Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm as of June 30, 2005 and 2004 and for the Three Years then Ended

Consolidated Financial Statements:

Consolidated Balance Sheets as of June 30, 2005 and 2004

Consolidated Statements of Operations for the Years Ended June 30, 2005, 2004, and 2003

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2005, 2004, and 2003

Consolidated Statements of Cash Flows for the Years Ended June 30, 2005, 2004, and 2003

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of ImmunoGen, Inc.

We have audited the accompanying consolidated balance sheets of ImmunoGen, Inc. as of June 30, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 ImmunoGen, Inc. at June 30, 2005 and 2004, and the consolidated results of its operations and cash flows for each of the three years in the period ended June 30, 2005, in conformity with U.S generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ImmunoGen, Inc.’s internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 17, 2005 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
Boston, Massachusetts
August 17, 2005

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IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS
In thousands, except per share data

		June 30,
		2005			2004
ASSETS
Cash and cash equivalents		$	3,423		$	6,768
Marketable securities		87,142			87,842
Accounts receivable		1,418			4,864
Unbilled revenue		5,035			5,650
Inventory, net		1,520			6,638
Prepaid and other current assets, net		1,398			824
Total current assets		99,936			112,586
Property and equipment, net		9,883			9,710
Other assets		313			334
Total assets		$	110,132		$	122,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	2,099		$	2,146
Accrued compensation		728			572
Other current accrued liabilities		1,327			1,364
Current portion of deferred revenue		5,072			7,203
Total current liabilities		9,226			11,285
Deferred revenue		13,739			13,943
Other long term liabilities		325			265
Total liabilities		23,290			25,493
Commitments and contingencies (Note H)
Stockholders’ equity:
Common stock, $.01 par value; authorized 75,000; issued and outstanding 44,695 shares and 44,462 shares as of June 30, 2005 and 2004, respectively		447			445
Additional paid-in capital		318,300			317,704
Deferred compensation		(13		)	(63		)
Treasury stock		(11,071		)	(11,071		)
Accumulated deficit		(220,727		)	(209,776		)
Accumulated other comprehensive loss		(94		)	(102		)
Total stockholders’ equity		86,842			97,137
Total liabilities and stockholders’ equity		$	110,132		$	122,630

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

 CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data

		Year Ended June 30,
		2005			2004			2003
Revenues:
Research and development support		$	17,351		$	13,563		$	—
License and milestone fees		6,776			5,548			4,183
Clinical materials reimbursement		10,523			6,571			3,170
Development fees		1,068			274			275
Total revenues		35,718			25,956			7,628
Expenses:
Cost of clinical materials reimbursed		9,236			5,659			2,834
Research and development		30,539			21,693			22,904
General and administrative		8,765			7,162			6,482
Total expenses		48,540			34,514			32,220
Loss from operations		(12,822		)	(8,558		)	(24,592		)
Interest income, net		1,973			1,364			2,682
Net realized (loss) gain on investments		(81		)	(58		)	540
Other income		8			1,381			1,423
Loss before income tax expense		(10,922		)	(5,871		)	(19,947		)
Income tax expense		29			46			35
Net loss		$	(10,951	)	$	(5,917	)	$	(19,982	)
Basic and diluted net loss per common share		$	(0.27	)	$	(0.15	)	$	(0.48	)
Basic and diluted weighted average common shares outstanding		40,868			40,646			41,912

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
In thousands

	Common Stock		Additional Paid-In Capital	Deferred Compensation	Treasury Stock		Accumulated Deficit	Accumulated Other Comprehensive Income	Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount			Shares	Amount		(Loss)	(Loss)
Balance at June 30, 2002	40,156	$402	$317,062	$ —	—	$ —	$ (183,877)	$628	$ —	$134,215
Unrealized loss on marketable securities, net	—	—	—	—	—	—	—	(497)	(497)	(497)
Net loss for the year ended June 30, 2003	—	—	—	—	—	—	(19,982)	—	(19,982)	(19,982)
Comprehensive loss	—	—	—	—	—	—	—	—	$ (20,479)	—
Stock options exercised	2	—	4	—	—	—	—	—	—	4
Warrants exercised	4,096	41	(41)	—	—	—	—	—	—	—
Issuance of stock and stock units for directors’ compensation	7	—	10	—	—	—	—	—	—	10
Deferred compensation related to issuance of stock options	—	—	42	(42)	—	—	—	—	—	—
Amortization of deferred compensation	—	—	—	1	—	—	—	—	—	1
Repurchases of common stock	—	—	—	—	3,675	(11,071)	—	—	—	(11,071)
Balance at June 30, 2003	44,261	$443	$317,077	(41)	3,675	$ (11,071)	$ (203,859)	$131	$ —	$102,680
Unrealized loss on marketable securities, net	—	—	—	—	—	—	—	(233)	(233)	(233)
Net loss for the year ended June 30, 2004	—	—	—	—	—	—	(5,917)	—	(5,917)	(5,917)
Comprehensive loss	—		—	—	—	—	—	—	$ (6,150)	—
Stock options exercised	195	2	597	—	—	—	—	—	—	599
Issuance of stock and stock units for directors’ compensation	6	—	31	(40)	—	—	—	—	—	(9)
Amortization of deferred compensation	—	—	—	17	—	—	—	—	—	17
Recapture and reversal of compensation expense for stock options related to terminated employees	—	—	1	1	—	—	—	—	—	—
Balance at June 30, 2004	44,462	445	$317,704	$(63)	3,675	$ (11,071)	$ (209,776)	$ (102)	$ —	$97.137
Unrealized loss on marketable securities, net	—	—	—	—	—	—	—	8	8	8
Net loss for the year ended June 30, 2005	—	—	—	—	—	—	(10,951)	—	(10,951)	(10,951)
Comprehensive loss									$ (10,943)	—
Stock options exercised	231	2	526	—	—	—	—	—	—	528
Issuance of stock for directors’ compensation	2	—	—	—	—	—	—	—	—	—
Amortization of deferred compensation	—	—	—	35	—	—	—	—	—	35
Compensation for stock options			74							74
Recapture and reversal of compensation expense for stock options related to terminated employees	—	—	(4)	15	—	—	—	—	—	11
Balance at June 30, 2005	44,695	$447	$318,300	$(13)	3,675	$ (11,071)	$ (220,727)	$ (94)		$86,842

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands

		Year Ended June 30,
		2005			2004			2003
Cash flows from operating activities:
Net loss		$	(10,951	)	$	(5,917	)	$	(19,982	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		2,222			1,292			1,130
Loss on disposal of fixed assets		39			—			—
Loss (gain) on sale of marketable securities		81			58			(540		)
Stock compensation		176			107			49
Deferred rent		5			5			73
Changes in operating assets and liabilities:
Accounts receivable		3,446			(4,191		)	1,283
Unbilled revenue		615			(5,545		)	483
Inventory		5,118			(1,017		)	(2,732		)
Prepaid and other current assets		(571		)	155			1,156
Other assets		19			—			(290		)
Accounts payable		(47		)	1,007			341
Accrued compensation		156			180			(1,209		)
Other current accrued liabilities		(37		)	(46		)	(241		)
Deferred revenue		(2,336		)	8,896			(1,405		)
Net cash used for operating activities		(2,065		)	(5,016		)	(21,884		)
Cash flows from investing activities:
Proceeds from maturities or sales of marketable securities		1,067,761			433,393			333,315
Purchases of marketable securities		(1,067,135		)	(430,384		)	(302,806		)
Capital expenditures		(2,435		)	(1,956		)	(3,659		)
Net cash (used for) provided by investing activities		(1,809		)	1,053			26,850
Cash flows from financing activities:
Proceeds from stock options exercised		529			599			4
Repurchases of common stock		—			—			(11,071		)
Net cash provided by (used for) financing activities		529			599			(11,067		)
Net change in cash and cash equivalents		(3,345		)	(3,364		)	(6,101		)
Cash and cash equivalents, beginning balance		6,768			10,132			16,233
Cash and cash equivalents, ending balance		$	3,423		$	6,768		$	10,132
Supplemental disclosure:
Cash paid for income taxes		$	35		$	45		$	38

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005

A.  Nature of Business and Plan of Operations

ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused in the discovery and development of therapeutic monoclonal antibodies and novel treatments in the field of oncology. The Company continues to research and develop its various product candidates and technologies and does not expect to derive revenue from commercial product sales within the foreseeable future. It is anticipated that the Company’s existing capital resources, enhanced by collaborative agreement funding, will enable current and planned operations to be maintained for at least the next three to four fiscal years. However, if the Company is unable to achieve subsequent milestones under its collaborative agreements (see Note C), the Company may be required to defer or limit some or all of its research, development and/or clinical projects.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, collaboration arrangements, third-party reimbursements and compliance with governmental regulations.

B.  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, ImmunoGen Securities Corp. (established in December 1989). All intercompany transactions and balances have been eliminated.

Reclassifications

Prior period amounts have been adjusted to conform to the current year presentation. Certain legal expenses previously included in research and development have been reclassified as general and administrative expense.

Revenue Recognition—Change in Accounting Principle

Effective July 1, 2000, ImmunoGen changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). Under the new accounting method, the Company recognizes revenue from non-refundable, upfront license payments, not specifically tied to a separate earnings process, ratably over the term of the Company’s substantial involvement during development. The cumulative effect of the change in accounting on prior years resulted in a non-cash charge to income of $5.7 million, which was included in the net loss for the year ended June 30, 2001. Included in revenue for the years ended June 30, 2005, 2004 and 2003 is $643,000, $643,000 and $1.1 million, respectively, of revenue that was recognized in years prior to the Company’s adoption of SAB 101 and included in the cumulative effect of the change in accounting principle.

Revenue Recognition

The Company enters into out-licensing and development agreements with collaborative partners for the development of monoclonal antibody-based cancer therapeutics. The Company follows the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (SAB No. 104), Revenue Recognition, and EITF 00-21, Accounting for Revenue Arrangements with Multiple Elements (EITF00-21). In accordance with SAB No. 104 and EITF 00-21, the Company recognizes revenue related to research activities as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable. The terms of the Company’s agreements contain multiple elements which typically include non-refundable license fees, payments based upon the achievement of certain milestones and royalties on product sales. The Company evaluates such arrangements to determine if the deliverables are separable into units of accounting and then applies applicable revenue recognition criteria to each unit of accounting.

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At June 30, 2005, the Company currently has the following three types of collaborative contracts with the counterparties identified below.

Licenses to a single target antigen (single target license):

Biogen Idec, Inc.

• Boehringer Ingelheim International GmbH
• Centocor, Inc., a wholly-owned subsidiary of Johnson and Johnson
• Genentech, Inc. (multiple licenses)
• Millennium Pharmaceuticals, Inc.

Broad option agreements to acquire rights to a limited number of targets over a specified time period (broad license):

• Abgenix, Inc.
• Genentech, Inc.
• Millennium Pharmaceuticals, Inc.

Broad agreement to discover, develop and commercialize antibody-based anticancer products:

• sanofi-aventis

Generally, all of these collaboration agreements provide that the Company will (i) manufacture preclinical and clinical materials for its collaborators, at the collaborators’ request and cost, or, in some cases, cost plus a margin, (ii) receive payments upon the collaborators’ achievements of certain milestones and (iii) receive royalty payments, generally until the later of the last applicable patent expiration or 12 years after product launch. The Company is required to provide technical training and any process improvements and know-how to its collaborators during the term of the collaboration agreements. Practically, once a collaborator receives U. S. Food and Drug Administration (FDA) approval for any drug and the manufacturing process used to produce the drug, the collaborator will not be able to incorporate any process improvements or know-how into its manufacturing process without additional testing and review by the FDA. Accordingly, the Company believes that it is very unlikely that its collaborators will require the Company’s services subsequent to FDA approval.

Generally, upfront payments on single target licenses are deferred over the period of the Company’s substantial involvement during development. ImmunoGen employees are available to assist the Company’s collaborators during the development of their products. The Company estimates this development phase to begin at the inception of the collaboration agreement and conclude when the product receives FDA approval. The Company believes this period of involvement is, on average, six years. At each reporting period, the Company analyzes individual product facts and circumstances and reviews the estimated period of its substantial involvement to determine whether a significant change in its estimates has occurred and adjusts the deferral period accordingly. In the event that a single target license was terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination.

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The Company defers upfront payments received from its broad license over the period during which the collaborator may elect to receive a license. These periods are specific to each collaboration agreement, but are between seven and 12 years. If a collaborator selects an option to acquire a license under these agreements, any option fee is deferred and recorded over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and the Company grants a single target license to the collaborator, the Company defers the license fee and accounts for the fee as it would an upfront payment on a single target license, as discussed above. In the event that a broad license agreement was terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue at the date of such termination.

The Company’s discovery, development and commercialization agreement with sanofi-aventis provided for an upfront payment of $12.0 million that sanofi-aventis paid to ImmunoGen in August 2003. The Company deferred the upfront payment and recognizes it ratably over the period of the Company’s substantial involvement. The Company estimates this period to be five years, which includes the term of the collaborative research program of three years and two 12-month extensions that sanofi-aventis may exercise. The discovery, development and commercialization agreement also provides that ImmunoGen will receive committed funding over the initial three-year period. The committed research funding is based upon resources that ImmunoGen is required to contribute to the collaboration. The Company records the research funding as it is earned based upon its actual resources utilized in the collaboration.

When milestone fees are specifically tied to a separate earnings process, revenue is recognized when the milestone is achieved. In addition, when appropriate, the Company recognizes revenue from certain research payments based upon the level of research services performed during the period of the research contract. Deferred revenue represents amounts received under collaborative agreements and not yet earned pursuant to these policies. Where the Company has no continuing involvement, the Company will record non-refundable license fees as revenue upon receipt and will record milestone revenue upon achievement of the milestone by the collaborative partner.

The Company may produce preclinical and clinical materials for its collaborators and, at the collaborators’ request, may perform research activities, preclinical activities and process development work. The Company also produces preclinical material for potential collaborators under material transfer agreements. Generally, the Company is reimbursed for its fully burdened cost of producing these materials or providing these services. The Company recognizes revenue on preclinical and clinical materials when it has shipped the materials, the materials have passed all quality testing required for collaborator acceptance and title has transferred to the collaborator. The Company recognizes revenue on process development services as those services are performed.

Inventory

Inventory costs primarily relate to clinical trial materials being manufactured for the Company’s collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

Inventory at June 30, 2005 and 2004 is summarized below:

		June 30,
		2005			2004
		(In thousands)
Raw materials, net		$	797		$	2,801
Work in process		723			3,703
Finished goods, net		—			134
Total.		$	1,520		$	6,638

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Inventory cost is stated net of a valuation allowance of $3.7 million and $1.6 million as of June 30, 2005 and June 30, 2004, respectively. The valuation allowance represents the cost of DM1, DM4 (collectively, DMx) and ansamitocin P3 that the Company considers to be in excess of a 12-month supply based on current collaborator firm fixed orders and projections.

DM1and DM4, the Company’s two most advanced small molecule effector drugs, are cytotoxic agents used in TAP product candidates in preclinical and clinical testing, and are the subject of its collaborations. One of the primary components required to manufacture DM1 and DM4 is its precursor, ansamitocin P3. Once manufactured, the ansamitocin P3 may then be converted to DM1 or DM4.

In fiscal 2002, the Company entered into several agreements with two outside vendors to perform large-scale manufacture of DMx and ansamitocin P3. Under the terms of these agreements, these two vendors, together with the Company, will improve the fermentation and conversion processes used to generate ansamitocin P3 and DMx, respectively. Pursuant to these agreements, the two outside vendors also manufacture, under current Good Manufacturing Practices, large-scale batches of ansamitocin P3 and DMx to be used in the manufacture of both the Company’s and its collaborators’ products. Once manufactured, the ansamitocin P3 is either delivered from one vendor to the other vendor for conversion to DMx or to the Company’s Norwood facility.

The actual amount of ansamitocin P3 and DMx that will be produced in future periods under these and other future potential agreements is highly uncertain. The Company currently anticipates that a significant amount of ansamitocin P3 and DMx will be manufactured for the Company for the foreseeable future at these or other manufacturers. If the Company’s and the manufacturers’ process development efforts are successful, the amount of ansamitocin P3 and/or DMx produced could be higher than expected and more than is required to support the development of the Company’s and its collaborators’ products. Such excess product would be charged to research and development expense. The Company anticipates that its investment in ansamitocin P3 and DMx will continue to be significant.

The Company produces preclinical and clinical materials for its collaborators either in anticipation of or in support of clinical trials, or for process development and analytical purposes. Under the terms of supply agreements with three of its collaborators, the Company generally receives rolling six month firm-fixed orders for conjugate that the Company is required to manufacture, and rolling 12-month manufacturing projections for the quantity of conjugate the collaborator expects to need in any given 12-month period. The amount of clinical material produced is directly related to the number of on-going clinical trials for which the Company is producing clinical material for itself and its collaborators, the speed of enrollment in those trials and the dosage schedule of each clinical trial. Because these elements can vary significantly over the course of a trial, the actual amount of conjugate that the Company manufactures can differ significantly from the collaborators’ ultimate requirements. To the extent that a collaborator has provided the Company with a firm fixed order, the collaborator is contractually required to reimburse the Company the full cost of the conjugate, and any margin thereon, even if the collaborator subsequently cancels the manufacturing run.

The Company accounts for the DMx and ansamitocin P3 inventory as follows:

1. That portion of the DMx and/or ansamitocin P3 that the Company intends to use in the production of its own products is expensed as incurred;
2. To the extent that the Company has collaborator projections for no more than 12 months or firm fixed orders, the Company capitalizes the value of DMx and ansamitocin P3 that will be used in the production of conjugate subject to these firm fixed orders and/or projections;
3. The Company considers more than a 12-month supply of ansamitocin P3 and/or DMx that is not supported by collaborators’ firm fixed orders and projections to be excess. The Company establishes a reserve to reduce to zero the value of any such excess ansamitocin P3 or DMx inventory with a corresponding charge to research and development expense; and
4. The Company also considers any other external factors and information of which it becomes aware and assesses the impact of such factors or information on the net realizable value of the DMx and ansamitocin P3 inventory at each reporting period.

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At June 30, 2005, the Company’s on-hand supply of DMx and ansamitocin P3 (including $3.0 million of DMx and $1.8 million of ansamitocin P3 held) represented more than a 12-month supply based upon current collaborator firm fixed orders and projections. In the year ended June 30, 2005, the Company recorded as research and development expense $2.3 million covering quantities of ansamitocin P3 and DMx that the Company has identified as excess based upon the Company’s inventory policy as described above. Additionally, in the year ended June 30, 2005, the Company recorded $369,000 to write down certain batches of ansamitocin P3 and DMx to their net realizable value. Any changes to the Company’s collaborators’ projections could result in significant changes in the Company’s estimate of the net realizable value of DMx and ansamitocin P3 inventory. Reductions in collaborators’ projections could indicate that the Company has additional excess DMx and/or ansamitocin P3 inventory and the Company would then evaluate the need to record further valuation allowances, included as charges to research and development expense.

Unbilled Revenue

The majority of the Company’s Unbilled Revenue at June 30, 2005 and 2004 represents (i) committed research funding earned based on actual resources utilized under the Company’s discovery, development and commercialization agreement with sanofi-aventis; (ii) reimbursable expenses incurred under the Company’s discovery, development and commercialization agreement with sanofi-aventis that the Company has not yet invoiced; (iii) research funding earned based on actual resources utilized under the Company’s development and license agreements with Biogen Idec and Centocor; and (iv) clinical materials that have passed quality testing, that the Company has shipped and title has transferred to the collaborator, but the Company has not yet invoiced.

Other Current Accrued Liabilities

Other current accrued liabilities consisted of the following at June 30, 2005 and 2004:

		June 30,
		2005			2004
		(In thousands)
Accrued contract payments		$	282		$	592
Accrued public reporting charges		138			135
Accrued professional services.		267			183
Accrued employee benefits .		487			325
Other current accrued liabilities		153			129
Total.		$	1,327		$	1,364

Use of Estimates

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

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Research and Development Costs

We report research and development expense net of certain reimbursements we receive from our collaborators. Our net research and development expenses consist of (i) research to identify and evaluate new targets and to develop and evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing of our own and, in certain instances, preclinical testing of our collaborators’ product candidates and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes, and  (iv) manufacturing operations. The Company’s research efforts are primarily focused in the following areas:

• Our activities pursuant to our discovery, development and commercialization agreement with sanofi-aventis;
• ·The Company’s contributions to the preclinical and clinical development of huN901-DM1 and huC242-DM4;
• Process development related to clinical and commercial production of the huN901 antibody and huN901-DM1 conjugate;
• Process development related to clinical and commercial production of the huC242 antibody and huC242-DM4 conjugate;
• Process improvements related to the production of DM1, DM4, and strain development of their precursor, ansamitocin P3;
• Operation and maintenance of the Company’s pilot scale manufacturing plant;
• Process improvements to our TAP technology;
• Identification and evaluation of potential antigen targets;
• Evaluation of internally developed and in-licensed antibodies; and
• Development and evaluation of additional cytotoxic agents.

Income Taxes

The Company uses the liability method to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax basis of assets and liabilities, as well as net operating loss carry forwards and tax credits and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. A valuation allowance against net deferred tax assets is recorded if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Financial Instruments and Concentration of Credit Risk

The Company has no significant off-balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Cash and cash equivalents are primarily maintained with two financial institutions in the United States. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of marketable securities. Marketable securities consist of United States Treasury bonds, high-grade corporate bonds, asset-backed and United States government agency securities, banknotes and commercial paper. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment and to investments with effective maturity dates that do not extend more than two years, thereby reducing credit risk concentrations.

Cash Equivalents

Cash equivalents consists principally of money market funds and other investments with original maturities of three months or less at the date of purchase at June 30, 2005 and 2004. The Company considers all investments purchased to be marketable securities.

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Marketable Securities

The Company invests in marketable securities of highly rated financial institutions and investment-grade debt instruments and limits the amount of credit exposure with any one entity. The Company has classified its marketable securities as “available-for-sale” and, accordingly, carries such securities at aggregate fair value. Unrealized gains and losses, if any, are reported as other comprehensive income (loss) in stockholders’ equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses on available-for-sale securities are included in interest income and expense. The cost of securities sold is based on the specific identification method. Interest and dividends are included in interest income.

Property and Equipment

Property and equipment are stated at cost. The Company provides for depreciation based upon expected useful lives using the straight-line method over the following estimated useful lives:

Machinery and equipment		3-5 years
Computer hardware and software		3-5 years
Furniture and fixtures		5 years
Leasehold improvements		Shorter of remaining lease term or estimated useful life

Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost of disposed assets and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such may not be recoverable. The Company recorded a $39,000 loss on the disposal of certain equipment during the year ended June 30, 2005. No revision to the estimated useful life of property or equipment was required.

Computation of Net Loss Per Common Share

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. Diluted net loss per share incorporates the dilutive effect of stock options, warrants and other convertible securities. The total number of options and warrants convertible into ImmunoGen Common Stock and the resulting ImmunoGen Common Stock equivalents, as calculated in accordance with the treasury-stock accounting method, are included in the following table:

		June 30,
		2005		2004		2003
		In thousands
Options and warrants convertible into Common Stock		6,202		5,595		5,427
Common Stock equivalents		1,633		1,733		900

ImmunoGen Common Stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

Stock-Based Compensation

In accounting for its stock-based compensation plans, the Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations for all awards granted to employees. Under APB 25, when the exercise price of options granted to employees under these plans equals the market price of the common stock on the date of grant, no compensation expense is recorded. When the exercise price of options granted to employees under these plans is less than the market price of the common stock on the date of grant, compensation expense is recognized over the vesting period on a straight line basis. For stock options granted to non-employees, the Company recognizes compensation expense in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock Based Compensation” (SFAS 123). SFAS 123 requires that companies recognize compensation expense based on the estimated fair value of options granted to non-employees over their vesting period, which is generally the period during which services are rendered by such non-employees.

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Had compensation costs for the Company’s stock based employee compensation been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” the Company’s basic and diluted net loss per common share for the years ended June 30, 2005, 2004, and 2003 would have been adjusted to the pro forma amounts indicated below:

		Year Ended June 30,
		2005			2004			2003
		(In thousands, except per share data)
Net loss, as reported		$	(10,951	)	$	(5,917	)	$	(19,982	)
Add: Total stock-based compensation expense determined under the intrinsic value method for all employee awards		11			13			1
Deduct: Total stock-based compensation expense determined under the fair value method for all employee awards		(2,832		)	(4,530		)	(6,520		)
Pro forma net loss		$	(13,772	)	$	(10,434	)	$	(26,501	)
Basic and diluted net loss per common share, as reported		$	(0.27	)	$	(0.15	)	$	(0.48	)
Basic and diluted net loss per common share, pro forma		$	(0.34	)	$	(0.26	)	$	(0.63	)

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

		Year Ended June 30,
		2005		2004		2003
Dividend yield		None		None		None
Volatility		89.87	%	94.26	%	97.64	%
Risk-free interest rate		3.70	%	3.71	%	2.46	%
Expected life (years)		5.9		5.5		5.5

Using the Black-Scholes option-pricing model, the weighted average fair value of options granted during fiscal 2005, 2004 and 2003 was $4.15, $4.94, and $2.94 per share, respectively.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the use of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock-based compensation.

Comprehensive Loss

The Company presents comprehensive loss in accordance with SFAS 130, “Reporting Comprehensive Income.” Comprehensive income (loss)  is  comprised of  the Company’s net loss for the period and unrealized gains and losses recognized on available-for-sale marketable securities.

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Segment Information

During the three fiscal years ended June 30, 2005, the Company operated in one reportable business segment under the management approach of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the business of discovery of monoclonal antibody-based cancer therapeutics.

Revenues from sanofi-aventis accounted for approximately 63% and 61% of revenues for the years ended June 30, 2005 and 2004, respectively. Revenues from Millennium accounted for approximately 13%, 16%, and 39% of revenues for the years ended June 30, 2005, 2004, and 2003, respectively. Revenues from Boehringer Ingelheim accounted for approximately 13%, 28%, and 14% of revenues for the years ended June 30, 2005, 2004, and 2003, respectively. Revenues from Vernalis accounted for approximately 2%, 10%, and 15% of revenues for the years ended June 30, 2005, 2004, and 2003, respectively. There were no other significant customers in fiscal 2005, 2004 and 2003.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of Statement of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be expensed based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) must be adopted no later than the beginning of the first fiscal year beginning after June 15, 2005. The Company must adopt Statement 123(R) on July 1, 2005.

Statement 123(R) permits public companies to adopt its requirements using one of two methods: a “modified prospective method” in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date or a “modified retrospective” method, which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company intends to apply the Modified Prospective  Method of adoption in its application of Statement 123(R).

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. We currently estimate that the impact of adoption of SFAS 123(R) in fiscal 2006 will result in compensation expense of approximately $1.9 million (unaudited). The impact of adoption of Statement 123(R) beyond fiscal 2006 cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net loss per share in this note to our consolidated financial statements.

On November 29, 2004, the FASB issued Statement No. 151, Inventory Costs, an amendment to ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities.

The FASB and the International Accounting Standard Board (IASB) noted that ARB 43, Chapter 4 and IAS 2, Inventories, are both based on the principle that the primary basis of accounting for inventory is cost. Both of those accounting standards also require that abnormal amounts of idle freight, handling costs, and wasted materials be recognized as period costs; however, the Boards noted that differences in the wording of the two standards could lead to inconsistent application of those similar requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting language similar to that used in IAS 2 is consistent with its goals of improving financial reporting in the United States and promoting convergence of accounting standards internationally. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe adoption of SFAS 151 will have a material impact on its results of operations or financial position.

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C.  Agreements

Out-Licenses

Sanofi-aventis

In July 2003, the Company and Aventis Pharmaceuticals, Inc. entered into a broad collaboration agreement to discover, develop and commercialize anticancer therapeutics. In August 2004, Aventis completed its merger with Sanofi-Synthelabo; the combined entity is now known as sanofi-aventis. To date, this merger has not had an adverse effect on our collaboration. The Company cannot predict, however,  the effect, if any, that this merger may have on its relationship with sanofi-aventis in the future.

The agreement provides sanofi-aventis with worldwide commercialization rights to new product candidates created through the collaboration as well as worldwide commercialization rights to three product candidates in ImmunoGen’s pipeline: a TAP compound for acute myeloid leukemia (AVE9633), anti-IGF-1R antibody and a TAP compound for certain B-cell malignancies. The overall term of the agreement extends to the later of the latest patent to expire or 12 years after the latest launch of any product discovered, developed and/or commercialized under the agreement. The agreement provides that ImmunoGen will receive a minimum of $50.7 million of committed research funding during a three-year research program period. Sanofi-aventis has the option, with 12 months’ advance notice, to request that ImmunoGen extend the research program for two additional 12-month periods. If sanofi-aventis requests an extension of the research program for one or both periods, the Company and sanofi-aventis will negotiate the research funding level for each such extension period at the time such extension is requested. Sanofi-aventis paid to ImmunoGen an upfront fee of $12.0 million in August 2003. The Company has deferred the upfront fee and is recognizing it as revenue over ImmunoGen’s estimated period of substantial involvement. The Company estimates this period to be five years, which includes the term of the collaborative research program in addition to two 12-month extensions that sanofi-aventis may exercise. Sanofi-aventis must notify us no later than August 31, 2005 if they intend to extend the research program for the first additional 12-month period that begins in September, 2006. The collaboration agreement also provides for certain other payments based on the achievement of product candidate milestones and royalties on sales of any resulting products, if and when such sales commence. Assuming all benchmarks are met, the Company will receive milestone payments of between $21.5 million and $30.0 million per antigen target.

The agreement provides ImmunoGen an option to certain co-promotion rights in the United States on a product-by-product basis. Sanofi-aventis will be responsible for product development, manufacturing, and commercialization, and will cover all associated costs for any products created through the collaboration. ImmunoGen will be reimbursed for any preclinical and clinical materials that it makes under the agreement.

The terms of the Company’s collaboration agreement with sanofi-aventis place certain restrictions upon ImmunoGen. Subject to the Company’s obligations under its other collaboration agreements that were in effect at the time the Company signed the collaboration agreement with sanofi-aventis, (i) ImmunoGen may only enter into a specified number of additional single target TAP and/or antibody humanization collaboration agreements and (ii) during the term of the collaborative research program and for a specified period thereafter, ImmunoGen is prohibited from entering into any single target license, other than with sanofi-aventis, utilizing the Company’s TAP technology to bind any taxane effector molecule to any antibody. Additionally, the terms of the collaboration agreement allow sanofi-aventis to elect to terminate ImmunoGen’s participation in the research program and/or the Company’s co-promotion rights upon a change of control of ImmunoGen.

In September 2004, sanofi-aventis confirmed that one of the product candidates under its agreement with the Company had achieved a certain milestone. The achievement of this milestone, under the terms of the sanofi-aventis agreement, triggered a payment of $500,000 from sanofi-aventis to ImmunoGen. Additionally, in March 2005, sanofi-aventis informed us that it initiated clinical testing of one of the product candidates under its agreement with the Company, the anti-CD33 TAP compound AVE9633, which triggered the receipt and recognition of $2 million related to the achievement of this milestone.

Biogen Idec, Inc,

In October 1, 2004, the Company entered into a development and license agreement with Biogen Idec, Inc. Under the terms of this agreement, Biogen Idec will receive exclusive rights to develop and commercialize anticancer therapeutics that comprise an antibody developed by Biogen Idec that binds to an undisclosed tumor cell target and a maytansinoid cell-killing agent developed by ImmunoGen. Biogen Idec will be responsible for the research, development, manufacturing, and marketing of any products resulting from the license. Under the terms of the agreement, the Company received an upfront payment of $1.0 million upon execution of the agreement. This upfront amount is subject to credit, as defined, if Biogen Idec does not submit certain regulatory filings by June 30, 2008. As a result, the Company will defer the amount subject to credit until this deadline lapses or upon the occurrence of the regulatory filing. Thereafter, the Company will recognize the fee over the estimated remaining period of substantial involvement. In addition to royalties on future product sales, when and if such sales commence, the terms of the agreement include certain other payments upon Biogen Idec’s achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive approximately $42.0 million of milestone payments under this agreement.

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Boehringer Ingelheim International GmbH

In November 2001, the Company entered into a collaboration agreement with Boehringer Ingelheim to develop a new product combining our maytansinoid technology with a Boehringer Ingelheim antibody. Under the terms of the agreement, the Company received an upfront payment upon commencement of the agreement and could receive, based upon the exchange rate on November 27, 2001, the effective date of the agreement, approximately $41.5 million in potential payments upon Boehringer Ingelheim’s achievement of certain milestones in addition to royalty payments on future product sales, if and when they commence.  In October 2002, Boehringer Ingelheim confirmed with ImmunoGen that clinical trials of the novel anticancer agent, bivatuzumab mertansine, composed of ImmunoGen’s DM1 effector molecule and Boehringer Ingelheim’s anti-CD44v6 antibody had commenced on or about September 24, 2002. The achievement of this milestone triggered a payment of $1.0 million from Boehringer Ingelheim to ImmunoGen. The milestone payment is included in license and milestone fee for the fiscal year ended June 30, 2003. On February 7, 2005, Boehringer Ingelheim notified the Company that development of bivatuzumab mertansine had been discontinued. Under the 2001 agreement, Boehringer Ingelheim can use ImmunoGen’s DM1 to create an anticancer compound to a different antigen target in the event Boehringer Ingelheim chooses to discontinue development of the anti-CD44v6 TAP compound at an early stage. Boehringer Ingelheim retained its right to use ImmunoGen’s DM1 TAP technology and has exercised its right to create an anticancer compound to a different antigen.

Centocor, Inc.

On December 23, 2004, the Company entered into a development and license agreement with Centocor, Inc., a wholly-owned subsidiary of Johnson and Johnson. Under the terms of this agreement, Centocor will receive exclusive worldwide rights to develop and commercialize anticancer therapeutics that comprise an antibody developed by Centocor that binds  to an undisclosed cancer target and a maytansinoid cell-killing agent developed by ImmunoGen. Centocor will be responsible for the research, development, manufacturing, and marketing of any products resulting from the license. Under the terms of the agreement, the Company received a non-refundable upfront payment of $1.0 million upon execution of the agreement. The Company has deferred the upfront payment and will recognize this amount as revenue over the period of the Company’s substantial involvement, which is estimated to be six years. In addition to royalties on future product sales, when and if such sales commence, the terms of the agreement include certain other payments upon Centocor’s achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive approximately $42.5 million of milestone payments under this agreement.

Millennium Pharmaceuticals, Inc.

In March 2001, the Company entered into a five-year collaboration agreement with Millennium. The agreement provides Millennium access to the Company’s TAP technology for use with Millennium’s proprietary antibodies. Millennium acquired a license to utilize the Company’s TAP technology in its antibody product research efforts and an option to obtain product licenses for a restricted number of antigen targets during the collaboration. ImmunoGen received a non-refundable upfront fee of $2.0 million in the third quarter of 2001. The upfront fee has been deferred and is being recognized over the period during which Millennium may elect to acquire a license to utilize the Company’s TAP technology with one of Millennium’s antibodies. Pursuant to this agreement, in February 2002, Millennium signed an exclusive product license to the Company’s maytansinoid technology for use with Millennium’s antibody MLN591. MLN591 is directed towards the extracellular domain of Prostate Specific Membrane Antigen. ImmunoGen received a non-refundable license fee from Millennium when the license agreement was signed. The license fee was deferred and is being recognized ratably over the Company’s period of substantial involvement during development, which the Company estimates to be six years. In November 2002, Millennium informed ImmunoGen that clinical trials of MLN2704, composed of ImmunoGen’s DM1 effector molecule and Millennium’s MLN591 antibody, had been initiated. The achievement of this milestone triggered a payment of $1.0 million from Millennium to ImmunoGen. The milestone payment is included in license and milestone fee revenue for the fiscal year ended June 30, 2003. The collaboration agreement also provides for certain other payments based on Millennium’s achievement of milestones and royalties on sales of any resulting product, if and when such sales commence. Assuming all benchmarks are met, the Company will receive license and milestone payments of approximately $41.0 million per antigen target.

Millennium will be responsible for product development, manufacturing and marketing of any products developed through the collaboration. ImmunoGen will be reimbursed for any preclinical and clinical materials that it makes under the agreement. The agreement can be renewed for one subsequent three-year period for an additional technology access fee.

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Abgenix, Inc.

In September 2000, the Company entered into a collaboration agreement with Abgenix. The agreement provides Abgenix with access to the Company’s maytansinoid technology for use with Abgenix’s antibodies along with the ability to acquire both exclusive and nonexclusive options to obtain product licenses for antigen targets. Each option has a specified option period during which Abgenix may obtain a product license. Under this agreement Abgenix has the right to extend each option period by a specified amount of time in exchange for an extension fee. The Company received a total of $5.0 million in technology access fee payments from Abgenix and is entitled to potential milestone payments and royalties on net sales of resulting products, if and when such sales commence. At June 30, 2005, $3.1 million of the technology access fees remained as deferred revenue to be recognized over the period during which Abgenix may elect to acquire a license to utilize the Company’s TAP technology with one of Abgenix’s antibodies. On September 7, 2000, Abgenix purchased $15.0 million of the Company’s common stock in accordance with the agreement. In June 2002, Abgenix was granted a non-exclusive option to acquire a license to another TAP product in exchange for a nominal option fee. The non-exclusive option fee was deferred and recognized over the option period. Abgenix may renew the non-exclusive option for an additional period in exchange for an extension fee. ImmunoGen’s agreement with Abgenix will terminate upon expiration of a 10-year term during which the Company has given Abgenix access to our technology. For each of the years ended June 30, 2005, 2004 and 2003, the Company recognized as collaboration revenue $400,000 of the technology access fees.

Vernalis plc

In August 2003, Vernalis completed its acquisition of British Biotech. In connection with the acquisition, the merged company, called Vernalis plc, announced that it intended to review its merged product candidate portfolio, including its collaboration with ImmunoGen on huN901-DM1. After discussion with Vernalis, in January 2004 the Company announced that ImmunoGen would take over future development of the product, which will include advancement of huN901-DM1 into a clinical trial managed by ImmunoGen. Pursuant to the terms of the termination agreement dated January 7, 2004, Vernalis, which relinquished its right to the product, will, at its own expense, complete the study underway in the United Kingdom, Study 002. As of July 1, 2004, ImmunoGen is responsible for completion of the study underway in the United States, Study 001, and further development of huN901-DM1. In connection with the termination of Vernalis’ license, ImmunoGen recorded as revenue in the year ended June 30, 2004 the $1.5 million upfront fee it received when the original agreement was signed and deferred for accounting purposes. In addition, ImmunoGen recorded $250,000 pursuant to its termination agreement with Vernalis.

Genentech, Inc.

In May 2000, the Company executed two separate agreements with Genentech. The first agreement grants an exclusive license to Genentech for ImmunoGen’s maytansinoid technology for use with antibodies, such as trastuzumab (Herceptin®), that target the HER2 cell surface receptor. Under the terms of the agreement, Genentech receives exclusive worldwide rights to commercialize TAP compounds for cancers expressing the HER2 antigen. Genentech will be responsible for product development, manufacturing and marketing of any products resulting from the agreement; ImmunoGen will be reimbursed for any preclinical and clinical materials that it manufactures under the agreement. ImmunoGen received a $2.0 million non-refundable payment for execution of the agreement. The upfront fee was deferred and is being recognized ratably over the Company’s period of substantial involvement during development, currently estimated to be seven years. In addition to royalties on net sales, when and if such sales commence, the terms of the agreement include certain other payments based upon Genentech’s achievement of milestones. Assuming all benchmarks are met, ImmunoGen will receive approximately $39.5 million of upfront and milestone payments.

In May 2000, the Company entered into a second agreement with Genentech which provides Genentech with broad access to ImmunoGen’s TAP technology for use with Genentech’s other proprietary antibodies. This multi-year agreement provides Genentech with a license to utilize ImmunoGen’s TAP platform in its antibody product research efforts and an option to obtain product licenses for a limited number of antigen targets over the agreement’s five-year term. Under this agreement, the Company received a non-refundable technology access fee of $3.0 million in May 2000. The upfront fee was deferred and  recognized ratably over the period during which Genentech may elect to receive a product license. This agreement also provides for other payments based upon Genentech’s achievement of milestones per antigen target and royalties on net sales of any resulting products. Assuming all benchmarks are met, the Company will receive approximately $39.0 million in license and milestone payments per antigen target under this agreement. Genentech will be responsible for manufacturing, product development and marketing of any products developed through this collaboration. ImmunoGen will be reimbursed for any preclinical and clinical materials that it manufactures under the agreement. The May 2000 agreement included a provision that allows Genentech to renew the agreement for one additional three-year term by payment of a $2.0 million access fee. On April 27, 2005, Genentech confirmed its intention to renew the agreement and paid the $2.0 million technology access fee to ImmunoGen. At June 30, 2005, $1.9 million of the technology access renewal fee remained as deferred revenue to be recognized over the three-year renewal term.

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On April 27, 2005 and July 22, 2005, Genentech licensed exclusive rights to use ImmunoGen’s maytansinoid TAP technology with its therapeutic antibodies to two undisclosed targets. These licenses are in addition to the existing agreement between the companies that grants Genentech exclusive rights to use ImmunoGen’s technology with therapeutic antibodies to HER2. Under the terms defined in the May 2000 agreement, ImmunoGen received a $1.0 million license fee for each license, and is entitled to receive milestone payments; ImmunoGen also is entitled to receive royalties on the sales of any resulting products. Genentech is responsible for the development, manufacturing, and marketing of any products resulting from the licenses.

GlaxoSmithKline plc

In February 1999, the Company entered into an exclusive agreement with SmithKline Beecham plc, London, England and SmithKline Beecham, Philadelphia, Pennsylvania, now wholly-owned subsidiaries of GlaxoSmithKline plc, to develop and commercialize the Company’s TAP product, cantuzumab mertansine, for the treatment of colorectal, pancreatic, gastric and certain non-small-cell lung cancers. In January 2003, the Company announced that pursuant to the terms and conditions of the agreement between GlaxoSmithKline and ImmunoGen, GlaxoSmithKline gave written notice to ImmunoGen that GlaxoSmithKline would relinquish its rights to develop and commercialize cantuzumab mertansine under the license. In February 2003, the Company regained the development and commercialization rights to cantuzumab mertansine from GlaxoSmithKline, thereby terminating the product license. The agreement provided that, at the Company’s option, and subject to certain conditions, GlaxoSmithKline would purchase up to $5.0 million of its Common Stock. Between the signing of the agreement and June 30, 2004, GlaxoSmithKline had purchased, pursuant to ImmunoGen’s put option, $2.5 million of the Company’s common stock.

Through June 30, 2003, the Company had received an upfront fee of $1.0 million and four milestones totaling $10.5 million under the GlaxoSmithKline agreement. In the quarter ended March 31, 2003, the Company recognized as revenue $348,000, the portion of the upfront payment GlaxoSmithKline paid to ImmunoGen that remained in deferred revenue at the termination date. Included in license and milestone fees in the statement of operations for the years ended June 30, 2004 and 2003 are $431,000 and $167,000, respectively, of the previously received upfront payment that was recognized as revenue.

In February 2003, GlaxoSmithKline and ImmunoGen finalized all outstanding financial matters under their various collaboration agreements. Included in other income for the year ended June 30, 2003 is $1.4 million, which represents the final financial settlement of the GlaxoSmithKline collaboration.

Other Licenses

MorphoSys AG

In September 2000, the Company entered into a collaboration agreement with MorphoSys. Pursuant to this agreement, MorphoSys has identified fully human antibodies against a specific cell surface marker that the Company previously identified through its apoptosis research. This cell marker is associated with a number of forms of cancer. The Company is currently evaluating one of the antibodies produced under this collaboration. The Company will pay development-related milestone payments and royalties on net sales of resulting products, if any, if and when such sales commence. ImmunoGen can terminate this agreement unilaterally at any time.

In June 2001, the Company entered into a second collaboration agreement with MorphoSys. Under this second agreement, the Company licensed MorphoSys’ HuCAL® technology for the generation of research antibodies. During the fiscal years ended June 30, 2003, 2004, and 2005, the Company recorded an annual license fee of $250,000 paid to MorphoSys as research and development expense. In June 2005, we amended the agreement including extending the term for one year. The Company can terminate this agreement unilaterally at any time.

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Other Agreements

BioInvent International AB

In June 2001, the Company and BioInvent International AB entered into a monoclonal antibody supply agreement. Under the terms of the agreement, BioInvent will perform process qualification and manufacture one of the Company’s monoclonal antibodies pursuant to current Good Manufacturing Practices. Under the terms of the agreement, the Company pays a stated price per gram of antibody, adjustable based upon production volumes. The Company prepaid $265,000 and $517,000 upon the signing of the letter of intent and the signing of the agreement, respectively. The Company also made payments of $995,000 during the year ended June 30, 2002, based upon other milestones included in the contract. The Company paid BioInvent $1.9 million during the year ended June 30, 2003. As of June 30, 2004, the Company had received all material under the monoclonal antibody supply agreement.

In December 2002, the Company and BioInvent International AB entered into an additional supply agreement to produce a second monoclonal antibody. The monoclonal antibody that is the subject of the second agreement is a component of one of the products that the Company licensed to sanofi-aventis. The Company prepaid $433,000 upon the signing of the agreement. The Company made payments and recorded as research and development expense $818,000 and $98,000 during the years ended June 30, 2004 and 2003, respectively, based upon other milestones included in the supply agreement. As of June 30, 2004, the Company had received delivery of a portion of material under this monoclonal antibody supply agreement. Sanofi-aventis reimbursed ImmunoGen $1.3 million, the total cost of the antibody. The Company recorded the reimbursement as Other Income during the year ended June 30, 2004.

Laureate Pharma, L.P.

In April 2004, ImmunoGen and Laureate Pharma, L.P.(Laureate) entered into a monoclonal antibody supply agreement. Under the terms of the agreement, Laureate will perform process qualification and manufacture one of our monoclonal antibodies pursuant to current Good Manufacturing Practices. Under the terms of the agreement, the Company pays a stated price per manufactured batch of antibody, adjustable as defined in the agreement. The Company made payments, and recorded as research and development expense, $1.3 million and $333,000 during the years ended June 30, 2005 and 2004, respectively.

D.  Marketable Securities

As of June 30, 2005, $3.4 million in cash and money market funds were classified as cash and cash equivalents. The Company’s cash, cash equivalents and marketable securities as of June 30, 2005 are as follows:

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Estimated Fair Value
Cash and money market funds		$	3,423		$	—		$	—			$	3,423
Commercial paper		988			—			—				988
Government treasury notes
Due in one year or less		30,793			20			(19		)		30,794
Federal agencies
Due in one year or less		11,930			—			(14		)		11,916
Due in one to three years		994			—			—				994
Asset-backed securities
Due in one year or less		25,189			4			(73		)		25,120
Due in one to three years		1,554			—			(2		)		1,552
Corporate notes
Due in one year or less		15,788			2			(12		)		15,778
Total		$	90,659		$	26		$	(120	)		$	90,565
Less amounts classified as cash and cash equivalents		3,423			—			—				3,423
Total marketable securities		$	87,236		$	26		$	(120	)		$	87,142

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As of June 30, 2004, $6.8 million in cash and money market funds were classified as cash and cash equivalents. The Company’s cash, cash equivalents and marketable securities as of June 30, 2004 are as follows:

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Estimated Fair Value
Cash and money market funds		$	6,768		$	—		$	—			$	6,768
Commercial paper		71			—			—				71
Government treasury notes
Due in one year or less		36,611			—			(14		)		36,597
Federal agencies
Due in one year or less		13,864			—			(9		)		13,855
Asset-backed securities
Due in one year or less		24,462			25			(75		)		24,412
Due in one to three years		3,158			2			(26		)		3,134
Corporate notes
Due in one year or less		8,844			6			(17		)		8,833
Due in one to three years		934			6			—				940
Total		94,712			39			(141		)		94,610
Less amounts classified as cash and cash equivalents		6,768			—			—				6,768
Total marketable securities		$	87,944		$	39		$	(141	)		$	87,842

In 2005, the Company realized gross losses of $81,000 and no realized gross gains. In 2004, gross realized losses totaled $64,000 and gross realized gains totaled $6,000. In 2003, gross realized losses totaled $56,000 and gross realized gains totaled $596,000.

The aggregate fair value of investments with unrealized losses was approximately $71.4 million and $53.1 million as of June 30, 2005 and 2004, respectively. All such investments have been or were in an unrealized loss position for less than a year. The Company reviews its investments for other than temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying value is not recoverable within a reasonable period of time. Investments in an unrealized loss position were caused by fluctuations in interest rates. The Company reviewed its investments with unrealized losses and has concluded that no other-than-temporary impairment existed at June 30, 2005 and 2004.

E.  Property and Equipment

Property and equipment consisted of the following at June 30, 2005 and 2004:

		June 30,
		2005			2004
		(In thousands)
Machinery and equipment		$	8,354		$	6,445
Computer hardware and software		1,315			1,165
Assets under construction		87			3,949
Furniture and fixtures		361			213
Leasehold improvements		15,776			11,818
		25,893			23,590
Less accumulated depreciation		(16,010		)	(13,880		)
Property and equipment, net		$	9,883		$	9,710

Depreciation expense was approximately $2.2 million, $1.3 million, and $1.1 million for the years ended June 30, 2005, 2004 and 2003, respectively.

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F.  Income Taxes

The difference between the Company’s expected tax benefit, as computed by applying the U.S. federal corporate tax rate of 34% to income (loss) before the provision for income taxes, and actual tax is reconciled in the following chart (in thousands):

		Year Ended June 30,
		2005			2004			2003
Loss before income tax expense		$	(10,922	)	$	(5,871	)	$	(19,947	)
Expected tax benefit at 34%		$	(3,713	)	$	(1,996	)	$	(6,782	)
State tax benefit net of federal benefit		(685		)	(368		)	(1,125		)
Unbenefitted losses		4,525			2,403			7,938
Other		(98		)	7			4
Income tax provision		$	29		$	46		$	35

At June 30, 2005, the Company has net operating loss carry forwards of approximately $168.6 million available to reduce federal taxable income that expire in 2006 through 2025 and $63.3 million available to reduce state taxable income that expire in 2006 through 2010. A portion of such carry forwards related to the exercise of stock options and the related tax benefit will result in an increase in additional paid-in capital if and when realized. The Company also has federal and state research tax credits of approximately $10.3 million available to offset federal and state income taxes, which expire beginning in 2006. Due to the degree of uncertainty related to the ultimate use of the loss carry forwards and tax credits, the Company has established a valuation allowance to fully reserve these tax benefits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of June 30, 2005 and 2004 are as follows (in thousands):

		June 30,
		2005			2004
Net operating loss carry forwards		$	61,277		$	59,602
Research and development tax credit carry forwards		8,980			8,398
Capitalized research costs		544			826
Property and other intangible assets		2,690			2,446
Deferred revenue		7,575			7,255
Other liabilities		347			601
Total deferred tax assets		81,413			79,128
Valuation allowance		(81,413		)	(79,128		)
Net deferred tax assets		$	—		$	—

The valuation allowance increased by $2.3 million during 2005 due primarily to an increase in net operating loss carryforwards related to the Company’s net loss offset by write-offs of expiring federal and state net operating loss carry forwards and research and development credits.

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G.   Capital Stock

Common and Preferred Stock

In July 1997, the Company’s then majority-owned subsidiary, ATI, entered into a collaboration with BioChem Pharma, Inc. (BioChem Pharma). As part of the agreement, BioChem Pharma received warrants to purchase shares of ImmunoGen Common Stock equal to $11.1 million, the amount invested in ATI by BioChem Pharma during the three-year research term. These warrants were exercisable at any time on or after July 31, 2000, until and including July 31, 2002, into a number of shares of ImmunoGen common stock determined by dividing $11.1 million by the average closing price per share of the ImmunoGen common stock, as reported by Nasdaq, for the five days preceding the exercise of the warrant, subject to certain limitations. On July 29, 2002, Shire Biochem, Inc. (Shire), as successor in interest to BioChem Pharma, delivered to the Company a notice of exercise of warrants and Shire delivered 11,000 shares of ATI in lieu of cash to exercise the warrants. The Company issued to Shire 4.096 million shares of restricted common stock of the Company. Upon the request of Shire and pursuant to the Registration Rights Agreement dated July 31, 1997 between the two parties, on September 26, 2002, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the resale by Shire of the shares of common stock issued upon the exercise of the warrants.

In March 2002, the Company issued 189,000 restricted shares of the Company’s common stock to settle an existing claim.

On May 12, 2004, the Board of Directors of ImmunoGen terminated, effective immediately, the share repurchase program that it originally authorized in August 2002. The Board of Directors of the Company had authorized the repurchase of up to 4.1 million shares of the Company’s common stock. The repurchases were to be made at the discretion of management and as market conditions warranted. Through May 12, 2004, the Company had repurchased 3.675 million shares of its common stock at a total cost of $11.1 million.

Warrants

In connection with ImmunoGen’s November 2000 public offering of stock, the Company issued an existing holder of ImmunoGen warrants an additional warrant, expiring in November 2005, to acquire 340,000 shares of common stock at an exercise price of $38.00 per share. The warrant remains outstanding as of June 30, 2005.

Common Stock Reserved

At June 30, 2005, the Company has reserved 7.242 million shares of authorized common stock for the future issuance of shares under the Company’s Restated Stock Option Plan, 2001 Non-Employee Director Stock Plan and for all outstanding warrants.

Stock Options

Under the Company’s Restated Stock Option Plan as amended, or the Plan, employees, consultants and directors may be granted options to purchase shares of common stock of the Company. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

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On November 9, 2004, the shareholders of the Company approved amendments to the Restated Stock Option Plan to increase the aggregate shares for which stock options may be granted under the Plan from 7.350 million to 8.550 million. The Plan was also amended to ensure that non-qualified options issued under the Plan do not have a price per share less than fair market value on the date of grant. Further, the Plan was similarly amended to require shareholder approval of material amendments to the Plan. In addition to options granted under the Plan, the Board previously approved the granting of other non-qualified options.

Information related to stock option activity under the Plan and outside of the Plan during fiscal years 2003, 2004 and 2005 is as follows:

		Options Issued Under the Plan						Non-qualified Options Issued Outside of the Pla
		Shares			Average Price per Share			Shares		Average Price per Share
Outstanding at June 30, 2002		4,350			$	7.53		10		$	12.00
Granted		874			3.85			—		—
Exercised		(2	)		1.76			—		—
Forfeited		(34	)		10.16			—		—
Expired		(101	)		11.29			(10		12.00
Outstanding at June 30, 2003		5,087			$	6.89		—		$	—
Granted		682			6.53			—		—
Exercised		(194	)		3.08			—		—
Forfeited		(256	)		9.91			—		—
Expired		(64	)		6.63			—		—
Outstanding at June 30, 2004		5,255			$	6.84		—		$	—
Granted		1,106			5.48			—		—
Exercised		(231	)		2.29			—		—
Forfeited		(267	)		7.56			—		—
Expired		(1	)		2.06			—		—
Outstanding at June 30, 2005		5,862			$	6.73		—		$	—

The following table summarizes aggregate information about total stock options outstanding under the Plan and outside the Plan at June 30, 2005:

		Options Outstanding							Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price			Number Exercisable		Weighted-Average Exercise Price
$  0.84 -   2.25		1,273		2.78		$	1.37		1,267		$	1.36
2.30 -   3.95		1,507		5.86		3.57			1,343		3.55
4.06 -   6.27		1,416		9.44		5.70			164		6.20
6.36 - 20.75		1,635		5.75		14.31			1,445		15.13
23.94 - 39.13		31		1.51		28.03			31		28.03
		5,862							4,250

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The Company has granted options at the fair market value of the common stock on the date of such grant. The following options and their respective average prices per share were outstanding and exercisable at June 30, 2005, 2004 and 2003:

		Outstanding				Average Price Per Share					Exercisable				Average Price Per Share
June 30, 2005			5,862				$	6.73				4,250				$	7.11
June 30, 2004			5,255				$	6.84				3,888				$	7.19
June 30, 2003			5,087				$	6.89				3,483				$	6.30

2001 Non-Employee Director Stock Plan

In November 2001, the Company’s shareholders approved the establishment of the 2001 Non-Employee Director Stock Plan, or the Director Plan, and 50,000 shares of common stock to be reserved for grant thereunder. The Director Plan provides for the granting of awards to Non-Employee Directors and, at the election of Non-Employee Directors, to have all or a portion of their awards in the form of cash, stock, or stock units. All stock or stock units are immediately vested. The number of stock or stock units to be issued is determined by the market value of the Company’s common stock on the last date of the Company’s fiscal quarter for which the services are rendered. The Director Plan is administered by the Board of Directors which is authorized to interpret the provisions of the Director Plan, determine which Non-Employee Directors will be granted awards, and determine the number of shares of stock for which a stock right will be granted.

Pursuant to the Director Plan, during the year ended June 30, 2005, the Company recorded $34,000 in compensation expense related to the issuance of 6,000 stock units issued in June 2004. During the year ended June 30, 2004, the Company recorded $66,000 in compensation expense related to the issuance of 13,000 stock units and 5,000 shares of common stock. During the year ended June 2003, the Company recorded $48,000 in compensation expense related to the issuance of 8,000 stock units and 8,000 shares of common stock. The value of the stock units is adjusted to market value at each reporting period.

2004 Non-Employee Director Compensation and Deferred Share Unit Plan

In June 2004, the Board of Directors approved the establishment of the 2004 Non-Employee Director Compensation and Deferred Share Unit Plan, or the 2004 Director Plan. The 2004 Director Plan provides for the granting of awards to Non-Employee Directors and, at their discretion, to have all or a portion of their awards in the form of cash or deferred share units. The deferred share units vest as to one-twelfth monthly. The number of deferred share units to be issued is determined by the market value of the Company’s common stock on the last date of the Company’s fiscal year prior to the fiscal year for which services are rendered. The deferred share units are to be paid out in cash to each non-employee director based upon the market value of the Company’s common stock on the date of such director’s retirement from the Board of Directors of the Company. The 2004 Director Plan is administered by the Board of Directors.

Pursuant to the 2004 Director Plan, during the year ended June 30, 2005, the Company recorded $62,000 related to the issuance of 18 deferred share units. The value of the share units is adjusted to market value at each reporting period.

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H. Commitments and Contingencies

Leases

At June 30, 2005 the Company leases facilities in Norwood and Cambridge, Massachusetts under agreements through 2011. The Company is required to pay all operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. Facilities rent expense was approximately $3.1 million, $3.0 million, and $1.7 million during fiscal years 2005, 2004 and 2003, respectively.

The minimum rental commitments, including real estate taxes and other expenses, for the next five fiscal years under the non-cancelable operating lease agreements are as follows:

2006		$	3,375
2007		3,405
2008		2,881
2009		714
2010		714
Thereafter		239
Total minimum lease payments		$	11,328

Litigation

The Company is not party to any material litigation.

Industrial Research Limited

In fiscal 2002, we entered into several agreements with Industrial Research Limited (IRL) to perform ansamitocin P3 fermentation, the precursor for our small molecule effector drug, DM1 and other maytansinoid cytotoxic agents. Currently, IRL is the only vendor that manufactures and is able to supply us with this material. The Company is actively investigating alternative vendors to produce this material.

I. Employee Benefit Plans

The Company has a deferred compensation plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). Under the 401(k) Plan, eligible employees are permitted to contribute, subject to certain limitations, up to 100% of their gross salary. The Company makes a matching contribution that currently totals 20% of the employee’s contribution, up to a maximum amount equal to 1% of the employee’s gross salary. In fiscal 2005, 2004 and 2003, the Company’s contributions to the 401(k) Plan amounted to approximately $122,000, $100,000, and $87,000, respectively.

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2005 (Continued)

J.   Quarterly Financial Information (Unaudited)

		Fiscal Year 2005
		First Quarter Ended September 30, 2004					Second Quarter Ended December 31, 2004					Third Quarter Ended March 31, 2005					Fourth Quarter Ended June 30, 2005
		In thousands, except per share data
Revenues:
Research and development support			$	4,089				$	4,066				$	4,573				$	4,623
License and milestone fees			1,542					1,034					3,040					1,160
Clinical materials reimbursement			2,865					3,637					2,415					1,606
Development fees			510					310					203					45
Total revenues			9,006					9,047					10,231					7,434
Expenses:
Cost of clinical materials reimbursed			2,494					3,042					2,286					1,414
Research and development			7,631					6,358					9,669					6,880
General and administrative			1,717					2,293					2,312					2,444
Total expenses			11,842					11,693					14,267					10,738
Loss from operations			(2,836		)			(2,646		)			(4,036		)			(3,304		)
Interest income, net			364					457					544					608
Realized losses on investments			(3		)			(1		)			(55		)			(22		)
Other income			7					—					1					—
(Loss) income before income tax expense			(2,468		)			(2,190		)			(3,546		)			(2,718		)
Income tax expense			3					19					5					2
Net (loss) income			$	(2,471	)			$	(2,209	)			$	(3,551	)			$	(2,720	)
Basic and diluted net (loss) income per common share			$	(0.06	)			$	(0.05	)			$	(0.09	)			$	(0.07	)

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2005 (Continued)

J.   Quarterly Financial Information (Unaudited) (Continued)

		Fiscal Year 2004
		First Quarter Ended September 30, 2003					Second Quarter Ended December 31, 2003					Third Quarter Ended March 31, 2004					Fourth Quarter Ended June 30, 2004
		In thousands, except per share data
Revenues:
Research and development support			$	1,208				$	3,886				$	4,060				$	4,409
License and milestone fees			646					1,051					2,551					1,300
Clinical materials reimbursement			1,949					227					936					3,460
Development fees			87					—					43					143
Total revenues			3,890					5,164					7,590					9,312
Expenses:
Cost of clinical materials reimbursed			1,759					227					729					2,944
Research and development			4,583					5,090					6,087					5,933
General and administrative			2,022					1,517					1,852					1,771
Total expenses			8,364					6,834					8,668					10,648
Loss from operations			(4,474		)			(1,670		)			(1,078		)			(1,336		)
Interest income, net			379					353					322					309
Realized losses on investments			(22		)			(36		)			(1		)			—
Other income			1					30					1					1,350
(Loss) income before income tax expense			(4,116		)			(1,323		)			(756		)			323
Income tax expense			10					10					4					21
Net (loss) income			$	(4,126	)			$	(1,333	)			$	(760	)			$	302
Basic and diluted net (loss) income per common share			$	(0.10	)			$	(0.03	)			$	(0.02	)			$	0.01

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

None.

 Item 9A.   Controls and Procedures

1.   Disclosure Controls and Procedures.

The Company’s management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, on a timely basis, and is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

2.   Internal Control Over Financial Reporting.

(a)   Management’s Annual Report on Internal Control Over Financial Reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the company’s internal control over financial reporting as of June 30, 2005. In making this assessment, management used the criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, management has concluded that, as of June 30, 2005 the Company’s internal control over financial reporting is effective.

Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued a report on management’s assessment and the effectiveness of the Company’s internal control over financial reporting, as of June 30, 2005. This report appears immediately below.

(b)   Attestation Report of the Independent Registered Public Accounting Firm

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Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders of ImmunoGen, Inc.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that ImmunoGen, Inc. maintained effective internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). ImmunoGen, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that ImmunoGen, Inc. maintained effective internal control over financial reporting as of June 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, ImmunoGen, Inc. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of June 30, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2005 of ImmunoGen, Inc. and our report dated August 17, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts

August 17, 2005

(c)   Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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