To Our Shareholders:

AutoImmune Inc. made progress this past year, but not as much as we had first hoped.

Late in February 2003 we began selling Colloral®,a product for nutritional support of patients with rheumatoid arthritis, through our joint venture with Deseret Laboratories, Inc. Our initial efforts relied upon direct mail and web-based sales that unfortunately did not yield the market traction we wanted. In September we retained an outside consultant to assist in growing the sales of Colloral and are confident his efforts will produce meaningful income for the company within the next year or two.

AutoImmune has licensed two aspects of its intellectual property under agreements that could generate significant royalties for the Company if and when products are approved for sale. The first of these is with Teva Pharmaceutical Industries, Ltd., a leading generic drug company, and covers an oral formulation of Copaxone® (glatiramer acetate), Teva’s injectible product for the treatment of relapsing–remitting multiple sclerosis. Teva recently confirmed that it should soon start a new Phase II clinical study of this oral product that it expects to complete during 2006. The second license is with BioMS Medical Corporation, a development stage company, and covers their MBP8298 product for the treatment of chronic progressive multiple sclerosis. BioMS now says it will start a Phase III trial of this product during the first half of 2004, about six months later than its earlier projections. We look forward to the start of our licensees’ clinical studies and are optimistic they will be successful.

Preliminary results from the oral insulin arm of the NIH sponsored diabetes prevention trial (DPT-1), which tested a therapeutic method covered by AutoImmune’s patents, were presented during June. Although there was a trend in favor of the treated group versus the placebo group, the data did not reach statistical significance. Currently in Finland, a clinical trial of intranasal insulin to delay or prevent the clinical onset of Type I diabetes, called the Diabetes Prediction and Prevention Project, is being conducted using our intellectual property.

The success of our licensing efforts is dependent on expanding and defending AutoImmune’s intellectual property. At year end we had 162 issued US and foreign patents, plus nine original and continuation-in-part patent applications with numerous foreign counterparts. The majority of these relate to methods and products that induce immunological tolerance for the treatment of disease. We hope to see more patents issued and continue to support limited research efforts at The Brigham and Women’s Hospital.

With adequate financial reserves to wait for results from the clinical trials and the prospect of positive cash flows in the future, we believe we are well positioned to build shareholder value and remain confident that our technology will be proven of significant therapeutic importance.

Your interest in AutoImmune is appreciated.


Sincerely,

Robert C. Bishop
Chairman of the Board
March 18, 2004

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