitors including AZT, ddI, d4T, ddC and
3TC; and protease inhibitors including Saquinavir, Ritonavir and Indinovir) have
been associated with significant toxicity and viral resistance. There are many
HIV-infected individuals in the United States currently not using antiviral
therapies, often due to the side effects associated with these therapies. The
Company believes REMUNE may be an appropriate treatment for HIV-infected
individuals to take alone or in combination with other treatments.

Human Clinical Trials. The Company has completed several Phase I and Phase
II clinical trials of REMUNE involving over 280 HIV-infected individuals. The
Company believes these clinical trials have suggested no significant toxicity or
serious side effects associated with the product, as well as suggested the
ability of REMUNE to enhance an immune system response against HIV.

In an open-label Phase I clinical trial, which began in 1987, 25
HIV-positive individuals were treated with REMUNE. Of those individuals, 12
developed an HIV-specific immune response (as measured by a skin test), of whom
11 have not experienced significant progression of the disease. One individual
subsequently developed a secondary infection and died. By contrast, of the 13
individuals who did not develop an HIV-specific immune response, nine progressed
to AIDS and seven have died. This data suggests that REMUNE stimulates an immune
response in some HIV-infected individuals and the Company believes that there is
a correlation between such immune response and stabilization of an individual's
health. The long-term follow-up results from this clinical trial were published
in the Journal of Acquired Immune Deficiency Syndromes and Human Retrovirology
in April 1996.

Two Phase II clinical trials of REMUNE were conducted to assess the ability
of this therapy to stimulate immune system responses against HIV, to evaluate
the effect of REMUNE on early markets of progression in asymptomatic
HIV-infected individuals and to monitor safety. A double-blind,
placebo-controlled Phase II

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dose-ranging clinical trial involving 60 asymptomatic HIV-infected individuals
was conducted to determine the ability of REMUNE administered at various doses
to enhance responses to HIV proteins. A second double-blind, placebo-controlled
Phase II clinical trial of REMUNE was also conducted on 103 HIV-infected
individuals to evaluate the effect of the therapy on the level of virus in the
blood and other potential surrogate markers for disease progression. The Company
believes the results of these clinical trials suggest that REMUNE is safe and
well tolerated and may have a favorable impact on multiple markers of HIV
disease progression including viral burden, CD4 cell count, HIV-specific
cell-mediated immunity, antibody production and weight gain. The results of
these clinical trials were published in the British scientific journal AIDS in
October 1994 and The Journal of Infectious Diseases in June 1994.

The definitive clinical benefit of these effects is unknown and will be
evaluated in a Phase III clinical trial in up to 3,000 individuals that began in
March 1996. This trial is designed to determine whether treatment with REMUNE
can delay the onset of AIDS in HIV-infected individuals. While this Phase III
clinical trial is designed to provide evidence of the effectiveness of REMUNE
based on clinical endpoints, there can be no assurance that the trial will
successfully do so. The mechanism by which HIV affects the immune system is
particularly complex and presents many challenges to successful treatment of the
viral infection.

To support the Phase III clinical trial, the Company has established
relationships with leading academic and clinical institutions in an attempt to
place control of the design, statistical results, data and laboratory results in
the hands of third parties. Over 50 clinical sites have been selected and
invited to participate in the trial. Physicians from the University of
California-San Francisco, The Johns Hopkins University, Brown University and
Cornell University have assisted in the design of this trial and will
participate in managing the trial as Principal Investigators. The statistical
plans for the trial and future data analyses will be conducted by
biostatisticians at Harvard University. Data management and analysis of patient
samples for this trial will be conducted by Quintiles, Inc., while an
independent data monitoring board of clinicians and statisticians will review
the data during the interim and final analyses. The Phase III clinical trial
protocol and implementation plan have been developed with HIV scientific leaders
and HIV community advocates. This trial design has been reviewed by an FDA
Advisory Committee, and the trial has been designated by the FDA as a pivotal
Phase III clinical trial. Subsequent to the start of the Phase III clinical
trial, the FDA granted expanded access to REMUNE. Expanded access is a procedure
whereby patients who are ineligible to enroll in the Phase III clinical trial
are provided treatment under a separate clinical trial protocol. Under this
protocol those additional patients eligible to receive REMUNE will be monitored
primarily for safety. The FDA has to date not designated expanded access
protocols for REMUNE as "treatments" protocols. Either expanded access or a
treatment protocol designation might permit third party reimbursement of some of
the costs associated with making REMUNE available to patients in an expanded
access context. The Company expects to dedicate a substantial portion of its
resources to the REMUNE program. See "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

In May 1996, the Company, in conjunction with the NIH, initiated a Phase I
clinical trial in HIV-infected children. This pediatric clinical trial is being
funded principally by the NIH, and is designed to investigate the safety of
REMUNE, as well as its ability to elicit an HIV-specific immune response in this
patient population. This pediatric clinical trial will involve up to 32
HIV-infected children, all of whom will receive REMUNE.

In September 1995, the Company signed an agreement with Trinity to license
the rights to develop, market and distribute REMUNE in Thailand and certain
other Southeast Asian countries. This agreement allows Trinity to conduct
clinical trials using REMUNE in up to 10,000 HIV-infected individuals in
Thailand. The clinical program sponsored and funded by Trinity is designed to
complement the Company's clinical trials in the United States. The Phase II
clinical trial, which began in March 1996 and involves up to 300 HIV-infected
individuals, is designed to evaluate whether REMUNE is safe, elicits an immune
response and has a favorable impact on CD4 cell counts. Other clinical trials of
HIV-infected individuals in Thailand may include a 2,000-person clinical
endpoint trial to seek to determine the effectiveness of REMUNE in delaying the
progression of HIV infection to AIDS, and an open-label safety trial involving
up to 7,700 individuals. Clinical

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trials conducted in Thailand will be monitored by an independent clinical
research organization, and conducted under the guidelines of the Thailand
Ministry of Public Health.

On April 30, 1996, the Company received a $5 million equity investment from
Trinity in exchange for 333,334 shares of common stock of the Company priced at
$15 per share. In addition to funding development costs of REMUNE in Thailand,
Trinity has agreed to make additional equity investments of up to $10 million in
the Company based on the achievement of certain regulatory and commercial
milestones and governmental approvals. There can be no assurance, though, that
any further milestones or approvals will be achieved or obtained.

Patents. In 1993, the Company received a United States patent relating to
REMUNE. The Company has also received similar patents in Australia, certain
European countries, Japan and Russia. The Company has additional patent
applications relating to REMUNE on file in the United States, as well as in
other countries. The patent applications cover, in part, certain products and
methods of their use for the immunotherapeutic treatment of HIV-infected
patients and/or preventive treatment of uninfected individuals. There can be no
assurance that any additional HIV-related patents will be issued to the Company.
Further, there can be no assurance that the issued patents, or any patent that
may be issued in the future, will survive opposition or provide meaningful
proprietary protection.

Manufacturing. The Company subleases a 51,000 square foot facility in King
of Prussia, Pennsylvania to manufacture REMUNE for clinical trials and, if the
product is approved by the FDA, initial commercial production. The Company
assumed full operating control of this facility in March 1995, and obtained
release of the first clinical materials from this facility in June 1995 for the
continued treatment of participants in prior clinical trials. In February 1996,
the Company received clearance from the FDA to release the product for use in
clinical trials. The Company believes the facility is capable of supplying
clinical trial quantities and, if approved for commercial distribution, initial
commercial quantities of REMUNE. The Company relies on a third party for the
final inactivation step of the manufacturing process. If the proposed
manufacturing operations prove inadequate, there can be no assurance that any
arrangement with a third party can be established on a timely basis, or that the
Company can establish other manufacturing capacity on a timely basis. The
Company believes that the raw materials necessary to produce REMUNE are readily
available from various sources.

Competition. Competition among companies developing treatments for HIV
infection is intense and is expected to increase. In general, this competition
falls into three categories: antiviral drug therapies, prophylactic therapies to
prevent or treat infections associated with AIDS and immune-based therapies
intended to enhance general immune responses or specific responses against HIV.
These three approaches to the treatment of HIV infection may be complementary
and synergistic. The Company's Phase III clinical trial will allow the combined
use of REMUNE with anti-viral drug therapies.

The first category of competition includes five FDA approved reverse
transcriptase inhibitors and three FDA approved protease inhibitors manufactured
by major pharmaceutical companies. These products have been shown to be
effective at reducing the blood levels of virus, but are often associated with
significant toxicity and induction of viral resistance. The second category
includes a number of antibacterial and antifungal agents used in the treatment
of HIV-infected individuals in the later stages of the disease. The third
category, immune-based therapies, includes other agents intended to stimulate
the immune system against HIV, such as the envelope or core protein therapeutic
vaccines, and more general immune stimulants such as interleukin-2 ("IL-2") and
other cytokines.

Many of the Company's competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities than the Company. There can be no assurance that competitors have
not or will not succeed in developing technologies and products more quickly or
that are more effective than any which have been or are being developed by the
Company or which would render the Company's technology and products obsolete and
noncompetitive.

AUTOIMMUNE DISEASE TECHNOLOGY

Background. While the normal immune system is closely regulated,
aberrations in immune response are not uncommon. In some instances, an
individual's immune system functions inappropriately and reacts to a component
of the individual's body as if the component were foreign. Such a response
results in an

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autoimmune disease, in which the immune system attacks the individual's own
tissue. In certain major autoimmune diseases, "autoreactive" T cells are
believed responsible for the attack and destruction of the individual's own
tissue. Current treatments for these diseases address only symptoms while the
diseases continue to progress, often resulting in severe debilitation or death.

Technology. The Company's proprietary autoimmune treatments are designed
to inhibit the autoreactive T cells that the Company believes cause the tissue
damage in certain autoimmune diseases. The goal of the Company's autoimmune
disease therapies is to induce specific immune responses via unique markers on
the T cell receptors present on autoreactive T cells. The immune response
generated will recognize the unique markers and inhibit the autoreactive T
cells. The Company's technical strategy is to isolate autoreactive T cells,
identify their unique T cell receptors and synthesize immunotherapeutics based
on peptides (amino acid sequences) located within these receptors. The Company
is pursuing this innovative approach for the treatment of rheumatoid arthritis,
psoriasis and multiple sclerosis. In preclinical studies published in the
journal Science in November 1989, Immune Response demonstrated that vaccination
with synthetic peptides containing a portion of the autoreactive T cell receptor
can be used to successfully prevent an autoimmune disease in a preclinical
model.

The Company believes that its approach to the treatment of autoimmune
disease may provide several advantages over existing therapies and competing
approaches based on immune system regulation. In preclinical studies,
immune-based therapies using T cell receptor peptides have demonstrated lack of
toxicity and specific impact on the disease-causing cells. These results,
combined with the ease of administration through periodic intramuscular
injection and the potential for a long-lasting response of an active immune-
based therapy, may provide a favorable profile supporting the use of the
Company's rheumatoid arthritis, psoriasis and multiple sclerosis therapies if
successfully developed and approved by the FDA.

Rheumatoid Arthritis Therapy. Rheumatoid arthritis, a chronic inflammatory
disease is characterized by persistent inflammation of the lining of the joints
accompanied by stiffness and pain or tenderness on motion. It is estimated that
approximately four million individuals in the United States, and 53 million
worldwide, suffer from rheumatoid arthritis. Currently available therapies for
rheumatoid arthritis generally have adverse side effects and address only the
symptoms of the disease. By contrast, the Company's rheumatoid arthritis therapy
is intended to target and inhibit the specific T cells thought to be involved in
the disease process. The Company believes this inhibition may reduce the series
of inflammatory events that occur as the disease progresses.

The Company's rheumatoid arthritis immune-based therapy under development
is based on a combination of three peptides from the V(LOGO)b3, V(LOGO)b14 and
V(LOGO)b17 T cell receptors emulsified in IFA. The Company published, in the
Proceedings of the National Academy of Sciences in December 1991, the discovery
of these specific T cell populations that the Company believes may cause
rheumatoid arthritis. The treatment being developed by the Company is designed
to stimulate the immune system of a rheumatoid arthritis patient to control
these T cells. The Company believes that eliminating or inhibiting these T cells
may prevent further damage to the tissue of joints. Several scientific
publications since 1991 by research groups independent of the Company have
confirmed the involvement of one or more of these T cell populations in
rheumatoid arthritis.

Since 1992, the Company has conducted three Phase I clinical trials using
single T cell receptor peptides. These trials involved a total of 45 patients
and provided preliminary evidence that this therapeutic approach is safe and
well tolerated by rheumatoid arthritis patients and that the therapy may
stimulate the immune system to recognize key portions of the T cell receptors.
Based upon the results of the Phase I clinical trials, the Company applied for
and received permission from the FDA to begin a Phase II clinical trial using a
combination of peptides. In August 1995, the Company initiated a Phase II
clinical trial to evaluate the safety and the ability of its rheumatoid
arthritis treatment to elicit an immune response. This trial involves over 90
rheumatoid arthritis patients and is designed to determine the ability of the
rheumatoid arthritis therapy to stimulate responses against the targeted T cells
and to determine an optimal dose of the therapy. Results from this trial are
expected by the end of 1996.

Psoriasis Therapy. Psoriasis is a chronic and recurrent proliferative
disease of the skin characterized by irritating and sometimes painful, defined
red patches covered with silvery-white scales. It afflicts approxi-

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mately five million individuals in the United States. A distinguishing feature
of the disease is the rapid sloughing of skin layers. While normal skin cells
mature in 28 to 30 days, skin cells of psoriasis patients move to the surface of
the skin in approximately four days. Current treatments, which range from
topical ointments to phototherapy, address the symptoms of psoriasis rather than
the cause of the disease. By contrast, the Company's psoriasis therapy is
intended to target and inhibit the immune system cells that may be involved in
the initiation of the disease process.

The Company's immune-based therapy under development for psoriasis is based
on a combination of two peptides from the V[Greek Beta symbol]3 and V[Greek Beta
symbol]13.1 T cell receptors emulsified in IFA. The Company published, in the
Proceedings of the National Academy of Sciences in 1994, the discovery of these
two T cell populations, which the Company believes initiate the events that lead
to the irritating and sometimes painful lesions found on the skin of psoriasis
sufferers. The treatment being developed by the Company is designed to stimulate
the immune system of a psoriasis patient to control these T cells. The Company
believes that eliminating or inhibiting these T cells may alleviate the effects
of this disease.

The safety of the Company's T cell receptor therapy approach has been
tested since 1992 in 55 patients treated in the Phase I rheumatoid arthritis and
multiple sclerosis clinical trials. After reviewing the results from these Phase
I clinical trials, the FDA allowed the Company to proceed directly into a Phase
II clinical trial with its combination peptide psoriasis therapy. In September
1995, the Company initiated a Phase II clinical trial to evaluate the safety and
the ability of its psoriasis treatment to elicit an immune response. The ongoing
Phase II clinical trial involves over 90 psoriasis patients and is designed to
determine the ability of the psoriasis therapy to stimulate responses against
the targeted T cells and to determine an optimal dose of the therapy. Results
from this trial are expected by the end of 1996.

Multiple Sclerosis Therapy. Multiple sclerosis afflicts approximately
250,000 individuals in the United States and more than 1.1 million individuals
worldwide. Multiple sclerosis is a chronic disease of the central nervous system
and one of the most common causes of chronic neurologic disability in young
adults. The disease is characterized by weakness or paralysis in the limbs,
vertigo and incontinence. In acute stages, muscular wasting, progressive visual
failure, epilepsy and aphasia are common. The chronic progressive form of the
disease usually leads to a complete loss of the ability to walk within two years
of onset and total disability after eight to ten years.

The Company's immune-based therapy under development for multiple sclerosis
also uses peptides from amino acid sequences found on T cells, emulsified in
IFA. The T cells from individuals afflicted with multiple sclerosis were found
in the cerebrospinal fluid of individuals afflicted with multiple sclerosis. The
Company believes that these specific T cells initiate the events that lead to
the debilitating and often fatal results. The treatment being developed by the
Company is designed to stimulate the immune system of a multiple sclerosis
patient to control these T cells. The Company believes that eliminating or
inhibiting these T cells may alleviate the effects of this disease.

In January 1995, in collaboration with the Sidney Kimmel Cancer Center
("SKCC"), the Company completed a Phase I clinical trial in multiple sclerosis
patients, which provided evidence that this therapy is safe and well tolerated
and that it may stimulate the immune system to recognize key portions of the T
cell receptors.

Patents. During January 1994, the European Patent Office granted the
Company a patent covering vaccination and methods against diseases resulting
from pathogenic responses by specific T cell populations. In May 1994, the
Australian Industrial Property Organisation accepted a similar application of
the Company. These patents include composition and method claims for the
prevention or treatment of certain autoimmune diseases, such as rheumatoid
arthritis, psoriasis and multiple sclerosis. The Company also has additional
patent applications relating to its autoimmune technology on file in the United
States and other countries, including members of the European Patent Convention
and Japan. These patent applications cover certain compositions and methods
relating to the use of T cell receptor peptide sequences to vaccinate against
autoreactive T cells involved in autoimmune disease. There can be no assurance
that any further autoimmune disease patents will be issued to the Company or
that any issued patents, or any patent that may be issued in the future, will
survive opposition or provide meaningful proprietary protection. The Company is
aware that a

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group working with Connective Therapeutics, Inc. has filed patent applications
related to autoimmune disease research which covers technology similar to that
used by the Company.

Manufacturing. The Company has established a pilot manufacturing facility
at its headquarters in Carlsbad, California for the production of these
therapies. The Company believes this facility will be adequate to supply
clinical trial quantities of all its autoimmune disease therapies, but that
additional manufacturing capacity will be needed for commercial scale
production, if approved for commercial sale. For the manufacture of the
autoimmune disease therapies, the Company obtains synthetic peptides from third
party manufacturers. The Company believes that the synthetic peptides and other
materials necessary to produce the autoimmune disease therapies are readily
available from various sources and several suppliers may be capable of supplying
the autoimmune disease therapies in both clinical and commercial quantities.

Competition. Several emerging technologies related to immune system
regulation, if successfully developed, could compete with the Company's
autoimmune disease treatments. The Company believes that its principal
competition in the autoimmune disease area will come from companies conducting
research in the areas of T cell receptors, interaction between T cells and the
target antigen and tissue, specific targeting of activated T cell populations,
and mechanisms of tolerance including oral tolerance approaches. Scientific
reports on T cell receptor research have also discussed approaches similar to
that of the Company. The Company is aware that a group working with Connective
Therapeutics, Inc. is researching and developing autoimmune disease treatments
through an approach substantially similar to the Company's approach. This
effort, if successful, could compete with the Company in the development and
marketing of autoimmune disease treatments.

GENE THERAPY TECHNOLOGY

Technology. The Company's proprietary GeneDrug products under development
are based on a patented delivery technology, licensed from The University of
Connecticut Research Foundation ("University of Connecticut"), for intravenous
injection and targeting of genes or drugs directly to liver cells. In May 1996,
a United States patent application was indicated allowable that expands the
Company's technology for the targeted delivery of a soluble molecular complex to
any receptor on any mammalian cell, in addition to liver cells. Also, the
soluble molecular complex is not limited to the delivery of DNA, but may include
any polynucleotide, such as RNA, oligonucleotides or ribozymes. The Company
believes this technology may have several advantages over current therapies
including:

- Targeted delivery: The Company is developing technology designed to
deliver therapeutic genes and other compounds rapidly and specifically to
the liver. Liver hepatocytes provide an effective target for many
liver-related diseases.

- Versatility: This delivery system utilizes a universal targeting agent
capable of delivering genes for intracellular, cell surface and secreted
proteins. Different diseases can be addressed by simply changing the gene
of interest.

- Safety: The Company's technology does not use viruses as delivery
agents, and is therefore designed to avoid unwanted immune responses or
potentially cancer causing genetic changes. This may provide a
significant safety advantage over many gene therapy systems under
development which use disabled viruses to carry the gene to the cell
nucleus.

- Commercial potential: Each gene therapy product under development by
the Company is intended to be prepared and distributed like a traditional
injectable pharmaceutical. These therapies would not require
patient-specific processing of cells outside the body such as those which
may be required in certain other gene therapy systems under development.

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The Company's intravenous injection gene delivery system is a formulated
cassette-system consisting of a targeting protein and a linker protein to which
the gene is attached for delivery of the gene directly to the liver cells. The
Company's current GeneDrug focus is on the treatment of cardiovascular disease
(atherosclerosis), hemophilia and chronic hepatitis.

Cholesterol-Lowering Agents for Atherosclerosis. Studies indicate that
seven million people in the United States are afflicted with some form of
coronary heart disease. Cardiovascular diseases account for more than half of
all deaths in the United States, and are also the leading cause of death in
Europe and Japan. There are two primary types of cholesterol. The first being
high-density lipoprotein ("HDL"), often referred to as the "good cholesterol."
The second type of cholesterol is low-density lipoprotein ("LDL"), often
referred to as the "bad cholesterol." It is generally recommended that
individuals with coronary heart disease lower their LDL levels and raise their
HDL levels.

The Company is developing several GeneDrugs designed to help manage
cholesterol levels in individuals at high risk of developing coronary heart
disease. The leading product candidate is a targeted gene complex incorporating
the gene which codes for the production of the LDL receptor protein. This
protein is expressed on the surface of liver cells and regulates removal of LDL
from the blood. Increased levels of the LDL receptor protein on liver cells has
been shown to increase the rate of removal of LDL from the bloodstream and thus
lower serum LDL cholesterol levels.

The Company has completed initial preclinical studies demonstrating a 30%
reduction in serum LDL cholesterol levels in rats after delivery of the LDL
receptor protein through the Company's proprietary GeneDrug system. The levels
of LDL remained below the baseline levels for more than 20 days following
administration. If similar effects can be obtained in human clinical trials with
a safe and well tolerated therapy, the Company believes that such a therapy may
provide an effective treatment to lower cholesterol in this patient population.

The Company is preparing for preclinical toxicology and other studies
intended to support an IND application filing in 1997 for an LDL
cholesterol-lowering agent based on the targeted delivery of the LDL receptor
gene. This targeted gene therapy product is being developed initially as a
treatment for patients with elevated cholesterol levels due to genetic
deficiency of the LDL receptor gene and may be applicable to broad populations
of individuals with elevated cholesterol levels. The Company is also in active
research on other potential targets for lowering LDL cholesterol or raising HDL
cholesterol.

Hemophilia Therapy. Hemophilia A, a hereditary blood clotting disorder,
results from the dysfunction or absence of the Factor VIII protein.
Approximately one of every 5,000 live male births in the United States result in
a child afflicted with hemophilia A. Treatment for hemophilia A currently
consists of administering the missing Factor VIII protein, either purified from
blood or produced through recombinant DNA technology. Factor VIII therapy is
normally used to treat acute bleeding episodes when they occur. Maintaining
therapeutic blood concentrations of Factor VIII should prevent bleeding episodes
and other complications of hemophilia, but current replacement Factor VIII
therapies are prohibitively expensive for daily infusion.

The Company's GeneDrug technology system is designed to produce therapeutic
concentrations of Factor VIII by delivering the gene that produces this protein.
Once delivered to the liver cells, the Factor VIII gene may express the desired
protein and secrete this protein into the bloodstream on a continuous basis for
several weeks. If successful, this product would eliminate the regular bleeding
episodes associated with hemophilia by allowing the patient to receive periodic
injections in order to keep Factor VIII at therapeutic levels.

In July 1996, Immune Response entered into an agreement with Bayer, the
United States affiliate of Bayer AG of Leverkusen, Germany, to develop gene
therapy products for the treatment of hemophilia A, a blood clotting disorder.
Bayer is a market leader in the treatment of this hereditary blood coagulation
disorder. Bayer made an initial license payment to Immune Response of $6 million
upon signing this agreement. Bayer has also indicated that it may purchase $4
million of Immune Response Common Stock in this public offering. In addition,
during the term of the agreement, the Company will receive research funding from
Bayer for

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<PAGE> 29

Immune Response's hemophilia A program and may receive milestone payments and
royalties on future sales, if a product is developed and commercialized. In July
1996, the Company received $1 million as its first research payment under the
agreement. Under the agreement, Bayer is responsible for all medical and
regulatory activities associated with developing any potential hemophilia A
products, and will also be responsible for commercial-scale manufacturing and
commercialization of any such product developed. The agreement provides Bayer
with a worldwide exclusive license to the Company's GeneDrug technology for the
delivery of the Factor VIII gene and the option to enter into negotiations with
the Company to use this technology to treat other blood coagulation disorders.

Hepatitis Therapy. Hepatitis B is a chronic viral infection of the liver.
As many as 300 million individuals are infected with hepatitis B virus ("HBV")
worldwide and in the United States there are approximately 300,000 new cases of
HBV infection each year.

Hepatitis C virus ("HCV") was recently identified as the major cause of
non-A/non-B hepatitis, of which there are at least 75,000 new cases in the
United States each year. Chronic hepatitis C results in a significant number of
cases of liver injury and cirrhosis, and is strongly linked to a high risk of
liver cancer.

Recombinant IFN(alpha)a is currently approved for treatment of both HBV and
HCV infection. A preclinical study evaluating delivery of the IFN(alpha)a gene
has demonstrated successful expression of IFN(alpha)a protein in liver cells in
vitro and in mice in vivo for up to six weeks. The Company believes that its
GeneDrug system can significantly enhance interferon therapy by achieving
continuous, low-level expression and secretion of the protein specifically in
liver cells. This form of interferon treatment would concentrate the protein at
the site of hepatitis infection, potentially enhancing the efficacy of the
treatment and reducing side effects normally observed with systemic introduction
and distribution of interferon. In addition, expression of the delivered
IFN(alpha)a gene in liver cells for several weeks to months would significantly
reduce the frequency of treatments required compared to repeated systemic
administration. In addition, treatment regimens using higher doses and lasting
for six to 18 months are now being proposed to increase the effectiveness of
interferon treatment and substantially increase the cost of treatment.

The Company is conducting preclinical studies to determine the toxicity and
potential efficacy of targeted interferon alpha gene delivery. If these studies
are successful, the Company may file an IND application in 1997 for a hepatitis
clinical trial.

Patents. In November 1992, the Company obtained the exclusive license to a
U.S. patent, received by the University of Connecticut, covering the Company's
core gene delivery system technology, including methods and compositions for
delivering DNA to the liver via receptors on the surface of liver cells. In
addition, during 1995 and 1996, one additional Australian patent issued and four
patent applications were allowed in the United States, Europe and Australia, all
of which are exclusively licensed by the Company. If patents from these
applications are issued, the Company's patent protection for its core technology
in the United States may be extended to include the delivery of any
polynucleotide to any mammalian cell via any internalizing cell surface
receptor. Thus, the Company's protection in the United States would no longer be
limited to just liver cells. In Europe and Australia, the Company would have
patent protection for the targeted delivery of genes encoding immunogenic
proteins to any cell type for the purpose of eliciting an immune response. The
Company also exclusively licenses an Australian patent covering targeted
delivery of viruses or cells for selective internalization by liver cells.

The Company is presently seeking to obtain licenses from several different
third parties which are required to practice the Company's gene targeting
technology using certain patented genes. There can be no assurance that the
Company will be able to obtain such licenses on commercially favorable terms, if
at all, and if these licenses are not obtained, the Company might be prevented
from using certain of its technologies. The Company's failure to obtain a
license required to continue practicing its own technologies would have a
material adverse effect on the Company.

There can be no assurance that any additional gene therapy patents will be
issued to the Company. Further, there can no assurance that the issued patents,
or any patent that may be issued in the future, will survive opposition or
provide meaningful proprietary protection.

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<PAGE> 30

Competition. The Company believes that competition in the treatment of the
diseases targeted by its gene therapy program will be of two types: chronic
treatment with pharmaceutical products; and other gene therapy systems under
development for insertion of the correct gene. There currently exist a number of
approved therapies for treatment of hemophilia, hepatitis B and C, and
atherosclerosis. Both purified and recombinant forms of Factor VIII have been
approved by the FDA for treatment of hemophilia and are effective to stop
bleeding episodes and to prevent bleeding if provided on a regular basis to
maintain serum concentrations. Interferon alpha-2b is currently approved for
treatment of both chronic hepatitis B and C. Other interferons available in the
United States for unlabeled use in treatment of viral hepatitis are interferon
alpha-2a and interferon alpha-n3. In addition to interferons, a variety of
nucleoside analogs have been tested for treatment of chronic hepatitis B,
including 3TC. There are also approved therapies that reduce serum LDL for the
treatment of atherosclerosis.

Several major pharmaceutical companies are investigating gene therapy
treatments for the delivery of proteins to treat these diseases. If these prove
effective, they may compete with the Company's gene delivery therapies. Many of
the Company's competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities than
the Company. There can be no assurance that competitors have not or will not
succeed in developing technologies and products more quickly or that are more
effective than any which have been or are being developed by the Company or
which would render the Company's technology and products obsolete and
noncompetitive.

CANCER TREATMENT TECHNOLOGY

Background. Cancer is characterized by the uncontrolled growth of abnormal
cells that spread from the anatomic site of origin. This growth, if
uncontrolled, invades vital organs and may result in death. However, many
cancers can be cured if they are detected early and treated promptly; others can
be controlled for many years with a variety of treatment approaches. Cancer is
most often treated by surgery, radiation, chemotherapy, hormones and more
recently, immunotherapy.

Technology. Immune Response is utilizing distinct proprietary technologies
for the development of more effective cancer therapies. The Company initially
intends to focus on treatments for colon, brain and prostate cancers. Each of
the technologies being developed uses a combination of advanced gene therapy
techniques with vaccine technology to enable the immune system to recognize and
control tumor growth.

- Technologies to increase immune system recognition of cancers

The first technology is designed to treat cancer patients with
irradiated tumor cells in combination with fibroblasts genetically
modified to produce cytokines such as IL-2. The genetic modification
results in immune stimulating cytokines being present to help the
patient's immune system to recognize and clear tumor cells. This
technology is currently in a Phase I clinical trial for colon cancer.

The second technology utilizes the body's most immunologically powerful
antigen-presenting cell, the dendritic cell, exposed to antigens
isolated from B cell lymphoma to stimulate the immune response system
to recognize and reject lymphoma cells.

- Technology to inhibit cancer evasion of the immune system

This technology is designed to prevent the cytokine known as
transforming growth factor beta ("TGF-(LOGO)b") from helping tumor
cells evade detection. TGF-(LOGO)b is overproduced in many cancer cells
and is believed to subvert the immune response to tumor cells by making
them essentially invisible to the immune system. The technology being
developed is designed to introduce a gene into tumor cells to inhibit
the production of TGF-(LOGO)b. A Phase I clinical trial for brain
cancer, using this technology, is being planned for 1997.

- Technology to sensitize cancer to conventional therapies

This technology is designed to make tumor cells more susceptible to
chemotherapy or radiation treatment. Tumor cells are genetically
modified to produce the cytokine interleukin-3 ("IL-3")

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<PAGE> 31

which results in tumor cells becoming more sensitive to radiation
treatment. A preclinical study of this technology conducted in mice
indicated that treatment with IL-3 expressing tumor cells sensitized
tumors to radiation. In this study, all 10 of the treated mice
demonstrated tumor regression, while the control mice did not show any
improvement. A similar genetic modification using IL-2 has been
observed in the Phase I clinical trial for colon cancer that renders
tumor cells more sensitive to chemotherapy in colon cancer.

Colon Cancer. It is estimated that nearly 140,000 individuals in the
United States developed colon cancer in 1995 and an estimated 55,000 deaths were
attributable to colon cancer in the United States in 1995.

The Company's therapy under development is comprised of irradiated
fibroblasts from a skin biopsy, genetically modified to produce IL-2, combined
with irradiated tumor cells excised from the patient. In preclinical studies,
immunization with a preparation of the modified fibroblasts and tumors prevented
tumor growth in six out of eight treated mice. The tumors in all of the control
mice continued to grow.

In June 1995, the Company, in conjunction with SKCC, initiated a Phase I
clinical trial of this potential therapy in colon cancer patients that have
failed conventional therapy. The Phase I clinical trial in up to 12 patients
involves the preparation of a custom therapy for each patient. Results from this
trial are expected during early 1997. The Company is developing therapies that
would alleviate the need for isolating fibroblasts and tumor cells from each
patient resulting in a potential universal product. Success in this development
program may lead to the application of this technology to other solid tumors.

Brain Cancer. Brain tumors are responsible for significant morbidity and
mortality in both pediatric and adult populations. The most common type of brain
cancer is glioma, a tumor that arises in the supportive tissue of the brain.
Glioma tumor cells are known to overproduce the cytokine TGF-(LOGO)b, which can
suppress the activity of the immune system cells that are needed to destroy
tumors, and it is believed to be one of the mechanisms by which tumor cells
evade immune system recognition.

The initial therapy under development by the Company is intended to consist
of an individual's glioma cells genetically modified to inhibit TGF-(LOGO)b
production and then injected directly under the patient's skin to stimulate an
anti-tumor immune response. In preclinical studies published in the April 1996
edition of the Proceedings of the National Academy of Sciences, this technology
indicated that tumor cells modified to prevent production of TGF-(LOGO)b may be
used to stimulate immune system responses against the tumor in rats. All 11 of
the rats treated in this study showed complete tumor regression and survived,
while all of the untreated rats died. A Phase I clinical trial using this
technology is being planned for 1997.

Recurrent Prostate Cancer. Prostate cancer is the second leading cause of
cancer death among men. According to the American Cancer Society, in 1996
approximately 317,000 American men will be diagnosed with prostate cancer and an
estimated 40,000 are expected to die of the disease. According to recent
articles, recurrent disease will occur in up to 40% of patients who undergo
radical prostatectomy or radiation therapy.

The therapy under development by the Company will combine both the TGF-SS
antisense technology and the IL-2 secreting fibroblast approach which are
described above. Prostate cancer cell lines will be utilized in the vaccine,
rather than tumor cells from each individual patient, since the majority of
these patients will not have a resectable tumor at the time of recurrent
disease. The Company is planning a Phase I clinical trial in 1997 using this
therapy.

B Cell Lymphoma. B cell lymphoma is a cancer of the lymph glands caused by
uncontrolled growth of the B cells that produce the body's disease-fighting
antibodies, and is usually fatal. Non-Hodgkin's lymphomas currently afflict
roughly 225,000 Americans, with over 50,000 diagnoses expected in 1996. Low
grade and follicular lymphomas comprise about 65% of the total lymphoma
prevalence in the United States and, to date, are incurable.

The treatment under development utilizes antigen-presenting, dendritic
cells to stimulate responses to tumor antigens. The dendritic cells are exposed
to the tumor antigen in vitro and then reintroduced in vivo to stimulate
anti-tumor immunity. Preclinical studies published in 1994 in the European
Journal of Immunology

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<PAGE> 32

demonstrated eight out of 10 of the treated rats survived for one year post
treatment, whereas the 10 control rats died. In the January 1996 edition of
Nature Medicine, an independent group of scientists at Stanford University
published results of a Phase I clinical trial using this technology to treat
patients for B cell lymphoma. In this clinical trial, one of the four patients
had complete tumor regression, one remained free of the disease, one registered
partial regression, and one demonstrated no significant change. All four
patients had an anti-tumor immune response. The Company is currently evaluating
appropriate strategies for future development of this technology.

Patents. Technology to genetically modify fibroblasts with cytokine genes
or genes to inhibit TGF-(LOGO)b production has been exclusively licensed to the
Company from SKCC. The technology to use cytokine modified fibroblasts to
increase sensitivity to chemotherapy was jointly developed by SKCC and the
Company, and the Company retains exclusive rights to develop this technology.
Technology to use IL-3 for radiation sensitization has been licensed from UCLA.
SKCC and UCLA have applied for patent protection in the United States and Europe
related to the technologies licensed exclusively to the Company. Immune Response
has received a patent in Europe, which is being opposed, and an application has
been accepted in Australia related to the B cell lymphoma technology exclusively
licensed from the University of Brussels. There can be no assurance that the
issued patents, or any patent that may be issued in the future, will survive
opposition or provide meaningful proprietary protection.

Competition. New cancer therapies are being developed by numerous
individual investigators and companies. Some of these approaches involve
modification of tumor cells with a variety of cytokines, which approaches may
prove competitive with the technologies being developed by the Company.
Activated Cell Therapy is developing cancer therapies with technology similar to
that licensed by the Company from the University of Brussels.

GOVERNMENT REGULATION

Clinical testing, manufacture, promotion and sale of the Company's drug
products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding state
and foreign regulatory agencies. The Company believes that REMUNE and most of
its other potential immune-based therapies will be regulated by the FDA as
biological drug products under current regulations of the FDA. In general, the
regulatory framework for biological drug products is more rigorous than that for
nonbiological drug products. Under the FDC Act and the PHS Act, biological drug
products must be shown to be safe, pure, potent and effective. The FDC Act, the
PHS Act and other federal and state statutes and regulations govern or influence
the testing, manufacture, safety, effectiveness, labeling, storage,
recordkeeping, approval, advertising, distribution and promotion of biological
prescription drug products. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, seizure of products, total or
partial suspension of product marketing, failure of the government to grant
premarket approval, withdrawal of marketing approvals and criminal prosecution.

The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an IND
application with the FDA, which must become effective pursuant to FDA
regulations before human clinical trials may commence. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a PLA for approval for marketing and
commercial shipment. Submission of a PLA does not assure FDA approval for
marketing. The PLA review process may take a number of years to complete,
although reviews of applications for treatments of AIDS, cancer and other
life-threatening diseases may be accelerated or expedited. Failure of the
Company to receive FDA marketing approval for REMUNE or any of its other
products under development

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<PAGE> 33

on a timely basis could have a material adverse effect on the Company's
business, financial condition and results of operations.

In addition to obtaining approval for each biological drug product, an ELA
usually must be filed and approved by the FDA. Until recently, unless a company
performed significant manufacturing operations, it could not hold a biologics
license that would entitle the company to legally market the manufactured
product. The FDA's regulations, and policy statements regarding such
manufacturing constraints, for biological products recently have been changed.
The Company believes that under these new regulations it will be able to hold
licenses for its biological drug products even if it does not perform
significant manufacturing operations. Thus, the Company believes that it will be
able to utilize contract manufacturers to make its products without sacrificing
any opportunity to be the legal entity entitled to market the biological drug
products.

Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the GMP regulations specifically for
biological drugs, as well as for other drugs. In complying with the GMP
regulations, manufacturers must continue to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. The FDA periodically inspects
biological drug product manufacturing facilities in order to assure compliance
with applicable GMP requirements. Failure to comply with the GMP regulations
subjects the manufacturer to possible FDA regulatory action, such as the
suspension of manufacturing, product recall or seizure, injunction and criminal
prosecution. There can be no assurance that the Company or its contract
manufacturers, if any, will be able to maintain compliance with the GMP
regulations on a continuing basis. Failure to maintain such compliance could
have a material adverse effect on the Company's business, financial condition
and results of operations.

Another requirement for many biological drug products is lot-by-lot release
approval, which necessitates FDA approval of the release of each lot of a
biologic drug before commercialization. The lot-to-lot release and ELA
requirements may be applied to some or all of the Company's potential
immune-based therapies. Recently, the FDA amended its regulations to permit
certain biotechnology and synthetic biological drug products to be eligible for
approval under a single biological product license that does not entail
lot-to-lot release and establishment licensing requirements. The Company
believes that its potential synthetic protein autoimmune disease products will
be subject to those new regulations, because they apply, in relevant part, to
therapeutic synthetic protein products composed of 40 or fewer amino acids. The
synthetic protein products are composed of 40 or fewer amino acids and are for
therapeutic, not prophylactic use. Although such protein products are intended
to affect the immune system of the body, such as many vaccines, usually are
intended for prophylactic use in healthy individuals to prevent the occurrence
of a disease, the Company's synthetic peptides will instead be used
therapeutically in persons affected with a disease. If the synthetic peptides
are subject to the new regulations, the issuance of a single biologics license
and the lack of lot-by-lot release requirements, however, will not necessarily
reduce all of the other regulatory requirements placed upon the Company to
assure and maintain FDA marketing clearances for its autoimmune products.
Moreover, there can be no assurance that REMUNE or any of the Company's other
products will be eligible for approval under a single biological drug product
license or otherwise be subject to less rigorous regulation than traditional
biological products.

The Company believes its proprietary GeneDrug and cancer treatment
therapies will likely be regulated more like traditional biological products,
subject to both PLA and ELA requirements. This is because the Company's gene
products are subject to the FDA's Human Somatic Cell Therapy Products and Gene
Therapy Products Notice that the FDA issued in 1993 (the "1993 Notice"). The
1993 Notice defines gene therapy products as biological products subject to
biological licensure requirements. In addition, the 1993 Notice covers many
ancillary products used as part of the manufacturing process for gene therapy
products. The FDA states that such ancillary products may be subject to medical
device requirements or to new drug application or PLA requirements. No assurance
exists that the Company or its suppliers can meet all the requirements of the
1993 Notice covering gene therapy products. As with the Company's other
potential products, the gene therapy products will be subject to extensive FDA
regulation throughout the product

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development process, and there can be no assurance that any of these products
will be successful at securing the requisite FDA marketing approval on a timely
basis, if at all.

The preclinical and clinical testing process to obtain FDA approval of a
biological drug is expensive and time consuming. Preclinical studies are
conducted in animals usually to evaluate the potential safety of a product. The
results of preclinical studies are submitted to the FDA as part of the IND
application, which must become effective pursuant to FDA regulations before
human clinical trials may begin. Human clinical trials typically are conducted
in three phases and are subject to detailed protocols. Each protocol indicating
how the clinical trial will be conducted must usually be submitted for review to
the FDA as part of the IND application. The FDA's review of a trial protocol
does not necessarily mean that, if the trial is completed, it will constitute
proof of safety or efficacy (including potency). Further, each clinical trial
must be conducted under the auspices of an independent Institutional Review
Board ("IRB") established pursuant to FDA regulations. The IRB considers, among
other things, ethical concerns, informed consent requirements and the possible
liability of the institution conducting the trials. The FDA or IRB may require
changes in a protocol both prior to and after the commencement of a clinical
trial. There is no assurance that the IRB or FDA will permit a trial to go
forward or, once started, to be completed.

The three phases of clinical trials are generally conducted sequentially,
but they may overlap. In Phase I, the initial introduction of the drug into
humans, the drug is tested for safety, side effects, dosage tolerance,
metabolism and clinical pharmacology. Phase I testing for an indication
typically takes at least one year to complete. Phase II involves controlled
tests in a large but still limited patient population to determine the efficacy
of the drug for specific indications, to determine optimal dosage and to
identify possible side effects and safety risks. Phase II trials for an
indication typically take at least from one and one-half to two and one-half
years to complete. If preliminary evidence suggesting effectiveness has been
obtained during Phase II evaluations, expanded Phase III trials are undertaken
to gather the additional information about safety and effectiveness that is
needed to evaluate the overall benefit-risk relationship of the product and to
provide an adequate basis for physician labeling. Phase III trials for an
indication generally take at least two and one-half to five years to complete.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's products that have not completed any such testing. Nor
can there be any assurance that completion of clinical testing will result in
FDA approval. Furthermore, the FDA may suspend clinical trials at any time if
the patients are believed to be exposed to a significant health risk.

A number of procedures are available to expedite approval or to allow
expanded access to investigational drugs. Certain investigational drugs,
including products for the treatment of AIDS, can be distributed outside of
traditional IND requirements on a "treatment" basis. Generally, the FDA may
permit an investigational drug, including an investigational biological drug, to
be used for "treatment" of patients outside of controlled clinical trials, if:
(1) the drug is intended to treat a serious or immediately life-threatening
disease; (2) there is no comparable or satisfactory alternative drug or other
therapy available to treat that stage of the disease in the intended patient
population; (3) the drug is under investigation in a controlled clinical trial,
or all clinical trials have been completed; and (4) the sponsor of the
controlled clinical trial is actively pursuing marketing approval of the
investigational drug with due diligence. Although the FDA has granted expanded
access to REMUNE for those patients who are ineligible to enroll in the Phase
III clinical trial, the FDA has to date not designated expanded access protocols
for REMUNE as "treatment" protocols. Either expanded access or a treatment
protocol designation might permit third party reimbursement of some of the costs
associated with making REMUNE available to patients in such an expanded access
context. There can be no assurance that the FDA will determine that REMUNE meets
all of the FDA's criteria for use of an investigational drug for treatment use
or that, even if the product is allowed for treatment use, that third party
payers will provide reimbursement for any of the costs of REMUNE treatment.

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<PAGE> 35

be the case, based on an effect on a surrogate endpoint or a clinical endpoint
other than survival. Under the program, the sponsor must agree to conduct
postmarketing studies to verify and describe the clinical benefits of the
product. In addition to the accelerated approval process, the FDA has
established procedures designed to expedite the development, evaluation and
marketing of new therapies intended to treat persons with life-threatening and
severely-debilitating illnesses, especially when no satisfactory alternative
therapy exists. The term "life-threatening" is defined by the FDA to mean: (1)
disease or conditions where the likelihood of death is high unless the course of
the disease is interrupted and (2) diseases or conditions with potentially fatal
outcomes, where the endpoint of clinical trial analysis is survival. "Severely
debilitating" is defined by the FDA to mean diseases or conditions that cause
major irreversible morbidity. As a condition of approval, the FDA may require
the sponsor to conduct certain postmarketing studies to delineate additional
information about the drug's risks, benefits and optimal use. There can be no
assurance that the FDA will consider REMUNE, or any other of the Company's
products under development, to be an appropriate candidate for accelerated
approval or expedited review.

The Company also is subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other present and potential
future federal, state or local regulations. Regulations concerning biotechnology
may affect the Company's research and development programs. Furthermore,
existing or additional government regulations may be applied that could prevent
or delay regulatory approval of the Company's products, or affect the pricing or
distribution of such products.

The Company also is subject to foreign regulatory requirements governing
human clinical trials and pharmaceutical sales that vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior to
marketing the product in those countries. The approval process may be more or
less rigorous from country to country and the time required may be longer or
shorter than that required in the United States. The Company may seek to use
foreign marketing partners to assist in obtaining foreign regulatory approval
for REMUNE and other products.

EMPLOYEES

As of June 30, 1996, the Company had 142 full-time employees, of whom 36
hold Ph.D. or other advanced degrees. Of these employees, 116 are engaged in, or
directly support, research and development. A significant number of the
Company's management and professional employees have had prior experience with
pharmaceutical and biotechnology companies. None of the Company's employees is
covered by a collective bargaining agreement.

PROPERTIES

The Company leases a 50,000 square foot laboratory and headquarters
facility located in Carlsbad, California. Under the terms of the lease, which
expires on December 31, 2000, and has two five-year options to extend, current
monthly rental on the facility is approximately $59,000.

The Company subleases a 51,000 square foot manufacturing facility located
in King of Prussia, Pennsylvania. Under the terms of the sublease which expires
on September 30, 1997, the monthly rental on the facility is $25,400. The
Company has an option to extend the sublease for up to nine years, in three-year
increments.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- --------------------------------------------------
<S> <C> <C>
James B. Glavin(1)............ 61 Chairman of the Board of Directors
Dennis J. Carlo(1)(3)......... 52 Chief Executive Officer, President and Director
Paula B. Atkins............... 43 Vice President, Administration
Steven W. Brostoff............ 54 Vice President, Research and Development and
Chief Scientific Officer
Charles J. Cashion............ 45 Vice President, Finance; Chief Financial Officer,
Treasurer and Secretary
Fred C. Jensen................ 70 Vice President, Virology
Steven P. Richieri............ 42 Senior Vice President, Operations
Kevin B. Kimberlin(2)(4)...... 43 Director
Gilbert S. Omenn(5)........... 55 Director
Melvin Perelman............... 65 Director
John Simon(1)(4).............. 53 Director
William M. Sullivan(2)(5)..... 61 Director
Philip M. Young(1)(4)(5)...... 56 Director
</TABLE>

- ---------------

(1) Member of Executive Committee of the Board of Directors
(2) Member of Stock Option and Compensation Committee of the Board of Directors
(3) Member of Employee Stock Option Committee of the Board of Directors
(4) Member of Audit Committee of the Board of Directors
(5) Member of Nominating Committee of the Board of Directors

James B. Glavin, a co-founder of the Company, has been a Director since
1987 and has been Chairman of the Board of Directors of the Company since May
1993, and was Chief Executive Officer from April 1987 to September 1994,
President from October 1987 to September 1994 and Treasurer of the Company from
April 1987 to May 1991. Mr. Glavin was a general partner at Cable & Howse
Ventures, Inc., a venture capital firm, from August 1985 to April 1987. Mr.
Glavin was Chairman of the Board of Directors of Smith Laboratories, Inc.
("Smith Labs"), from September 1985 until May 1990 and was Acting President and
Chief Executive Officer of Smith Labs from September 1985 to August 1989. Mr.
Glavin is a director of Gish Biomedical Inc., Inhale Therapeutics, Inc. and the
Meridian Fund. Mr. Glavin received his M.B.A. from Harvard Business School and
his B.S. from Holy Cross College.

Dennis J. Carlo, Ph.D., a co-founder of the Company, has been President and
Chief Executive Officer since September 1994, and was Chief Operating Officer
from April 1987 to September 1994 and Assistant Corporate Secretary and a
Director since 1987. Dr. Carlo was Chief Scientific Officer from April 1987 to
September 1995 and Executive Vice President from October 1987 to September 1994.
From January 1982 to May 1987, Dr. Carlo was Vice President of Research and
Development and Vice President of Therapeutic Manufacturing at Hybritech
Incorporated, a biotechnology company that was acquired by Eli Lilly & Company
("Eli Lilly"), a pharmaceutical company, in 1986. From 1971 to 1981, Dr. Carlo
held various positions at Merck & Co., Inc., including Director of Development
and Basic Cellular Immunology and Director of Bacterial Vaccines and Immunology.
Dr. Carlo is also a director of Vyrex Corporation. Dr. Carlo has authored or
co-authored over 100 articles and abstracts in the field of immunology. Dr.
Carlo received his Ph.D., M.S. and B.S. from Ohio State University.

Paula B. Atkins has been Vice President, Administration of the Company
since September 1992, and was Executive Director, Administration from June 1991
to September 1992, and Director, Administration from March 1988 to June 1991.
From January 1985 to March 1988, Ms. Atkins was Director of Human Resources and
Administration for Access Research Corporation. Ms. Atkins held positions
previously with Foodmaker,

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Inc., a wholly owned subsidiary of Ralston Purina, and Scripps Clinic and
Research Foundation. Ms. Atkins received her M.S. and B.A. from San Diego State
University.

Steven W. Brostoff, Ph.D. has been Chief Scientific Officer since October
1995 and Vice President, Research and Development for the Company since May
1992, and was Executive Director of Autoimmune Disease Research from July 1988
to May 1992. From 1973 to 1988, Dr. Brostoff held various positions within the
Medical University of South Carolina including: Director, University Research
Development; Director, Medical Scientist Training Program; Director, Program in
Molecular and Cellular Biology and Pathobiology; Professorships in Microbiology
and Immunology, and in Neurology; and served as Associate Dean of the Graduate
School. During his tenure at the University, Dr. Brostoff also served as a
Visiting Scientist at Oxford University in the United Kingdom. Prior to this,
Dr. Brostoff held positions with Albert Einstein College of Medicine, Merck
Institute for Therapeutic Research, the Salk Institute, and the Eleanor
Roosevelt Institute for Cancer Research. Dr. Brostoff received his Ph.D. and
B.S. from the Massachusetts Institute of Technology.

Charles J. Cashion has been Vice President, Finance and Chief Financial
Officer of the Company since February 1989, Secretary of the Company since
September 1989 and Treasurer of the Company since May 1991. From September 1987
to August 1989, Mr. Cashion was Executive Vice President and Secretary of Smith
Labs and President and Chief Executive Officer of Sutter Corporation, a wholly
owned subsidiary of Smith Labs. From 1980 to 1987, Mr. Cashion was Vice
President, Chief Financial Officer and Treasurer of Smith Laboratories. Mr.
Cashion previously held positions at Baxter International, Inc., and Motorola,
Inc. Mr. Cashion received his M.B.A. and B.S. from Northern Illinois University.

Fred C. Jensen, D.V.M. has served as Vice President, Virology Research and
Development since May 1992 and was Executive Director, Virology Research from
March 1988 to May 1992. From 1983 to 1987, Dr. Jensen was the Senior Vice
President of Cytotech, Inc. From 1973 to 1982, Dr. Jensen served as an Associate
Member with Scripps Clinic and Research Foundation in various scientific
disciplines including Immunopathology and Cellular and Development Immunology.
Prior to joining Scripps, Dr. Jensen worked with Wistar Institute and
Microbiological Associates. Dr. Jensen received his D.V.M. from the University
of BRNO, School of Veterinary Medicine in Czechoslovakia after completion of
undergraduate studies.

Steven P. Richieri, R.Ph. has served as Senior Vice President, Operations
since October 1995, and was Vice President, Medical and Regulatory Affairs from
May 1992 to October 1995, and Executive Director, Medical and Regulatory Affairs
from October 1991 to May 1992. From 1984 to 1991, Mr. Richieri held various
positions with Dura Pharmaceuticals, Inc. including Vice President, Regulatory
and Technical Affairs. From 1981 to 1984, Mr. Richieri worked in Regulatory
Affairs with Barnes Hind Inc., a subsidiary of Revlon, Inc. Prior to joining
Barnes Hind Inc., Mr. Richieri worked as a Pharmacist in the medical community.
Mr. Richieri received his M.B.A. from the University of San Diego and his B.S.
from Rutgers College of Pharmacy.

Kevin B. Kimberlin, a co-founder of the Company, has been a Director since
1986 and was Secretary of the Company from November 1986 to September 1989. He
has been Chairman of the Board of Spencer Trask Holdings, Inc., an investment
banking company, since July 1991 and President of St. James Capital Corp., an
investment company, from July 1991 to June 1994.

Gilbert S. Omenn, M.D., Ph.D. has been a Director since 1987, and has been
Professor of Medicine and of Environmental Health and Dean of the School of
Public Health and Community Medicine at the University of Washington, Seattle
since 1982. He is a director of Rohm and Haas Company, Amgen Inc., Nutraceutix,
Inc. and Ostex International, Inc.

Melvin Perelman, Ph.D. became a Director in 1996, and was Executive Vice
President of Eli Lilly and President of The Lilly Research Laboratories from
1986 to 1993 and a director of Eli Lilly from 1976 to 1993. He is a director of
Inhale Therapeutics, Inc., DataChem Corporation, Cinergy Corporation and
Immusol, Inc.

John Simon, J.D., Ph.D. has been a Director since 1988, and has been
Managing Director of Allen & Company Incorporated, an investment banking
company, since 1972. He is a director of T Cell Sciences Incorporated, Neurogen
Corporation and Lunn Industries, Inc.

36
<PAGE> 38

William M. Sullivan has been a Director since 1987, and was Chairman of the
Board of Directors of the Company from March 1987 to May 1993; Chairman of the
Board of Sparta Pharmaceuticals, Inc. since October 1991 and President and Chief
Executive Officer from October 1991 to March 1996. He was Chairman of the Board,
President and Chief Executive Officer of Burroughs Wellcome Co., from December
1981 to January 1986. He is a director of BioVentures, Inc., ProCyte Corporation
and Research Corporation Technologies.

Philip M. Young has been a Director since 1987, and has been General
Partner of U.S. Venture Partners, a venture capital company, since April 1990.
He is a director of Vical Incorporated, Zoran Corporation, FemRx, Inc.,
CardioThoracic Systems, Inc. and several privately held companies.

37
<PAGE> 39

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated as of the date of this Prospectus, each of the underwriters of
this offering (the "Underwriters") for whom Hanifen, Imhoff Inc., ("Hanifen")
and Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase the aggregate number of
shares of Common Stock set forth opposite their respective names below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Hanifen, Imhoff Inc..........................................................
Cruttenden Roth Incorporated.................................................

-----------
Total...................................................................... 2,900,000
===========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain conditions and that if any
shares of Common Stock are purchased by Underwriters pursuant to the
Underwriting Agreement all shares of Common Stock agreed to be purchased by the
Underwriters must so be purchased. Bayer may purchase $4,000,000 of the Common
Stock offered hereby at the public offering price. The Underwriters will not
receive any underwriting discount on any such sales to Bayer.

The Company has been advised that the Underwriters propose to offer shares
of Common Stock offered hereby to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price less a
concession not to exceed $ per share. The Underwriters or such selected
dealers may reallow a concession to certain other dealers not to exceed
$ per share. The Representatives have advised the Company that they do
not expect the Underwriters to make sales to accounts over which any
Underwriters exercise discretionary authority.

The Company has granted to the Underwriters an option to purchase an
additional 435,000 shares of Common Stock at the public offering price, less the
same underwriting discount as set forth on the cover page of this Prospectus,
solely to cover over-allotments. The option may be exercised at any time up to
30 days after the date of this Prospectus. To the extent the Underwriters
exercise such option, each such Underwriter will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to such
Underwriters initial commitment.

The Company, its directors and executive officers, and certain security
holders of the Company have agreed that they will not offer to sell, sell or
otherwise dispose of any shares of Common Stock not sold in this offering for a
period of 90 days from the date of this Prospectus without the prior written
consent of Hanifen, on behalf of the Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1993, as amended
(the "Securities Act"), or to contribute to payments the Underwriters may be
required to make in respect of such liabilities. Certain of the Underwriters and
selling group members (if any) that currently act as market makers for the
Common Stock may engage in "passive market making" in the Common Stock on NNM in
accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon
the satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also NNM market makers in the security
being distributed to engage in

38
<PAGE> 40

limited market making transactions during the period when Rule 10b-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds that highest bid for those
securities displayed on NNM by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the securities to
be distributed.

LEGAL MATTERS

Certain legal matters with respect to the validity of Common Stock offered
hereby are being passed upon for the Company by Pillsbury Madison & Sutro LLP,
San Francisco, California. A partner of Pillsbury Madison & Sutro LLP owns
15,000 shares of Common Stock and holds an option to purchase 20,000 shares of
Common Stock. Cooley Godward Castro Huddleson & Tatum, Boulder, Colorado and San
Diego, California is acting as counsel for the Underwriters in connection with
certain legal matters relating to the sale of the Common Stock offered hereby.

EXPERTS

The consolidated financial statements of The Immune Response Corporation at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 incorporated by reference and appearing in this Prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference and
appearing elsewhere herein, and are included in reliance upon the authority of
such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C., as well as the regional
offices of the Commission located at 400 West Madison Street, Chicago, Illinois,
and 7 World Trade Center, New York, New York. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding the Company. The address
for such site is http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, as certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement, including all exhibits thereto,
may be obtained from the Commission's principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission, or may be examined without
charge at the offices of the Commission described above.

39
<PAGE> 41

DOCUMENTS INCORPORATED BY REFERENCE

The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (File No. 0-18006), (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 1996, (iii) the Company's Current Report on Form 8-K dated July 8,
1996, (iv) the description of the Company's Common Stock contained with its
Registration Statement on Form 8-A filed on March 30, 1990 and (v) the
description of the Preferred Stock Purchase Rights for Series E Participating
Preferred Stock, par value $.001, set forth in the Registration Statement on
Form 8-A filed on March 4, 1992. All documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering to which this
Prospectus relates shall be deemed to be incorporated by reference into this
Prospectus and to be part of this Prospectus from the date of filing thereof.

Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The Company
will provide without charge to each person to whom a copy of the Prospectus has
been delivered, and who makes a written or oral request, a copy of any and all
of the information that has been incorporated by reference in the Registration
Statement (other than exhibits unless such exhibits are specifically
incorporated by reference therein). Requests should be submitted in writing or
by telephone to Investor Relations, The Immune Response Corporation, at the
Company's offices located at 5935 Darwin Court, Carlsbad, California, 92008,
telephone (619) 431-7080.

40
<PAGE> 42

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

THE IMMUNE RESPONSE CORPORATION

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1995 and the six months ended June 30, 1995 and 1996 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1995 and the six months ended June 30, 1996 (unaudited)... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 and the six months ended June 30, 1995 and 1996 (unaudited)....... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 43

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
The Immune Response Corporation

We have audited the accompanying consolidated balance sheets of The Immune
Response Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 consolidated financial position of The Immune
Response Corporation at December 31, 1994 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

San Diego, California
January 26, 1996, except for Note 5,

as to which the date is June 5, 1996,

Note 6, as to which the date is

June 25, 1996 and Note 7, as to which

the date is September 9, 1996

F-2
<PAGE> 44

THE IMMUNE RESPONSE CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)............ $ 1,792,082 $ 1,462,676 $ 4,295,163
Short-term investments (Notes 1 and 2)........ 57,535,982 43,147,633 33,020,842
Other current assets.......................... 1,295,150 963,762 617,732
------------ ------------ ------------
Total current assets.................. 60,623,214 45,574,071 37,933,737
Property and equipment, net (Note 1)............ 5,541,631 4,806,075 4,915,420
Deposits and other assets....................... 225,104 49,016 49,016
Investment in joint venture (Note 3)............ 2,093,192 -- --
------------ ------------ ------------
$ 68,483,141 $ 50,429,162 $ 42,898,173
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 507,378 $ 1,158,194 $ 1,828,134
Accrued compensation.......................... 313,612 386,311 517,480
Deferred rent obligation (Note 4)............. 444,396 443,853 428,877
Debt and capital lease obligations............ 132,132 -- --
------------ ------------ ------------
Total current liabilities............. 1,397,518 1,988,358 2,774,491
Commitments (Note 4)
Stockholders' equity (Note 5):
Preferred stock, 5,000,000 shares authorized;
none issued................................ -- -- --
Common stock, $.0025 par value, 40,000,000
shares authorized, 16,739,951, 16,788,704
and 17,301,891 shares issued and
outstanding at December 31, 1994 and 1995,
and June 30, 1996, respectively............ 41,850 41,972 43,255
Additional paid-in capital.................... 146,634,524 146,770,428 152,279,854
Unrealized gain (loss) on available-for-sale
securities (Note 2)........................ (609,847) 544,830 (50,573)
Accumulated deficit........................... (78,980,904) (98,916,426) (112,148,854)
------------ ------------ ------------
Total stockholders' equity............ 67,085,623 48,440,804 40,123,682
------------ ------------ ------------
$ 68,483,141 $ 50,429,162 $ 42,898,173
============ ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 45

THE IMMUNE RESPONSE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research revenue
(Notes 3 and 6)....... $ 4,767,729 $ 6,035,497 $ 1,561,314 $ 1,477,414 $ --
Licensed research revenue
(Note 6).............. -- 1,000,000 -- -- --
------------ ------------ ------------ ------------ ------------
4,767,729 7,035,497 1,561,314 $ 1,477,414 --
Expenses:
Research and
development........... 11,853,582 13,511,238 19,488,531 8,527,038 12,769,285
General and
administrative........ 4,119,409 5,608,238 3,684,252 1,986,182 1,786,542
------------ ------------ ------------ ------------ ------------
15,972,991 19,119,476 23,172,783 10,513,220 14,555,827
Other revenue and expense:
Investment income........ 4,320,709 2,554,041 2,959,967 1,466,870 1,323,399
Equity in operations of
joint venture (Note
3).................... (8,853,341) (7,869,556) (1,284,020) (1,284,020) --
------------ ------------ ------------ ------------ ------------
(4,532,632) (5,315,515) 1,675,947 182,850 1,323,399
------------ ------------ ------------ ------------ ------------
Net loss................... $(15,737,894) $(17,399,494) $(19,935,522) $ (8,852,956) $(13,232,428)
============ ============ ============ ============ ============
Net loss per share (Note
1)....................... $ (0.95) $ (1.05) $ (1.19) $ (0.53) $ (0.78)
============ ============ ============ ============ ============
Weighted average number
of shares outstanding
(Note 1)................. 16,549,816 16,613,547 16,750,460 16,742,616 16,963,239
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-4
<PAGE> 46

THE IMMUNE RESPONSE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
COMMON STOCK ADDITIONAL AVAILABLE-FOR- TOTAL
-------------------- PAID-IN SALE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SECURITIES DEFICIT EQUITY
---------- ------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992....... 16,523,977 $41,310 $146,378,274 $ -- $ (45,843,516) $ 100,576,068
Issuance of common stock........... 41,498 104 76,669 -- -- 76,773
Net loss........................... -- -- -- -- (15,737,894) (15,737,894)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1993....... 16,565,475 41,414 146,454,943 -- (61,581,410) 84,914,947
Issuance of common stock........... 223,719 559 585,708 -- -- 586,267
Shares redeemed by employee to
exercise options................. (49,243) (123) (406,127) -- -- (406,250)
Adjustment to beginning balance for
change in accounting method
(Notes 1 and 2).................. -- -- -- 95,522 -- 95,522
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2)......................... -- -- -- (705,369) -- (705,369)
Net loss........................... -- -- -- -- (17,399,494) (17,399,494)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1994....... 16,739,951 41,850 146,634,524 (609,847) (78,980,904) 67,085,623
Issuance of common stock........... 48,753 122 135,904 -- -- 136,026
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2)......................... -- -- -- 1,154,677 -- 1,154,677
Net loss........................... -- -- -- -- (19,935,522) (19,935,522)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1995....... 16,788,704 41,972 146,770,428 544,830 (98,916,426) 48,440,804
Issuance of common stock in stock
transaction (Note 5)
(unaudited)...................... 333,334 833 4,999,167 -- -- 5,000,000
Issuance of common stock
(unaudited)...................... 179,853 450 510,259 -- -- 510,709
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2) (unaudited)............. -- -- -- (595,403) -- (593,403)
Net loss (unaudited)............... -- -- -- -- (13,232,428) (13,232,428)
---------- ------- ------------ --------- ------------- -----------
Balance at June 30, 1996
(unaudited)...................... 17,301,891 $43,255 $152,279,854 $ (50,573) $(112,148,854) $ 40,123,682
========== ======= ============ ========= ============= ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 47

THE IMMUNE RESPONSE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.............................. $(15,737,894) $(17,399,494) $(19,935,522) $(8,852,956) $(13,232,428)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization....... 1,187,605 1,266,412 1,038,312 550,059 407,727
Equity in operations of joint
venture........................... 8,853,341 7,869,556 1,284,020 1,284,020 --
Write down of value of land......... -- -- 372,044 -- --
Deferred rent expense............... 52,395 28,867 (543) (543) (14,976)
Changes in operating assets and
liabilities:
Research contract receivable from
a related party................ 374,419 (2,308,776) (1,199,390) (1,199,390) --
Other current assets.............. 440,921 (373,168) 331,388 566,107 346,030
Accounts payable.................. (717,978) 12,066 650,816 522,873 669,940
Accrued compensation.............. 142,051 396 72,699 58,997 131,169
------------ ------------ ------------ ----------- -----------
Net cash used by operating
activities................... (5,405,140) (10,904,141) (17,386,176) (7,070,833) (11,692,538)
Investing activities:
Liquidation of short-term investments,
net................................. 15,628,332 15,897,397 15,543,026 6,151,857 9,531,388
Purchase of property and equipment.... (910,496) (747,216) (442,655) (158,879) (517,072)
Net proceeds from sale of equipment... -- 1,458,628 1,948,305 1,948,305 --
Investment in joint venture........... (8,500,000) (5,000,000) -- -- --
Other assets.......................... -- -- 4,200 4,200 --
------------ ------------ ------------ ----------- -----------
Net cash provided from
investing activities......... 6,217,836 11,608,809 17,052,876 7,945,483 9,014,316
Financing activities:
Proceeds from sale of common stock
(Note 5)............................ -- -- -- -- 5,000,000
Net proceeds from exercise of stock
options............................. 76,773 180,017 136,026 4,345 510,709
Payments on debt and capital lease
obligations......................... (263,749) (408,495) (132,132) (75,880) --
------------ ------------ ------------ ----------- -----------
Net cash provided from (used
by) financing activities..... (186,976) (228,478) 3,894 (71,535) 5,510,709
------------ ------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................... 625,720 476,190 (329,406) 803,115 2,832,487
Cash and cash equivalents at beginning
of period............................. 690,172 1,315,892 1,792,082 1,792,082 1,462,676
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period................................ $ 1,315,892 $ 1,792,082 $ 1,462,676 $ 2,595,197 $ 4,295,163
============ ============ ============ =========== ===========
Supplemental disclosure of noncash
investing and financing activities:
Equipment received from liquidation of
joint venture (Note 3).............. $ -- $ -- $ 2,008,562 $ 2,008,562 $ --
============ ============ ============ =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 48

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

The Immune Response Corporation (the "Company"), a Delaware corporation, is
a biopharmaceutical company with proprietary technologies in four core areas:
Human Immunodeficiency Virus ("HIV"), autoimmune disease, gene therapy and
cancer. The Company is conducting clinical trials for potential immune-based
therapies for HIV, psoriasis, rheumatoid arthritis, multiple sclerosis and colon
cancer, and preclinical studies for brain and prostate cancers. The Company has
potential gene therapies in preclinical studies for cardiovascular disease,
hemophilia and hepatitis. The Company intends to retain ownership of its core
technologies and to license selected applications.

The Company's products are in various stages of development. Substantially
all of the Company's revenues to date were derived from its research and
development agreements with two pharmaceutical collaborators, though the Company
currently has no collaborations that will provide future revenue. Prior to
generating product revenues, the Company must complete the development of its
products, including several years of human clinical testing, and receive
regulatory approvals prior to selling these products in the human health care
market. No assurance can be given that the Company's products will be
successfully developed, regulatory approvals will be granted, or patient and
physician acceptance of these products will be achieved.

The Company faces additional risks associated with biopharmaceutical
companies whose products are in various stages of development. These risks
include, among others, the Company's need for additional financing to complete
its research and development programs and commercialize its technologies. There
is no assurance such financing will be available to the Company when required or
that such financing would be available under favorable terms.

The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and factual questions for which important legal principles
are largely unresolved.

Interim Financial Information

The financial statements at June 30, 1996 and for the six months ended June
30, 1995 and 1996 are unaudited. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments which, in the
opinion of management, are necessary to fairly present the financial position as
of June 30, 1996, and the results of operations for the six months ended June
30, 1995 and 1996. The results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the year
ending December 31, 1996.

Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Net loss per share

Net loss per share is computed using the weighted average number of common
shares outstanding during the period.

F-7
<PAGE> 49

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

New Accounting Standard

During the first quarter of 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards ("FAS") No. 123, "Accounting for
Stock-Based Compensation." FAS 123 establishes and encourages the use of the
fair value based method of accounting for stock-based compensation arrangements,
under which compensation is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. The statement also permits companies
to elect to continue using the current implicit value accounting method
specified in Accounting Principles Board Opinion ("APB") No. 25 to account for
stock-based compensation and to disclose the effects of the fair value based
method on a pro forma basis. The Company has elected to continue to account for
stock-based compensation arrangement using the current implicit value method
specified in APB No. 25. Pro forma disclosures reflecting the effects of the
fair value based method of accounting are not required for interim reporting
purposes.

Cash, cash equivalents and short-term investments

Cash and cash equivalents consist of cash and time deposits with original
maturities of less than three months. Short-term investments are stated at
market.

Concentration of credit risk

The Company invests its excess cash in U.S. Government securities and money
market accounts. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates.

Property and equipment

Property and equipment is stated at cost and is depreciated or amortized
over the estimated useful lives of the assets (five to seven years) or the lease
term using the straight-line method. During 1995, the Company adopted Statement
of Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance
with FAS 121, prior period financial statements have not been restated to
reflect the change in accounting principle. In 1995, the Company decreased the
value of a parcel of land by $372,044, to its estimated net realizable value.
Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Furniture and fixtures...................... $ 794,864 $ 889,843 $ 1,004,160
Equipment................................... 682,067 778,120 997,832
Leasehold improvements...................... 4,953,808 5,205,431 5,388,474
Land........................................ 1,392,044 -- --
----------- ----------- -----------
7,822,783 6,873,394 7,390,466
Less accumulated depreciation and
amortization.............................. (2,281,152) (3,087,319) (3,495,046)
----------- ----------- -----------
5,541,631 3,786,075 3,895,420
Land held for sale.......................... -- 1,020,000 1,020,000
----------- ----------- -----------
$ 5,541,631 $ 4,806,075 $ 4,915,420
=========== =========== ===========
</TABLE>

F-8
<PAGE> 50

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

Income taxes

All income tax amounts have been computed in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this statement, the liability method is used to account for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax base of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences reverse.

2. SHORT-TERM INVESTMENTS

Short-term investments consist of treasury securities with maturities of
more than three months. The Company has classified all of its investments as
available-for-sale securities. The following table summarizes available-for-sale
securities:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Government Securities............... $42,602,803 $ 544,830 $ -- $43,147,633
=========== ======== ======== ===========
JUNE 30, 1996
U.S. Government Securities............... $33,071,415 $ 89,533 $ 140,106 $33,020,842
=========== ======== ======== ===========
</TABLE>

The net realized losses on sales of available-for-sale securities totaled
$11,400 for the year ended December 31, 1995.

The amortized cost and estimated fair value of available-for-sale
securities at December 31, 1995, by contractual maturity, are shown below:

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................... $15,424,032 $15,608,250
Due after one year through three years.................... 27,178,771 27,539,383
----------- -----------
$42,602,803 $43,147,633
=========== ===========
</TABLE>

3. INVESTMENT IN JOINT VENTURE

Immunization Products Limited (the "Joint Venture"), a joint venture
between the Company and Rhone-Poulenc Rorer Inc., was formed to develop,
manufacture and market in the United States, Canada and Puerto Rico certain
products related to the diagnosis and treatment of human immunodeficiency virus
infection. The Joint Venture also acquired the rights to develop, manufacture
and market REMUNE(TM) (formerly known as the HIV-1 Immunogen) in certain
European, African, Central American and South American countries.

In March 1995, the Company regained all manufacturing, marketing and
distribution rights for REMUNE from Rhone-Poulenc Rorer. The Company also
assumed control and responsibility for the Joint Venture's manufacturing
facility. Neither the Company nor Rhone-Poulenc Rorer received any consideration
from the Joint Venture for amounts payable to such partner, and neither party
has any further obligations to provide capital to the Joint Venture. The Company
agreed to pay Rhone-Poulenc Rorer up to $3 million in royalties on future
commercial sales of REMUNE, or upon certain transactions involving licensing
rights to REMUNE to a

F-9
<PAGE> 51

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

future corporate partner. Rhone-Poulenc Rorer will provide no further funding
for the development of REMUNE.

4. COMMITMENTS

The Company leases its offices, research facility and certain office and
laboratory equipment under operating lease agreements. The equipment lease
agreements require monthly payments through September 1998. The office and
research facility lease agreement, which commenced in January 1991, is for a
term of ten years, with two five-year options to extend. In connection with this
lease, the Company received certain deferred payment terms and the minimum
annual rent is subject to certain annual increases. Rent is being expensed on a
straight-line basis over the term of the lease. Deferred rent reflected in the
accompanying balance sheet represents the difference between rent expense
accrued and amounts actually paid under the terms of the lease.

At December 31, 1995, future minimum rental payments due under the
Company's noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
<S> <C>
1996................................... $3,136,000
1997................................... 2,106,000
1998................................... 1,039,000
1999................................... 806,000
2000................................... 835,000
----------
$7,922,000
==========
</TABLE>

Total rent expense for the years ended December 31, 1995, 1994 and 1993 was
$2.5 million, $1.3 million and $1.3 million, respectively.

5. STOCKHOLDERS' EQUITY

Stock transaction

In April 1996, the Company received $5 million from Trinity Medical Group
Co., Ltd. ("Trinity") of Bangkok, Thailand for the purchase of the Company's
common stock at $15 per share. Trinity has also agreed to make additional equity
investments of up to $10 million based on the achievement of certain regulatory
and commercial milestones and governmental approvals.

Stock options

The Company has established various stock option plans to grant options to
purchase common stock to employees and non-employee directors of the Company and
certain other individuals. The plans authorize the Company to issue or grant
qualified and non-qualified options to purchase up to 4,773,794 shares of its
common stock.

Under the terms of the 1989 Stock Plan, options may be granted at not less
than 100% and 85% of fair market value as of the date of grant for qualified and
non-qualified options, respectively. To date, all options have been issued at
100% of fair market value. These options primarily become exercisable over a
four year period from the date of grant.

F-10
<PAGE> 52

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

During April 1995, the Company offered holders of stock options issued
under the 1989 Stock Plan, with the exception of members of the Board of
Directors, the opportunity to exchange an issued stock option for a new stock
option on a one-for-one basis on April 19, 1995. The new stock option price per
share of $3.25 exceeded the market value of the Company's stock on that day. The
stock options will continue the vesting schedule of the exchanged stock options,
although no part of the new stock option will be exercisable for one year,
regardless of the exchanged stock option's vesting schedule. Of the 2,305,885
eligible stock options, 2,213,581 were exchanged for new options.

The 1990 Directors' Stock Option Plan provides for the Company to issue or
grant non-qualified options to purchase up to 650,000 common shares to its
non-employee directors. Under the terms of the plan, options will be granted at
the fair market value as of the date of grant. These options become exercisable
in four equal annual installments on each of the first four anniversaries of the
date of grant. Additionally, the 1990 Directors' Stock Option Plan provides that
upon each date of the Company's Annual Meeting of the Stockholders, non-employee
directors are eligible to receive a grant of 6,250 shares at the fair market
value on date of grant, with a one-year vesting schedule.

Activity with respect to the various stock plans is summarized as follows:

<TABLE>
<CAPTION>
SHARES STOCK
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING RANGE
---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992......................... 576,628 2,348,428 $ .59 - 39.25
Additional authorization........................... 600,000 -- --
Granted............................................ (529,375) 529,375 9.50 - 18.75
Exercised.......................................... -- (40,948) .77 - 10.50
Cancelled.......................................... 99,940 (99,940) 1.50 - 33.00
--------- ---------
Balance at December 31, 1993......................... 747,193 2,736,915 .59 - 39.25
Additional authorization........................... 800,000 -- --
Granted............................................ (1,668,950) 1,668,950 7.00 - 12.25
Exercised.......................................... -- (223,469) .77 - 10.50
Cancelled.......................................... 984,117 (984,117) 1.50 - 39.25
--------- ---------
Balance at December 31, 1994......................... 862,360 3,198,279 .59 - 39.25
Additional authorization........................... 200,000 -- --
Granted............................................ (637,578) 637,578 2.75 - 7.13
Exercised.......................................... -- (48,303) .77 - 5.38
Cancelled.......................................... 185,773 (185,773) 3.25 - 33.00
--------- ---------
Balance at December 31, 1995......................... 610,555 3,601,781 .59 - 18.25
Additional authorization........................... 500,000 -- --
Granted............................................ (564,073) 564,073 5.00 - 11.75
Exercised.......................................... -- (179,653) .59 - 6.75
Cancelled.......................................... 57,664 (57,664) 3.25 - 10.25
--------- ---------
Balance at June 30, 1996............................. 604,146 3,928,537 .59 - 18.25
========= =========
Options exercisable at December 31, 1995............. 896,170 .59 - 18.25
=========
Options exercisable at June 30, 1996................. 2,695,159 .77 - 18.25
=========
</TABLE>

F-11
<PAGE> 53

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996, IS UNAUDITED)

At December 31, 1995, an additional 1,375,279 stock options would have been
exercisable had such options not been restricted by the terms of the repricing
agreement.

At June 30, 1996, 4,532,683 shares of common stock were reserved for the
exercise of stock options.

In May 1996, the Company's stockholders approved a 500,000 share increase
in the number of shares authorized for issuance under the 1989 Stock Plan.

Stockholder rights plan

The Company has a Stockholder Rights Plan that provides for the
distribution of a preferred stock purchase right (a "Right") as a dividend for
each share of the Company's common stock of record held at the close of business
on March 12, 1992, as well as all future stock issuances. Under certain
conditions involving an acquisition by any person or group of 15% or more of the
common stock, the Rights permit the holders (other than the 15% holder) to
purchase the Company's common stock at a 50% discount upon payment of an
exercise price of $150 per Right. In addition, in the event of certain business
combinations, the Rights permit the purchase of the common stock of an acquiror
at a 50% discount. Under certain conditions, the Rights may be redeemed by the
Board of Directors in whole, but not in part, at a price of $.01 per Right. The
Rights have no voting privileges and are attached to and automatically trade
with the Company's common stock. The Rights expire February 26, 2002.

6. LICENSED RESEARCH REVENUE

In June 1994, the Company licensed exclusive rights to its proposed
hepatitis B antisense treatment to Chugai Pharmaceutical Company, Ltd.
("Chugai") for use in Japan, China, South Korea and Taiwan. Chugai will be
responsible for research and development efforts in these countries. In July
1994, the Company received a $1 million licensing fee from Chugai. The Company
also received research and development funding in 1994 and 1995 from Chugai.
During June 1996, Chugai gave the Company notice of termination of this
agreement.

7. SUBSEQUENT EVENT

In July 1996, Immune Response entered into an agreement with Bayer
Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen,
Germany, to develop gene therapy products for the treatment of hemophilia A, a
hereditary blood clotting disorder. Bayer made an initial license payment of $6
million upon signing this agreement. Bayer has also indicated that it may
purchase $4 million of Immune Response Common Stock in the Company's next public
offering. In addition, during the term of the agreement, the Company will also
receive research funding from Bayer for Immune Response's hemophilia A program
and may receive milestone payments and royalties on future sales, if a product
is developed and commercialized. In July 1996, the Company received $1 million
as its first research payment under the agreement. Under the agreement, Bayer is
responsible for all medical and regulatory activities associated with developing
any potential hemophilia A products, and will also be responsible for
commercial-scale manufacturing and commercialization of any such product
developed. The agreement provides Bayer with a worldwide license to the
Company's GeneDrug technology for the delivery of the Factor VIII gene and the
option to enter into negotiations with the Company to use this technology to
treat other blood coagulation disorders.

F-12
<PAGE> 54

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

8. INCOME TAXES

At December 31, 1995, the Company had federal and California tax net
operating loss carryforwards of approximately $74.5 million and $19.5 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to capitalized research and development
expenses for California and the 50% limitation of California loss carryforwards.
The federal tax loss carryforwards will begin expiring in 2002, unless
previously utilized, while the California tax loss carryforwards began to expire
in 1995. The Company also has federal and California research and development
tax credit carryforwards of $3.4 million and $1.1 million, respectively, which
begin expiring in 2002 unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards will be limited because of
a cumulative change in ownership of more than 50% which occurred during 1992.
However, the Company does not believe such change will have a material impact
upon the utilization of these carryforwards. Included in the federal loss
carryforwards are approximately $4.4 million of acquired net operating loss
carryforwards that can only be used to the extent of the separate taxable income
of the acquired company.

The components of the Company's deferred tax assets as of December 31, 1995
and 1994 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................ $ 19,400,000 $ 26,500,000
Unused research and development credits......... 3,500,000 4,500,000
Capitalized research and development............ 1,100,000 1,100,000
Other........................................... 100,000 1,500,000
------------ ------------
24,100,000 33,600,000
Valuation allowance............................. (24,100,000) (33,600,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>

Approximately $2.3 million of the valuation allowance at December 31, 1995
relates to benefits of stock options which, when recognized, will be allocated
directly to stockholders' equity.

F-13
<PAGE> 55

THE IMMUNE RESPONSE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED

JUNE 30, 1995 AND 1996, IS UNAUDITED)

9. QUARTERLY RESULTS (UNAUDITED)

The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to fairly
state the Company's consolidated results of operations and related information
for the periods presented. Net loss per share has been computed using the
weighted average shares outstanding during each quarter.

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995
Contract research revenue........................... $ 1,311 $ 125 $ -- $ 125
Operating expenses.................................. (5,184) (5,288) (5,982) (6,719)
------- ------- ------- -------
Loss from operations................................ (3,873) (5,163) (5,982) (6,594)
Other income (expense).............................. (628) 811 785 708
------- ------- ------- -------
Net loss............................................ $(4,501) $(4,352) $(5,197) $(5,886)
======= ======= ======= =======
Net loss per share.................................. $ (0.27) $ (0.26) $ (0.31) $ (0.35)
======= ======= ======= =======
1994
Licensed research revenue........................... $ -- $ -- $ 1,000 $ --
Contract research revenue with a related party...... 1,240 1,395 1,461 1,766
Other contract research revenue..................... -- -- 125 48
------- ------- ------- -------
1,240 1,395 2,586 1,814
Operating expenses.................................. (4,375) (5,567) (4,511) (4,666)
------- ------- ------- -------
Loss from operations................................ (3,135) (4,172) (1,925) (2,852)
Other expenses...................................... (1,497) (1,125) (1,337) (1,357)
------- ------- ------- -------
Net loss............................................ $(4,632) $(5,297) $(3,262) $(4,209)
======= ======= ======= =======
Net loss per share.................................. $ (0.28) $ (0.32) $ (0.20) $ (0.25)
======= ======= ======= =======
</TABLE>

F-14
<PAGE> 56

------------------------------------------------------
------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
COMMON STOCK TO WHICH IT RELATES, OR AN OFFER IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANYTIME AFTER THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 13
Price Range of Common Stock and
Dividend Policy...................... 13
Capitalization......................... 14
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 35
Underwriting........................... 38
Legal Matters.......................... 39
Experts................................ 39
Available Information.................. 39
Documents Incorporated by Reference.... 40
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

2,900,000 Shares

LOGO

THE IMMUNE RESPONSE CORPORATION

Common Stock
------------------------
PROSPECTUS
------------------------
HANIFEN, IMHOFF INC.

CRUTTENDEN ROTH
INCORPORATED
, 1996

------------------------------------------------------
------------------------------------------------------
<PAGE> 57

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following tables set forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission ("SEC") registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the Nasdaq
National Market ("NNM") listing fee.

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee.......................................................... $ 13,877
NASD fee...................................................................... 4,412
Blue Sky fees and expenses.................................................... 10,000
Accounting fees and expenses.................................................. 50,000
Legal fees and expenses....................................................... 110,000
Printing and engraving........................................................ 75,000
Registrar and transfer agent's fees........................................... 10,000
NNM listing fee............................................................... 17,500
Miscellaneous fees and expenses............................................... 9,211
--------
Total.................................................................... $300,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
permits the Company's board of directors to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his being or having been a director, officer,
employee or agent of the Company, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The Delaware GCL provides that indemnification pursuant
to its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.

Article VII of the Company's Restated Certificate of Incorporation and
Article V of the Company's Bylaws provide for indemnification of the Company's
directors, officers, employees and other agents to the maximum extent permitted
by law.

As permitted by Sections 102 and 145 of the Delaware GCL, the Company's
Restated Certificate of Incorporation eliminates a director's personal liability
for monetary damages to the Company and its stockholders arising from a breach
or alleged breach of such director's fiduciary duty, except for liability under
Section 174 of the Delaware GCL or liability for any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or for any transaction which the director derived an improper personal benefit.
In addition, the Company has entered into separate indemnification agreements
with its directors and officers that will require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers to the fullest extent not
prohibited by law.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities arising under the Act
and affords certain rights of contribution with respect thereto.

II-1
<PAGE> 58

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>

- ---------------
* Previously filed.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

The undersigned Company hereby undertakes that:

(1) For purposes of determining liability under the Act, the information
omitted from the form of Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company pursuant to Rule 424 (b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-2
<PAGE> 59

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and it has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized on September 10, 1996.

THE IMMUNE RESPONSE CORPORATION

By: /s/ DENNIS J. CARLO

------------------------------------
Dennis J. Carlo,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------- -------------------
<C> <S> <C>
/s/ JAMES B. GLAVIN*
- ----------------------------------------------- Chairman of the Board September 10, 1996
James B. Glavin of Directors
/s/ DENNIS J. CARLO
- ----------------------------------------------- President, Chief September 10, 1996
Dennis J. Carlo Executive Officer, and
Director
/s/ CHARLES J. CASHION
- ----------------------------------------------- Vice President, September 10, 1996
Charles J. Cashion Finance,
Chief Financial Officer
Secretary and Treasurer
/s/ KEVIN B. KIMBERLIN*
- ----------------------------------------------- Director September 10, 1996
Kevin B. Kimberlin
/s/ GILBERT S. OMENN*
- ----------------------------------------------- Director September 10, 1996
Gilbert S. Omenn
/s/ MELVIN PERELMAN*
- ----------------------------------------------- Director September 10, 1996
Melvin Perelman
/s/ JOHN SIMON*
- ----------------------------------------------- Director September 10, 1996
John Simon
/s/ WILLIAM M. SULLIVAN*
- ----------------------------------------------- Director September 10, 1996
William M. Sullivan
/s/ PHILIP M. YOUNG*
- ----------------------------------------------- Director September 10, 1996
Philip M. Young
*By: /s/ CHARLES J. CASHION
- -----------------------------------------------
Charles J. Cashion,
Attorney-in-Fact
</TABLE>

II-3
<PAGE> 60

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- ----------- ---------------------------------------------------------------------- --------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>

- ---------------

* Previously filed.

<PAGE> 61

APPENDIX 1

DESCRIPTION OF GRAPHICS AND IMAGE MATERIALS

Inside Front Cover

Graphic 1: The top left of the illustration entitled REMUNE-HIV THERAPY depicts
an arrow beginning with the injection of REMUNE into a human torso profile. The
bottom left of the illustration depicts an arrow labeled anti-viral drugs. The
two arrows merge in the middle of the illustration which depicts an HIV-infected
cell being affected by an anti-HIV cell and the anti-viral drug particles. The
right portion of the illustration depicts a dead cell and non-infectious virus
particles with the intended end result of slowing down the infection.

Graphic 2: The illustration entitled AUTOIMMUNE DISEASE TECHNOLOGY is a circular
sequence of events depicting the withdrawal of autoreactive T cells from the
knee of a full body human profile, the sequencing of T cell receptor genes and
ending with a needle containing TCR Peptide vaccine pointing at the arm of the
human.

Graphic 3: The illustration entitled GENE THERAPY TECHNOLOGY depicts a box with
a negative charge surrounding it entitled "Gene" containing a DNA strand which
is next to a box with a positive charge surrounding it entitled "Linker"
containing a poly-L-lysine. The Linker box is attached to a third box entitled
"Targeting Agent" containing an asialoglycoprotein which is shown plugging into
a socket entitled "Hepatocyte Receptor" which is indicated to be part of a liver
cell.

Graphic 4: The left illustration entailed CANCER TREATMENTS depicts a tumor
surrounded by a ring with arrows identified as TGF-B apparently deflecting T
cells. The middle illustration indicates the tumor cell has been altered by the
removal of the TGF-B ring and the apparent recognition of the tumor by the T
Cells. The right illustration depicts the shrinking of the tumor cells in the
brain of a human head.

Page 20

Chart: The left of the chart lists the various treatments of the Company and the
current status or next expected event. The remainder of the chart indicates
whether the treatment under development is in Preclinical, Phase I, Phase II or
Phase III.

<PAGE> 1
Exhibit 5.1

PILLSBURY MADISON & SUTRO LLP
P.O. Box 7880
San Francisco, CA 94120
Tel: (415) 983-1000
Fax: (415) 983-1200

September 10, 1996

The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008

Re: Registration Statement on Form S-3

Gentlemen:

We are acting as counsel for The Immune Response Corporation, a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended, of 3,335,000 shares of Common Stock,
par value $.0025 per share (the "Common Stock"), of the Company (including
435,000 shares subject to the underwriters' over-allotment option) to be
offered and sold by the Company. In this regard we have participated in the
preparation of a Registration Statement on Form S-3 (Registration No.
333-05393) relating to such 3,335,000 shares of Common Stock. (Such
Registration Statement, as amended, and including any registration statement
related thereto and filed pursuant to Rule 462(b) under the Securities Act (a
"Rule 462(b) registration statement") is herein referred to as the
"Registration Statement.")

We are of the opinion that the shares of Common Stock to be offered and
sold by the Company (including any shares of Common Stock registered pursuant
to a Rule 462(b) registration statement) have been duly authorized and, when
issued and sold by the Company in the manner described in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.

Very truly yours,

/s/ PILLSBURY MADISON & SUTRO LLP

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" in Amendment No. 2 to the Registration Statement (Form
S-3) and the related Prospectus of The Immune Response Corporation and to the
use of and incorporation by reference therein of our report dated January 26,
1996, except for Note 5, as to which the date is June 5, 1996, Note 6, as to
which the date is June 25, 1996, and Note 7 as to which the date is September 9,
1996, with respect to the consolidated financial statements of The Immune
Response Corporation included elsewhere herein and included in its Annual Report
(Form 10-K) for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.

ERNST & YOUNG LLP

San Diego, California

September 9, 1996