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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    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.
  Delaware
    
    13-3304550(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 6 Campus Drive, Parsippany, New Jersey 07054
    (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year,
 þ o
 þ o




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ALTEON INC.
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Financial Statements (Unaudited)Condensed Balance Sheets as of June 30, 2005 and December 31, 2004
    
    
    3Condensed Statements of Operations for the three and six months ended June 30, 2005 and 2004
    
    
    4Condensed Statements of Cash Flows for the six months ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Qualitative and Quantitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security-holders
    
    
     25Item 6.
    
    Exhibits
    
    
    25SIGNATURES
    
    
    26INDEX TO EXHIBITS
    
    
    27AMENDED CERTIFICATE OF THE VOTING POWERSFORM OF EMPLOYEE'S STOCK OPTION GRANT AGREEMENTFORM OF DIRECTOR'S FORMULA AWARD NON-QUALIFIED STOCK OPTION GRANT AGREEMENTFORM OF CONSULTANT'S NON-QUALIFIED STOCK OPTION GRANT AGREEMENTCERTIFICATION PURSUANT TO SECTION 302CERTIFICATION PURSUANT TO SECTION 302CERTIFICATION PURSUANT TO SECTION 906
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PART I  FINANCIAL INFORMATION
 
 ITEM l. Condensed Financial Statements (Unaudited)
 ALTEON INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)
 June 30,
    
    December 31,2005
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    11,595,808
    
    
    $
    11,175,762Other current assets
    
    
    717,437
    
    
    
    159,364Total current assets
    
    
    12,313,245
    
    
    
    11,335,126Property and equipment, net
    
    
    74,595
    
    
    
    107,269Restricted cash
    
    
    200,000
    
    
    
    200,000Total assets
    
    $
    12,587,840
    
    
    $
    11,642,395LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    761,304
    
    
    $
    593,094Accrued expenses
    
    
    1,246,116
    
    
    
    2,002,381Total liabilities
    
    
    2,007,420
    
    
    
    2,595,475Stockholders Equity:Preferred Stock, $0.01 par value,
1,993,329 shares authorized, and 1,332 and 1,277 shares
of Series G and 3,999 and 3,836 shares of Series H
issued and outstanding, as of June 30, 2005 and
December 31, 2004, respectively. The liquidation value at
June 30, 2005, was $53,305,339
    
    
    53
    
    
    
    51Common Stock, $0.01 par value,
300,000,000 shares and 175,000,000 shares authorized, as of
June 30, 2005 and December 31, 2004, respectively,
and 57,996,711 and 48,472,898 shares issued and outstanding,
as of June 30, 2005 and December 31, 2004, respectively
    
    
    579,967
    
    
    
    484,729Additional paid-in capital
    
    
    225,909,189
    
    
    
    214,274,790Accumulated deficit
    
    
    (215,908,789
    )
    
    
    (205,712,650
    )Total stockholders equity
    
    
    10,580,420
    
    
    
    9,046,920Total liabilities and stockholders equity
    
    $
    12,587,840
    
    
    $
    11,642,395
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ALTEON INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Income:Investment income
    
    $
    100,405
    
    
    $
    29,051
    
    
    $
    199,554
    
    
    $
    66,417Other income
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    151,821Total income
    
    
    200,405
    
    
    
    129,051
    
    
    
    299,554
    
    
    
    218,238Expenses:Research and development
    
    
    2,493,379
    
    
    
    2,445,563
    
    
    
    6,134,479
    
    
    
    5,129,698General and administrative
    
    
    1,083,095
    
    
    
    1,185,290
    
    
    
    2,183,443
    
    
    
    2,325,335Total expenses
    
    
    3,576,474
    
    
    
    3,630,853
    
    
    
    8,317,922
    
    
    
    7,455,033Net loss
    
    
    (3,376,069
    )
    
    
    (3,501,802
    )
    
    
    (8,018,368
    )
    
    
    (7,236,795
    )Preferred stock dividends
    
    
    1,106,193
    
    
    
    1,016,957
    
    
    
    2,177,771
    
    
    
    2,012,810Net loss applicable to common stockholders
    
    $
    (4,482,262
    )
    
    $
    (4,518,759
    )
    
    $
    (10,196,139
    )
    
    $
    (9,249,605
    )Basic/diluted net loss per share
applicable to common stockholders
    
    $
    (0.08
    )
    
    $
    (0.11
    )
    
    $
    (0.18
    )
    
    $
    (0.23
    )Weighted average common shares used
in computing basic/diluted net loss per share
    
    
    57,996,711
    
    
    
    40,472,898
    
    
    
    57,275,874
    
    
    
    40,472,123
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ALTEON INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six MonthsEnded June 30,2005
    
    2004Cash flows from operating activities:Net loss
    
    $
    (8,018,368
    )
    
    $
    (7,236,795
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    33,434
    
    
    
    37,949Stock compensation expense
    
    
    19,573
    
    
    
    9,099Changes in operating assets and liabilities:Other current assets
    
    
    (558,073
    )
    
    
    (418,943
    )Accounts payable and accrued expenses
    
    
    (588,055
    )
    
    
    572,986Net cash used in operating activities
    
    
    (9,111,489
    )
    
    
    (7,035,704
    )Cash flows from investing activities:Capital expenditures
    
    
    (760
    )
    
    
    (78,491
    )Net cash used in investing activities
    
    
    (760
    )
    
    
    (78,491
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    9,532,295
    
    
    
    Net proceeds from exercise of employee stock options
    
    
    
    
    
    
    5,085Net cash provided by financing activities
    
    
    9,532,295
    
    
    
    5,085Net increase/(decrease) in cash and cash equivalents
    
    
    420,046
    
    
    
    (7,109,110
    )Cash and cash equivalents, beginning of period
    
    
    11,175,762
    
    
    
    16,678,582Cash and cash equivalents, end of period
    
    $
    11,595,808
    
    
    $
    9,569,472
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ALTEON INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1
 Basis of Presentation
  Note 2
 Liquidity
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Note 3
 Stock-Based Compensation
    Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net loss, as reported
    
    $
    (3,376,069
    )
    
    $
    (3,501,802
    )
    
    $
    (8,018,368
    )
    
    $
    (7,236,795
    )Less: Total stock-based employee
and director compensation
expense determined under fair
value method
    
    
    (269,437
    )
    
    
    (355,588
    )
    
    
    (711,579
    )
    
    
    (728,645
    )Pro forma net loss
    
    
    (3,645,506
    )
    
    
    (3,857,390
    )
    
    
    (8,729,947
    )
    
    
    (7,965,440
    )Preferred stock dividends
    
    
    1,106,193
    
    
    
    1,016,957
    
    
    
    2,177,771
    
    
    
    2,012,810Pro forma net loss applicable to
common stockholders
    
    $
    (4,751,699
    )
    
    $
    (4,874,347
    )
    
    $
    (10,907,718
    )
    
    $
    (9,978,250
    )Earnings per share applicable to
common stockholders:Basic/diluted, as reported
    
    $
    (0.08
    )
    
    $
    (0.11
    )
    
    $
    (0.18
    )
    
    $
    (0.23
    )Basic/diluted, pro forma
    
    $
    (0.08
    )
    
    $
    (0.12
    )
    
    $
    (0.19
    )
    
    $
    (0.25
    )
  Note 4
 Net Loss Per Share Applicable to Common Stockholders
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Note 5
 Stockholders Equity
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
 Overview
  P E D E S T Al E m Er al D S P E c Tr A
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
    Results of Operations
 Three Months ended June 30, 2005 and 2004
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 Six Months Ended June 30, 2005 and 2004
     Liquidity and Capital Resources
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
       Critical Accounting Policies
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
    Forward-Looking Statements and Cautionary Statements
   If we do not obtain sufficient additional funding to meet our needs, we may have to curtail or
discontinue the research, product development, pre-clinical testing and clinical trials of some or
all of our product candidates.
  S P E c Tr A P E D E S T Al E m Er al D
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
      If we are unable to renegotiate our preferred stock agreement with Genentech, we may not be
able to secure future equity financing or be acquired by a third party.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 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.
  Clinical studies required for our product candidates are time-consuming, and their outcome is
uncertain.
      
    
    ongoing pre-clinical or clinical study results may indicate that the product candidate
is not safe or effective;
    
    the FDA may interpret our pre-clinical 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.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
   
    
    slower than expected patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study, competition with
clinical trials for other drug candidates or other factors;
    
    adverse results in pre-clinical safety or toxicity studies;
    
    lower than expected retention rates of patients 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 patients;
    
    lack of effectiveness of the product candidate being tested; and
    
    regulatory changes.
   If we do not successfully develop any products, or are unable to derive revenues from product
sales, we will never be profitable.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 S P E c Tr A
   If we are unable to form the collaborative relationships that our business strategy requires,
then our programs will suffer and we may not be able to develop products.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 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.
    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.
   
    
    collaborators may fail to adequately perform the scientific and pre-clinical 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
pre-clinical 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;
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 
    
    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.
  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.
   
    
    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.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 If we cannot successfully develop a marketing and sales force or maintain suitable
arrangements with third parties to market and sell our products, our ability to deliver products to
the market may be impaired.
  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.
  
    
    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.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
 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.
    The effect of accounting rules relating to our equity compensation arrangements may have an
adverse effect on our stock price and financial condition.
   If we are not able to compete successfully with other companies in the development and
marketing of cures and therapies for cardiovascular diseases, diabetes, erectile dysfunction and
the other conditions for which we seek to develop products, we may not be able to continue our
operations.
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ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)
  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.
  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.
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ITEM 3. Qualitative and Quantitative Disclosures about Market Risk
  
 ITEM 4. Controls and Procedures
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PART
II  OTHER INFORMATION
 
 ITEM 4. Submission of Matters to a Vote of Security-Holders
   Name
    
    Votes For
    
    Votes WithheldDr. Edwin D. Bransome
    
    
    48,466,240
    
    
    
    1,392,900Kenneth I. Moch
    
    
    48,805,462
    
    
    
    1,053,678Dr. George M. Naimark
    
    
    48,456,658
    
    
    
    1,402,482
   Votes For
    
    Votes Against
    
    Abstentions49,671,354
    
    
    126,287
    
    
    
    61,499
  Votes For
    
    Votes Against
    
    Abstentions47,755,931
    
    
    2,011,507
    
    
    
    91,702
  Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes12,694,977
    
    
    2,346,813
    
    
    
    129,771
    
    
    
    34,687,579
 
 ITEM 6.Exhibits
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SIGNATURES
   ALTEON INC.By: /s/Kenneth I. MochKenneth I. MochPresident and Chief Executive Officer(principal executive officer)By: /s/Mary T. PhelanMary T. PhelanDirector of Finance and Financial Reporting(principal accounting officer)
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EXHIBIT INDEX
 ExhibitNo.
    
    Description of Exhibit3.1.1
    
    Amended Certificate Of The Voting Powers, Designations, Preferences And Relative
Participating, Optional And Other Special Rights And Qualifications, Limitations Or
Restrictions Or Series F Preferred Stock Of Alteon Inc.10.1
    
    Form of Employees Stock Option Grant Agreement.10.2
    
    Form of Directors Formula Award Non-Qualified Stock Option Grant Agreement.10.3
    
    Form of Consultants Non-Qualified Stock Option Grant Agreement.31.1
    
    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.
 27