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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2007

For the transition period from              to             

Commission File Number 0-23155

TRIMERIS, INC.

(Exact name of registrant as specified in its charter)

3500 Paramount Parkway

Morrisville, North Carolina 27560

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (919) 419-6050

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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

The number of shares outstanding of the registrant’s common stock as of November 1, 2007 was 22,224,399.

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TRIMERIS, INC.

FORM 10-Q

INDEX

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PART I. FINANCIAL INFORMATION

TRIMERIS, INC.

BALANCE SHEETS

(in thousands, except par value)

See accompanying notes to financial statements.

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TRIMERIS, INC.

STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

See accompanying notes to financial statements.

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TRIMERIS, INC.

STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

See accompanying notes to financial statements.

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TRIMERIS, INC.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION

Trimeris, Inc. (the “Company” or “Trimeris”) was incorporated on January 7, 1993 in Delaware, to discover and develop novel therapeutic agents that block viral infection by inhibiting viral fusion with host cells.

The Company has a worldwide agreement (the “Development and License Agreement”) with F. Hoffmann-La Roche Ltd., (“Roche”), to develop and market T-20, known as FUZEON^® , whose generic name is enfuvirtide. FUZEON is manufactured and distributed by Roche through Roche’s sales and distribution network throughout the world in countries where regulatory approval has been received. The Company shares gross profits equally from the sale of FUZEON in the United States and Canada with Roche, and receives a royalty based on net sales of FUZEON outside the United States and Canada.

The Development and License Agreement with Roche accounted for 100% of the Company’s royalty revenue for the three and nine months ended September 30, 2007 and 2006. The Development and License Agreement also provides the basis for substantially all of the Company’s results from the collaboration and milestone revenue. Substantially all of the accounts receivable at September 30, 2007 and December 31, 2006, are comprised of receivables from Roche owing under the Development and License Agreement.

The accompanying unaudited financial statements have been prepared in accordance with United States generally accepted accounting principles and applicable Securities and Exchange Commission (the “SEC”) regulations for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations have been made. Operating results for interim periods are not necessarily indicative of results that may be expected for a full year. The information included in this Form 10-Q should be read in conjunction with the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and the 2006 financial statements and notes thereto included in the Company’s 2006 Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 16, 2007.

The preparation of financial statements in conformity with United States generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. BASIC AND DILUTED NET INCOME PER SHARE

In accordance with SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”), basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the maximum dilutive effect of common stock issuable upon exercise of stock options, restricted stock, stock warrants and purchases under the Company’s Employee Stock Purchase Plan. The dilutive effect of outstanding options, restricted stock, stock warrants and purchases under the Employee Stock Purchase Plan is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of stock-based compensation required by SFAS No. 123 (revised), “Share-Based Payment”. The following table sets forth the computation of basic and diluted net income per share for the three and nine months ended September 30, 2007 and 2006 (in thousands, except per share amounts):

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The calculation of diluted net income per share excludes all anti-dilutive shares. For the three and nine months ended September 30, 2007, the number of anti-dilutive shares issuable upon exercise of options that were excluded, as calculated based on the weighted average closing price of the Company’s common stock for these periods, amounted to approximately 2,791,000 and 2,746,000, respectively. Also excluded for the three and nine months ended September 30, 2007 were 362,000 warrants to purchase common stock, due to their anti-dilutive effect. For the three and nine months ended September 30, 2006, the number of anti-dilutive shares issuable upon exercise of options that were excluded amounted to approximately 3,400,000 and 3,300,000, respectively. Also excluded for the three and nine months ended September 30, 2006 were 362,000 warrants to purchase common stock due to their anti-dilutive effect.

At September 30, 2007, there were 2,820,000 options to purchase common stock, 85,000 shares of restricted stock to be granted in March 2009 and 362,000 warrants to purchase common stock outstanding. At September 30, 2006, there were 3,759,000 options to purchase common stock, 153,000 restricted stock grants, which become fully vested in 2007, 50,000 restricted stock grants, which become fully vested in 2008 and 362,000 warrants to purchase common stock outstanding.

3. STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2007 and 2006, approximately $519,000 and $582,000, respectively, was charged to interest expense for the accretion of the liability resulting from the Company’s share of estimated selling and marketing expenses. The Company recorded a liability of $15.6 million during 2004, as part of collaboration loss, which represents the net present value of the Company’s estimated share of these expenses, based on the expected timing and terms of payment under the Development and License Agreement, as amended. No cash was paid for interest during the nine months ended September 30, 2007 and 2006.

4. ROCHE COLLABORATION

The Development and License Agreement

In July 1999, the Company entered into the Development and License Agreement with Roche to develop and commercialize T-20, currently marketed as FUZEON, whose generic name is enfuvirtide, and T-1249, or a replacement compound. The Development and License Agreement has been amended several times, most recently in March 2007, when the agreement was amended to only cover the development and commercialization of FUZEON. The Development and License Agreement will effectively terminate upon the expiration of the last relevant patent covering FUZEON.

The Development and License Agreement, as amended, grants Roche an exclusive, worldwide license for FUZEON. Under this agreement, a joint management committee consisting of members from Trimeris and Roche oversees the strategy for the collaboration. Roche may terminate its license for a particular country in its sole discretion with advance notice. In addition, the Development and License Agreement gives Roche significant control over important aspects of the commercialization of FUZEON, including, but not limited to, pricing, sales force activities and promotional activities. Under the Development and License Agreement, Roche cannot adopt a budget for the marketing of FUZEON above certain limits without the agreement of the Company.

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As mentioned above, in March 2007, the Company entered into an agreement with Roche that amends the terms of both the Development and License Agreement and the Research Agreement (defined below). This amendment states that all intellectual property that was formerly shared between the companies, other than intellectual property related to FUZEON, shall now belong solely to Trimeris. The returned intellectual property covers both research and development stage molecules, including T-1249. Currently, there are no patients being treated with T-1249. Following the March 2007 amendment, Roche is only responsible for one remaining $5.0 million milestone under the Development and License Agreement payable upon the achievement of a certain cumulative twelve month sales threshold for FUZEON in the United States and Canada.

Collaboration Income

Product sales of FUZEON began in the United States in March 2003 and are recorded by Roche. Under the Development and License Agreement with Roche, the Company shares gross profits equally from the sale of FUZEON in the United States and Canada with Roche. Collaboration income is calculated as follows: Total gross sales of FUZEON in the United States and Canada is reduced by any discounts, returns or rebates resulting in total net sales. Net sales are reduced by costs of goods sold resulting in gross profit. Gross profit is reduced by certain selling, marketing and other expenses related to the sale of FUZEON, resulting in operating income or loss. The Company’s share of the operating income or loss is reported as collaboration income or loss as a component of revenue. Total net sales of FUZEON in the United States and Canada were $92.8 million and $92.0 million during the nine months ended September 30, 2007 and 2006, respectively. Total net sales of FUZEON in the United States and Canada were $30.6 million and $33.5 million during the three months ended September 30, 2007 and 2006, respectively. During the nine months ended September 30, 2007 and 2006, the gross profit from the sale of FUZEON exceeded the sales, marketing and other expenses resulting in the Company’s share of operating profit from the sale of FUZEON in the United States of $15.7 million and $13.2 million, respectively. During the three months ended September 30, 2007 and 2006, the gross profit from the sale of FUZEON exceeded the sales, marketing and other expenses resulting in the Company’s share of operating profit from the sale of FUZEON in the United States of $5.5 million and $5.6 million, respectively. Revenue is recognized when Roche ships drug and title and risk of loss passes to wholesalers. FUZEON is widely available through retail pharmacies and wholesalers across North America.

Roche is responsible for the manufacture, sales, marketing and distribution of FUZEON. Roche manufactures bulk quantities of FUZEON drug substance in its Boulder, Colorado facility and produces finished drug product from bulk drug substance at another Roche facility. The finished drug product is then shipped to a Roche facility for distribution. Roche’s sales force is responsible for selling FUZEON. Under the Company’s Development and License Agreement with Roche, the Company does not have the ability or rights to co-market this drug or field its own FUZEON sales force. All third party contracts for manufacturing, distribution, sale, and reimbursement are between Roche and the third party. The Company is not a party to any of the material contracts in these areas. Roche provides the Company with information on manufacturing, sales and distribution of FUZEON. Roche is responsible for estimating reductions to gross sales for expected returns of expired products, government rebate programs, such as Medicaid reimbursements, and customer incentives, such as cash discounts for prompt payment. The Company reviews these items for accuracy and reasonableness.

Roche prepares estimates for sales returns and allowances, discounts and rebates based primarily on its historical experience with FUZEON and other anti-HIV drugs and their estimates of the payor mix for FUZEON, updated for changes in facts and circumstances on a quarterly basis. If actual results differ from these estimates, these estimates will be adjusted, which could have an effect on results of operations in the period of adjustment.

Accrued Marketing Costs

The Company and Roche agreed to limit the Company’s actual cash contribution to the FUZEON selling and marketing expenses in 2004 to approximately $11.2 million, even though Roche spent significantly more on these expenses. If certain cumulative levels of sales for FUZEON in the United States and Canada are achieved, the Company’s share of the additional expenses incurred by Roche during 2004 will be payable to Roche beginning at a future date over several years from that future date. During the third quarter of 2007, the Company revised its estimate of the date that payments will begin from 2011 to 2014. During the year ended December 31, 2004, the Company’s share of selling and marketing expenses exceeded $11.2 million. During 2004, the Company recorded $15.6 million as part of collaboration loss, which represented the net present value of the Company’s estimated share of the expenses that were in excess of approximately $11.2 million. This amount was determined by taking into account the expected timing and terms of payment under the Development and License Agreement, discounted at a risk free interest rate. The Company is increasing the liability over time to the expected payment amount. For the nine months ended September 30, 2007 and 2006, the Company increased the initial recorded liability by $519,000 and $582,000, respectively, for accretion of interest. For the three months ended September 30, 2007 and 2006, the Company increased the initial recorded liability by $115,000 and $196,000, respectively, for accretion of interest. The total liability of $17.8 million and $17.3 million at September 30, 2007 and December 31, 2006, respectively, is reflected on our balance sheets under the caption “Accrued marketing costs.”

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The accrued marketing costs apply only to the 2004 FUZEON marketing costs. With respect to both 2007 and 2006, there are no accrued marketing costs.

Advanced Payment—Roche

In September 2005, the Company entered into a Letter of Amendment (“Manufacturing Amendment”) with Roche, which amended the Development and License Agreement and set forth certain rights and responsibilities that the parties previously agreed to with respect to the manufacture and sale of FUZEON. The Company will pay Roche for the Company’s share of the capital invested in Roche’s manufacturing facility over a seven-year period. As a result, Roche will no longer include the depreciation related to the manufacturing facility in cost of goods sold.

Under the terms of the Manufacturing Amendment, the Company’s contribution to the capital improvements made at Roche’s manufacturing facility is to be reviewed on an annual basis. Following such review, the Company’s contribution will be adjusted, when necessary, to reflect changes to the relative geographic distribution of FUZEON sales. During the third quarter of 2007, the Company and Roche reviewed certain FUZEON sales data which resulted in a change in the amount of Company’s contribution to the capital investment. Following this 2007 review, the Company now expects to contribute approximately $12.8 million towards the capital investment as compared to its previous expectation of approximately $14.0 million. At September 30, 2007, we had capitalized costs of $10.0 million, and expect to pay approximately $400,000 per quarter through June 2009. In the event the Development and License Agreement is terminated, the Company would not be obligated for any unpaid amounts for capital investment.

These payments, net of the portion allocated to cost of goods sold, are recorded as an asset presented as “Advanced payment – Roche.” This asset is amortized based on the units of FUZEON sold during the collaboration period in order to properly allocate the capital investment to cost of goods sold as the related inventory is sold in future periods. Assuming all payments are made and sales of FUZEON continue, the Company estimates that this asset has a remaining useful life of approximately 14 years. The carrying value of this asset will be evaluated annually for impairment or if an event occurs that triggers impairment.

Under the Manufacturing Amendment, if the Roche-owned facilities in Boulder, Colorado used for the manufacture of FUZEON, are used to produce other products for Roche, a credit to the collaboration will result. During the period from January 2006 through September 2006, a key intermediate used in the manufacture of another product was produced using these facilities that resulted in a credit to the collaboration. The Company’s share of this credit was approximately $632,000. During the period from July 2004 through June 2005, we also received a similar credit of which our share was approximately $900,000. These payments have been recorded on the Company’s balance sheets as a reduction to the “Advanced payment – Roche.” This credit offsets variances that would otherwise have been allocated to FUZEON if the facilities had remained underutilized and will be recognized when the related FUZEON produced during this period is sold. During the three and nine months ended September 30, 2007, there were no products other than FUZEON produced at the Roche-owned facilities in Boulder, Colorado.

Royalty Revenue

The Company receives royalties on sales of FUZEON in countries outside of the United States and Canada. Roche is responsible for all activities related to FUZEON outside of the United States and Canada, including regulatory, manufacturing, sales and distribution. These royalties are recognized as revenue when the sales are made by Roche. In accordance with our Development and License Agreement, our royalty rate increased from 10% to 12%, effective during the third quarter of 2006. Royalties of $11.9 million and $8.4 million were recognized as revenue during the nine months ended September 30, 2007 and 2006, respectively. Royalties of $4.8 million and $3.4 million were recognized as revenue during the three months ended September 30, 2007 and 2006, respectively.

Development Expenses

Under the Development and License Agreement, development costs for FUZEON are shared equally. Development typically includes certain clinical and pre-clinical studies performed on a clinical candidate compound, as well as post-marketing commitments related to approved drugs. Both Roche and Trimeris incur development costs for FUZEON. Quarterly, the companies reconcile the amounts expended and one party pays the other party on a 50/50 basis. Roche holds the Investigational New Drug (“IND”) and the New Drug Application (“NDA”) for FUZEON and is responsible for all regulatory issues, maintenance activities and communications with the FDA. Development expenses pertaining to the United States and Canada are included in our statements of operations as operating expenses under Research and Development.

The Research Agreement

Research, or the process of identifying clinical candidates, is generally distinct from the advanced testing of these compounds, a process referred to herein as development (see discussion above “Development Expenses”). In the Company’s collaboration with Roche, the identification of compounds that may become clinical candidates had been governed by a separate research agreement and the work by the parties was performed according to an agreed upon research plan. In 2001, the Company entered into a research

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agreement (the “Research Agreement”) with Roche to discover, develop and commercialize novel generations of HIV fusion inhibitor peptides. In September 2006, we announced that our Research Agreement with Roche to co-develop a novel next generation fusion inhibitor (“NGFI”) was extended through December 31, 2008. The development work covered under the Research Agreement had focused on two distinct peptide classes, exemplified by TRI-999 and TRI-1144, as NGFI candidates. Based on the results of certain preclinical studies, TRI-1144 met the criteria established by Trimeris and Roche for further development and was being advanced as the lead preclinical NGFI candidate. TRI-999 did not satisfy these criteria and will not be further developed. In addition, the Company has the option to participate in the co-development and commercialization of certain Roche-developed fusion inhibitor peptides. In order to exercise its option, the Company must pay Roche a one-time, lump sum payment of $4.5 million, per candidate.

In March 2007, the Company entered into an agreement with Roche that amended the terms of the Research Agreement whereby all rights, joint patents and other intellectual property rights to the NGFI peptides falling under the Research Agreement, which includes the lead drug candidate, TRI-1144, reverted to Trimeris. As a result of this agreement, the Company accelerated revenue recognition for those milestones being amortized over the length of the research and development period of the NGFI peptides because the period of our joint development has ended. The acceleration of these milestones resulted in $8.7 million of additional milestone revenue during the first quarter of 2007. Under this agreement, the Company has maintained the option to participate in the co-development and commercialization of certain Roche-developed fusion inhibitor peptides, as described in the preceding paragraph.

5. COMPREHENSIVE INCOME

SFAS No. 130, “Reporting Comprehensive Income”, establishes rules for the reporting and display of comprehensive income or loss and its components. Comprehensive income includes all non-owner changes in equity during a period and is divided into two broad classifications: net income and other comprehensive income (“OCI”). OCI includes revenue, expenses, gains, and losses that are excluded from earnings under generally accepted accounting principles. For the Company, OCI consists of unrealized gains or losses on securities available-for-sale, and actuarial gains and losses and prior service costs for the post-retirement health insurance plan that have not been recognized as components of net periodic post-retirement benefit costs.

The table below presents the Company’s other comprehensive income (loss) for the three and nine months ended September 30, 2007 and 2006.

6. STOCK-BASED COMPENSATION

The Company adopted SFAS No. 123 (revised) using the modified prospective method on January 1, 2006. Accordingly, during the three and nine months ended September 30, 2007, the Company recorded stock-based compensation expense for awards granted prior to, but not yet vested, as of January 1, 2006, and awards granted after January 1, 2006, using the Black-Scholes valuation model. The Company has recognized the compensation expense using a straight-line amortization method. As SFAS No. 123 (revised) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based compensation for the three and nine months ended September 30, 2007 and 2006 have been reduced for estimated forfeitures. When estimating forfeitures, the Company considered voluntary termination behaviors, as well as trends of actual option forfeitures.

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On March 9, 2007, in conjunction with his employment agreement, the Company agreed to grant Dani Bolognesi 50,000 shares of restricted stock. On March 14, 2007, in conjunction with his retirement agreement, the vesting of these restricted shares was accelerated. As a result, the Company recorded non-cash compensation expense of approximately $512,000 during the first quarter of 2007.

On March 9, 2007, in conjunction with his employment agreement, the Company agreed to grant Robert Bonczek 35,000 shares of restricted stock. On March 14, 2007, in conjunction with his retirement agreement, the vesting of these restricted shares was accelerated. As a result, the Company recorded non-cash compensation expense of approximately $358,000 during the first quarter of 2007.

7. POST-RETIREMENT HEALTH INSURANCE CONTINUATION PLAN

In June 2001, the Company adopted a post-retirement health insurance continuation plan (“the Plan”). Employees who have achieved the eligibility requirements of 60 years of age and 10 years of service are eligible to participate in the Plan. The Plan provides participants the opportunity to continue participating in the Company’s group health plan after their date of retirement. Participants will pay the cost of health insurance premiums for this coverage, less any contributions by the Company. In November 2003, the Plan was amended and the limit on contributions by the Company was changed to 50% of the health insurance premium for the employee and his or her spouse.

On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No.158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans” (“SFAS 158”). SFAS 158 required the Company to recognize the funded status (i.e., the difference between the fair value of plan assets and the accumulated post-retirement benefit obligation) of its post-retirement plan in the December 31, 2006 balance sheet, with a corresponding adjustment to accumulated other comprehensive loss. The adjustment to accumulated other comprehensive loss at adoption represented the net unrecognized actuarial losses, unrecognized prior service costs, and unrecognized transition obligation remaining from the initial adoption of Statement 87, “Employers’ Accounting for Pensions” (“Statement 87”) all of which were previously netted against the plan’s funded status in the Company’s balance sheets pursuant to the provisions of Statement 87. These amounts will be subsequently recognized as net periodic benefit costs pursuant to the Company’s historical accounting policy for amortizing such amounts. Further actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic benefit cost on the same basis as the amounts recognized in accumulated other comprehensive loss at adoption of SFAS 158.

The components of net periodic post-retirement benefit cost of the Plan for the three and nine months ended September 30, 2007 consisted of the following (in thousands):

8. INCOME TAXES

Income tax expense has been accrued for the three and nine months ended September 30, 2007 in the amount of $54,000 and $242,000, respectively. For the three and nine months ended September 30, 2006, income tax expense was accrued in the amount of $124,000. No income tax expense was recorded during the first and second quarter of 2006. The Company is anticipating incurring a current tax liability for Federal alternative minimum taxes and does not believe that it is more likely than not that the corresponding alternative minimum tax credit will be realized in the foreseeable future.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109” (“FIN No. 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an

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entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). FIN No. 48 prescribes a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company has adopted FIN No. 48 as of January 1, 2007 with no material impact on the financial statements.

9. COMMITMENTS AND CONTINGENCIES

The Company is involved in certain claims arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company.

Under the Development and License Agreement, Trimeris and Roche are obligated to share equally the future development expenses for FUZEON for the United States and Canada. The Company also expects to have capital expenditures of approximately $81,000 during the remainder of 2007 that will not be shared with Roche. The Company may finance these expenditures with capital or operating leases, debt or working capital.

In 2004, the Company entered into a sublease agreement for its office and laboratory space in Morrisville, North Carolina. The sublease called for the payment of a security deposit for which the Company has accrued $126,000 as of September 30, 2007.

In April 2007, the North Carolina Department of Revenue notified the Company that adjustments to Trimeris’ 2003, 2004 and 2005 North Carolina Corporate Income and Franchise Tax returns were required. The Company maintains that these returns were filed correctly and is currently protesting the position of the North Carolina Department of Revenue.

10. REDUCTION IN WORKFORCE

During November 2006, the Company announced a shift in strategic emphasis and reorganization to focus on FUZEON profitability and research and early stage development. With this shift in strategic emphasis, the Company reduced its workforce by approximately 25% and recognized expense of $3.2 million for severance and other costs in the fourth quarter of 2006.

During March 2007, as a continued part of the shift in strategic emphasis, the Company reduced its workforce by approximately 25% and recognized expense of $4.3 million for severance and other costs in the first quarter of 2007. Of this $4.3 million, $870,000 was related to the acceleration of vesting of restricted stock and is excluded from the table below (see footnote 6 “Stock Based Compensation” for further explanation).

During April 2007, as a continued part of the shift in strategic emphasis, the Company reduced its workforce by approximately 7% and recognized expense of $77,000 for severance and other costs in the second quarter of 2007.

Following is a summary of activity related to the 2006 and 2007 restructuring accruals (in thousands):

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Executive Summary

We are a biopharmaceutical company primarily engaged in the development and commercialization of a new class of antiviral drug treatments called fusion inhibitors. Fusion inhibitors prevent viral fusion, a complex process by which viruses attach to, penetrate and infect host cells. If a virus cannot enter a host cell, the virus cannot replicate. By inhibiting the fusion process of particular types of viruses, like the Human Immunodeficiency Virus (“HIV”), our first commercial product and our compounds under research offer a novel mechanism of action to treat and potentially prevent the transmission of HIV.

We have a worldwide agreement (the “Development and License Agreement”) with F. Hoffmann-La Roche Ltd., or “Roche,” to develop and market T-20, marketed as FUZEON, whose generic name is enfuvirtide. FUZEON is manufactured and distributed by Roche through Roche’s sales and distribution network throughout the world in countries where regulatory approval has been received. The Company shares gross profits equally from the sale of FUZEON in the United States and Canada with Roche, and receives a royalty based on net sales of FUZEON outside the United States and Canada.

For the third quarter of 2007, the Company recorded net income of $5.5 million, or $0.25 per share, compared to $3.4 million, or $0.16 per share, in the third quarter of 2006. This result was primarily driven by the following factors:

For a comparison of the nine months ended September 30, 2007 and 2006, see “Results of Operations – Comparison of Nine Months Ended September 30, 2007 and 2006.”

Competition

The October 2006 “Guidelines for the Use of Antiretroviral Agents in HIV-1-Infected Adults and Adolescents,” published by the Office of AIDS Research Advisory Council, states that in management of treatment-experienced patients “the goal of treatment for patients with prior drug exposure and drug resistance is to re-establish maximal virologic suppression.”

The results of several registrational clinical trials with new agents in treatment experienced patients indicate that FUZEON, when added to the treatment regimen, has a greater effect in reducing viral load. In late 2006, and in 2007, several new agents, including agents from novel classes, have become commercially available. In studies with agents that are from novel classes, the inclusion of FUZEON in the treatment regimen has been shown to provide maximal viral load suppression. The use of at least two and preferably three, fully active agents has emerged as the standard of care in constructing an HIV treatment regimen. At present, it appears that the predominant preference among physicians is to include one of the newly available agents as a fully active agent. At this point, we believe that FUZEON sales will face significant pressure over the near term in the form of competition from the new market entrants. However, we also believe that it is too early to predict what the long-term effect will be on FUZEON sales.

Recent Company Announcements

The Company provided an update, in the Form 8-K filed with the SEC on October 4, 2007, on the efforts to offer a needle-free device which has been investigated for use with FUZEON. Based on comprehensive assessment of the clinical program, as well a significant delay in achieving U.S. regulatory approval due to the time required to generate additional data, the supplemental application for approval to market the Biojector(R) 2000 device (known as “B2000” and manufactured by Bioject Medical Technologies, Inc.) for use with FUZEON was withdrawn.

On October 5, 2007, we received notification from Hickey and Hill, Inc. (“Hickey and Hill”), E. Lawrence Hill, Jr. and Daniel Ratto of termination of the Executive Engagement Agreement between the Company, Hickey and Hill, and E. Lawrence Hill, Jr. and the Executive Engagement Agreement between the Company, and Hickey and Hill and Daniel Ratto, each dated August 2, 2007. The termination is effective January 2, 2008. As a result of the termination of the Executive Engagement Agreements, Mr. Hill, will no longer serve as President and Chief Operating Officer of the Company effective January 2, 2008, and Mr. Ratto will no longer serve as Chief Financial Officer of the Company, effective January 2, 2008.

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Management’s Discussion and Analysis in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC on March 16, 2007.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2007 and 2006

Revenues

The table below presents our revenue sources for the three months ended September 30, 2007 compared to the three months ended September 30, 2006.

Milestone revenue: Total milestone revenue represents the amortization of achieved milestones under our collaboration with Roche.

The table below presents our achieved milestones from Roche as of September 30, 2007. We are recognizing the milestones with remaining unrecognized balances on a straight-line basis over the estimated commercial period of FUZEON.

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Royalty revenue: Royalty revenue represents the royalty payments earned from Roche based on total net sales of FUZEON outside the United States and Canada and will continue until the last to expire patent covering FUZEON, licensed to Roche, on a country by country basis. Sales of FUZEON outside the United States and Canada began in June 2003. In accordance with our agreement with Roche, our royalty rate has increased from 10% to 12%. This increase has been in effect since, and including, the third quarter of 2006. To calculate the royalty revenue, an 8% distribution charge is deducted from Roche’s reported net sales, from which the Company receives a 12% royalty. Royalty revenue increased for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 as a result of net sales of FUZEON outside the U.S. and Canada increasing from $29.5 million to $43.3 million respectively.

Collaboration Income: The table below presents our collaboration income (United States and Canada) for the three months ended September 30, 2007 compared to the three months ended September 30, 2006. Collaboration income is reported on our Statements of Operations as a component of revenue. Under our Development and License Agreement with Roche, we share gross profits equally from the sale of FUZEON in the United States and Canada which will continue until the last to expire patent covering FUZEON, licensed to Roche, in North America. The sharing of expenses is according to contractual arrangements and is not equal in all cases. FUZEON was launched commercially in March 2003.

Gross FUZEON sales by Roche: Revenue is recognized when Roche ships drug and title and risk of loss passes to wholesalers.

The table below presents the number of kits shipped to wholesalers in the U.S. and Canada during 2007 and 2006.

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Sales adjustments: Sales adjustments are recorded by Roche based on their experience with selling FUZEON. There were no material revisions to Roche’s recorded estimates related to total sales adjustments. It is our expectation that for the foreseeable future sales adjustments will be in the range of 15% to 16.5% of gross sales.

Cost of goods sold: Previously, we disclosed that we expected an increase to our cost of goods sold as a percentage of net sales. Recently, the Company has entered into discussions with Roche related to the models used to calculate cost of goods sold. At present, the Company cannot accurately determine if cost of goods sold as a percentage of net sales will increase, decrease or remain the same. Although active discussions are on-going, we cannot be certain when a final resolution will be reached.

Selling and marketing expenses: On October 8, 2007, the Company entered into a letter agreement with Roche related to the sharing of sales and marketing expenses of FUZEON for 2007. Pursuant to the letter agreement, the parties have agreed upon their respective contributions towards the 2007 budget for North American selling and marketing expenses for FUZEON, and further, that these expenses will be split by Roche and the Company on a 50/50 basis. Under the terms of the Development and License Agreement, Roche cannot adopt a budget for the marketing of FUZEON above certain limits without the agreement of the Company. The Company’s contribution to selling and marketing expenses was limited in 2006. As a result, the Company’s and Roche’s share of the collaboration income was not equal in 2006.

Other costs: Other costs for the three months ended September 30, 2007 and 2006 include general and administrative costs and distribution charges. The Company is responsible for 50% of these costs under the Development and License Agreement.

Costs exclusive to the Company: Costs exclusive to the Company include license fees, based on net sales of FUZEON, for certain technology paid to a third party.

Research and Development Expenses

The table below presents our research and development expenses for the three months ended September 30, 2007 compared to the three months ended September 30, 2006.

Total research and development expenses include:

Total research and development expenses: Total research and development expenses were comparable for the three months ended September 30, 2007 to the three months ended September 30, 2006. Compared to the third quarter of 2006, the Company increased expenditures on TRI-1144, which were primarily offset by the following:

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We expect total research and development expenses, including payments to Roche for 2007 FUZEON development costs, to be less than those incurred in 2006.

General and Administrative Expenses

The table below presents our general and administrative expenses for the three months ended September 30, 2007 compared to the three months ended September 30, 2006.

Total general and administrative expenses: Total general and administrative expenses decreased during the three months ended September 30, 2007 compared to the three months ended September 30, 2006, primarily as a result of reduced employee costs as a result of our reduced headcount.

We expect that total general and administrative expenses for 2007 will be comparable to those incurred in 2006.

Other Income (Expense): The table below presents our other income (expense) for the three months ended September 30, 2007 and 2006.

Other income (expense) principally consists of interest income and accretion of interest. The increase in interest income for the three months ended September 30, 2007 was primarily due to interest earned on higher cash balances. Interest expense relates to the accretion of the excess marketing expenses recorded on the balance sheets as “Accrued marketing costs.” Our actual cash contribution to certain selling and marketing expenses for FUZEON in 2004 was limited, even though Roche spent significantly more on these expenses. If certain cumulative levels of sales for FUZEON in the United States and Canada are achieved, our share of any additional expenses incurred by Roche during 2004 will be payable to Roche beginning at a future date over several years from that future date. We are increasing the liability over time to the expected payment amount. During the third quarter of 2007, the Company revised the estimated date that payments will begin from 2011 to 2014. As a result, we will accrete the marketing debt over a longer period of time resulting in lower interest expense in any particular period.

Income Tax Provision

Income tax expense has been accrued for the three months ended September 30, 2007 and 2006 at approximately 1% and 3%, respectively, as the Company is anticipating incurring a current tax liability for Federal alternative minimum taxes and does not believe that it is more likely than not that the corresponding alternative minimum tax credit will be realized in the foreseeable future.

RESULTS OF OPERATIONS

Comparison of Nine Months Ended September 30, 2007 and 2006

Revenues

The table below presents our revenue sources for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006.

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Milestone revenue: Total milestone revenue represents the amortization of achieved milestones under our collaboration with Roche.

The table below presents our achieved milestones from Roche as of September 30, 2007. We are recognizing the milestones with remaining unrecognized balances on a straight-line basis over the estimated commercial period of FUZEON.

Royalty revenue: Royalty revenue represents the royalty payment earned from Roche based on total net sales of FUZEON outside the United States and Canada and will continue until the last to expire patent covering FUZEON, licensed to Roche, on a country by country basis. Sales of FUZEON outside the United States and Canada began in June 2003. In accordance with our Development and License Agreement, our royalty rate has increased from 10% to 12%. This increase has been in effect since, and including, the third quarter of 2006. To calculate the royalty revenue, an 8% distribution charge is deducted from Roche’s reported net sales, from which Trimeris receives a 12% royalty. Royalty revenue increased for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 as a result of an increase in the royalty rate mentioned above as well as net sales of FUZEON outside the U.S. and Canada increasing from $83.7 million to $107.5 million respectively.

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Collaboration Income: The table below presents our collaboration income (United States and Canada) for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Collaboration income is reported on our Statements of Operations as a component of revenue. Under our Development and License Agreement with Roche, we share gross profits equally from the sale of FUZEON in the United States and Canada which will continue until the last to expire patent covering FUZEON, licensed to Roche, in North America. The sharing of expenses is according to contractual arrangement and is not equal in all cases. FUZEON was launched commercially in March 2003.