Chairman’s Letter to Shareholders

Dear shareholders,

There is no question that the vaccine industry is soaring.

Long dismissed as a commodity business, a new generation of vaccines driven by powerful adjuvants is emerging, along with a revitalized business model based on much higher pricing due to the potentially enormous impact on the prevention and treatment of disease. In addition, collaboration between government, industry and philanthropy has made increased funding available to finance the development and allow for acceptable pricing of vaccines to address third-world needs.

Empowered by the newest crop of immune-boosting adjuvants, today’s vaccines are expanding beyond past limits of disease prevention and being applied in the treatment of diseases. Today’s vaccines are high-tech, much more potent, and capable of fundamentally changing patient care.

Antigenics has two core platforms that allow us to participate in the resurgence of the vaccine industry: our QS-21™ adjuvant, which is licensed to a number of pharmaceutical and biotechnology companies, including GlaxoSmithKline (GSK), Elan Corporation, Wyeth and others; and our heat shock protein (HSP) technology, which is the basis of our Oncophage^® (vitespen) cancer vaccine and AG-707 genital herpes vaccine.

QS-21

QS-21, the most widely studied potent adjuvant currently under investigation, is a key component to several vaccines in late-stage development for the prevention and treatment of major diseases. Several of GSK’s proprietary adjuvant systems containing QS-21 are included in a number of GSK’s vaccine candidates currently under development. Furthermore, QS-21–containing adjuvant systems are becoming universally recognized as imparting much higher levels of efficacy to prophylactic and therapeutic vaccines.

Currently a profitable product, QS-21 licensees pay Antigenics for supply of QS-21 at cost plus a mark-up as well as milestone payments prior to and at marketing approval. Most importantly, despite initial patent expiration in 2008, the licensee agreements are structured for Antigenics to receive royalties starting with product launch and for at least 10 years thereafter, at a fixed rate, with no step-down in payments. With more than 15 QS-21–containing vaccines currently in clinical development, Antigenics benefits from exposure to a diverse pipeline of products, which reduces our risk exposure to any one product. Potential revenues could possibly generate as much as $500 million a year in royalties by 2015.

Oncophage

Despite recent progress in cancer treatments – most indicated only for patients with advanced disease – survival improvement for cancer patients with the use of most drugs is still largely measured in weeks or months. Being able to successfully treat patients diagnosed with earlier-stage disease, a growing and significant population of patients, to prevent disease recurrence would result in a longer-lasting and possibly curative effect.

Oncophage is our investigational personalized vaccine designed to treat cancer with minimal side effects. Potentially applicable to all cancers, Oncophage utilizes the cancer’s unique ‘antigenic fingerprint’ to activate tumor-specific immune response. Having completed two large, randomized Phase 3 trials in kidney cancer and in metastatic melanoma, Oncophage has also been clinically evaluated in seven other cancer types to date.

In March 2006, Antigenics announced preliminary data from our Phase 3 study of Oncophage cancer vaccine as a treatment for nonmetastatic renal cell carcinoma (RCC, the most common type of kidney cancer). At the time of the original data cut-off, there were strong indications that Oncophage was associated with an improvement in recurrence-free survival in a target population of earlier-stage patients – a large and growing population due to constantly improving diagnostic techniques. These patients represent a biologically relevant subset of more than 60 percent of the eligible patients (361 patients) enrolled in our trial, and the magnitude of the improvement is clinically and statistically significant (nominal P value < .05). Based on decades of preclinical and clinical research that support the use of cancer vaccines in earlier-stage patients, we believe that these patients are a biologically relevant and most appropriate population for cancer vaccine treatment.

Traditional approval guidelines call for a second confirmatory trial to follow the first trial, which took us six years to complete due to the fact that better-prognosis patients take a number of years to relapse. Having to conduct a second six-year trial would translate to a 12-year Phase 3 product development program – making the development of cancer vaccines in this important and most appropriate patient population (earlier-stage patients) impractical or nearly impossible.

Thus, without regulatory flexibility, therapeutic cancer vaccines that could help prevent disease recurrence – and dramatically improve survival – in earlier-stage patients might never be available in the United States. Signs of US regulatory reform for cancer vaccines are hopeful. In February 2007, the FDA and National Cancer Institute jointly sponsored a workshop focused on the clinical development and licensing of cancer vaccines. And in March 2007, an FDA advisory committee voted 13-4 recommending approval of a vaccine for the treatment of advanced prostate cancer – a landmark event for a class of compounds that represent a new, less toxic treatment paradigm for cancer patients.

We expect to announce updated and more mature data for recurrence-free survival and overall survival from our Phase 3 RCC trial by midyear. If these data confirm and improve findings from the earlier analysis, Antigenics will dedicatedly and steadfastly explore all possible avenues for approval of Oncophage in the United States, with the guidance of the FDA. In addition, however, we are actively pursuing potential commercial sales of Oncophage through ex-US regulatory programs, ranging from full approval to conditional marketing approval and patient access programs in various major markets around the world, including Russia, Japan, Canada and Europe.

Having progressed far along the winding road from lab bench to clinic, our commitment to delivering promising treatments to patients has never been stronger. As we look forward, we are resolute in our focus to help shape the future of medicine through successful product launches – both our own and those of our collaborative partners. Collectively, these efforts could help transform the treatment landscape across a multitude of disease areas, providing options and new hope to patients worldwide. The years past have brought us hard-won wisdom and resilience, but it’s our commitment to patients that keeps us moving ever forward.