SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)





[ **X** ]  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





**For
      the quarterly period ended** **March
      31, 2006**





OR





[
      ]  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




**For
      the transition period from**    **to**





Commission
      file number 001-16043





**ALTEON
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            **13-3304550**(State
                or other jurisdiction ofincorporation or organization)
            (I.R.S.
                Employer Identification No.)





**6
      Campus Drive, Parsippany, New Jersey 07054**


(Address
      of principal executive offices)


(Zip
      Code)





(201)
      934-5000


(Registrant's
      telephone number, including area code)





Not
      Applicable


(Former
      name, former address and former fiscal year,


if
      changed since last report.)





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.


Yes **X**  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 ___Non-accelerated filer **X**




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
      ___ No **** **X**





On
      May 1,
      2006, 68,336,711 shares of the registrant’s Common Stock were
      outstanding.





Page
      1 of
      33 pages







**ALTEON
      INC.**





**INDEX**





PagePART
                I - FINANCIAL INFORMATIONItem
                1.
            Condensed
                Financial Statements (Unaudited)Condensed
                Balance Sheets as of March 31, 2006and December 31, 2005
            3Condensed
                Statements of Operations for the three monthsended
                March 31, 2006 and 2005
            4Condensed
                Statement of Changes in Stockholders’ Equityfor the three months ended March 31, 2006
            5Condensed
                Statements of Cash Flows for the three monthsended March 31, 2006 and 2005
            6Notes
                to Condensed Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of Operations
            11Item
                3.
            Qualitative
                and Quantitative Disclosures about Market Risk
            15Item
                4.
            Controls
                and Procedures
            15PART
                II - OTHER INFORMATIONItem
                1A.
            Risk
                Factors
            16Item
                6.
            Exhibits
            31SIGNATURES
            32INDEX
                TO EXHIBITS
            33





2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
      l.**   **Condensed
      Financial Statements (Unaudited).**





**ALTEON
      INC.**


**CONDENSED
      BALANCE SHEETS**


**(Unaudited)**





**ASSETS**





March
                31,
            
            
            December
                31,2006
            
            
            2005Current
                Assets:Cash
                and cash equivalents
            
            $
            4,469,170
            
            $
            6,582,958Other
                current assets
            
            
            72,742
            
            
            216,290Total
                current assets
            
            
            4,541,912
            
            
            6,799,248Property
                and equipment, net
            
            
            40,681
            
            
            55,154Restricted
                cash
            
            
            150,000
            
            
            150,000Other
                assets
            
            
            424,111
            
            
            129,195Total
                assets
            
            $
            5,156,704
            
            $
            7,133,597





**LIABILITIES
      AND STOCKHOLDERS' EQUITY**





Current
                Liabilities:Accounts
                payable
            
            $
            190,055
            
            $
            351,232Accrued
                expenses
            
            
            596,316
            
            
            790,705Total
                liabilities
            
            
            786,371
            
            
            1,141,937Stockholders'
                Equity:Preferred
                Stock, $0.01 par value,1,993,329
                shares authorized, and 1,418 and 1,389 shares of Series G and 4,261
                and
                4,172 shares of Series H issued and outstanding, as of March 31,
                2006 and
                December 31, 2005, respectively. The liquidation value at March 31,
                2006
                and December 31, 2005 was $56,789,227 and $55,613,905
                respectively
            
            
            57
            
            
            56Common
                Stock, $0.01 par value, 300,000,000 shares authorized, and 57,996,711
                shares issued and outstanding, as of March 31, 2006 and December
                31, 2005,
                respectively
            
            
            579,967
            
            
            579,967Additional
                paid-in capital
            
            
            229,400,403
            
            
            228,225,082Accumulated
                deficit
            
            
            (225,610,094
            )
            
            (222,813,445
            )Total
                stockholders’ equity
            
            
            4,370,333
            
            
            5,991,660Total
                liabilities and stockholders' equity
            
            $
            5,156,704
            
            $
            7,133,597





The
      accompanying notes are an integral part of these unaudited financial
      statements.




3


**ALTEON
      INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**





Three
                Months Ended March 31,2006
            
            
            2005Income:Investment
                income
            
            $
            60,364
            
            $
            99,149Total
                income
            
            
            60,364
            
            
            99,149Expenses:Research
                and development
            
            
            449,840
            
            
            3,641,100General
                and administrative
            
            
            1,231,851
            
            
            1,100,348Total
                expenses
            
            
            1,681,691
            
            
            4,741,448Net
                loss
            
            
            (1,621,327
            )
            
            (4,642,299
            )Preferred
                stock dividends
            
            
            1,175,322
            
            
            1,071,578Net
                loss applicable to common stockholders
            
            $
            (2,796,649
            )
            $
            (5,713,877
            )Basic/diluted
                net loss per share applicable to common stockholders
            
            $
            (0.05
            )
            $
            (0.10
            )Weighted
                average common shares used in computing basic/diluted net loss per
                share
                applicable to common stockholders
            
            
            57,996,711
            
            
            56,547,028





The
      accompanying notes are an integral part of these unaudited financial
      statements.




4


**ALTEON
      INC.**


**CONDENSED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**


**(Unaudited)**





Additional
            
            
            
            
            
            TotalPreferred
                Stock
            Common
                Stock
            
            Paid-in
            
            
            Accumulated
            
            
            Stockholders'Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            EquityBalance,
                December 31, 2005
            
            
            5,561
            
            $
            56
            
            
            57,996,711
            
            $
            579,967
            
            $
            228,225,082
            
            $
            (222,813,445
            )
            $
            5,991,660Net
                loss
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (1,621,327
            )
            
            (1,621,327
            )Issuance
                of Series G and Hpreferred
                stock dividends
            
            
            118
            
            
            1
            
            
            ---
            
            
            ---
            
            
            1,175,321
            
            
            (1,175,322
            )
            
            ---Balance,
                March 31, 2006
            
            
            5,679
            
            $
            57
            
            
            57,996,711
            
            $
            579,967
            
            $
            229,400,403
            
            $
            (225,610,094
            )
            $
            4,370,333





The
      accompanying notes are an integral part of these unaudited financial
      statements.




5


**ALTEON
      INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Three
                Months Ended March 31,2006
            
            
            2005Cash
                flows from operating activities:Net
                loss
            
            $
            (1,621,327
            )
            $
            (4,642,299
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            14,473
            
            
            17,269Stock
                compensation expense
            
            
            ---
            
            
            65,707Changes
                in operating assets and liabilities:Other
                current assets
            
            
            143,548
            
            
            (332,194
            )Accounts
                payable and accrued expenses
            
            
            (448,566
            )
            
            (399,992
            )Net
                cash used in operating activities
            
            
            (1,911,872
            )
            
            (5,291,509
            )Cash
                flows from investing activities:Capital
                expenditures
            
            
            ---
            
            
            (760
            )Other
                assets
            
            
            (201,916
            )
            
            ---Net
                cash used in investing activities
            
            
            (201,916
            )
            
            (760
            )Cash
                flows from financing activities:Net
                proceeds from issuance of common stock
            
            
            ---
            
            
            9,532,295Net
                cash provided by financing activities
            
            
            ---
            
            
            9,532,295Net
                (decrease)/increase in cash and cash equivalents
            
            
            (2,113,788
            )
            
            4,240,026Cash
                and cash equivalents, beginning of period
            
            
            6,582,958
            
            
            11,175,762Cash
                and cash equivalents, end of period
            
            $
            4,469,170
            
            $
            15,415,788Supplemental
                disclosure of cash flow information:Accrual
                of deferred merger costs
            
            $
            93,000
            
            $
            ---





The
      accompanying notes are an integral part of these unaudited financial
      statements.




6


**ALTEON
      INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**(Unaudited)**





**Note
      1 - Basis of Presentation**





The
      accompanying unaudited financial statements have been prepared in accordance
      with generally accepted accounting principles for interim financial information
      and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
      they do not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America for complete
      financial statements. In the opinion of management, all adjustments (consisting
      of only normal recurring adjustments) considered necessary for a fair
      presentation have been included. Operating results for the three months ended
      March 31, 2006, are not necessarily indicative of the results that may be
      expected for the year ending December 31, 2006. For further information, refer
      to the financial statements and footnotes thereto included in the Company's
      Annual Report on Form 10-K for the year ended December 31, 2005, as filed with
      the Securities and Exchange Commission.





**Note
      2 - Liquidity**





The
      Company has devoted substantially all of its resources to research, drug
      discovery and development programs. To date, it has not generated any revenues
      from the sale of products and does not expect to generate any such revenues
      for
      a number of years, if at all. As a result, Alteon has incurred net losses since
      inception, has an accumulated deficit of $225,610,094 as of March 31, 2006,
      and
      expects to incur net losses, potentially greater than losses in prior years,
      for
      a number of years, assuming the Company is able to continue as a going concern,
      of which there can be no assurance.





The
      Company has financed its operations through proceeds from the sale of common
      and
      preferred equity securities, revenue from former collaborative relationships,
      reimbursement of certain of its research and development expenses by
      collaborative partners, investment income earned on cash and cash equivalent
      balances and short-term investments and the sale of a portion of the Company’s
      New Jersey state net operating loss carryforwards and research and development
      tax credit carryforwards.





As
      of
      March 31, 2006, the Company had working capital of $3,755,541, including
      $4,469,170 of cash and cash equivalents. The Company’s net cash used in
      operating activities for the three months ended March 31, 2006 was $1,911,872
      and for the year ended December 31, 2005 was $14,032,796.





The
      Company has entered into a definitive merger agreement whereby it will combine
      operations with HaptoGuard, Inc., a privately-held biotechnology company, and
      under which Genentech, Inc.’s preferred stock position in the Company will be
      restructured. The merger and associated preferred stock restructuring
      transactions are subject to the approval of Alteon and HaptoGuard shareholders
      and are expected to close early in the third quarter of 2006. The merger will
      be
      accounted for in accordance with Statement of Financial Accounting Standards
      (“SFAS”) No. 141, “Business Combinations”. See Note 6 - Subsequent
      Events.





In
      addition, the Company has completed an equity financing that resulted in net
      proceeds to Alteon of approximately $2.5 million. The new financing, as well
      as
      the Company’s current cash and cash equivalents, will be used to help fund
      future development efforts of the combined companies, including studies for
      two
      Phase 2 clinical-stage compounds focused on cardiovascular disease in diabetic
      patients. See Note 6 - Subsequent Events.





The
      Company may continue to pursue fund-raising possibilities through the sale
      of
      its equity securities after the merger is completed. If the Company is unable
      to
      complete the merger, is unsuccessful in its efforts to raise additional funds
      through the sale of additional equity securities or if the level of cash and
      cash equivalents falls below anticipated levels, Alteon will not have the
      ability to continue as a going concern after late 2006. As part of the merger,
      there are associated costs that could result in the Company being required
      to
      make payment of certain obligations in the amount of approximately $2.0 million,
      including severance and other contractual and regulatory requirements. In
      association with developing and identifying strategic options, certain costs
      have been deferred relating to the merger of $424,000.





The
      amount and timing of the Company’s future capital requirements will depend on
      numerous factors, including the timing of resuming its research and development
      programs, if at all, the timing of completion of the merger with HaptoGuard,
      the
      number and characteristics of product candidates that it pursues, the conduct
      of
      pre-clinical tests and clinical studies, the status and timelines of regulatory
      submissions, the costs associated with protecting patents and other proprietary
      rights, the ability to complete strategic collaborations and the availability
      of
      third-party funding, if any.





7


Selling
      securities to satisfy the Company’s short-term and long-term capital
      requirements may have the effect of materially diluting the current holders
      of
      its outstanding stock. Alteon may also seek additional funding through corporate
      collaborations and other financing vehicles. There can be no assurance that
      such
      funding will be available at all or on terms acceptable to the Company. If
      adequate funds are not available, the Company may be required to curtail
      significantly one or more of its research and development programs. If funds
      are
      obtained through arrangements with collaborative partners or others, the Company
      may be required to relinquish rights to certain of its technologies or product
      candidates. If Alteon is unable to obtain the necessary funding, it may need
      to
      cease operations. Even if the Company completes the merger with HaptoGuard,
      there can be no assurance that the products or technologies acquired in such
      transaction will result in revenues to the combined company or any meaningful
      return on investment to its stockholders.





**Note
      3 - Stock-Based Compensation**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which replaces “Accounting for Stock-Based
      Compensation,” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
      all share-based payments to employees, including grants of employee stock
      options, to be recognized in the financial statements based on their fair values
      effective for the Company January 1, 2006. Under SFAS 123R, the pro forma
      disclosures previously permitted under SFAS 123 are no longer an alternative
      to
      financial statement recognition.





The
      Company accounts for employee stock-based compensation, awards issued to
      non-employee directors, and stock options issued to consultants and contractors
      in accordance with SFAS 123R and Emerging Issues Task Force Issue No. 96-18,
      “Accounting for Equity Instruments that are Issued to Other Than Employees for
      Acquiring or in Conjunction with Selling Goods or Services.”





The
      Company has adopted the new standard, SFAS 123R, effective January 1, 2006
      and
      has selected the Black-Scholes method of valuation for share-based compensation.
      The Company has adopted the modified prospective transition method which
      requires that compensation cost be recorded, as earned, for all unvested stock
      options and restricted stock outstanding at the beginning of the first quarter
      of adoption of SFAS 123R, and that such costs be recognized over the remaining
      service period after the adoption date based on the options’ original estimate
      of fair value.





On
      December 15, 2005, the Compensation Committee of the Board of Directors of
      the
      Company approved the acceleration of the vesting date of all previously issued,
      outstanding and unvested options, effective December 31, 2005. The acceleration
      and the fact that no options were issued in the three months ended March 31,
      2006, resulted in the Company not being required to recognize aggregate
      compensation expense under SFAS 123R for the three months ended March 31,
      2006.





Prior
      to
      adoption of SFAS 123R, the Company applied the intrinsic-value method under
      APB
      Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
      interpretations, under which no compensation cost (excluding those options
      granted below fair market value) had been recognized. SFAS 123 established
      accounting and disclosure requirements using a fair-value based method of
      accounting for stock-based employee compensation plans. As permitted by SFAS
      123, the Company elected to continue to apply the intrinsic-value based method
      of accounting described above, and adopted only the disclosure requirements
      of
      SFAS 123, as amended.





Three
                Months Ended March 31, 2005Net
                loss, as reported
            
            $
            (4,642,299
            )Less:Total
                stock-based employee and director compensation expense determined
                under
                fair value method
            
            
            (464,128
            )Pro
                forma net loss
            
            
            (5,106,427
            )Preferred
                stock dividends
            
            
            1,071,578Pro
                forma net loss applicable to common stockholders
            
            $
            (6,178,005
            )Net
                loss per share applicable to common stockholders:Basic/diluted,
                as reported
            
            $
            (0.10
            )Basic/diluted,
                pro forma
            
            $
            (0.11
            )





8


**Note
      4 - Net Loss Per Share Applicable to Common Stockholders**





Basic
      net
      loss per share is computed by dividing net loss applicable to common
      stockholders by the weighted average number of shares outstanding during the
      period. Diluted net loss per share is the same as basic net loss per share
      applicable to common stockholders, since the assumed exercise of stock options
      and warrants and the conversion of preferred stock would be antidilutive. The
      amount of potentially dilutive shares excluded from the calculation as of March
      31, 2006 and 2005, was 230,737,264 and 87,780,852 shares,
      respectively.





**Note
      5 - Stockholders’ Equity**




Series
      G
      Preferred Stock and Series H Preferred Stock dividends are payable quarterly
      in
      shares of preferred stock at a rate of 8.5% of the accumulated balance. Each
      share of Series G Preferred Stock and Series H Preferred Stock is convertible,
      upon 70 days’ prior written notice, into the number of shares of common stock
      determined by dividing $10,000 by the average of the closing sales price of
      the
      common stock, as reported on the American Stock Exchange, for the 20 business
      days immediately preceding the date of conversion. For the three months ended
      March 31, 2006 and 2005, preferred stock dividends of $1,175,322 and $1,071,578,
      respectively, were recorded. On March 31, 2006, the Series G and Series H
      Preferred Stock would have been convertible into 55,623,529 common stock shares
      and 167,079,216 common stock shares, respectively, and had a total liquidation
      value of $56,789,227. The Series G and Series H Preferred Stock have no voting
      rights.





**Note
      6 - Subsequent Events**





**Proposed
      merger with HaptoGuard**





On
      April 19, 2006, the Company entered into a definitive merger agreement with
      Alteon Merger Sub, Inc., a wholly-owned subsidiary of Alteon, HaptoGuard, Inc.
      and Genentech, Inc. The merger agreement provides that upon the terms and
      subject to the conditions set forth in the merger agreement, Merger Sub will
      merge with and into HaptoGuard, with HaptoGuard becoming the surviving
      corporation and a wholly-owned subsidiary of the Company.




At
      the
      effective time of the merger, (a) pursuant to the terms of the Company’s
      certificate of incorporation and the merger agreement, Genentech will convert
      a
      portion of the Company’s preferred stock that it holds into shares of the
      Company’s common stock, such that the number of such shares of common stock to
      be issued will, when added to the shares of common stock already owned by
      Genentech, equal 19.99% of the Company’s outstanding common stock as calculated
      after the conversion of the preferred stock; (b) Genentech will transfer to
      HaptoGuard a portion of Company preferred stock held by it, in such an amount
      that will convert to a number of shares of Company common stock, in accordance
      with the terms of the Company’s certificate of incorporation and the terms of
      the merger agreement equal in value to $3,500,000 (the price per share of the
      Company common stock based on the volume-weighted average price of the per
      share
      selling prices on the American Stock Exchange for the twenty (20) trading
      days immediately preceding the signing of the merger agreement);
      (c) Genentech will transfer to the Company all of the remaining shares of
      Company preferred stock held by Genentech which are not either converted or
      transferred, and such shares of preferred stock shall cease to be outstanding,
      be canceled and retired without payment of any consideration therefor other
      than
      pursuant to the terms of the merger agreement and cease to exist; (d) every
      share of HaptoGuard common stock issued and outstanding immediately prior to
      the
      effective time of the merger (other than the dissenting shares) shall be
      converted into the right to receive a number of shares of Company common stock
      equal to the quotient of (i) the sum of (x) a number of shares of Company
      common stock to be issued by the Company to HaptoGuard stockholders at the
      effective time with a value of $5.3 million, plus (y) the number of
      shares of Company common stock to be issued pursuant to section (b) above
      at the effective time, the market value of (x) and (y) to be equal to
      $8,800,000, divided by (ii) the sum of (x) the number of outstanding
      shares of HaptoGuard common stock at the effective time, and (y) the number
      of Share Equivalents (as defined below) (the “Exchange Ratio”); and
      (e) each share of HaptoGuard common stock held in the treasury of
      HaptoGuard and each share of HaptoGuard common stock owned by the Company or
      by
      any direct or indirect wholly-owned subsidiary of HaptoGuard or the Company
      immediately prior to the effective time shall, by virtue of the merger and
      without any action on the part of the holder thereof, cease to be outstanding,
      be canceled and retired without payment of any consideration therefor other
      than
      pursuant to the terms of the merger agreement and cease to exist. The Company
      will assume each outstanding vested or unvested option to purchase HaptoGuard
      common stock, which will be exercisable following the merger for the number
      of
      shares of HaptoGuard common stock that were purchasable under such option
      immediately prior to the effective time of the merger multiplied by the Exchange
      Ratio (rounded down to the nearest whole number of shares of common stock)
      and
      the per share exercise price for the shares of HaptoGuard common stock issuable
      upon exercise of such assumed option will be equal to the quotient determined
      by
      dividing the exercise price per share of HaptoGuard common stock at which such
      option was exercisable immediately prior to the effective time of the merger
      by
      the Exchange Ratio (and rounding the resulting exercise price up to the nearest
      whole cent). All outstanding warrants to purchase HaptoGuard common stock will
      be exchanged for the right to receive a number of shares of Company common
      stock
      (“Share Equivalents”) at the effective time of the merger which will have a
      market value equal to the difference between (i) the market value of the
      product of the number of shares of HaptoGuard common stock that were purchasable
      under such warrants immediately prior to the Effective Time multiplied by the
      Exchange Ratio (rounded down to the nearest whole number of shares of Company
      common stock) and (ii) the total exercise price of such warrant.





9


HaptoGuard
      has made customary representations, warranties and covenants in the merger
      agreement, including, among others, covenants (i) to conduct its business
      in the ordinary course consistent with past practice during the interim period
      between the execution of the merger agreement and consummation of the merger,
      (ii) not to engage in certain kinds of transactions during such period, and
      (iii) not to solicit proposals relating to alternative business combination
      transactions. The Company and Merger Sub have also made customary
      representations, warranties and covenants in the merger agreement, including
      covenants (i) to conduct its business in the ordinary course consistent
      with past practice during the interim period between the execution of the merger
      agreement and consummation of the merger and (ii) not to engage in certain
      kinds of transactions during such period.





Consummation
      of the merger is subject to certain conditions, including (i) receipt of
      any necessary governmental approvals, (ii) approval of the merger agreement
      and the merger by the stockholders of the Company and HaptoGuard,
      (iii) absence of any law or order prohibiting the consummation of the
      merger, and (iv) subject to certain exceptions, the accuracy of the
      representations and warranties made by HaptoGuard and by the Company.





The
      merger agreement contains certain termination rights for both HaptoGuard and
      the
      Company. Upon termination of the merger agreement under specified circumstances,
      the terminating party would be required to pay the other party a termination
      fee
      of $440,000 plus any payments already made pursuant to the merger agreement.





**Private
      Placement**





On
      April 21, 2006, the Company closed a private placement of Units, consisting
      of common stock and warrants, for gross proceeds of approximately
      $2.6 million. Each Unit consisted of one share of Company common stock and
      one warrant to purchase one share of Company common stock, comprising a total
      of
      10,340,000 shares of Company common stock and warrants to purchase 10,340,000
      shares of Company common stock.





The
      offering was made to accredited investors, as defined in and pursuant to an
      exemption from registration under Regulation D promulgated under the
      Securities Act of 1933, as amended (the “Securities Act”).





Under
      the
      terms of the purchase agreement, the Units were sold at a price of $0.25 per
      Unit, and the warrants will be exercisable for a period of five years commencing
      six months from the date of issue at a price of $0.30 per share. Pursuant to
      the
      purchase agreement, investors have a right to participate in any closing of
      a
      subsequent financing by the Company of its common stock or common stock
      equivalents up to an aggregate amount equal to 50% of such subsequent financing
      until the second anniversary of the declaration of effectiveness by the
      Securities and Exchange Commission (“SEC”) of a registration statement for the
      resale of the shares of common stock and the shares of common stock underlying
      the warrants sold in the private placement. Rodman & Renshaw, LLC served as
      placement agent in the transaction and received a 6% placement fee which was
      paid in Units.





10


**ITEM
      2.**  **Management's
      Discussion and Analysis of Financial Condition**  **and
      Results of Operations.**




**Overview**





We
      are a
      product-based biopharmaceutical company engaged in the development of small
      molecule drugs to treat and prevent cardiovascular disease in diabetic patients.
      We have identified several promising product candidates that we believe
      represent novel approaches to some of the largest pharmaceutical markets. We
      have advanced one of these products into Phase 2 clinical trials.





Our
      lead
      drug candidate, alagebrium chloride or alagebrium (formerly ALT-711), is a
      product of our drug discovery and development program. Alagebrium has
      demonstrated potential efficacy in two clinical trials in heart failure, as
      well
      as in animal models of heart failure and nephropathy, among others. It has
      been
      tested in approximately 1,000 patients in a number of Phase 1 and Phase 2
      clinical trials. Our goal is to develop alagebrium in diastolic heart failure
      (“DHF”). This disease represents a rapidly growing market of unmet need,
      particularly common among diabetic patients, and alagebrium has demonstrated
      relevant clinical activity in two Phase 2 clinical trials.





In
      April
      2006, we announced the signing of a definitive merger agreement with HaptoGuard,
      Inc., whereby the two companies will combine operations. The companies have
      complementary product platforms in cardiovascular diseases, diabetes and other
      inflammatory diseases. We have begun working with the HaptoGuard team in
      anticipation of the merger of the companies, and are preparing a Phase 2
      protocol for alagebrium in heart failure in order to expand our clinical program
      in this therapeutic area. However, any continued development of alagebrium
      by us
      is contingent upon the successful completion of the merger and adequate funding
      for product development.





Following
      the merger, the combined company will have two products in Phase 2 clinical
      development:





Ø
            Alagebrium
                chloride (formally ALT-711), Alteon’s lead compound, is an Advanced
                Glycation End-product Crosslink Breaker being developed for heart
                failure.
                Data presented from two Phase 2 clinical studies at the American
                Heart
                Association meeting in November 2005 demonstrated the ability of
                alagebrium to improve overall cardiac function, including measures
                of
                diastolic and endothelial function. In these studies, alagebrium
                also
                demonstrated the ability to significantly reduce left ventricular
                mass.
                The compound has been tested in approximately 1,000 patients, which
                represents a sizeable human safety database, in a number of Phase
                2
                clinical trials.





Ø
            ALT-2074
                (formerly BXT-51072), HaptoGuard’s licensed lead compound, is a
                glutathione peroxidase mimetic in development for reduction of mortality
                in post-myocardial infarction patients with diabetes. The compound
                has
                shown the ability to reduce infarct size by approximately 85% in
                a mouse
                model of heart attack called ischemia reperfusion injury.





Additionally,
      HaptoGuard owns a license to a proprietary genetic biomarker that has shown
      the
      potential to identify patients who are most responsive to the HaptoGuard
      compound.





The
      merger of the two companies will be structured as an acquisition by Alteon.
      Under the terms of the merger agreement, HaptoGuard shareholders will receive
      approximately 37.4 million shares of Alteon common stock (approximately 31%
      of
      total shares after completion of the merger.) As part of the merger, a portion
      of existing shares of Alteon preferred stock held by Genentech, Inc. will be
      converted into common stock, among other transactions. The merger and preferred
      stock restructuring transactions are subject to the approval of Alteon and
      HaptoGuard shareholders and are expected to close early in the third quarter
      of
      2006.





In
      April
      2006, we also announced the signing of definitive agreements for an equity
      financing which resulted in gross proceeds to us of approximately $2.6 million.
      The PIPE financing includes new and existing institutional investors, in which
      we sold approximately 10.3 million Units, consisting of common stock and
      warrants, for net proceeds after expenses and fees of approximately $2.5
      million. Each Unit consists of one share of Alteon common stock and one warrant
      to purchase one share of Alteon common stock. The Units were sold at a price
      of
      $0.25 per Unit and the warrants are exercisable, commencing six months from
      the
      date of issuance, for a period of five years at an exercise price of $0.30
      per
      share. The shares of common stock and warrants that were offered and sold in
      the
      financing were not registered under the Securities Act or state securities
      laws
      pursuant to an exemption from registration provided by Regulation D under the
      Securities Act. The Company has agreed to file a registration statement with
      the
      SEC for the resale of the shares of common stock and the shares of common stock
      underlying the warrants sold in the PIPE transaction. Rodman & Renshaw, LLC
      served as placement agent in the transaction and received a 6% placement fee
      which was paid in Units.





11




**ITEM
        2.**  **Management's
        Discussion and Analysis of Financial Condition**  **and
        Results of Operations.**


Key
      components of the proposed transactions between Alteon, HaptoGuard and Genentech
      are as follows:





Ø
            Alteon
                will acquire all outstanding equity of HaptoGuard. In exchange, HaptoGuard
                shareholders will receive from Alteon $5.3 million in Alteon common
                stock,
                or approximately 22.5 million
                shares.


Ø
            Genentech
                will convert a portion of its existing preferred Alteon stock to
                Alteon
                common stock. A portion of Genentech’s preferred stock, which when
                converted to common stock equals approximately $3.5 million in Alteon
                common stock, will be transferred to HaptoGuard shareholders.


Ø
            The
                remaining Alteon preferred stock held by Genentech will be cancelled.


Ø
            Genentech
                will receive milestone payments and royalties on net sales of alagebrium,
                as well as a right of first negotiation on
                ALT-2074.





We
      cannot
      predict at this time when enrollment in our clinical studies will resume, if
      ever. If we do not resume enrollment in one or more of our clinical studies,
      we
      will evaluate moving into more focused clinical trials in different indications
      or returning to our pre-clinical library of compounds to identify new compounds
      to bring forward for further evaluation. Should we be unable to resume
      enrollment in our clinical studies, in a timely manner, or at all, our business
      will be materially adversely affected.





We
      continue to evaluate potential pre-clinical and clinical studies in other
      therapeutic indications in which alagebrium may address significant unmet needs.
      In addition to our anticipated clinical studies in heart failure, we have
      conducted early research studies focusing on atherosclerosis; Alzheimer's
      disease; photoaging of the skin; eye diseases, including age-related macular
      degeneration (“AMD”), and glaucoma; and other diabetic complications, including
      renal diseases.





Since
      our
      inception in October 1986, we have devoted substantially all of our resources
      to
      research, drug discovery and development programs. To date, we have not
      generated any revenues from the sale of products and do not expect to generate
      any such revenues for a number of years, if at all. We have incurred an
      accumulated deficit of $225,610,094 as of March 31, 2006, and expect to incur
      net losses, potentially greater than losses in prior years, for a number of
      years.





We
      have
      financed our operations through proceeds from public offerings of common stock,
      private placements of common and preferred equity securities, revenue from
      former collaborative relationships, reimbursement of certain of our research
      and
      development expenses by our collaborative partners, investment income earned
      on
      cash and cash equivalent balances and short-term investments and the sale of
      a
      portion of our New Jersey State net operating loss carryforwards and research
      and development tax credit carryforwards.





Our
      business is subject to significant risks including, but not limited to, (1)
      our
      ability to complete the announced merger between Alteon and HaptoGuard and
      to
      obtain sufficient additional funding to resume the development of alagebrium
      and
      to continue operations, (2) our ability to resume enrollment in our clinical
      studies of alagebrium should we have adequate financial and other resources
      to
      do so, (3) the risks inherent in our research and development efforts, including
      clinical trials and the length, expense and uncertainty of the process of
      seeking regulatory approvals for our product candidates, (4) our reliance on
      alagebrium, which is our only significant drug candidate, (5) uncertainties
      associated with obtaining and enforcing our patents and with the patent rights
      of others, (6) uncertainties regarding government healthcare reforms and product
      pricing and reimbursement levels, (7) technological change and competition,
      (8)
      manufacturing uncertainties, and (9) dependence on collaborative partners and
      other third parties. Even if our product candidates appear promising at an
      early
      stage of development, they may not reach the market for numerous reasons. These
      reasons include the possibilities that the products will prove ineffective
      or
      unsafe during pre-clinical or clinical studies, will fail to receive necessary
      regulatory approvals, will be difficult to manufacture on a large scale, will
      be
      uneconomical to market or will be precluded from commercialization by
      proprietary rights of third parties. These risks and others are discussed under
      the heading Part II, Item 1A - Risk Factors.




12


**ITEM
      2.**  **Management's
      Discussion and Analysis of Financial Condition**  **and
      Results of Operations.**









**Three
      Months ended March 31, 2006 and 2005**





Total
      revenues for the three months ended March 31, 2006 and 2005, was $60,000 and
      $99,000, respectively. Revenues were derived from interest earned on cash and
      cash equivalents. The decrease from 2005 to 2006 was attributed to lower
      investment balances and partially offset by higher interest rates.





Our
      total
      expenses were $1,682,000 for the three months ended March 31, 2006, compared
      to
      $4,741,000 for the three months ended March 31, 2005, and in each period
      consisted primarily of research and development expenses. Research and
      development expenses normally include third-party expenses associated with
      pre-clinical and clinical studies, manufacturing costs, including the
      development and preparation of clinical supplies, personnel and
      personnel-related expenses and facility expenses.





Research
      and development expenses were $450,000 for the three months ended March 31,
      2006, as compared to $3,641,000 for the same period in 2005, a decrease of
      $3,191,000, or 87.6%. This decrease was attributed to decreased clinical trial
      costs and manufacturing expenses as a result of the discontinuation in June
      2005
      of our Systolic Pressure Efficacy and Safety Trial of Alagebrium (“SPECTRA”). In
      2006, of the total amount spent on research and development expenses, we
      incurred $233,000 in personnel and personnel-related expenses, $101,000 in
      product liability insurance and $86,000 in third party consulting. In 2005,
      we
      incurred $1,275,000 in clinical trial expenses primarily related to SPECTRA,
      $1,252,000 in personnel and personnel-related expenses, $441,000 in pre-clinical
      expenses and $284,000 related to manufacturing (packaging and distribution).





General
      and administrative expenses were $1,232,000 for the three months ended March
      31,
      2006, as compared to $1,100,000 for the same period in 2005. Although general
      and administrative expenses remained relatively flat, 2006 includes increased
      severance costs and retention bonuses offset by decreased corporate
      expenses.





Our
      net
      loss applicable to common stockholders was $2,797,000 for the three months
      ended
      March 31, 2006, compared to $5,714,000 in the same period in 2005, a
      decrease of 51.1%. This decrease was a result primarily of our significantly
      reduced research and development expenses. Included in the net loss applicable
      to common stockholders are preferred stock dividends of $1,175,322 and
      $1,071,578 for the three months ended March 31, 2006 and 2005
      respectively.





**Liquidity
      and Capital Resources** ****




We
      had
      cash and cash equivalents at March 31, 2006, of $4,469,000, compared to
      $6,583,000 at December 31, 2005. The decrease is attributable to $1,912,000
      of net cash used in operating activities and $202,000 of cash used in investing
      activities. At March 31, 2006 we had working capital of $3,756,000.





We
      do not
      have any approved products and currently derive cash from sales of our
      securities, sales of our New Jersey state net operating loss carryforwards
      and
      interest on cash and cash equivalents. We are highly susceptible to conditions
      in the global financial markets and in the pharmaceutical industry. Positive
      and
      negative movement in those markets will continue to pose opportunities and
      challenges to us. Previous downturns in the market valuations of biotechnology
      companies and of the equity markets more generally have restricted our ability
      to raise additional capital on favorable terms.




The
      Company has entered into a definitive merger agreement whereby it plans to
      combine operations with HaptoGuard, Inc., a privately-held biotechnology
      company. The merger and associated preferred stock restructuring transactions
      are subject to the approval of Alteon and HaptoGuard shareholders and are
      expected to close early in the third quarter of 2006. See Note 6 - Subsequent
      Events.





In
      addition, the Company has completed an equity financing that resulted in net
      proceeds to Alteon of approximately $2.5 million. The new financing, as well
      as
      the Company’s current cash and cash equivalents, will be used to help fund
      future development efforts of the combined companies, including studies for
      two
      Phase 2 clinical-stage compounds focused on cardiovascular disease in diabetic
      patients. See Note 6 - Subsequent Events.





The
      Company may continue to pursue fund-raising possibilities through the sale
      of
      its equity securities after the merger is completed. If the Company is unable
      to
      complete the merger, is unsuccessful in its efforts to raise additional funds
      through the sale of additional equity securities or if the level of cash and
      cash equivalents falls below anticipated levels, Alteon will not have the
      ability to continue as a going concern after late 2006. As part of the merger,
      there are associated costs that could result in the Company being required
      to
      make payment of certain obligations in the amount of approximately $2.0 million,
      including severance and other contractual and regulatory requirements. In
      association with developing and identifying strategic options, certain costs
      have been deferred relating to the merger of $424,000.





13


**ITEM
          2.**  **Management's
          Discussion and Analysis of Financial Condition**  **and
          Results of Operations.**
  The
      amount and timing of the Company’s future capital requirements will depend on
      numerous factors, including the timing of resuming its research and development
      programs, if at all, the timing of completion of the merger with HaptoGuard,
      the
      number and characteristics of product candidates that it pursues, the conduct
      of
      pre-clinical tests and clinical studies, the status and timelines of regulatory
      submissions, the costs associated with protecting patents and other proprietary
      rights, the ability to complete strategic collaborations and the availability
      of
      third-party funding, if any.





Selling
      securities to satisfy the Company’s short-term and long-term capital
      requirements may have the effect of materially diluting the current holders
      of
      its outstanding stock. Alteon may also seek additional funding through corporate
      collaborations and other financing vehicles. There can be no assurance that
      such
      funding will be available at all or on terms acceptable to the Company. If
      adequate funds are not available, the Company may be required to curtail
      significantly one or more of its research and development programs. If funds
      are
      obtained through arrangements with collaborative partners or others, the Company
      may be required to relinquish rights to certain of its technologies or product
      candidates. If Alteon is unable to obtain the necessary funding, it may need
      to
      cease operations. Even if the Company completes the merger with HaptoGuard,
      there can be no assurance that the products or technologies acquired in such
      transaction will result in revenues to the combined company or any meaningful
      return on investment to its stockholders.





**Critical
      Accounting Policies** ****





In
      December 2001, the SEC issued a statement concerning certain views of the SEC
      regarding the appropriate amount of disclosure by publicly held companies with
      respect to their critical accounting policies. In particular, the SEC expressed
      its view that in order to enhance investor understanding of financial
      statements, companies should explain the effects of critical accounting policies
      as they are applied, the judgments made in the application of these policies
      and
      the likelihood of materially different reported results if different assumptions
      or conditions were to prevail. We have since carefully reviewed the disclosures
      included in our filings with the SEC, including, without limitation, this
      Quarterly Report on Form 10-Q and accompanying unaudited financial statements
      and related notes thereto. We believe the effect of the following accounting
      policy is significant to our results of operations and financial condition.





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which replaces “Accounting for Stock-Based
      Compensation,” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
      all share-based payments to employees, including grants of employee stock
      options, to be recognized in the financial statements based on their fair values
      beginning with the first annual reporting period that begins after December
      15,
      2005. Under SFAS 123R, the pro forma disclosures previously permitted under
      SFAS
      123 are no longer an alternative to financial statement
      recognition.





The
      Company accounts for employee stock-based compensation, awards issued to
      non-employee directors, and stock options issued to consultants and contractors
      in accordance with SFAS 123R, SFAS No. 148 “Accounting for Stock-Based
      Compensation—Transition and Disclosure” and Emerging Issues Task Force Issue No.
      96-18, “Accounting for Equity Instruments that are Issued to Other Than
      Employees for Acquiring or in Conjunction with Selling Goods or
      Services.”





The
      Company has adopted the new standard, SFAS 123R, effective January 1, 2006
      and
      has selected the Black-Scholes method of valuation for share-based compensation.
      The Company has adopted the modified prospective transition method which
      requires that compensation cost be recorded, as earned, for all unvested stock
      options and restricted stock outstanding at the beginning of the first quarter
      of adoption of SFAS 123R, and is recognized over the remaining service period
      after the adoption date based on the options’ original estimate of fair
      value.





On
      December 15, 2005, the Compensation Committee of the Board of Directors of
      the
      Company approved the acceleration of the vesting date of all previously issued,
      outstanding and unvested options, effective December 31, 2005. The acceleration
      and the fact that no options were issued in the three months ended March 31,
      2006, resulted in the Company not being required to recognize aggregate
      compensation expense under SFAS 123R for the three months ended March 31,
      2006.





Prior
      to
      adoption of SFAS 123R, the Company applied the intrinsic-value method under
      APB
      Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
      interpretations, under which no compensation cost (excluding those options
      granted below fair market value) has been recognized. SFAS 123, “Accounting for
      Stock-Based Compensation,” established accounting and disclosure requirements
      using a fair-value based method of accounting for stock-based employee
      compensation plans. As permitted by SFAS 123, the Company elected to continue
      to
      apply the intrinsic-value based method of accounting described above, and
      adopted only the disclosure requirements of SFAS 123, as amended, which were
      similar in most respects to SFAS 123R.




14


**ITEM
          2.**  **Management's
          Discussion and Analysis of Financial Condition**  **and
          Results of Operations.**


***Forward-Looking
      Statements and Cautionary Statements***





Statements
      in this Form 10-Q that are not statements or descriptions of historical facts
      are "forward-looking" statements under Section 21E of the Securities Exchange
      Act of 1934, as amended, and the Private Securities Litigation Reform Act of
      1995, and are subject to numerous risks and uncertainties. These forward-looking
      statements and other forward-looking statements made by us or our
      representatives are based on a number of assumptions. The words "believe,"
      "expect," "anticipate," "intend," "estimate" or other expressions, which are
      predictions of or indicate future events and trends and which do not relate
      to
      historical matters, identify forward-looking statements. Readers are cautioned
      not to place undue reliance on these forward-looking statements, as they involve
      risks and uncertainties, and actual results could differ materially from those
      currently anticipated due to a number of factors, including those set forth
      in
      this section and elsewhere in this Form 10-Q. These factors include, but are
      not
      limited to, the risks set forth below.





The
      forward-looking statements represent our judgments and expectations as of the
      date of this Report. We assume no obligation to update any such forward-looking
      statements. See Part II, Item 1A - Risk Factors.




**ITEM
      3.**  **Qualitative
      and Quantitative Disclosures about Market Risk.**





Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      investment in marketable securities. We do not use derivative financial
      instruments in our investments. All of our investments resided in money market
      accounts. Accordingly, we do not believe that there is any material market
      risk
      exposure with respect to derivative or other financial instruments that would
      require disclosure under this Item.





**ITEM
      4.**  **Controls
      and Procedures.**





a)  *Evaluation* ****** *of
      Disclosure Controls and Procedures.* Our
      management has evaluated, with the participation of our Chief Executive Officer
      and our Director of Finance and Financial Reporting, the effectiveness of our
      disclosure controls and procedures (as defined in Rule 13a-15(e) under the
      Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
      end
      of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based
      upon
      that evaluation, the Chief Executive Officer and the Director of Finance and
      Financial Reporting have concluded that as of the end of such fiscal quarter,
      our current disclosure controls and procedures were not effective, because
      of
      the material weakness in internal control over financial reporting described
      below. We have taken, and are continuing to take, steps to address this weakness
      as described below. With the exception of such weakness, however, the Chief
      Executive Officer and the Director of Finance and Financial Reporting believe
      that our current disclosure controls and procedures are adequate to ensure
      that
      information required to be disclosed in the reports we file under the Exchange
      Act is recorded, processed, summarized and reported on a timely
      basis.





b)   *Material
      Weaknesses and Changes in Internal Controls* .
      During
      the audit of our financial statements for the year ended December 31, 2005,
      our
      independent registered public accounting firm identified a material weakness,
      as
      of December 31, 2005, regarding our internal controls over the identification
      of
      and the accounting for non-routine transactions, including certain costs related
      to potential strategic transactions, severance benefits and the financial
      statement recording and disclosures of stock options that we have granted to
      non-employee consultants in accordance with Emerging Issues Task Force (“EITF”)
      96-18. As defined by the Public Company Accounting Oversight Board Auditing
      Standard No. 2, a material weakness is a significant control deficiency or
      a
      combination of significant control deficiencies, that results in there being
      more than a remote likelihood that a material misstatement of the annual or
      interim financial statements will not be prevented or detected. This material
      weakness did not result in the restatement of any previously reported financial
      statements or any other related financial disclosure. In addition, the changes
      that would have resulted in the financial statements for the year ended December
      31, 2005, as a consequence of the material weakness, were deemed to be
      immaterial but were nevertheless recorded by the Company. Management has
      implemented remedial controls to address these matters including additional
      third party review of non-routine strategic transactions and Board of Director
      meeting minutes.





c)  There
      were no changes in our internal control over financial reporting (as defined
      in
      Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter
      covered by this Quarterly Report on Form 10-Q that have materially affected,
      or
      are reasonably likely to materially affect, our internal control over financial
      reporting.





15


**PART
      II - OTHER INFORMATION**





**ITEM
      1A. Risk Factors.**





**Risks
      Related to Our Business**





***As
      a result of a decrease in our available financial resources, we have
      significantly curtailed the research, product development, preclinical testing
      and clinical trials of our product candidates*** ***,
      and if we are unable to obtain sufficient additional funding in the near term,
      we may be forced to cease operations*** ***.***





As
      of
      March 31, 2006, we had working capital of $3,755,000, including $4,469,000
      of
      cash and cash equivalents. Our cash used in operating activities for the three
      months ended March 31, 2006 was $1,912,000.





On
      April
      19, 2006, we signed a definitive merger agreement with HaptoGuard, Inc., whereby
      the two companies will combine operations in a stock transaction valued at
      $8.8
      million. As part of the merger, a portion of our existing shares of preferred
      stock held by Genentech, Inc. will be converted into common stock. In addition,
      on April 21, 2006, we closed an equity financing that resulted in net proceeds
      to us of approximately $2.5 million. Assuming completion of the merger between
      Alteon and HaptoGuard, we expect to utilize cash and cash equivalents to fund
      our operating activities, and to fund the future clinical development efforts
      of
      the combined companies, including the planned Phase 2 studies of our lead
      compound, alagebrium and HaptoGuard’s lead compound ALT-2074.





While
      we
      intend to pursue development of alagebrium in high potential cardiovascular
      indications such as heart failure, any continued development of alagebrium
      by us
      is contingent upon our completion of the merger.





If
      we are
      unable to complete the merger and the preferred stock restructuring on
      reasonable terms, we will not have the ability to continue as a going concern
      after late 2006. As part of the merger, there are associated costs that will
      result in the Company being required to make payment of certain obligations
      in
      the amount of approximately $2.0 million, including severance and other
      contractual and regulatory requirements. Even if
      we complete the merger, there can be no assurance that the products or
      technologies acquired in such transaction will result in revenues to the
      combined company or any meaningful return on investment to our
      stockholders .





The
      amount and timing of our future capital requirements will depend on numerous
      factors, including the timing of resuming our
      research and development programs, if
      at
      all, the timing of completion of the merger with HaptoGuard, the
      number and characteristics of product candidates that we pursue, the conduct
      of
      preclinical tests and clinical studies, the status and timelines of regulatory
      submissions, the costs associated with protecting patents and other proprietary
      rights, the ability to complete strategic collaborations and the availability
      of
      third-party funding, if any.





Selling
      securities to satisfy our short-term and long-term capital requirements may
      have
      the effect of materially diluting the current holders of our outstanding stock.
      We may also seek additional funding through corporate collaborations and other
      financing vehicles. If funds are obtained through arrangements with
      collaborative partners or others, we may be required to relinquish rights to
      our
      technologies or product candidates.





***If
      we are unable to complete the merger and related stock conversion transaction
      with respect to our preferred stock, we may not be able to secure future equity
      financing or merge with a third party.***





In
      December 1997, we entered into an agreement with Genentech relating to the
      development of pimagedine, an A.G.E. formation inhibitor, for the treatment
      of
      diabetic nephropathy. As part of this agreement, Genentech purchased shares
      of
      Alteon Series G Preferred Stock and Series H Preferred Stock, the proceeds
      of
      which were used to fund the pimagedine development program. Both the Series
      G
      Preferred Stock and Series H Preferred Stock have dividends which are payable
      quarterly in shares of preferred stock at a rate of 8.5% of the accumulated
      balance. The Series G and Series H Preferred Stock each carry a liquidation
      preference, which means that the value of that preferred stock would be required
      to be paid to the holders of the Series G and Series H Preferred Stock upon
      a
      sale or liquidation before any proceeds from such sale or liquidation are paid
      to any other holders of equity securities, including the common stock. As of
      March 31, 2006, holders of the outstanding shares of Series G and Series H
      Preferred Stock, including shares issued pursuant to the dividend obligation,
      were entitled to a liquidation preference of $56,789,227. Our total market
      capitalization as of that date was $12,759,276. As a result, unless we complete
      the merger, holders of our common stock will not realize any value upon our
      sale
      or liquidation at a valuation of less than $56,789,227. The Series G and Series
      H Preferred Stock have no voting rights. Each share of Series G Preferred Stock
      and Series H Preferred Stock is convertible, upon 70 days’ prior written notice,
      into the number of shares of common stock determined by dividing $10,000 by
      the
      average of the closing prices of our common stock, as reported on the American
      Stock Exchange, for the 20 business days immediately preceding the date of
      conversion. On March 31, 2006, the Series G and Series H Preferred Stock would
      have been convertible into 55,623,529 and 167,079,216 shares of common stock,
      respectively, representing, in aggregate, approximately 79.3% of our common
      stock outstanding on an as-converted basis as of that date.





16


While
      the
      terms of the Series G and Series H Preferred Stock generally restrict
      Genentech’s ownership position in us upon conversion to 40% of our outstanding
      common stock, any conversion of shares of Series G and/or Series H Preferred
      Stock into common stock would represent a substantial dilution to existing
      common shareholders. Potential financing sources for us may be dissuaded from
      investing in us in light of the presence of a significant holder of securities
      having a sizable liquidation preference and/or voting position. This could
      also
      discourage any potential acquirer from pursuing a transaction with us at a
      valuation that does not result in sufficient proceeds to pay the full
      liquidation preference due to Genentech.





As
      noted,
      above, on April 19, 2006, we entered into a definitive merger agreement with
      HaptoGuard, Inc., whereby the two companies will combine operations in a stock
      transaction valued at $8.8 million. As part of the merger, a portion of existing
      shares of Alteon preferred stock held by Genentech, Inc. (a) will be converted
      into 13,492,349 shares of common stock and (b) a portion of such stock will
      be
      converted to common stock valued at $3.5 million, or approximately 14,874,628
      shares and will be transferred to HaptoGuard shareholders in exchange for
      certain negotiation and royalty rights for certain HaptoGuard products, and
      the
      remaining shares of Alteon preferred stock held by Genentech, Inc. will be
      cancelled. The merger and stock conversion transactions are subject to the
      approval of Alteon and HaptoGuard shareholders and are expected to close in
      the
      third quarter of 2006. There is no assurance the merger and related transactions
      will close.





***We
      have received a going concern opinion from our independent registered public
      accounting firm, which could negatively affect our stock price and our ability
      to raise capital.***





J.H.
      Cohn
      LLP, our independent registered public accounting firm, has included an
      explanatory paragraph in their report on our financial statements for the fiscal
      year ended December 31, 2005, which raises substantial doubt about our ability
      to continue as a going concern. The inclusion of a going concern explanatory
      paragraph in J.H. Cohn LLP’s report on our financial statements could have a
      detrimental effect on our stock price and our ability to raise additional
      capital.





Our
      financial statements have been prepared on the basis of a going concern, which
      contemplates the realization of assets and the satisfaction of liabilities
      in
      the normal course of business. We have not made any adjustments to the financial
      statements as a result of the outcome of the uncertainty described above.





***If
      we are unable to form the successful collaborative relationships that our
      business strategy requires, then our programs will suffer and we may not be
      able
      to develop products.***





Our
      strategy for developing and deriving revenues from our products depends, in
      large part, upon entering into arrangements with research collaborators,
      corporate partners and others. The potential market, preclinical and clinical
      study results and safety profile of our product candidates may not be attractive
      to potential corporate partners. A two-year toxicity study found that male
      rats
      exposed to high doses of alagebrium over their natural lifetime developed
      dose-related increases in liver cell alterations including hepatocarcinomas,
      and
      that the alteration rate was slightly over the expected background rate in
      this
      gender and species of rat. Also, our Phase 2a EMERALD study in erectile
      dysfunction, the IND for which has since been withdrawn, was placed on clinical
      hold by the Reproductive and Urologic Division which may adversely affect our
      ability to enter into research and development collaborations with respect
      to
      alagebrium. We face significant competition in seeking appropriate collaborators
      and these collaborations are complex and time-consuming to negotiate and
      document. We may not be able to negotiate collaborations on acceptable terms,
      or
      at all. If that were to occur, we may have to curtail the development of a
      particular product candidate, reduce or delay our development program or one
      or
      more of our other development programs, delay our potential commercialization
      or
      reduce the scope of our sales or marketing activities, or increase our
      expenditures and undertake development or commercialization activities at our
      own expense. If we elect to increase our expenditures to fund development or
      commercialization activities on our own, we may need to obtain additional
      capital, which may not be available to us on acceptable terms, or at all. If
      we
      do not have sufficient funds, we will not be able to bring our product
      candidates to market and generate product revenue.





***If
      we are unable to attract and retain the key personnel on whom our success
      depends, our product development, marketing and commercialization plans could
      suffer.***





We
      depend
      heavily on the principal members of our management and scientific staff to
      realize our strategic goals and operating objectives. Over the past few months,
      due to the reduction in our clinical trial activities, the number of our
      employees has decreased from 30 as of June 30, 2005 to 7 as of March 1, 2006.
      On
      February 1, 2006, we announced the resignation of our Chief Operating Officer,
      Judith S. Hedstrom. The loss of services in the near term of any of our other
      principal members of management and scientific staff could impede the
      achievement of our development priorities. Furthermore, recruiting and retaining
      qualified scientific personnel to perform research and development work in
      the
      future will also be critical to our success, and there is significant
      competition among companies in our industry for such personnel. We have
      established retention programs for our current key employees, and we may be
      required to provide additional retention and severance benefits to our employees
      as we curtail operations or prepare to effect a strategic transaction such
      as a
      sale or merger with another company. However, we cannot assure you that we
      will
      be able to attract and retain personnel on acceptable terms given the
      competition between pharmaceutical and healthcare companies, universities and
      non-profit research institutions for experienced managers and scientists, and
      given the recent clinical and regulatory setbacks that we have experienced.
      In
      addition, we rely on consultants to assist us in formulating our research and
      development strategy. All of our consultants are employed by other entities
      and
      may have commitments to or consulting or advisory contracts with those other
      entities that may limit their availability to us.





17


***Clinical
      studies required for our product candidates are time-consuming, and their
      outcome is uncertain.***





Before
      obtaining regulatory approvals for the commercial sale of any of our products
      under development, we must demonstrate through preclinical and clinical studies
      that the product is safe and effective for use in each target indication.
      Success in preclinical studies of a product candidate may not be predictive
      of
      similar results in humans during clinical trials. None of our products has
      been
      approved for commercialization in the United States or elsewhere. In December
      2004, we announced that findings of a routine two-year rodent toxicity study
      indicated that male Sprague Dawley rats exposed to high doses of alagebrium
      over
      their natural lifetime developed dose-related increases in liver cell
      alterations and tumors, and that the liver tumor rate was slightly over the
      expected background rate in this gender and species of rat. In February 2005,
      based on the initial results from one of the follow-on preclinical toxicity
      experiments, we voluntarily and temporarily suspended enrollment of new subjects
      into each of the ongoing clinical studies pending receipt of additional
      preclinical data. We withdrew our IND for the EMERALD study in February 2006
      in
      order to focus our resources on the development of alagebrium in cardiovascular
      indications.





In
      June
      2005, our Phase 2b SPECTRA trial in systolic hypertension was discontinued
      after
      an interim analysis found that the data did not indicate a treatment effect
      of
      alagebrium and we have ceased development of alagebrium for this indication.





We
      cannot
      predict at this time when enrollment in any of our clinical studies, will
      resume, if ever. If we are unable to resume enrollment in our clinical studies
      in a timely manner, or at all, our business will be materially adversely
      affected.





If
      we do
      not prove in clinical trials that our product candidates are safe and effective,
      we will not obtain marketing approvals from the FDA and other applicable
      regulatory authorities. In particular, one or more of our product candidates
      may
      not exhibit the expected medical benefits in humans, may cause harmful side
      effects, may not be effective in treating the targeted indication or may have
      other unexpected characteristics that preclude regulatory approval for any
      or
      all indications of use or limit commercial use if approved.





The
      length of time necessary to complete clinical trials varies significantly and
      is
      difficult to predict. Factors that can cause delay or termination of our
      clinical trials include:





·
            slower
                than expected patient enrollment due to the nature of the protocol,
                the
                proximity of subjects to clinical sites, the eligibility criteria
                for the
                study, competition with clinical trials for other drug candidates
                or other
                factors;




·
            adverse
                results in preclinical safety or toxicity
                studies;




·
            lower
                than expected retention rates of subjects in a clinical
                trial;




·
            inadequately
                trained or insufficient personnel at the study site to assist in
                overseeing and monitoring clinical
                trials;




·
            delays
                in approvals from a study site’s review board, or other required
                approvals;




·
            longer
                treatment time required to demonstrate effectiveness or determine
                the
                appropriate product dose;




·
            lack
                of sufficient supplies of the product
                candidate;




·
            adverse
                medical events or side effects in treated
                subjects;




·
            lack
                of effectiveness of the product candidate being tested;
                and




·
            regulatory
                changes.




18


Even
      if
      we obtain positive results from preclinical or clinical studies for a particular
      product, we may not achieve the same success in future studies of that product.
      Data obtained from preclinical and clinical studies are susceptible to varying
      interpretations that could delay, limit or prevent regulatory approval. In
      addition, we may encounter delays or rejections based upon changes in FDA policy
      for drug approval during the period of product development and FDA regulatory
      review of each submitted new drug application. We may encounter similar delays
      in foreign countries. Moreover, regulatory approval may entail limitations
      on
      the indicated uses of the drug. Failure to obtain requisite governmental
      approvals or failure to obtain approvals of the scope requested will delay
      or
      preclude our licensees or marketing partners from marketing our products or
      limit the commercial use of such products and will have a material adverse
      effect on our business, financial condition and results of operations.





In
      addition, some or all of the clinical trials we undertake may not demonstrate
      sufficient safety and efficacy to obtain the requisite regulatory approvals,
      which could prevent or delay the creation of marketable products. Our product
      development costs will increase if we have delays in testing or approvals,
      if we
      need to perform more, larger or different clinical or preclinical trials than
      planned or if our trials are not successful. Delays in our clinical trials
      may
      harm our financial results and the commercial prospects for our products.





Before
      a
      clinical trial may commence in the United States, we must submit an IND,
      containing preclinical studies, chemistry, manufacturing, control and other
      information and a study protocol to the FDA. If the FDA does not object within
      30 days after submission of the IND, then the trial may commence. If commenced,
      the FDA may delay, limit, suspend or terminate clinical trials at any time,
      or
      may delay, condition or reject approval of any of our product candidates, for
      many reasons. For example:





·
            ongoing
                preclinical or clinical study results may indicate that the product
                candidate is not safe or effective;




·
            the
                FDA may interpret our preclinical or clinical study results to indicate
                that the product candidate is not safe or effective, even if we interpret
                the results differently; or




·
            the
                FDA may deem the processes and facilities that our collaborative
                partners,
                our third-party manufacturers or we propose to use in connection
                with the
                manufacture of the product candidate to be
                unacceptable.





***If
      we do not successfully develop any products, or are unable to derive revenues
      from product sales, we will never be profitable.***





Virtually
      all of our revenues to date have been generated from collaborative research
      agreements and investment income. We have not received any revenues from product
      sales. We may not realize product revenues on a timely basis, if at all, and
      there can be no assurance that we will ever be profitable.





At
      March
      31, 2006, we had an accumulated deficit of $225,610,000. We anticipate that
      we
      will incur substantial, potentially greater, losses in the future as we continue
      our research, development and clinical studies. We have not yet requested or
      received regulatory approval for any product from the FDA or any other
      regulatory body. All of our product candidates, including our lead candidate,
      alagebrium, are still in research, preclinical or clinical development. We
      may
      not succeed in the development and marketing of any therapeutic or diagnostic
      product. We do not have any product other than alagebrium in clinical
      development, and there can be no assurance that we will be able to bring any
      other compound into clinical development. Adverse results of any preclinical
      or
      clinical study could cause us to materially modify our clinical development
      programs, resulting in delays and increased expenditures, or cease development
      for all or part of our ongoing studies of alagebrium.





In
      February 2006, the EMERALD study of alagebrium in ED was discontinued in order
      to focus our resources on development of alagebrium for cardiovascular
      indications.





In
      June
      2005, our SPECTRA Phase 2b trial in systolic hypertension, was discontinued
      after an interim analysis found that the data did not indicate a treatment
      effect of alagebrium and we have ceased development of alagebrium for this
      indication.





To
      achieve profitable operations, we must, alone or with others, successfully
      identify, develop, introduce and market proprietary products. Such products
      will
      require significant additional investment, development and preclinical and
      clinical testing prior to potential regulatory approval and commercialization.
      The development of new pharmaceutical products is highly uncertain and expensive
      and subject
      to a number of significant risks. Potential products that appear to be promising
      at early stages of development may not reach the market for a number of reasons.
      Potential products may be found ineffective or cause harmful side effects during
      preclinical testing or clinical studies, fail to receive necessary regulatory
      approvals, be difficult to manufacture on a large scale, be uneconomical, fail
      to achieve market acceptance or be precluded from commercialization by
      proprietary rights of third parties. We may not be able to undertake additional
      clinical studies. In addition, our product development efforts may not be
      successfully completed, we may not have
      the
      funds to complete any ongoing clinical trials, we may not obtain
      regulatory approvals, and our products, if introduced, may not be successfully
      marketed or achieve customer acceptance. We do not expect any of our products,
      including alagebrium, to be commercially available for a number of years, if
      at
      all.





19


***Failure
      to remediate the material weaknesses in our internal controls and to achieve
      and
      maintain effective internal controls in accordance with Section 404 of the
      Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business
      and stock price.***





During
      the audit of our financial statements for the year ended December 31, 2005,
      our
      independent registered public accounting firm identified a material weakness,
      as
      of December 31, 2005, regarding our internal controls over the identification
      of
      and the accounting for non-routine transactions including certain costs related
      to potential strategic transactions, severance benefits and the financial
      statement recording and disclosures of stock options that we have granted to
      non
      employee consultants in accordance with Emerging Issues Task Force (“EITF”)
      96-18. As defined by the Public Company Accounting Oversight Board Auditing
      Standard No. 2, a material weakness is a significant control deficiency or
      a
      combination of significant control deficiencies, that results in there being
      more than a remote likelihood that a material misstatement of the annual or
      interim financial statements will not be prevented or detected. This material
      weakness did not result in the restatement of any previously reported financial
      statements or any other related financial disclosure Management is in the
      process of implementing remedial controls to address these matters. In addition,
      the changes that would have resulted in the financial statements for the year
      ended December 31, 2005, as a consequence of the material weakness, were deemed
      by the Company to be immaterial but were nevertheless recorded by the Company.





On
      April
      22, 2005, we filed an amendment to our Annual Report on Form 10-K for the fiscal
      year ended December 31, 2004 (the “10-K Amendment”), in which we reported that,
      as of December 31, 2004, and as required by Section 404 of the Sarbanes-Oxley
      Act of 2002, management, with the participation of our principal executive
      officer and principal financial officer, had assessed the effectiveness of
      our
      internal control over financial reporting based on the framework established
      in
      Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (“COSO”). Management’s assessment
      included an evaluation of the design of our internal control over financial
      reporting and testing of the operational effectiveness of our internal control
      over financial reporting. Management reviewed the results of its assessment
      with
      the Audit Committee of our Board of Directors, and based on this assessment,
      management determined that as of December 31, 2004, there were three material
      weaknesses in our internal control over financial reporting. In light of these
      material weaknesses, management concluded that, as of December 31, 2004, we
      did
      not maintain effective internal control over financial reporting.





The
      three
      material weaknesses identified were in the areas of audit committee oversight
      of
      the internal control review process, information technology controls and process
      controls, and control over cash disbursements. With respect to each of these
      matters, as set forth in the Form 10-K Amendment, management has implemented
      remedial measures or procedures to address these matters. However, we cannot
      currently assure that the remedial measures that are currently being implemented
      will be sufficient to result in a conclusion that our internal controls no
      longer contain any material weaknesses, and that our internal controls are
      effective. In addition, we cannot assure you that, even if we are able to
      achieve effective internal control over financial reporting, our internal
      controls will remain effective for any period of time.





***If
      we are able to form collaborative relationships, but are unable to maintain
      them, our product development may be delayed and disputes over rights to
      technology may result.***





We
      may
      form collaborative relationships that, in some cases, will make us dependent
      upon outside partners to conduct preclinical testing and clinical studies and
      to
      provide adequate funding for our development programs.





In
      general, collaborations involving our product candidates pose the following
      risks to us:





·
            collaborators
                may fail to adequately perform the scientific and preclinical studies
                called for under our agreements with
                them;




·
            collaborators
                have significant discretion in determining the efforts and resources
                that
                they will apply to these
                collaborations;




·
            collaborators
                may not pursue further development and commercialization of our product
                candidates or may elect not to continue or renew research and development
                programs based on preclinical or clinical study results, changes
                in their
                strategic focus or available funding or external factors, such as
                an
                acquisition that diverts resources or creates competing
                priorities;




·
            collaborators
                may delay clinical trials, provide insufficient funding for a clinical
                program, stop a clinical study or abandon a product candidate, repeat
                or
                conduct new clinical trials or require a new formulation of a product
                candidate for clinical testing;




20


·
            collaborators
                could independently develop, or develop with third parties, products
                that
                compete directly or indirectly with our products or product candidates
                if
                the collaborators believe that competitive products are more likely
                to be
                successfully developed or can be commercialized under terms that
                are more
                economically attractive; collaborators with marketing and distribution
                rights to one or more products may not commit enough resources to
                their
                marketing and distribution;




·
            collaborators
                may not properly maintain or defend our intellectual property rights
                or
                may use our proprietary information in such a way as to invite litigation
                that could jeopardize or invalidate our proprietary information or
                expose
                us to potential litigation;




·
            disputes
                may arise between us and the collaborators that result in the delay
                or
                termination of the research, development or commercialization of
                our
                product candidates or that result in costly litigation or arbitration
                that
                diverts management attention and resources;
                and




·
            collaborations
                may be terminated and, if terminated, may result in a need for additional
                capital to pursue further development of the applicable product
                candidates.




In
      addition, there have been a significant number of business combinations among
      large pharmaceutical companies that have resulted in a reduced number of
      potential future collaborators. If a present or future collaborator of ours
      were
      to be involved in a business combination, the continued pursuit and emphasis
      on
      our product development program could be delayed, diminished or terminated.





***Our
      product candidates will remain subject to ongoing regulatory review even if
      they
      receive marketing approval. If we fail to comply with continuing regulations,
      we
      could lose these approvals and the sale of our products could be suspended.***





Even
      if
      we receive regulatory approval to market a particular product candidate, the
      approval could be granted with the condition that we conduct additional costly
      post-approval studies or that we limit the indicated uses included in our
      labeling. Moreover, the product may later cause adverse effects that limit
      or
      prevent its widespread use, force us to withdraw it from the market or impede
      or
      delay our ability to obtain regulatory approvals in additional countries. In
      addition, the manufacturer of the product and its facilities will continue
      to be
      subject to FDA review and periodic inspections to ensure adherence to applicable
      regulations. After receiving marketing approval, the manufacturing, labeling,
      packaging, adverse event reporting, storage, advertising, promotion and record
      keeping related to the product will remain subject to extensive regulatory
      requirements. We may be slow to adapt, or we may never adapt, to changes in
      existing regulatory requirements or adoption of new regulatory requirements.





If
      we
      fail to comply with the regulatory requirements of the FDA and other applicable
      United States and foreign regulatory authorities or if previously unknown
      problems with our products, manufacturers or manufacturing processes are
      discovered, we could be subject to administrative or judicially imposed
      sanctions, including:





·
            restrictions
                on the products, manufacturers or manufacturing
                processes;




·
            warning
                letters;




·
            civil
                or criminal penalties;




·
            fines;




·
            injunctions;




·
            product
                seizures or detentions;




·
            import
                bans;




·
            voluntary
                or mandatory product recalls and publicity
                requirements;




·
            suspension
                or withdrawal of regulatory
                approvals;




·
            total
                or partial suspension of production;
                and




·
            refusal
                to approve pending applications for marketing approval of new drugs
                or
                supplements to approved
                applications.




21


***If
      we cannot successfully form and maintain suitable arrangements with third
      parties for the manufacturing of the products we may develop, our ability to
      develop or deliver products may be impaired.***





We
      have
      no experience in manufacturing products and do not have manufacturing
      facilities. Consequently, we will depend on contract manufacturers for the
      production of any products for development and commercial purposes. The
      manufacture of our products for clinical trials and commercial purposes is
      subject to current cGMP, regulations promulgated by the FDA. In the event that
      we are unable to obtain or retain third-party manufacturing capabilities for
      our
      products, we will not be able to commercialize our products as planned. Our
      reliance on third-party manufacturers will expose us to risks that could delay
      or prevent the initiation or completion of our clinical trials, the submission
      of applications for regulatory approvals, the approval of our products by the
      FDA or the commercialization of our products or result in higher costs or lost
      product revenues. In particular, contract manufacturers:





·
            could
                encounter difficulties in achieving volume production, quality control
                and
                quality assurance and suffer shortages of qualified personnel, which
                could
                result in their inability to manufacture sufficient quantities of
                drugs to
                meet our clinical schedules or to commercialize our product
                candidates;




·
            could
                terminate or choose not to renew the manufacturing agreement, based
                on
                their own business priorities, at a time that is costly or inconvenient
                for us;




·
            could
                fail to establish and follow FDA-mandated cGMPs, as required for
                FDA
                approval of our product candidates, or fail to document their adherence
                to
                cGMPs, either of which could lead to significant delays in the
                availability of material for clinical study and delay or prevent
                filing or
                approval of marketing applications for our product candidates;
                and




·
            could
                breach, or fail to perform as agreed, under the manufacturing
                agreement.




Changing
      any manufacturer that we engage for a particular product or product candidate
      may be difficult, as the number of potential manufacturers is limited, and
      we
      will have to compete with third parties for access to those manufacturing
      facilities. cGMP processes and procedures typically must be reviewed and
      approved by the FDA, and changing manufacturers may require re-validation of
      any
      new facility for cGMP compliance, which would likely be costly and
      time-consuming. We may not be able to engage replacement manufacturers on
      acceptable terms quickly or at all. In addition, contract manufacturers located
      in foreign countries may be subject to import limitations or bans. As a result,
      if any of our contract manufacturers is unable, for whatever reason, to supply
      the contracted amounts of our products that we successfully bring to market,
      a
      shortage would result which would have a negative impact on our revenues.





Drug
      manufacturers are subject to ongoing periodic unannounced inspection by the
      FDA,
      the U.S. Drug Enforcement Agency and corresponding state and foreign agencies
      to
      ensure strict compliance with cGMPs, other government regulations and
      corresponding foreign standards. While we are obligated to audit the performance
      of third-party contractors, we do not have control over our third-party
      manufacturers’ compliance with these regulations and standards. Failure by our
      third-party manufacturers or us to comply with applicable regulations could
      result in sanctions being imposed on us, including fines, injunctions, civil
      penalties, failure of the government to grant pre-market approval of drugs,
      delays, suspension or withdrawal of approvals, seizures or recalls of product,
      operating restrictions and criminal prosecutions. Our dependence upon others
      for
      the manufacture of any products that we develop may adversely affect our profit
      margin, if any, on the sale of any future products and our ability to develop
      and deliver such products on a timely and competitive basis.





***If
      we are not able to protect the proprietary rights that are critical to our
      success, the development and any possible sales of our product candidates could
      suffer and competitors could force our products completely out of the market.***





Our
      success will depend on our ability to obtain patent protection for our products,
      preserve our trade secrets, prevent third parties from infringing upon our
      proprietary rights and operate without infringing upon the proprietary rights
      of
      others, both in the United States and abroad.





The
      degree of patent protection afforded to pharmaceutical inventions is uncertain
      and our potential products are subject to this uncertainty. Competitors may
      develop competitive products outside the protection that may be afforded by
      the
      claims of our patents. We are aware that other parties have been issued patents
      and have filed patent applications in the United States and foreign countries
      with respect to other agents that have an effect on A.G.E.s., or the formation
      of A.G.E. crosslinks. In addition, although we have several patent applications
      pending to protect proprietary technology and potential products, these patents
      may not be issued, and the claims of any patents that do issue, may not provide
      significant protection of our technology or products. In addition, we may not
      enjoy any patent protection beyond the expiration dates of our currently issued
      patents.





22


We
      also
      rely upon unpatented trade secrets and improvements, unpatented know-how and
      continuing technological innovation to maintain, develop and expand our
      competitive position, which we seek to protect, in part, by confidentiality
      agreements with our corporate partners, collaborators, employees and
      consultants. We also have invention or patent assignment agreements with our
      employees and certain, but not all, corporate partners and consultants. Relevant
      inventions may be developed by a person not bound by an invention assignment
      agreement. Binding agreements may be breached, and we may not have adequate
      remedies for such breach. In addition, our trade secrets may become known to
      or
      be independently discovered by competitors.





***The
      effect of accounting rules relating to our equity compensation arrangements
      may
      have an adverse effect on our stock price and financial condition.***





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which replaces “Accounting for Stock-Based
      Compensation,” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
      all share-based payments to employees, including grants of employee stock
      options, to be recognized in the financial statements based on their fair values
      effective for the Company January 1, 2006. Under SFAS 123R, the pro forma
      disclosures previously permitted under SFAS 123 are no longer an alternative
      to
      financial statement recognition.





The
      Company accounts for employee stock-based compensation, awards issued to
      non-employee directors, and stock options issued to consultants and contractors
      in accordance with SFAS 123R and Emerging Issues Task Force Issue No. 96-18,
      “Accounting for Equity Instruments that are Issued to Other Than Employees for
      Acquiring or in Conjunction with Selling Goods or Services.”





The
      Company has adopted the new standard, SFAS 123R, effective January 1, 2006
      and
      has selected the Black-Scholes method of valuation for share-based compensation.
      The Company has adopted the modified prospective transition method which
      requires that compensation cost be recorded, as earned, for all unvested stock
      options and restricted stock outstanding at the beginning of the first quarter
      of adoption of SFAS 123R, and that such costs be recognized over the remaining
      service period after the adoption date based on the options’ original estimate
      of fair value.





On
      December 15, 2005, the Compensation Committee of the Board of Directors of
      the
      Company approved the acceleration of the vesting date of all previously issued,
      outstanding and unvested options, effective December 31, 2005. The acceleration
      and the fact that no options were issued in the three months ended March 31,
      2006, resulted in the Company not being required to recognize aggregate
      compensation expense under SFAS 123R for the three months ended March 31,
      2006.





Prior
      to
      adoption of SFAS 123R, the Company applied the intrinsic-value method under
      APB
      Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
      interpretations, under which no compensation cost (excluding those options
      granted below fair market value) had been recognized. SFAS 123 established
      accounting and disclosure requirements using a fair-value based method of
      accounting for stock-based employee compensation plans. As permitted by SFAS
      123, the Company elected to continue to apply the intrinsic-value based method
      of accounting described above, and adopted only the disclosure requirements
      of
      SFAS 123, as amended.





***If
      we are not able to compete successfully with other companies in the development
      and marketing of cures and therapies for cardiovascular diseases, diabetes,
      and
      the other conditions for which we seek to develop products, we may not be able
      to continue our operations.***





We
      are
      engaged in pharmaceutical fields characterized by extensive research efforts
      and
      rapid technological progress. Many established pharmaceutical and biotechnology
      companies with financial, technical and human resources greater than ours are
      attempting to develop, or have developed, products that would be competitive
      with our products. Many of these companies have extensive experience in
      preclinical and human clinical studies. Other companies may succeed in
      developing products that are safer, more efficacious or less costly than any
      we
      may develop and may also be more successful than us in production and marketing.
      Rapid technological development by others may result in our products becoming
      obsolete before we recover a significant portion of the research, development
      or
      commercialization expenses incurred with respect to those products.





Certain
      technologies under development by other pharmaceutical companies could result
      in
      better treatments for cardiovascular disease, and diabetes and its related
      complications. Several large companies have initiated or expanded research,
      development and licensing efforts to build pharmaceutical franchises focusing
      on
      these medical conditions, and some companies already have products approved
      and
      available for commercial sale to treat these indications. It is possible that
      one or more of these initiatives may reduce or eliminate the market for some
      of
      our products. In addition, other companies have initiated research in the
      inhibition or crosslink breaking of A.G.E.s.





23





***If
      governments and third-party payers continue their efforts to contain or decrease
      the costs of healthcare, we may not be able to commercialize our products
      successfully.***





In
      certain foreign markets, pricing and/or profitability of prescription
      pharmaceuticals are subject to government control. In the United States, we
      expect that there will continue to be federal and state initiatives to control
      and/or reduce pharmaceutical expenditures. In addition, increasing emphasis
      on
      managed care in the United States will continue to put pressure on
      pharmaceutical pricing. Cost control initiatives could decrease the price that
      we receive for any products for which we may receive regulatory approval to
      develop and sell in the future and could have a material adverse effect on
      our
      business, financial condition and results of operations. Further, to the extent
      that cost control initiatives have a material adverse effect on our corporate
      partners, our ability to commercialize our products may be adversely affected.
      Our ability to commercialize pharmaceutical products may depend, in part, on
      the
      extent to which reimbursement for the products will be available from government
      health administration authorities, private health insurers and other third-party
      payers. Significant uncertainty exists as to the reimbursement status of newly
      approved healthcare products, and third-party payers, including Medicare,
      frequently challenge the prices charged for medical products and services.
      In
      addition, third-party insurance coverage may not be available to subjects for
      any products developed by us. Government and other third-party payers are
      attempting to contain healthcare costs by limiting both coverage and the level
      of reimbursement for new therapeutic products and by refusing in some cases
      to
      provide coverage for uses of approved products for disease indications for
      which
      the FDA has not granted labeling approval. If government and other third-party
      payers for our products do not provide adequate coverage and reimbursement
      levels, the market acceptance of these products would be adversely affected.





***If
      the users of the products that we are developing claim that our products have
      harmed them, we may be subject to costly and damaging product liability
      litigation, which could have a material adverse effect on our business,
      financial condition and results of operations.***





The
      use
      of any of our potential products in clinical studies and the sale of any
      approved products, including the testing and commercialization of alagebrium
      or
      other compounds, may expose us to liability claims resulting from the use of
      products or product candidates. Claims could be made directly by participants
      in
      our clinical studies, consumers, pharmaceutical companies or others. We maintain
      product liability insurance coverage for claims arising from the use of our
      products in clinical studies. However, coverage is becoming increasingly
      expensive, and we may not be able to maintain or acquire insurance at a
      reasonable cost or in sufficient amounts to protect us against losses due to
      liability that could have a material adverse effect on our business, financial
      condition and results of operations. We may not be able to obtain commercially
      reasonable product liability insurance for any product approved for marketing
      in
      the future, and insurance coverage and our resources may not be sufficient
      to
      satisfy any liability resulting from product liability claims. A successful
      product liability claim or series of claims brought against us could have a
      material adverse effect on our business, financial condition and results of
      operations.





**Risks
        Relating to the Merger**
 
 ***Alteon’s
        ability to continue as a going concern is dependent on future financing.***
  J.H.
        Cohn
        LLP, our independent registered public accounting firm, has included an
        explanatory paragraph in their report on our financial statements for the
        fiscal
        year ended December 31, 2005, which raises substantial doubt about our ability
        to continue as a going concern. The inclusion of a going concern explanatory
        paragraph in J.H. Cohn LLP’s report on our financial statements could have a
        detrimental effect on our stock price and our ability to raise additional
        capital, either alone or as a combined company.
 
 Our
        financial statements have been prepared on the basis of a going concern,
        which
        contemplates the realization of assets and the satisfaction of liabilities
        in
        the normal course of business. We have not made any adjustments to the financial
        statements as a result of the outcome of the uncertainty described above.
        Accordingly, the value of the company in liquidation may be different from
        the
        values set forth in our financial statements.
  If
        the
        merger is not completed, the substantial common stock ownership represented
        by
        the shares of Alteon preferred stock owned by Genentech, on an as-converted
        basis, will make it unlikely that the Company will be able to obtain additional
        funding. The continued success of the combined company will depend on its
        ability to continue to raise capital in order to fund the development and
        commercialization of its products.
 
 Even
        if
        the combined company’s products receive approval for commercial sale, their
        manufacture, storage, marketing and distribution are and will be subject
        to
        extensive and continuing regulation in the United States by the federal
        government, especially the FDA, and state and local governments. The failure
        to
        comply with these regulatory requirements could result in enforcement action,
        including, without limitation, withdrawal of approval, which would have a
        material adverse effect on the combined company’s business. Later discovery of
        problems with the combined company’s products may result in additional
        restrictions on the product, including withdrawal of the product from the
        market. Regulatory authorities may also require post-marketing testing, which
        can involve significant uncontemplated expense. Additionally, governments
        may
        impose new regulations, which could further delay or preclude regulatory
        approval of the combined company’s products or result in significantly increased
        compliance costs.
  24
 In
        similar fashion to the FDA, foreign regulatory authorities require demonstration
        of product quality, safety and efficacy prior to granting authorization for
        product registration which allows for distribution of the product for commercial
        sale. International organizations, such as the World Health Organization,
        and
        foreign government agencies including those for the Americas, Middle East,
        Europe, and Asia and the Pacific, have laws, regulations and guidelines for
        reporting and evaluating the data on safety, quality and efficacy of new
        drug
        products. Although most of these laws, regulations and guidelines are very
        similar, each of the individual nations reviews all of the information available
        on the new drug product and makes an independent determination for product
        registration. A finding of product quality, safety or efficiency in one
        jurisdiction does not guarantee approval in any other jurisdiction, even
        if the
        other jurisdiction has similar laws, regulations and guidelines.
 
 ***Alteon
        and HaptoGuard have each historically incurred operating losses and these
        losses
        will continue after the merger.***
  Alteon
        and HaptoGuard have each historically incurred substantial operating losses
        due
        to their research and development activities and expect these losses to continue
        after the merger for the foreseeable future. As of December 31, 2005, Alteon
        and
        HaptoGuard had an accumulated deficit of $222,813,445 and $2,425,258,
        respectively. Alteon’s fiscal year 2005, 2004 and 2003 net losses were
        $12,614,459, $13,958,646, and $14,452,418, respectively. HaptoGuard’ fiscal year
        2005 and 2004 net losses were $1,654,695 and $770,563, respectively. Alteon’s
        fiscal year 2005, 2004 and 2003 net losses applicable to common stockholders
        were $17,100,795, $18,093,791 and $18,243,265, respectively. The combined
        company currently expects to continue its research and development activities
        at
        the same or at a more rapid pace than prior periods. After the merger, the
        combined company will expend significant amounts on research and development
        programs for alagebrium and ALT-2074. These activities will take time and
        expense, both to identify appropriate partners, to reach agreement on basic
        terms, and to negotiate and sign definitive agreements. We will actively
        seek
        new financing from time to time to provide financial support for our research
        and development activities. However, at this time we are not able to assess
        the
        probability of success in our fundraising efforts or the terms, if any, under
        which we may secure financial support from strategic partners or other
        investors. It is expected that we will continue to incur operating losses
        for
        the foreseeable future.
  ***The
        combined company will need additional capital in the future, but its access
        to
        such capital is uncertain.***
  Alteon’s
        current resources are insufficient to fund its own commercialization efforts
        as
        well as the combined company’s commercialization efforts. As of March 31, 2006,
        Alteon had cash on hand of $4,469,170. As described elsewhere in this
        prospectus, in April, 2006 we closed on approximately $2.6 million in financing.
        Prior to the financing, Alteon was expending approximately $450,000 in cash
        per
        month. Following the merger, including HaptoGuard’s cash spending rate of
        approximately $110,000 in cash per month, the combined company expects to
        spend
        approximately $560,000 in cash per month. Our capital needs beyond the second
        quarter of 2006 will depend on many factors, including our research and
        development activities and the success thereof, the scope of our clinical
        trial
        program, the timing of regulatory approval for our products under development
        and the successful commercialization of our products. Our needs may also
        depend
        on the magnitude and scope of these activities, the progress and the level
        of
        success in our clinical trials, the costs of preparing, filing, prosecuting,
        maintaining and enforcing patent claims and other intellectual property rights,
        competing technological and market developments, changes in or terminations
        of
        existing collaboration and licensing arrangements, the establishment of new
        collaboration and licensing arrangements and the cost of manufacturing scale-up
        and development of marketing activities, if undertaken by the combined company.
        Other than the recently completed financing described in this prospectus,
        we do
        not have committed external sources of funding and may not be able to secure
        additional funding on any terms or on terms that are favourable to us. If
        we
        raise additional funds by issuing additional stock, further dilution to our
        existing stockholders will result, and new investors may negotiate for rights
        superior to existing stockholders. If adequate funds are not available, the
        combined company may be required to:
  ·
            delay,
                reduce the scope of or eliminate one or more of its development programs;  ·
            obtain
                funds through arrangements with collaboration partners or others
                that may
                require it to relinquish rights to some or all of its technologies,
                product candidates or products that it would otherwise seek to develop
                or
                commercialize itself;  ·
            license
                rights to technologies, product candidates or products on terms that
                are
                less favorable to it than might otherwise be available; or  ·
            seek
                a buyer for all or a portion of its business, or wind down its operations
                and liquidate its assets on terms not favorable to it.  25
 ***The
        success of the combined company will also depend on the products and systems
        under development by HaptoGuard, including ALT-2074, and we cannot assure
        you
        that the efforts to commercialize ALT-2074 will succeed.***
  ALT-2074,
        HaptoGuard’s lead compound, is in development for the treatment of heart
        complications in patients with diabetes. It has demonstrated efficacy in
        mouse
        models. On May 1, 2006, HaptoGuard initiated a Phase 2 study of ALT-2074
        in
        diabetic patients recovering from a recent myocardial infarction or acute
        coronary syndrome. The purpose of the study, is to evaluate the biological
        effects on cardiac tissue in patients treated with ALT-2074.
 
 ALT-2074
        is still in early clinical trials and any success to date should not be seen
        as
        indicative of the probability of any future success. The failure to complete
        clinical development and commercialize ALT-2074 for any reason or due to
        a
        combination of reasons will have a material adverse impact on the combined
        company.
 
 ***Failure
        to integrate the companies’ operations successfully could result in delays and
        increased expenses in the companies’ clinical trial
        programs.***
 
 Alteon
        and HaptoGuard have entered into the merger agreement with the expectation
        that
        the merger will result in beneficial synergies, including:
 
 ·
            improved
                ability to raise new capital through access to new classes of investors
                focused on public companies engaged in small molecule drug
                development; ·
            shared
                expertise in developing innovative small molecule drug technologies
                and
                the potential for technology
                collaboration; ·
            a
                broader pipeline of products; ·
            greater
                ability to attract commercial partners; ·
            larger
                combined commercial opportunities; and ·
            a
                broader portfolio of patents and
                trademarks. 
 Achieving
        these anticipated synergies and the potential benefits underlying the two
        companies’ reasons for the merger will depend on a number of factors, some of
        which include:
 
 ·
            retention
                of scientific staff; ·
            significant
                litigation, if any, adverse to Alteon and HaptoGuard, including,
                particularly, product liability litigation and patent and trademark
                litigation; and ·
            the
                ability of the combined company to continue development of Alteon
                and
                HaptoGuard product candidates; ·
            success
                of our research and development efforts; ·
            increased
                capital expenditures; ·
            general
                market****conditions
                relating to small cap biotech investments;
                and ·
            competition
                from other drug development companies. 
 Achieving
        the benefits of the merger will depend in part on the successful integration
        of
        Alteon and HaptoGuard in a timely and efficient manner. The integration will
        require significant time and efforts from each company, including the
        coordination of research, development, regulatory, manufacturing, commercial,
        administrative and general functions. Integration may be difficult and
        unpredictable because of possible cultural conflicts and different opinions
        on
        scientific and regulatory matters. Delays in successfully integrating and
        managing employee benefits could lead to dissatisfaction and employee turnover.
        The combination of Alteon’s and HaptoGuard’s organizations may result in greater
        competition for resources and elimination of research and development programs
        that might otherwise be successfully completed. If we cannot successfully
        integrate our operations and personnel, we may not recognize the expected
        benefits of the merger.
 
 Even
        if
        the two companies are able to integrate their operations, there can be no
        assurance that these anticipated synergies will be achieved. The failure
        to
        achieve such synergies could have a material adverse effect on the business,
        results of operations and financial condition of the combined
        company.
 
 ***Integrating
        Alteon and HaptoGuard may divert management’s attention away from our core
        research and development activities.***
 
 Successful
        integration of our operations, products and personnel may place a significant
        burden on our management and our internal resources. The diversion of
        management’s attention and any difficulties encountered in the transition and
        integration process could result in delays in the companies’ clinical trial
        programs and could otherwise significantly harm our business, financial
        condition and operating results.
 
 26
 We
        expect
        to incur significant costs integrating our operations, product candidates
        and
        personnel, which cannot be estimated accurately at this time. These costs
        include:
 
 ·
            severance; ·
            conversion
                of information systems; ·
            combining
                research, development, regulatory, manufacturing and commercial teams
                and
                processes; ·
            reorganization
                of facilities; and ·
            relocation
                or disposition of excess equipment. 
 We
        expect
        that Alteon and HaptoGuard will incur aggregate direct transaction costs
        of
        approximately $800,000 associated with the merger. If the total costs of
        the
        merger exceed our estimates or benefits of the merger do not exceed the total
        costs of the merger, the financial results of our combined company could
        be
        adversely affected.
 
 ***Completion
        of, or the failure to complete, the merger could adversely affect Alteon’s stock
        price and Alteon’s and HaptoGuard’s future business and
        operations.***
 
 The
        merger is subject to the satisfaction of various closing conditions, including
        the approval by both Alteon and HaptoGuard stockholders, and there can be
        no
        assurance that the merger will be successfully completed. In the event that
        the
        merger is not consummated, Alteon and HaptoGuard will be subject to many
        risks,
        including the costs related to the merger, such as legal, accounting and
        advisory fees, which must be paid even if the merger is not completed, or
        the
        payment of a termination fee under certain circumstances. If the merger is
        not
        consummated for any reason, the market price of Alteon common stock could
        decline.
 
 The
        shares of the combined company are publicly traded and we cannot predict
        how the
        market will react to the merger of Alteon and HaptoGuard. Even the successful
        completion of the merger may negatively affect the stock price of the combined
        company, if the market were to come to the view that Alteon would be in a
        better
        position absent completion of the merger.
  ***The
        combined company will remain dependent on third parties for research and
        development activities necessary to commercialize certain of our
        patents.***
 
 We
        utilize the services of several scientific and technical consultants to oversee
        various aspects of our protocol design, clinical trial oversight and other
        research and development functions. Alteon and HaptoGuard both contract out
        most
        of our research and development operations utilize third-party contract
        manufacturers for drug inventory and shipping services and third-party contract
        research organizations in connection with preclinical and/or clinical studies
        in
        accordance with our designed protocols, as well as conducting research at
        medical and academic centers.
 
 Because
        we rely on third parties for much our research and development work, we have
        less direct control over our research and development. We face risks that
        these
        third parties may not be appropriately responsive to our time frames and
        development needs and could devote resources to other customers. In addition,
        certain of these third parties may have to comply with FDA regulations or
        other
        regulatory requirements in the conduct of this research and development work,
        which they may fail to do.
 
 ***If
        the combined company does not successfully distinguish and commercialize
        its
        technology, it may be unable to compete successfully or to generate significant
        revenues.***
  The
        biotechnology industry, including the field of small molecule drugs to treat
        and
        prevent cardiovascular disease and diabetes, is highly competitive and subject
        to significant and rapid technological change. Accordingly, the combined
        company’s success will depend, in part, on its ability to respond quickly to
        such change through the development and introduction of new products and
        systems.
  ***The
        combined company will have substantial competition, including competitors
        with
        substantially greater resources.***
 
 Many
        of
        the combined company’s competitors or potential competitors have substantially
        greater financial and other resources than Alteon has and may also have greater
        experience in conducting pre-clinical studies, clinical trials and other
        regulatory approval procedures as well as in marketing their products. Major
        competitors in the market for our potential products include large,
        publicly-traded pharmaceutical companies, public development stage public
        companies and private development stage companies. If the combined company
        or
        its corporate partners commence commercial product sales, the combined company
        or its corporate partners will be competing against companies with greater
        marketing and manufacturing capabilities.
  27
 The
        combined company’s ability to compete successfully against currently existing
        and future alternatives to its product candidates and systems, and competitors
        who compete directly with it in the small molecule drug industry will depend,
        in
        part, on its ability to:
  ·
            attract
                and retain skilled scientific and research personnel;  ·
            develop
                technologically superior products;  ·
            develop
                competitively priced products;  ·
            obtain
                patent or other required regulatory approvals for the combined company’s
                products;  ·
            be
                early entrants to the market; and  ·
            manufacture,
                market and sell its products, independently or through collaborations.  ***The
        success of the combined company is dependent on the extent of third-party
        reimbursement for its products.***
 
 Third-party
        reimbursement policies may also adversely affect the combined company’s ability
        to commercialize and sell its products. The combined company’s ability to
        successfully commercialize its products depends in part on the extent to
        which
        appropriate levels of reimbursement for its products and related treatments
        are
        obtained from government authorities, private health insurers, third party
        payers, and other organizations, such as managed care organizations, or MCOs.
        Any failure by doctors, hospitals and other users of the combined company’s
        products or systems to obtain appropriate levels of reimbursement could
        adversely affect the combined company’s ability to sell these products and
        systems.
  Federal
        legislation, enacted in December 2003, has altered the way in which
        physician-administered drug programs covered by Medicare are reimbursed,
        generally leading to lower reimbursement levels. The new legislation has
        also
        added an outpatient prescription drug benefit to Medicare, effective January
        2006. In the interim, the U.S. Congress has established a discount drug card
        program for Medicare beneficiaries. Both benefits will be provided through
        private entities, which will attempt to negotiate price concessions from
        pharmaceutical manufacturers. These negotiations may increase pressures to
        lower
        prices. On the other hand, the drug benefit may increase the volume of
        pharmaceutical drug purchases, offsetting at least in part these potential
        price
        discounts. While the new law specifically prohibits the U.S. government from
        interfering in price negotiations between manufacturers and Medicare drug
        plan
        sponsors, some members of Congress are pursuing legislation that would permit
        de
        facto price controls on prescription drugs. In addition, the law triggers,
        for
        congressional consideration, cost containment measures for Medicare in the
        event
        Medicare cost increases exceed a certain level. These cost containment measures
        could include limitations on prescription drug prices. This legislation could
        adversely impact the combined company’s ability to commercialize any of its
        products successfully.
  Significant
        uncertainty exists about the reimbursement status of newly approved medical
        products and services. Reimbursement in the United States or foreign countries
        may not be available for any of the combined company’s products, reimbursement
        granted may not be maintained, and limits on reimbursement available from
        third-party payers may reduce the demand for, or negatively affect the price
        of,
        the combined company’s products. Alteon anticipates that the combined company
        will need to work with a variety of organizations to lobby government agencies
        for improved reimbursement policies for its products. However, Alteon cannot
        guarantee that such lobbying efforts will take place or that they will
        ultimately be successful.
 
 Internationally,
        where national healthcare systems are prevalent, little if any funding may
        be
        available for new products, and cost containment and cost reduction efforts
        can
        be more pronounced than in the United States.
  ***If
        the combined company is unable to protect its intellectual property, it may
        not
        be able to operate its business profitably.***
  The
        combined company’s success will depend on its ability to develop proprietary
        products and technologies, to obtain and maintain patents, to protect trade
        secrets, and to prevent others from infringing on its proprietary rights.
        The
        combined company has exclusive patents, licenses to patents or patent
        applications covering critical components of its technologies, including
        certain
        jointly owned patents. We also seek to protect our proprietary technology
        and
        processes, in part, by confidentiality agreements with our employees and
        certain
        contractors. Patents, pending patent applications and licensed technologies
        may
        not afford adequate protection against competitors, and any pending patent
        applications now or hereafter filed by or licensed to us may not result in
        patents being issued. In addition, certain of the combined company’s technology
        relies on patented inventions developed using university resources. Universities
        may have certain rights, as defined by law or applicable agreements, in such
        patents, and may choose to exercise such rights. To the extent that employees,
        consultants or contractors of the combined company use intellectual property
        owned by others, disputes may arise as to the rights related to or resulting
        from the know-how and inventions. In addition, the laws of certain non-U.S.
        countries do not protect intellectual property rights to the same extent
        as do
        the laws of the United States. Medical technology patents involve complex
        legal
        and factual questions and, therefore, the combined company cannot predict
        with
        certainty their enforceability.
  28
 The
        combined company is a party to various license agreements that give it exclusive
        and partial exclusive rights to use specified technologies applicable to
        research, development and commercialization of its products, including
        alagebrium and ALT-2074. The agreements pursuant to which such technology
        is
        used permit the licensors to terminate agreements in the event that certain
        conditions are not met. If these conditions are not met and the agreements
        are
        terminated, the combined company’s product development, research and
        commercialization efforts may be altered or delayed.
  Patents
        or patent applications, if issued, may be challenged, invalidated or
        circumvented, or may not provide protection or competitive advantages against
        competitors with similar technology. Furthermore, competitors of the combined
        company may obtain patent protection or other intellectual property rights
        for
        technology similar to the combined company’s that could limit its ability to use
        its technology or commercialize products that it may develop.
  Litigation
        may be necessary to assert claims of infringement, to enforce patents issued
        to
        the combined company, to protect trade secrets or know-how or to determine
        the
        scope and validity of the proprietary rights of others. Litigation or
        interference proceedings could result in substantial additional costs and
        diversion of management focus. If the combined company is ultimately unable
        to
        protect its technology, trade secrets or know-how, it may be unable to operate
        profitably. Although we have not been involved with any threats of litigation
        or
        negotiations regarding patent issues or other intellectual property, or other
        related court challenges or legal actions, it is possible that the combined
        company could be involved with such matters in the future.
  ***If
        the combined company is unable to operate its business without infringing
        upon
        intellectual property rights of others, it may not be able to operate its
        business profitably.***
  The
        combined company’s success depends on its ability to operate without infringing
        upon the proprietary rights of others. We are aware that patents have been
        applied for and/or issued to third parties claiming technologies for Advanced
        Glycation End-Products or glutathione peroxidase mimetics that may be similar
        to
        those needed by us. To the extent that planned or potential products are
        covered
        by patents or other intellectual property rights held by third parties, the
        combined company would need a license under such patents or other intellectual
        property rights to continue development and marketing of its products. Any
        required licenses may not be available on acceptable terms, if at all. If
        the
        combined company does not obtain such licenses it may not be able to proceed
        with the development, manufacture or sale of its products.
  Litigation
        may be necessary to defend against claims of infringement or to determine
        the
        scope and validity of the proprietary rights of others. Litigation or
        interference proceedings could result in substantial additional costs and
        diversion of management focus. If the combined company is ultimately
        unsuccessful in defending against claims of infringement, it may be unable
        to
        operate profitably.
  ***HaptoGuard’s
        ALT-2074 and other HaptoGuard compounds are licensed to HaptoGuard by third
        parties and if the combined company is unable to continue licensing this
        technology our future prospects may be materially adversely
        affected.***
 
 HaptoGuard
        licenses technology, including technology related to ALT-2074, from third
        parties. We anticipate that we will continue to license technology from third
        parties in the future. To maintain HaptoGuard’s license to ALT-2074 from Oxis
        International, we are obligated to meet certain development and clinical
        trial
        milestones and to make certain payments. There can be no assurance that we
        will
        be able to meet any milestone or make any payment required under the license
        with Oxis International. In addition, if we fail to meet any milestone or
        make
        any payment, there can be no assurance that we may be able to negotiate a
        compromise with Oxis.
 
 The
        technology HaptoGuard licenses from third parties would be difficult or
        impossible to replace and the loss of this technology would materially adversely
        affect our business, financial condition and any future prospects.
 
 ***If
        the combined company loses or is unable to hire and retain qualified personnel,
        it may not be able to develop its products and technology.***
  The
        combined company is highly dependent on the members of its scientific and
        management staff. In particular, the combined company depends on Dr. Noah
        Berkowitz as the combined company’s Chief Executive Officer and Malcolm MacNab
        as the combined company’s Vice-President of Clinical Development. We may not be
        able to attract and retain scientific and management personnel on acceptable
        terms, if at all, given the competition for such personnel among other companies
        and research and academic institutions. If the combined company loses an
        executive officer or certain key members of its clinical or research and
        development staff or is unable to hire and retain qualified management
        personnel, then its ability to develop and commercialize its products and
        technology and to raise capital and effect strategic opportunities may be
        hindered. We have not purchased and do not anticipate purchasing any key-man
        life insurance.
  29
 ***The
        combined company may face exposure to product liability claims.***
  The
        combined company may face exposure to product liability and other claims
        due to
        allegations that its products cause harm. These risks are inherent in the
        clinical trials for pharmaceutical products and in the testing, and future
        manufacturing and marketing of, the combined company’s products. Although we
        currently maintain product liability insurance, such insurance may not be
        adequate and the combined company may not be able to obtain adequate insurance
        coverage in the future at a reasonable cost, if at all. If the combined company
        is unable to obtain product liability insurance in the future at an acceptable
        cost or to otherwise protect against potential product liability claims,
        it
        could be inhibited in the commercialization of its products which could have
        a
        material adverse effect on its business. We currently have a policy covering
        $10
        million of product liability for our clinical trials. We do not have sales
        of
        any products. The coverage will be maintained and limits reviewed from time
        to
        time as the combined company progresses to later stages of its clinical trials
        and as the length of the trials and the number of patients enrolled in the
        trials changes. The combined company intends to obtain a combined coverage
        policy that includes tail coverage in order to cover any claims that are
        made
        for any events that have occurred prior to the merger. Currently, our annual
        premium for product liability insurance is approximately $219,000.
  **Risks
        Related to Owning Alteon's Common Stock**
 
 ***Our
        stock price is volatile and you may not be able to resell your shares at
        a
        profit.***
  We
        first
        publicly issued common stock on November 8, 1991 at $15.00 per share in our
        initial public offering and it has been subject to fluctuations. For example,
        during 2005, the closing sale price of our common stock has ranged from a
        high
        of $1.43 per shares to a low of $0.17 per share. The market price of our
        common
        stock could continue to fluctuate substantially due to a variety of factors,
        including:
  ·
            quarterly
                fluctuations in results of operations;  ·
            the
                announcement of new products or services by the combined company
                or
                competitors;  ·
            sales
                of common stock by existing stockholders or the perception that these
                sales may occur;  ·
            adverse
                judgments or settlements obligating the combined company to pay damages;  ·
            negative
                publicity;  ·
            loss
                of key personnel;  ·
            developments
                concerning proprietary rights, including patents and litigation matters;
                and  ·
            clinical
                trial or regulatory developments in both the United States and foreign
                countries.  In
        addition, overall stock market volatility has often significantly affected
        the
        market prices of securities for reasons unrelated to a company’s operating
        performance. In the past, securities class action litigation has been commenced
        against companies that have experienced periods of volatility in the price
        of
        their stock. Securities litigation initiated against the combined company
        could
        cause it to incur substantial costs and could lead to the diversion of
        management’s attention and resources, which could have a material adverse effect
        on revenue and earnings.
  ***We
        have a large number of authorized but unissued shares of common stock, which
        our
        Board of Directors may issue without further stockholder approval, thereby
        causing dilution of your holdings of our common stock.***
  After
        the
        closing of the merger and the financing, there are approximately 180,000,000 shares
        of
        authorized but unissued shares of our common stock. Our management will continue
        to have broad discretion to issue shares of our common stock in a range of
        transactions, including capital-raising transactions, mergers, acquisitions,
        for
        anti-takeover purposes, and in other transactions, without obtaining stockholder
        approval, unless stockholder approval is required for a particular transaction
        under the rules of the American Stock Exchange, Delaware law, or other
        applicable laws. We currently have no specific plans to issue shares of our
        common stock for any purpose other than in connection with the merger. However,
        if our management determines to issue shares of our common stock from the
        large
        pool of such authorized but unissued shares for any purpose in the future
        without obtaining stockholder approval, your ownership position would be
        diluted
        without your further ability to vote on that transaction.
  30
 ***The
        sale of a substantial number of shares of our common stock could cause the
        market price of our common stock to decline and may impair the combined
        company’s ability to raise capital through additional offerings.***
  We
        currently have outstanding warrants
        to purchase an aggregate of 1,631,055 shares of our common stock. In addition,
        in the PIPE financing which we recently completed in April, 2006, we issued
        10,960,400 shares of common stock and warrants to purchase 10,960,400 shares
        of
        our common stock. Under the terms of the financing we have agreed to register
        all of such shares for resale. The resale of these shares of common stock
        and
        the shares underlying the warrants may be effected at any time once the resale
        registration statement is effective. The shares issued in the PIPE financing,
        together with the shares underlying the warrants issued in such financing,
        represent approximately 37.8% of the total number of shares of our common
        stock
        outstanding immediately prior to the financing, and not including shares
        to be
        issued in the merger with HaptoGuard.
  Sales
        of
        these shares in the public market, or the perception that future sales of
        these
        shares could occur, could have the effect of lowering the market price of
        our
        common stock below current levels and make it more difficult for us and our
        shareholders to sell our equity securities in the future.
  Our
        executive officers, directors and holders of more than 5% of our common stock
        and collectively beneficially own approximately 13.4% of
        the
        outstanding common stock as of March 31, 2006. In
        addition, approximately 6,403,464 shares
        of
        common stock issuable upon exercise of vested stock options could become
        available for immediate resale if such options were exercised.
  Sale
        or
        the availability for sale, of shares of common stock by stockholders could
        cause
        the market price of our common stock to decline and could impair our ability
        to
        raise capital through an offering of additional equity securities.
  ***Anti-takeover
        provisions may frustrate attempts to replace our current management and
        discourage investors from buying our common stock.***
 We
          have
          entered into a Stockholders’ Rights Agreement pursuant to which each holder of a
          share of common stock is granted a Right to purchase our Series F Preferred
          Stock under certain circumstances if a person or group acquires, or commences
          a
          tender offer for, 20 percent of our outstanding common stock. We also have
          severance obligations to certain employees in the event of termination
          of their
          employment after or in connection with a change in control of the Company. 
In addition, the Board of Directors has the authority, without further
          action by
          the stockholders, to fix the rights and preferences of, and issue shares
          of,
          Preferred Stock. The staggered board terms, Fair Price Provision, Stockholders’
Rights Agreement, severance arrangements, Preferred Stock provisions and
          other provisions of our charter and Delaware corporate law may discourage
          certain types of transactions involving an actual or potential change in
          control.


**ITEM
      6.**  **Exhibits.**





Exhibits





See
      the
“Exhibit Index” on page 33 for exhibits required to be filed with this Quarterly
      Report on Form 10-Q.




31





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this Report to be signed on its behalf by the undersigned thereunto
      duly authorized.





Date:
      May
      15, 2006


**ALTEON
      INC.**








By:
      /s/ Kenneth I. Moch


Kenneth
      I. Moch


President
      and Chief Executive Officer


(principal
      executive officer)








By:
      /s/ Mary T. Phelan


Mary
      T.
      Phelan


Director
      of Finance and Financial Reporting


(principal
      financial and accounting officer)




32





**EXHIBIT
      INDEX**




Exhibit
                  No.
            Description
                of Exhibit31.1
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            Certification
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





33