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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
      Form 10-K
 For Annual and Transition
    Reports Pursuant to
 Section 13 or 15(d) of the
    Securities Exchange Act of 1934
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    000-51820
  Alexza Pharmaceuticals,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware(State or Other Jurisdiction
    of
    Incorporation or Organization)

77-0567768(I.R.S. Employer
    Identification Number)   2091 Stierlin Court
 Mountain View, California 94043
 (Address of Principal Executive
    Offices including Zip Code)
  Registrants telephone number, including area code:
 (650) 944-7000
  Securities registered pursuant to Section 12 (b) of
    the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.0001 per share

Nasdaq Global Market   Securities
    registered pursuant to Section 12 (g) of the Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    Company o   Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





ANNUAL
    REPORT ON
    FORM 10-K
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
  TABLE OF CONTENTS
   
 PART IItem 1.


Business


1Item 1A.


Risk Factors


27Item 1B


Unresolved Staff Comments


44Item 2.


Properties


44Item 3.


Legal Proceedings


44Item 4.


Submission of Matters to a Vote of Security
    Holders


44PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


44Item 5B.


Use of Proceeds from the Sale of Registered
    Securities


45Item 5C.


Treasury Stock


45Item 6.


Selected Financial Data


46Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


47Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risks


63Item 8.


Financial Statements and Supplementary Data


64Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


100Item 9A.


Controls and Procedures


100Item 9B.


Other Information


101PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


101Item 11.


Executive Compensation


102Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


102Item 13.


Certain Relationships and Related Transactions
    and Director Independence


102Item 14.


Principal Accountant Fees and Services


102PART IVItem 15.


Exhibits and Financial Statement Schedules


102Signatures


105Exhibits Index


107EXHIBIT 3.8EXHIBIT 10.36EXHIBIT 10.37EXHIBIT 10.38EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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Staccato Staccato Form 10-K
 PART I.  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Some of the statements under Business, Risk
    Factors, Managements Discussion and Analysis
    of Financial Condition and Results of Operations and
    elsewhere in this Annual Report constitute forward-looking
    statements. In some cases, you can identify forward-looking
    statements by the following words: may,
    will, could, would,
    should, expect, intend,
    plan, anticipate, believe,
    estimate, predict, project,
    potential, continue, ongoing
    or the negative of these terms or other comparable terminology,
    although not all forward-looking statements contain these words.
    Examples of these statements include, but are not limited to,
    statements regarding the following: the implications of interim
    or final results of our clinical trials, the progress and timing
    of our research programs, including clinical testing, our
    anticipated timing for filing additional Investigational New
    Drug Applications with the United States Food and Drug
    Administration, the initiation or completion of Phase 1, Phase 2
    or Phase 3 clinical testing for any of our product candidates,
    the extent to which our issued and pending patents may protect
    our products and technology, our ability to identify new product
    candidates using the Staccato system, the potential of such
    product candidates to lead to the development of safe or
    effective therapies, our ability to enter into collaborations,
    our future operating expenses, our future losses, our future
    expenditures for research and development, and the sufficiency
    of our cash resources. These statements involve known and
    unknown risks, uncertainties and other factors that may cause
    our actual results, levels of activity, performance or
    achievements to be materially different from the information
    expressed or implied by these forward-looking statements. While
    we believe that we have a reasonable basis for each
    forward-looking statement contained in this Annual Report, we
    caution you that these statements are based on a combination of
    facts and factors currently known by us and our projections of
    the future, about which we cannot be certain.
  In addition, you should refer to the Risk Factors
    section of this Annual Report for a discussion of other
    important factors that may cause our actual results to differ
    materially from those expressed or implied by our
    forward-looking statements. As a result of these factors, we
    cannot assure you that the forward-looking statements in this
    Annual Report will prove to be accurate. Furthermore, if our
    forward-looking statements prove to be inaccurate, the
    inaccuracy may be material. In light of the significant
    uncertainties in these forward-looking statements, you should
    not regard these statements as a representation or warranty by
    us or any other person that we will achieve our objectives and
    plans in any specified time frame, or at all.
  We undertake no obligation to publicly update any
    forward-looking statements, whether as a result of new
    information, future events or otherwise. You are advised,
    however, to consult any further disclosures we make on related
    subjects in our Quarterly Reports on
    Form 10-Q
    and Current Reports on
    Form 8-K.
  Item 1.
    Business  Staccato
  Staccato Staccato
 1




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
    AZ-004 (Staccato loxapine).  We are
    developing AZ-004 for the treatment of acute agitation in
    patients with schizophrenia or bi-polar disorder. In March 2007,
    we announced positive initial results from a multi-center,
    randomized, double-blind, placebo-controlled Phase 2a clinical
    trial in 129 patients in an in-patient clinical setting.
    The 10 mg dose of AZ-004 met the primary endpoint of the
    clinical trial, which was a statistically significant reduction
    in the measure of agitation from baseline to the
    2-hour
    post-dose time point, as compared to placebo. The 10 mg
    dose of AZ-004 also exhibited a rapid onset of effect, with a
    statistically-significant improvement in the PANSS (Positive and
    Negative Symptom Scale) Excited Component (PEC) scores at 20
    minutes post-dose, as compared to placebo. The effectiveness of
    the 10 mg dose was sustained throughout the
    24-hour
    study period, as compared to placebo. The 5 mg dose failed
    to achieve statistical significance. In February 2008 we
    initiated a Phase 3 clinical trial that is designed to enroll
    approximately 300 schizophrenic patients with acute agitation at
    25 U.S. clinical centers. The trial is an in-clinic,
    multi-center, randomized, double-blind, placebo-controlled study
    and will test AZ-004 at two dose levels, 5 and 10 mg.
    Patients may receive up to 3 doses of study drug in a
    24-hour
    period, depending on their clinical status. The primary endpoint
    for the study is the change from baseline in the PEC score,
    measured at 2 hours after the first dose. Various
    assessments of a patients agitation state will be
    conducted at serial time points using standard agitation scales
    over the first
    4-hour
    post-dose time period, with
    follow-up
    assessments at the end of the
    24-hour
    study period. Side effects will be recorded throughout the
    24-hour
    period. A second Phase 3 clinical trial is projected to begin in
    the third quarter of 2008. The design of the second study will
    be similar to the first trial, except that the patient
    population will be patients with bipolar disease. AZ-004 has
    been licensed to Symphony Allegro, Inc., or Symphony Allegro,
    and we have the right to repurchase all rights to this product
    candidate.
    AZ-001 (Staccatoprochlorperazine).  We
    are developing AZ-001 to treat patients suffering from acute
    migraine headaches. In March 2007, we announced positive initial
    results from an outpatient, multi-center, randomized, double
    blind, placebo-controlled Phase 2b clinical trial of AZ-001 in
    400 migraine patients. All three doses of AZ-001 (5, 7.5 and
    10 mg) met the primary endpoint of statistically
    significant pain relief
    2-hours
    post-dose using the IHS (International Headache Society) 4-point
    headache pain rating scale, compared to placebo. In the two
    highest doses studied, AZ-001 also showed a
    statistically-significant difference in achieving a pain-free
    response at two hours, as compared with placebo. AZ-001
    demonstrated rapid onset of pain relief, with statistically
    significant pain response in 15 minutes for the 7.5 mg dose
    and statistically-significant pain responses for all three doses
    at 30 minutes. AZ-001 also showed a sustained pain-free
    response, where a patient has a pain score of 0, or
    no headache, with statistically-significant
    elimination of pain at 24 hours post-dose at the two
    highest studied doses. Survival analysis for nausea, photophobia
    and phonophobia over the
    2-hour
    period post-dose showed a statistically significant difference,
    compared to placebo. In December 2007, we completed enrollment
    of a thorough QT clinical trial, in which two doses of AZ-001 (5
    and 10 mg) were compared to active control and to placebo.
    The purpose of a thorough QT study is to determine a drugs
    effect on cardiac rhythms. With > 40 subjects per
    treatment condition, we found that the active control,
    moxyfloxacin, produced a positive QT/QTc signal that verified
    the sensitivity of the clinical study. Based on a preliminary
    analysis of the data from the study, neither of the doses of
    AZ-001 produced a QT/QTc prolongation that would suggest an
    increased risk of cardiac arrhythmia.
    AZ-104 (Staccatoloxapine).We are
    developing AZ-104 to treat patients suffering from acute
    migraine headaches. AZ-104 is a lower dose version of AZ-004. In
    March 2008, we announced initial results of an in-clinic,
    multi-center randomized, double-blind, single administration,
    placebo controlled Phase 2a proof-of-concept clinical trial in
    168 migraine patients with or without aura. Three doses of
    AZ-104 (1.25, 2.5 and 5 mg) were evaluated against placebo
    in the clinical trial. Using the IHS) 4-point rating scale, the
    primary efficacy endpoint was pain-relief response at
    2 hours post-administration. AZ-104 met the primary
    efficacy endpoint of the clinical trial for the two highest
    doses of the drug compared to placebo. Statistically 2




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significant improvements in pain response were observed in 76.7%
    of patients at the 5 mg dose (p= 0.02), 79.1% of patients
    at the 2.5 mg dose (p = 0.01) and 67.4% of patients at the
    1.25 mg dose (p = 0.18), compared to 51.3% of patients
    receiving placebo. Using survival analysis for pain relief
    response, all three dose groups were statistically superior (p
    < .05) to placebo during the
    4-hour
    post-treatment time period that the patients remained in the
    clinic. AZ-104 has been licensed to Symphony Allegro, and we
    have the right to repurchase all rights to this product
    candidate.  
    AZ-002 (Staccatoalprazolam).  We are
    developing AZ-002 for the acute treatment of panic attacks
    associated with panic disorder. In April 2006, we initiated an
    in-clinic, single-center, double-blind, placebo-controlled,
    Phase 2a proof-of-concept clinical trial in patients with panic
    disorder. As a result of observing greater than expected levels
    of sedation in the first two patients enrolled in the trial, we
    reduced the dose of AZ-002, modified the AZ-002 device, added an
    open-label portion to the clinical protocol, manufactured and
    released new clinical trial materials for the trial, and added
    two additional study sites to the study group. In April 2007, we
    re-initiated dosing in the 42 patient clinical trial with a
    lower dose of AZ-002. We have completed the open-label, lead-in
    segment of the clinical trial, identifying the 1 mg AZ-002
    dose as an acceptable dose in terms of its safety and efficacy
    profile, and have initiated the randomized, double blind,
    placebo-controlled segment of the clinical trial. We expect to
    complete enrollment of this trial in the second quarter of 2008.
    AZ-002 has been licensed to Symphony Allegro, and we have the
    right to repurchase all rights to this product candidate.
    AZ-003 (Staccatofentanyl).  We are
    jointly developing AZ-003 with Endo Pharmaceuticals Inc., or
    Endo, for the treatment of breakthrough pain in cancer and
    non-cancer patients. Endo is responsible for regulatory,
    pre-clinical and clinical development, and for commercializing
    the product in North America. We are responsible for the
    development of the StaccatoElectric Multiple Dose device
    and we have the exclusive right to manufacture the product for
    clinical development and commercial supply.
    AZ-007 (Staccatozaleplon).  We
    are developing AZ-007 for the treatment of insomnia in patients
    who have difficulty falling asleep, including patients who awake
    in the middle of the night and have difficulty falling back
    asleep. We filed an Investigational New Drug application, or
    IND, in December 2007. In February 2008, we initiated a Phase 1
    clinical trial that enrolled 40 healthy volunteers at a single
    site. The purpose of this trial is to assess the safety,
    tolerability and pharmacokinetic parameters of a single dose of
    AZ-007. Using a double blind, randomized trial design, four
    doses of AZ-007 (ranging from 0.5 to 4.0 mg) are being
    compared to placebo. We expect to report initial results of this
    trial in the second quarter of 2008.  Staccato Staccato
  Staccato Staccato Staccato Staccato Staccato Staccato
 3




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Staccato Staccato Staccato Staccato
  Staccato Staccato
  Staccato
  Market
    Opportunity for Acute and Intermittent Conditions
    
    Oral Tablets.  Oral tablets or capsules are
    convenient and cost effective, but they generally do not provide
    rapid onset of action. Oral tablets may require at least one to
    four hours to achieve peak plasma levels. Also, some drugs, if
    administered as a tablet or capsule, do not achieve adequate or
    consistent bioavailability due to the degradation of the drug by
    the stomach or liver or inability to be absorbed into the
    bloodstream.
    Injections.  IV injections provide a rapid
    onset of action and can sometimes be used to titrate potent
    drugs with very rapid changes in effect. Titration refers to the
    ability of a patient to self-administer an initial dose of
    medication and then determine if the medication is effective; if
    the medication is effective no further dosing is required.
    However, if the medication is not yet effective, the patient can
    administer another dose and repeat this process until the
    patient determines that the medication has had an adequate
    effect. However, IV injections generally are administered by
    trained medical personnel in a medical care setting. Other forms
    of injections result in an onset of action that is generally
    substantially slower than IV injection, although often
    faster than oral administration. All forms of injections are
    invasive, can be painful to some patients and are often
    expensive. In addition, many drugs are not water soluble and can
    be difficult to formulate in an injectable form. 4




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
    Traditional Inhalation.  Traditional dry powder
    and aerosolized inhalation delivery systems have been designed
    and used primarily for local delivery of drugs to the
    respiratory airways, not to the deep lung for rapid systemic
    drug delivery. Certain recent variants of these systems,
    however, can provide systemic delivery of drugs, either for the
    purpose of rapid onset of action or to enable noninvasive
    delivery of drugs that are not orally bioavailable.
    Nevertheless, many of these systems have difficulty in
    generating appropriate drug particle sizes or consistent emitted
    doses for deep lung delivery. To achieve appropriate drug
    particle sizes and consistent emitted doses, most traditional
    inhalation systems require the use of excipients and additives
    such as detergents, stabilizers and solvents, which may
    potentially cause toxicity or allergic reactions. Many
    traditional inhalation devices require patient coordination to
    deliver the correct drug dose, leading to potentially wide
    variations in the drug delivered to a patient.    Our
    Solution: Staccato System
  Staccato Staccato
  Staccato
  
    Rapid Onset.  The aerosol produced with the
    Staccatosystem is designed to be rapidly absorbed
    through the deep lung with a speed of therapeutic onset
    comparable to an IV injection, generally achieving peak
    plasma levels of drug in two to five minutes.
    Ease of Use.  The Staccatosystem is
    breath actuated, and a patient simply inhales to administer the
    drug dose. Unlike injections, the Staccatosystem is
    noninvasive and does not require caregiver assistance. The
    aerosol produced with the Staccatosystem is relatively
    insensitive to patient inhalation rates. Unlike many other
    inhalation technologies, the patient does not need to learn a
    special breathing pattern. In addition, the Staccatodevice is small and easily portable.
    Consistent Particle Size and Dose.  The
    Staccatosystem uses rapid heating of the drug film to
    create consistent and appropriate particle sizes for deep lung
    inhalation and absorption into the bloodstream. The Staccatosystem also produces a consistent high emitted dose,
    regardless of the patients breathing pattern.
    Broad Applicability.  We have screened over 400
    drugs, and approximately 200 have exhibited initial vaporization
    feasibility using our Staccatosystem. The Staccatosystem can deliver both water soluble and water insoluble
    drugs and eliminates the need for excipient and additives such
    as detergents, stabilizers and solvents, avoiding the side
    effects that may be associated with the excipient or additives.
    Design Flexibility.  The Staccatosystem
    can incorporate lockout and multiple dose features, potentially
    enhancing safety, convenience of patient titration and a variety
    of administration regimens.  Drug
    Candidates Based on the Staccato System
  Staccato Staccato
 5




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Staccato
    System
  Staccato
  Staccato Staccato
  
    
 6




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Staccato
  Our
    Pipeline
    AlexzaCommercialProduct Candidate

API

Target Indication

Status

RightsAZ-004

Loxapine

Acute agitation in schizophrenia or bi-polar disorder patients

Phase 3

Out-licensed with exclusive repurchase option*AZ-001

Prochlorperazine

Migraine headaches

Completed Phase 2

WorldwideAZ-002

Alprazolam

Panic attacks

Phase 2

Out-licensed with exclusive repurchase option*AZ-104

Loxapine

Migraine headaches

Phase 2

Out-licensed with exclusive repurchase option*AZ-003

Fentanyl

Acute pain

Phase 1

Out-licensed North American commercialization rights**AZ-007

Zaleplon

Insomnia

Phase 1

Worldwide     *
    
    Licensed to Symphony Allegro**
    
    Licensed to Endo  ACUTE
    AGITATION PROGRAM: AZ-004 (Staccato loxapine)
  Staccato
 7




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Development
    Status
  Clinical
    Trials
  Phase 3
    Clinical Program
  24-hour 4-hour follow-up 24-hour 24-hour
  Staccato Staccato 4-hour follow-up 2-hour
  Primary Efficacy Endpoint.
  PEC
    Scores (Mean Values)
  Baseline


2-hour Post-Study Arms

Mean


Dose Mean


Significance10 mg AZ-004


17.3



8.8



p=0.00025 mg AZ-004


17.6



10.8



p=0.088Placebo


17.7



12.7



na   Note:
  Additional Efficacy Variables. 24-hour
 8




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24-hour
  2-hour
  Safety Evaluations.
  Preclinical
    Studies
    MIGRAINE
    HEADACHE PROGRAM: AZ-001 (Staccato procholoperazine) and AZ-104
    (Staccato loxapine)
  Staccato Staccato
  AZ-001
  AZ-001
    (Staccato prochlorperazine)
  Staccato
 9




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Development
    Status
  Clinical
    Trials
  Staccato Staccato 2-hours
  Primary Efficacy Endpoint. 2-hours
  Additional Efficacy Endpoints. 2-hours
  2-hour
      Safety Evaluations.
 10




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Preclinical
    Studies
  in vitro in vivo
  AZ-104
    (Staccato loxapine)
    Development
    Status
  Clinical
    Trials
    Primary Efficacy Endpoint. 4-hour
  Primary Efficacy Endpoint  Pain Relief at
    2-Hous Post-DosePatientsAchieving





p-valueTreatment

Number of Patients


Pain Relief


Percent Pain Relief


vs. PlaceboPlacebo


39



20



51.3
%


na1.25 mg


43



29



67.4
%


0.182.5 mg


43



34



79.1
%


0.01
*5 mg


43



33



76.7
%


0.02
*     *
    
    Statistically significant results  Additional Efficacy Endpoints. 2-hour
 11




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4-hour
  2-hour
    Safety Evaluations. 3
  Placebo


1.25 mg


2.5 mg


5 mgSide Effects

(%)


(%)


(%)


(%)Dysgeusia


13



19



23



37Somnolence


13



5



23



23Fatigue


8



0



7



14Oral discomfort


3



0



2



7Dizziness


5



2



7



2Hypoaesthesia, pharyngeal


0



0



0



7Throat irritation


0



7



0



0Dry mouth


5



2



5



5Hypoaesthesia, oral


0



2



5



2Attention disturbance


0



5



0



2Hypotension


3



0



2



5   Preclinical
    Studies
    PANIC
    ATTACK PROGRAM: AZ-002 (Staccato alprazolam)
  Staccato
 12




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Staccato
  Development
    Status
  Clinical
    Trials
  AZ-002
    Preclinical
    Studies
   13




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ACUTE
    PAIN PROGRAM: AZ-003 (Staccato fentanyl)
  Staccato Staccato
  AZ-003 Staccato
  Staccato
  Development
    Status
  Clinical
    Studies
  AZ-003
   14




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AZ-003 Staccato
    Preclinical
    Studies
    INSOMNIA
    PROGRAM: AZ-007 (Staccato zaleplon)
    Market
    Opportunity
    ® ® ®
   15




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Development
    Status
  Clinical
    Studies
    Preclinical
    Studies
    Product
    Candidate Selection
  Staccato Staccato
    scale-up
    Our
    Strategy
    
    Focus on Acute and Intermittent Conditions.  We
    focus our development and commercialization efforts on product
    candidates based on our Staccatosystem that are intended
    to address important unmet medical and patient needs in the
    treatment of acute and intermittent conditions. To meet these
    needs, we believe that products that provide rapid onset, ease
    of use, noninvasive administration and, in some cases, patient
    titration of dosage are required. 16




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
    Develop Commercialization Capabilities.  We
    plan to build a United States-based specialty sales force to
    commercialize our product candidates which are approved for
    marketing and which are intended for psychiatric markets.
    Establish Strategic Partnerships.  We intend to
    strategically partner with pharmaceutical and other companies to
    provide development funding or to address markets that may
    require a larger sales force, greater marketing resources or
    specific expertise to maximize the value of some product
    candidates. We also intend to seek international distribution
    partners for our product candidates. We may also enter into
    strategic partnerships with other pharmaceutical companies to
    combine our Staccato system with their proprietary
    compounds.
    Retain and Control Product Manufacturing.  We
    own all manufacturing rights to our product candidates. We
    intend to internally complete the final manufacture and assembly
    of our product candidates and any future products, potentially
    enabling greater intellectual property protection and economic
    return from our future products. We also believe controlling the
    final manufacture and assembly reduces the risk of supply
    interruptions and allows more cost effective manufacturing.  Licensing
    Collaborations
  Symphony
    Allegro, Inc.
  Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
  Endo
    Pharmaceuticals, Inc.
  Staccato Staccato
 17




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Manufacturing
    Staccato
  Staccato
       18




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Marketing
    and Sales
    Government
    Regulation
    
    preclinical laboratory studies and animal tests;
    the submission to the FDA of an IND for human clinical testing,
    which must become effective before human clinical trials
    commence;
    adequate and well controlled human clinical trials to establish
    the safety and efficacy of the product;
    the submission to the FDA of an NDA;
    satisfactory completion of an FDA inspection of the
    manufacturing facilities at which the product is made to assess
    compliance with cGMP. In addition, the FDA may audit clinical
    trial sites that generated the data in support of the
    NDA; and
    FDA review and approval of the NDA.   19




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
    Phase 1.  Phase 1 clinical trials involve the
    initial introduction of the drug into human subjects, frequently
    healthy volunteers. These studies are designed to determine the
    metabolism and pharmacologic actions of the drug in humans, the
    adverse effects associated with increasing doses and, if
    possible, to gain early evidence of effectiveness. In Phase 1
    clinical trials, the drug is usually tested for safety,
    including adverse effects, dosage tolerance, absorption,
    distribution, metabolism, excretion and pharmacodynamics.
    Phase 2.  Phase 2 clinical trials usually
    involve studies in a limited patient population to
    (1) evaluate the efficacy of the drug for specific,
    targeted indications; (2) determine dosage tolerance and
    optimal dosage; and (3) identify possible adverse effects
    and safety risks. Although there are no statutory or regulatory
    definitions for Phase 2a and Phase 2b, Phase 2a is commonly used
    to describe a Phase 2 clinical trial evaluating efficacy,
    adverse effects and safety risks and Phase 2b is commonly used
    to describe a subsequent Phase 2 clinical trial that also
    evaluates dosage tolerance and optimal dosage.
    Phase 3.  If a compound is found to be
    potentially effective and to have an acceptable safety profile
    in Phase 2 clinical trials, the clinical trial program will be
    expanded to further demonstrate clinical efficacy, optimal
    dosage and safety within an expanded patient population at
    geographically dispersed clinical trial sites. Phase 3 clinical
    trials usually include several hundred to several thousand
    patients.
    Phase 4.  Phase 4 clinical trials are studies
    required of, or agreed to, by a sponsor that are conducted after
    the FDA has approved a product for marketing. These studies are
    used to gain additional experience from the treatment of
    patients in the intended therapeutic indication and to document
    a clinical benefit in the case of drugs approved under
    accelerated approval regulations. If the FDA approves a product
    while a company has ongoing clinical trials that were not
    necessary for approval, a company may be able to use the data
    from these clinical trials to meet all or part of any Phase 4
    clinical trial requirement. These clinical trials are often
    referred to as Phase
    3/4
    post-approval clinical trials. Failure to promptly conduct Phase
    4 clinical trials could result in withdrawal of approval for
    products approved under accelerated approval regulations.  1 2
   20




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and/or
 21




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Staccato Staccato
  Staccato Staccato Staccato
  paid-up
   22




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Pharmaceutical
    Pricing and Reimbursement
      
    controls on government funded reimbursement for medical products
    and services;
    controls on healthcare providers;
    challenges to the pricing of medical products and services or
    limits or prohibitions on reimbursement for specific products
    and therapies through other means;
    reform of drug importation laws; and
    expansion of use of managed care systems in which healthcare
    providers contract to provide comprehensive healthcare for a
    fixed cost per person.    Patents
    and Proprietary Rights
    
    the Staccatosystem and its components;
    methods of using the Staccatosystem;
    the aerosolized form of drug compounds produced by the
    Staccatosystem; and
    methods of making and using the drug containing aerosols,
    including methods of administering the aerosols to a patient.  Staccato
 23




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##### Table of Contents



AZ-004/AZ-104
    (Staccato loxapine)
  Staccato
  AZ-001
    (Staccato prochlorperazine)
  Staccato
  AZ-002
    (Staccato alprazolam)
  Staccato
  AZ-003
    (Staccato fentanyl)
  Staccato
  AZ-007
    (Staccato zaleplon)
  Staccato
  Competition
    
    develop products that are superior to other products in the
    market; 24




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##### Table of Contents




    attract and retain qualified scientific, product development and
    commercial personnel;
    obtain patent
    and/or other
    proprietary protection covering our future products and
    technologies;
    obtain required regulatory approvals; and
    successfully collaborate with pharmaceutical and biotechnology
    companies in the development and commercialization of new
    products.  and/or
    
    AZ-004 would compete with the injectable form of loxapine
    (Loxitane®)
    and other antipsychotic drugs, such as
    Zyprexa®
    Geodon®
    and
    Abilify®;
    AZ-001 and AZ-104 would compete with available triptan drugs,
    such as
    Imitrex®,
    Zomig®
    and
    Maxalt®,
    and IV prochlorperazine;
    AZ-002 would compete with the oral tablet form of alprazolam and
    other benzodiazepines and antidepressant drugs, such as
    Klonopin®,
    Paxil®,
    Prozac®
    and
    Effexor®;
    AZ-003 would compete with injectable and other forms of fentanyl
    and various generic oxycodone, hydrocodone and morphine
    products; and
    AZ-007 would compete with non-benzodiazepine GABA-A receptor
    agonists, which include
    Ambien®
    (immediate release and controlled-release tablets),
    Sonata®,
    and
    Lunesta®.    Employees
    Corporate
    Information
   25




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Available
    Information
  Form 10-Q, Form 8-K 1-800-SEC-0330.
 26




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Item 1A.
    Risk
    Factors  RISK
    FACTORS
  Investing in our common stock involves a high degree of risk.
    You should carefully consider the risks described below,
    together with all of the other information included in this
    Annual Report, before deciding whether to invest in shares of
    our common stock. Additional risks and uncertainties not
    presently known to us or that we currently deem immaterial also
    may impair our business operations. The occurrence of any of the
    following risks could harm our business, financial condition or
    results of operations. In such case, the trading price of our
    common stock could decline, and you may lose all or part of your
    investment.
  Risks
    Relating to Our Business
  We
    have a history of net losses. We expect to continue to incur
    substantial and increasing net losses for the foreseeable
    future, and we may never achieve or maintain
    profitability.
      We are
    a development stage company. Our success depends substantially
    on our lead product candidates. If we do not develop
    commercially successful products, we may be forced to cease
    operations.
    
    does not demonstrate acceptable safety and efficacy in
    preclinical studies and clinical trials or otherwise does not
    meet applicable regulatory standards for approval;
    does not offer therapeutic or other improvements over existing
    or future drugs used to treat the same or similar conditions;
    is not capable of being produced in commercial quantities at an
    acceptable cost, or at all; or
    is not accepted by patients, the medical community or third
    party payors.   27




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We
    will need substantial additional capital in the future. If
    additional capital is not available, we will have to delay,
    reduce or cease operations.
    
    the scope, rate of progress, results and costs of our
    preclinical studies, clinical trials and other research and
    development activities, and our manufacturing development and
    commercial manufacturing activities;
    the amount and timing of payments from Symphony Allegro related
    to the development of Staccatoalprazolam and Staccatoloxapine;
    the amount and timing of any payments to Symphony Allegro
    related to the repurchase of rights to Staccatoalprazolam and Staccatoloxapine;
    the amount and timing of any milestone and royalty payments from
    Endo related to the development and commercialization of
    Staccatofentanyl;
    the cost, timing and outcomes of regulatory proceedings;
    the cost and timing of developing sales and marketing
    capabilities;
    the cost and timing of developing sales and marketing
    capabilities prior to receipt of any regulatory approval of our
    product candidates;
    the cost and timing of developing manufacturing capacity;
    revenues received from any future products;
    payments received under any future strategic partnerships;
    the filing, prosecution and enforcement of patent claims;
    the costs associated with building out and moving to our new
    facilities in 2007 and 2008; and
    the costs associated with commercializing our product
    candidates, if they receive regulatory approval.     28




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Unless
    our preclinical studies demonstrate the safety of our product
    candidates, we will not be able to commercialize our product
    candidates.
  Staccato
  
    our preclinical testing may produce inconclusive or negative
    safety results, which may require us to conduct additional
    preclinical testing or to abandon product candidates that we
    believed to be promising;
    our product candidates may have unfavorable pharmacology,
    toxicology or carcinogenicity; and
    our product candidates may cause undesirable side effects.    Preclinical
    studies indicated possible adverse impact of pulmonary delivery
    of AZ-001.
    Failure
    or delay in commencing or completing clinical trials for our
    product candidates could harm our business.
    
    delays or failure in reaching agreement on acceptable clinical
    trial contracts or clinical trial protocols with prospective
    sites;
    regulators or institutional review boards may not authorize us
    to commence a clinical trial;
    regulators or institutional review boards may suspend or
    terminate clinical research for various reasons, including
    noncompliance with regulatory requirements or concerns about
    patient safety; 29




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
    we may suspend or terminate our clinical trials if we believe
    that they expose the participating patients to unacceptable
    health risks;
    we may experience slower than expected patient enrollment or
    lack of a sufficient number of patients that meet the enrollment
    criteria for our clinical trials;
    patients may not complete clinical trials due to safety issues,
    side effects, dissatisfaction with the product candidate, or
    other reasons;
    we may have difficulty in maintaining contact with patients
    after treatment, preventing us from collecting the data required
    by our study protocol;
    product candidates may demonstrate a lack of efficacy during
    clinical trials;
    we may experience governmental or regulatory delays, failure to
    obtain regulatory approval or changes in regulatory
    requirements, policy and guidelines; and
    we may experience delays in our ability to manufacture clinical
    trial materials in a timely manner as a result of ongoing
    process and design enhancements to our Staccatosystem
    and the move to a new facility in late 2007 and early 2008.    Continuing
    development of our single dose version device may delay
    regulatory submissions and marketing approval for
    AZ-004
  Staccato
  If our
    product candidates do not meet safety and efficacy endpoints in
    clinical trials, they will not receive regulatory approval, and
    we will be unable to market them.
     30




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If our
    product candidates fail to show a clinically significant benefit
    compared to placebo, they will not be approved for
    marketing.
  Staccato
  Regulatory
    authorities may not approve our product candidates even if they
    meet safety and efficacy endpoints in clinical
    trials.
    
    a product candidate may not be considered safe or effective;
    the manufacturing processes or facilities we have selected may
    not meet the applicable requirements; and
    changes in their approval policies or adoption of new
    regulations may require additional work on our part.      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 any future products could be
    suspended.
   31




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
    restrictions on the products, suppliers or manufacturing
    processes;
    warning letters or untitled letters;
    civil or criminal penalties or fines;
    injunctions;
    product seizures, detentions or 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.  If we
    do not produce our devices cost effectively, we will never be
    profitable.
  Staccato Staccato Staccato Staccato
  We
    rely on third parties to conduct our preclinical studies and our
    clinical trials. If these third parties do not perform as
    contractually required or expected, we may not be able to obtain
    regulatory approval for our product candidates, or we may be
    delayed in doing so.
   32




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Problems
    with the third parties that manufacture the active
    pharmaceutical ingredients in our product candidates may delay
    our clinical trials or subject us to liability.
          If we
    experience problems with the manufacturers of components of our
    product candidates, our development programs may be delayed or
    we may be subject to liability.
  Staccato Staccato
  Staccato Staccato
  Staccato
 33




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Staccato Staccato Staccato
  If we
    do not establish additional strategic partnerships, we will have
    to undertake development and commercialization efforts on our
    own, which would be costly and delay our ability to
    commercialize any future products.
  Staccato
  If we
    enter into additional strategic partnerships, we may be required
    to relinquish important rights to and control over the
    development of our product candidates or otherwise be subject to
    terms unfavorable to us.
    
    we may not be able to control the amount and timing of resources
    that our strategic partners devote to the development or
    commercialization of product candidates;
    strategic partners may delay clinical trials, provide
    insufficient funding, terminate a clinical trial or abandon a
    product candidate, repeat or conduct new clinical trials or
    require a new version of a product candidate for clinical
    testing; 34




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
    strategic partners may not pursue further development and
    commercialization of products resulting from the strategic
    partnering arrangement or may elect to discontinue research and
    development programs;
    strategic partners may not commit adequate resources to the
    marketing and distribution of any future products, limiting our
    potential revenues from these products;
    disputes may arise between us and our strategic partners 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s
    attention and consumes resources;
    strategic partners may experience financial difficulties;
    strategic partners may not properly maintain or defend our
    intellectual property rights or may use our proprietary
    information in a manner that could jeopardize or invalidate our
    proprietary information or expose us to potential litigation;
    business combinations or significant changes in a strategic
    partners business strategy may also adversely affect a
    strategic partners willingness or ability to complete its
    obligations under any arrangement;
    strategic partners could independently move forward with a
    competing product candidate developed either independently or in
    collaboration with others, including our competitors; and
    strategic partners could terminate the arrangement or allow it
    to expire, which would delay the development and may increase
    the cost of developing our product candidates.  We
    have exclusively licensed certain intellectual property rights
    to Staccato alprazolam and Staccato loxapine in connection with
    our Symphony Allegro arrangement and will not receive material
    future royalties or revenues with respect to this intellectual
    property unless we exercise an option to repurchase the rights
    to the programs in the future through the acquisition of
    Symphony Allegro. We may not obtain sufficient clinical data in
    order to determine whether we should exercise this option prior
    to the expiration of the development period, and even if we
    decide to exercise the option, we may not have the financial
    resources to exercise it in a timely manner.
  Staccato Staccato AZ-104 Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
   35




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If we
    fail to gain market acceptance among physicians, patients,
    third-party payors and the medical community, we will not become
    profitable.
  Staccato Staccato
  
    demonstration of efficacy and safety in clinical trials;
    the existence, prevalence and severity of any side effects;
    potential or perceived advantages or disadvantages compared to
    alternative treatments;
    perceptions about the relationship or similarity between our
    product candidates and the parent drug compound upon which each
    product candidate is based;
    the timing of market entry relative to competitive treatments;
    the ability to offer any future products for sale at competitive
    prices;
    relative convenience, product dependability and ease of
    administration;
    the strength of marketing and distribution support;
    the sufficiency of coverage and reimbursement of our product
    candidates by governmental and other third-party payors; and
    the product labeling or product insert required by the FDA or
    regulatory authorities in other countries.  Our
    pipeline may be limited by the number of drug compounds suitable
    for use with the Staccato system.
  Staccato Staccato Staccato Staccato
  AZ-001
    and other product candidates that we may develop may require
    expensive carcinogenicity tests.
   36




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If
    some or all of our patents expire, are invalidated or are
    unenforceable, or if some or all of our patent applications do
    not yield issued patents or yield patents with narrow claims,
    competitors may develop competing products using our or similar
    intellectual property and our business will
    suffer.
      
    we might not have been the first to make the inventions covered
    by each of our pending patent applications and issued patents;
    we might not have been the first to file patent applications for
    these inventions;
    others may independently develop similar or alternative
    technologies or duplicate any of our technologies;
    it is possible that none of our pending patent applications will
    result in issued patents;
    the claims of our issued patents may be narrower than as filed
    and not sufficiently broad to prevent third parties from
    circumventing them;
    we may not develop additional proprietary technologies or drug
    candidates that are patentable;
    our patent applications or patents may be subject to
    interference, opposition or similar administrative proceedings;
    any patents issued to us or our potential strategic partners may
    not provide a basis for commercially viable products or may be
    challenged by third parties in the course of litigation or
    administrative proceedings such as reexaminations or
    interferences; and
    the patents of others may have an adverse effect on our ability
    to do business.  Even
    if valid and enforceable patents cover our product candidates
    and technologies, the patents will provide protection only for a
    limited amount of time.
    and/or
   37




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Litigation
    or other proceedings or third party claims of intellectual
    property infringement could require us to spend time and money
    and could shut down some of our operations.
           38




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Competition
    in the pharmaceutical industry is intense. If our competitors
    are able to develop and market products that are more effective,
    safer or less costly than any future products that we may
    develop, our commercial opportunity will be reduced or
    eliminated.
      AZ-001.
      ® ® ®
   39




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If we
    are unable to establish sales and marketing capabilities or
    enter into agreements with third parties to market and sell our
    product candidates, we may be unable to generate significant
    product revenue.
    and/or
  
    our inability to recruit and retain adequate numbers of
    effective sales and marketing personnel;
    the inability of sales personnel to obtain access to or persuade
    adequate numbers of physicians to prescribe any future products;
    the lack of complementary products to be offered by sales
    personnel, which may put us at a competitive disadvantage
    relative to companies with more extensive product lines; and
    unforeseen costs and expenses associated with creating an
    independent sales and marketing organization.    If we
    lose our key personnel or are unable to attract and retain
    additional personnel, we may be unable to develop or
    commercialize our product candidates.
    We may
    encounter difficulties in managing our growth, which could
    increase our losses.
   40




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If
    plaintiffs bring product liability lawsuits against us, we may
    incur substantial liabilities and may be required to limit
    commercialization of the product candidates that we may
    develop.
    Our
    product candidates AZ-002, AZ-003 and AZ-007 contain drug
    substances which are regulated by the U.S. Drug Enforcement
    Administration. Failure to comply with applicable regulations
    could harm our business.
    The
    single dose version of our Staccato system contains materials
    that are regulated by the U.S. government, and failure to
    comply with applicable regulations could harm our
    business.
  Staccato Staccato Staccato Staccato
 41




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##### Table of Contents



Staccato
  We use
    hazardous chemicals and highly combustible materials in our
    business. Any claims relating to improper handling, storage or
    disposal of these materials could be time consuming and
    costly.
      We
    will need to implement additional finance and accounting
    systems, procedures and controls in the future as we grow and to
    satisfy new reporting requirements.
     42




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Our
    facilities are located near known earthquake fault zones, and
    the occurrence of an earthquake or other catastrophic disaster
    could damage our facilities and equipment, which could cause us
    to curtail or cease operations.
    Risks
    Relating to Owning Our Common Stock
  Our
    stock price has been and may continue to be extremely
    volatile.
    
    actual or anticipated results and timing of our clinical trials;
    actual or anticipated regulatory approvals of our product
    candidates or competing products;
    changes in laws or regulations applicable to our product
    candidates;
    changes in the expected or actual timing of our development
    programs, including delays or cancellations of clinical trials
    for our product candidates;
    period to period fluctuations in our operating results;
    announcements of new technological innovations or new products
    by us or our competitors;
    changes in financial estimates or recommendations by securities
    analysts;
    conditions or trends in the life science and biotechnology
    industries;
    changes in the market valuations of other life science or
    biotechnology companies;
    developments in domestic and international governmental policy
    or regulations;
    announcements by us or our competitors of significant
    acquisitions, strategic partnerships, joint ventures or capital
    commitments;
    additions or departures of key personnel;
    disputes or other developments relating to proprietary rights,
    including patents, litigation matters and our ability to obtain
    patent protection for our technologies;
    sales of our common stock by us; and
    sales and distributions of our common stock by our stockholders. 43




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2007

High


LowFirst Quarter

$
15.80


$
8.52Second Quarter


12.80



7.86Third Quarter


10.10



7.11Fourth Quarter


9.72



7.00   2006

High


LowMarch 8, 2006-March 31, 2006

$
10.59


$
8.00Second Quarter


10.00



6.51Third Quarter


8.35



6.12Fourth Quarter


12.09



7.29    44




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##### Table of Contents



Item 5B.
    Use
    of Proceeds from the Sale of Registered Securities  March
    2006 Initial Public Offering
  Form S-1 (File No. 333-130644),
    
    approximately $41.5 million was used for working
    capital; and
    the remainder of the net proceeds from the offering,
    approximately $3.4 million, remain invested in cash, cash
    equivalents and marketable securities.    May
    2007 Public Offering
  Form S-3 No. 333-141739), and/or
      Item 5C.
    Treasury
    Stock   45




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Period fromDecember 19,2000(Inception) toYear Ended December 31,


December 31,2007


2006


2005


2004


2003


2007(In thousands, except per share data)Consolidated Statement of Operations Data:Revenue

$



$
1,028


$
2,230


$
2,436


$
1,002


$
6,945Operating expenses:Research and development(1)


45,645



36,494



26,235



15,147



11,487



143,118General and administrative(1)


14,888



9,969



9,654



4,155



4,213



45,063Acquired in-process research and development






















3,916



















Total operating expenses(1)


60,533



46,463



35,889



19,302



15,700



192,097Loss from operations


(60,533
)


(45,435
)


(33,659
)


(16,866
)


(14,698
)


(185,152
)Interest and other income and interest expense, net


4,623



1,909



1,257



241



370



8,546Loss before noncontrolling interest in Symphony Allegro,
    Inc.


(55,910
)


(43,526
)


(32,402
)


(16,625
)


(14,328
)


(176,606
)Loss attributed to noncontrolling interest in Symphony Allegro,
    Inc.


10,791



1,720















12,511



















Net loss

$
(45,119
)

$
(41,806
)

$
(32,402
)

$
(16,625
)

$
(14,328
)

$
(164,095
)Basic and diluted net loss per common share

$
(1.58
)

$
(2.13
)

$
(18.98
)

$
(11.41
)

$
(10.81
)Shares used to compute basic and diluted net loss per common
    share


28,605



19,584



1,707



1,457



1,325     (1)
    
    Includes stock-based compensation as follows:  Period fromDecember 19,2000(Inception) toYear Ended December 31,


December 31,2007


2006


2005


2004


2003


2007(In thousands)Research and development

$
1,885


$
1,770


$
167


$
59


$
32


$
3,926General and administrative


1,531



447



874











2,852Total

$
3,416


$
2,217


$
1,041


$
59


$
32


$
6,778  46




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##### Table of Contents



December 31,2007

2006

2005

2004

2003(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities

$
69,391


$
42,623


$
38,369


$
62,294


$
28,387Investments held by Symphony Allegro, Inc.


39,449



49,956











Working capital


106,092



79,649



30,760



60,027



27,144Total assets


149,125



105,766



47,405



69,280



34,477Noncurrent portion of equipment financing obligations


6,317



5,865



5,155



1,840



1,551Convertible preferred stock










107,194



107,194



57,414Deficit accumulated during development stage


(164,095
)


(118,976
)


(77,170
)


(44,768
)


(28,143
)Total stockholders equity (deficit)


75,991



49,774



(74,385
)


(43,396
)


(26,982
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following Managements Discussion and Analysis of
    Financial Condition and Results of Operations contains
    forward-looking statements that are based upon current
    expectations. In some cases, you can identify forward-looking
    statements by terminology such as may,
    will, should, expect,
    plan, anticipate, believe,
    estimate, predict, intend,
    potential or continue or the negative of
    these terms or other comparable terminology. Forward-looking
    statements involve risks and uncertainties. Our actual results
    and the timing of events could differ materially from those
    discussed in our forward-looking statements as a result of many
    factors, including those set forth under Risk
    Factors and elsewhere in this Annual Report on
    Form 10-K.
  Overview
  Staccato
  Staccato Staccato
    
    AZ-004 (Staccato loxapine).  We are
    developing AZ-004 for the treatment of acute agitation in
    patients with schizophrenia or bi-polar disorder. In March 2007,
    we announced positive initial results from a multi-center,
    randomized, double-blind, placebo-controlled Phase 2a clinical
    trial in 129 patients in an in-patient clinical setting.
    The 10 mg dose of AZ-004 met the primary endpoint of the
    clinical trial, which was a statistically significant reduction
    in the measure of agitation from baseline to the
    2-hour
    post-dose time point, as compared to placebo. The 10 mg
    dose of AZ-004 also exhibited a rapid onset of effect, with a
    statistically-significant improvement in the PANSS (Positive and
    Negative Symptom Scale) Excited Component (PEC) scores at 20
    minutes post-dose, as compared to placebo. The effectiveness of
    the 47




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10 mg dose was sustained throughout the
    24-hour
    study period, as compared to placebo. The 5 mg dose failed
    to achieve statistical significance. In February 2008 we
    initiated a Phase 3 clinical trial that is designed to enroll
    approximately 300 schizophrenic patients with acute agitation at
    25 U.S. clinical centers. The trial is an in-clinic,
    multi-center, randomized, double-blind, placebo-controlled study
    and will test AZ-004 at two dose levels, 5 and 10 mg.
    Patients may receive up to 3 doses of study drug in a
    24-hour
    period, depending on their clinical status. The primary endpoint
    for the study is the change from baseline in the PEC score,
    measured at 2 hours after the first dose. Various
    assessments of a patients agitation state will be
    conducted at serial time points using standard agitation scales
    over the first
    4-hour
    post-dose time period, with
    follow-up
    assessments at the end of the
    24-hour
    study period. Side effects will be recorded throughout the
    24-hour
    period. A second Phase 3 clinical trial is projected to begin in
    the third quarter of 2008. The design of the second study will
    be similar to the first trial, except that the patient
    population will be patients with bipolar disease. AZ-004 has
    been licensed to Symphony Allegro, Inc., or Symphony Allegro,
    and we have the right to repurchase all rights to this product
    candidate.  
    AZ-001 (Staccato prochlorperazine).  We
    are developing AZ-001 to treat patients suffering from acute
    migraine headaches. In March 2007, we announced positive initial
    results from an outpatient, multi-center, randomized, double
    blind, placebo-controlled Phase 2b clinical trial of AZ-001 in
    400 migraine patients. All three doses of AZ-001 (5, 7.5 and
    10 mg) met the primary endpoint of statistically
    significant pain relief
    2-hours
    post-dose using the IHS (International Headache Society) 4-point
    headache pain rating scale, compared to placebo. In the two
    highest doses studied, AZ-001 also showed a
    statistically-significant difference in achieving a pain-free
    response at two hours, as compared with placebo. AZ-001
    demonstrated rapid onset of pain relief, with statistically
    significant pain response in 15 minutes for the 7.5 mg dose
    and statistically-significant pain responses for all three doses
    at 30 minutes. AZ-001 also showed a sustained pain-free
    response, where a patient has a pain score of 0, or
    no headache, with statistically-significant
    elimination of pain at 24 hours post-dose at the two
    highest studied doses. Survival analysis for nausea, photophobia
    and phonophobia over the
    2-hour
    period post-dose showed a statistically significant difference,
    compared to placebo. In December 2007, we completed enrollment
    of a thorough QT clinical trial, in which two doses of AZ-001 (5
    and 10 mg) were compared to active control and to placebo.
    The purpose of a thorough QT study is to determine a drugs
    effect on cardiac rhythms. With > 40 subjects per
    treatment condition, we found that the active control,
    moxyfloxacin, produced a positive QT/QTc signal that verified
    the sensitivity of the clinical study. Based on a preliminary
    analysis of the data from the study, neither of the doses of
    AZ-001 produced a QT/QTc prolongation that would suggest an
    increased risk of cardiac arrhythmia.
    AZ-104(Staccatoloxapine).  We are
    developing AZ-104 to treat patients suffering from acute
    migraine headaches. AZ-104 is a lower dose version of AZ-004. In
    March 2008, we announced initial results of an in-clinic,
    multi-center randomized, double-blind, single administration,
    placebo controlled Phase 2a proof-of-concept clinical trial in
    168 migraine patients with or without aura. Three doses of
    AZ-104 (1.25, 2.5 and 5 mg) were evaluated against placebo
    in the clinical trial. Using the IHS) 4-point rating scale, the
    primary efficacy endpoint was pain-relief response at
    2 hours post-administration. AZ-104 met the primary
    efficacy endpoint of the clinical trial for the two highest
    doses of the drug compared to placebo. Statistically significant
    improvements in pain response were observed in 76.7% of patients
    at the 5 mg dose (p= 0.02), 79.1% of patients at the
    2.5 mg dose (p = 0.01) and 67.4% of patients at the
    1.25 mg dose (p = 0.18), compared to 51.3% of patients
    receiving placebo. Using survival analysis for pain relief
    response, all three dose groups were statistically superior (p
    < .05) to placebo during the
    4-hour
    post-treatment time period that the patients remained in the
    clinic. AZ-104 has been licensed to Symphony Allegro, and we
    have the right to repurchase all rights to this product
    candidate.
    AZ-002 (Staccatoalprazolam).  We are
    developing AZ-002 for the acute treatment of panic attacks
    associated with panic disorder. In April 2006, we initiated an
    in-clinic, single-center, double-blind, placebo-controlled,
    Phase 2a proof-of-concept clinical trial in patients with panic
    disorder. As a result of observing greater than expected levels
    of sedation in the first two patients enrolled in the trial, we
    reduced the dose of AZ-002, modified the AZ-002 device, added an
    open-label portion to the clinical protocol, manufactured and
    released new clinical trial materials for the trial, and added
    two additional study sites to the study group. 48




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##### Table of Contents



In April 2007, we re-initiated dosing in the 42 patient
    clinical trial with a lower dose of AZ-002. We have completed
    the open-label, lead-in segment of the clinical trial,
    identifying the 1 mg AZ-002 dose as an acceptable dose in
    terms of its safety and efficacy profile, and have initiated the
    randomized, double blind, placebo-controlled segment of the
    clinical trial. We expect to complete enrollment of this trial
    in the second quarter of 2008. AZ-002 has been licensed to
    Symphony Allegro, and we have the right to repurchase all rights
    to this product candidate.  
    AZ-003 (Staccatofentanyl).  We are
    jointly developing AZ-003 with Endo Pharmaceuticals Inc., or
    Endo, for the treatment of breakthrough pain in cancer and
    non-cancer patients. Endo is responsible for regulatory,
    pre-clinical and clinical development, and for commercializing
    the product in North America. We are responsible for the
    development of the StaccatoElectric Multiple Dose device
    and we have the exclusive right to manufacture the product for
    clinical development and commercial supply.
    AZ-007 (Staccatozaleplon).  We are
    developing AZ-007 for the treatment of insomnia in patients who
    have difficulty falling asleep, including patients who awake in
    the middle of the night and have difficulty falling back asleep.
    We filed an Investigational New Drug application, or IND, in
    December 2007. In February 2008, we initiated a Phase 1 clinical
    trial that enrolled 40 healthy volunteers at a single site. The
    purpose of this trial is to assess the safety, tolerability and
    pharmacokinetic parameters of a single dose of AZ-007. Using a
    double blind, randomized trial design, four doses of AZ-007
    (ranging from 0.5 to 4.0 mg) are being compared to placebo.
    We expect to report initial results of this trial in the second
    quarter of 2008.        Staccato Staccato Staccato Staccato Staccato Staccato
 49




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##### Table of Contents



Staccato Staccato Staccato Staccato
  Staccato Staccato
       50




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##### Table of Contents



Critical
    Accounting Estimates and Judgments
      Preclinical
    Study and Clinical Trial Accruals
    
    fees paid to contract research organizations in connection with
    preclinical studies;
    fees paid to contract research organizations and other clinical
    sites in connection with clinical trials; and
    fees paid to contract manufacturers in connection with the
    production of components and drug materials for preclinical
    studies and clinical trials.   51




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##### Table of Contents



Stock-Based
    Compensation
  Employee
    Equity Incentive Awards Issued on or Subsequent to
    January 1, 2006
  Share-Based Payment Accounting for Stock Issued to
    Employees
              Employee
    Equity Incentive Awards Issued Prior to January 1,
    2006
   52




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##### Table of Contents



Accounting for Stock Appreciation Rights
    and other Variable Stock Option or Award Plans.
   53




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##### Table of Contents



Symphony
    Allegro, Inc.
  Staccato Staccato Staccato Staccato Staccato Staccato
  Consolidation of Variable Interest Entities,
     54




---



##### Table of Contents



Results
    of Operations
  Comparison
    of Years Ended December 31, 2007 and 2006
  Revenue.
 55




---



##### Table of Contents



Operating
    Expenses
    Year Ended December 31,2007


2006


2005Non share-based compensation expenses:Research and development

$
43,760


$
34,724


$
26,067General and administrative


13,357



9,522



8,781Total non share-based compensation expenses


57,117



44,246



34,848Share-based compensation expenses:Research and development


1,885



1,770



167General and administrative


1,531



447



874Total share-based compensation expenses


3,416



2,217



1,041Total operating expenses

$
60,533


$
46,463


$
35,889   Research and Development Expenses.
  
    external research and development expenses incurred under
    agreements with third party contract research organizations and
    investigational sites where a substantial portion of our
    preclinical studies and all of our clinical trials are conducted;
    third party supplier, consultant and employee related expenses,
    which include salary and benefits;
    facilities, depreciation and other allocated expenses, which
    include direct and allocated expenses for rent and maintenance
    of facilities, depreciation of leasehold improvements and
    equipment and laboratory and other supplies; and
    in 2006 and 2005, certain incremental charges related to officer
    loan extinguishments and non-cash stock-based compensation
    expense. 56




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##### Table of Contents



Year Ended December 31,Preclinical and Clinical Development:

2007


2006


2005


2004


2003


Total(In thousands)AZ-004/104

$
15,524


$
6,073


$
3,187


$
119


$



$
24,903AZ-001


8,163



9,535



6,369



8,640



5,514



38,221AZ-002


3,795



3,094



3,803



1,930



490



13,112AZ-003


1,474



3,687



5,021



1,706



936



12,824AZ-007


8,214



2,384















10,598Other preclinical programs






3,243















3,243Total preclinical and clinical development


37,170



28,016



18,380



12,395



6,940



102,901Research


8,475



8,478



7,855



2,752



4,547



40,217Total research and development

$
45,645


$
36,494


$
26,235


$
15,147


$
11,487


$
143,118       
    increased spending on our AZ-004/104 and AZ-002 product
    candidates as we continued development of these product
    candidates under the Symphony Allegro agreement, including the
    launch of a Phase 2a clinical trial of AZ-104 at the end of the
    second quarter of 2007, and
    the increased spending on our AZ-007 product candidate.    
    our AZ-001 product candidate due to the completion of the Phase
    2b clinical trial in the first quarter of 2007,
    our AZ-003 product candidate, as we significantly reduced
    development on this program until we obtained a developmental
    partner, and
    our other preclinical development as we focused our efforts on
    our AZ-007 product candidate.    General and Administrative Expenses.
   57




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##### Table of Contents



Interest and Other Income, Net.
  Interest Expense.
  Loss Attributed to Noncontrolling Interest in Symphony
    Allegro. Consolidation of Variable Interest Entities an
    Interpretation of Accounting Research Bulletin No. 51
  Comparison
    of Years Ended December 31, 2006 and 2005
  Revenue.
  Operating
    Expenses
  Research and Development Expenses. AZ-001
  General and Administrative Expenses.
 58




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##### Table of Contents



Interest and Other Income and Interest Expense,
    Net.
  Loss Attributed to Noncontrolling Interest in Symphony
    Allegro.
  Liquidity
    and Capital Resources
         59




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##### Table of Contents




    expenditures related to continued preclinical and clinical
    development of our lead product candidates during this period
    within budgeted levels;
    the timing and amount of payments from Symphony Allegro;
    no unexpected costs related to the development of our
    manufacturing capability; and
    the hiring of a number of new employees at salary levels
    consistent with our estimates to support our continued growth
    during this period.    
    the scope, rate of progress, results and costs of our
    preclinical studies, clinical trials and other research and
    development activities;
    the terms and timing of any distribution, strategic partnerships
    or licensing agreements that we may establish;
    the cost, timing and outcomes of regulatory approvals;
    the number and characteristics of product candidates that we
    pursue;
    the cost and timing of establishing manufacturing, marketing and
    sales capabilities;
    the cost of establishing clinical and commercial supplies of our
    product candidates;
    the cost of preparing, filing, prosecuting, defending and
    enforcing any patent claims and other intellectual property
    rights; and
    the extent to which we acquire or invest in businesses, products
    or technologies, although we currently have no commitments or
    agreements relating to any of these types of transactions.   60




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##### Table of Contents



Contractual
    Obligations
        Payments Due by PeriodLess ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


Thereafter(In thousands)Equipment financing obligations

$
12,323


$
5,448


$
6,509


$
366


$
Operating lease obligations


49,991



4,424



9,627



10,253



25,687Total

$
62,314


$
9,872


$
16,136


$
10,619


$
25,687   Staccato
  Staccato Staccato
  Recent
    Accounting Pronouncements
  Statement
    of Financial Accounting Standard No. 157
  Fair Value Measurements
 61




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##### Table of Contents



Statement
    of Financial Accounting Standard No. 159
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  Statement
    of Financial Accounting Standard No. 160
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Emerging
    Issues Task Force Issue
    No. 07-1
  No. 07-1 (EITF 07-1), Accounting for Collaborative Agreements Related to the
    Development and Commercialization of Intellectual Property. EITF 07-1 EITF 07-1 EITF 07-1
  Emerging
    Issues Task Force Issue
    No. 07-3
  No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities. EITF 07-3 EITF 07-3 EITF 07-3
  FASB
    Interpretation No. 48
  Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 62




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##### Table of Contents



Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   63




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  ALEXZA
    PHARMACEUTICALS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 Report of Independent Registered Public
    Accounting Firm


65Consolidated Balance Sheets as of
    December 31, 2007 and 2006


66Consolidated Statements of Operations for the
    years ended December 31, 2007, 2006 and 2005 and for the
    period from December 19, 2000 (inception) to
    December 31, 2007


67Consolidated Statements of Convertible Preferred
    Stock and Stockholders Equity (Deficit) for the period
    from December 19, 2000 (inception) to December 31,
    2007


68Consolidated Statements of Cash Flows for the
    years ended December 31, 2007, 2006 and 2005 and for the
    period from December 19, 2000 (inception) to
    December 31, 2007


75Notes to Consolidated Financial Statements


76   64




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               
    65




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC
    (a development stage company)  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
31,337


$
17,032Marketable securities


38,054



25,591Investments held by Symphony Allegro, Inc.


39,449



49,956Other receivables


12,055



Prepaid expenses and other current assets


1,377



1,263Total current assets


122,272



93,842Property and equipment, net


26,156



11,136Restricted cash


604



604Employee notes receivable, net of unamortized discount






83Other assets


93



101Total assets

$
149,125


$
105,766LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
5,206


$
5,933Accrued clinical trial liabilities


1,301



1,641Other accrued liabilities


5,087



3,849Current portion of equipment financing obligations


4,586



2,770Total current liabilities


16,180



14,193Deferred rent


16,685



1,191Deferred revenue


10,000



Noncurrent portion of equipment financing obligations


6,317



5,865Non controlling interest in Symphony Allegro, Inc.


23,952



34,743CommitmentsStockholders equity:Preferred stock, $0.0001 par value, 5,000,000 shares
    authorized at December 31, 2007 and 2006; no shares issued
    and outstanding at December 31, 2007 or 2006






Common stock, $0.0001 par value; 100,000,000 shares
    authorized at December 31, 2007 and 2006; 31,137,851 and
    23,819,313 shares issued and outstanding at
    December 31, 2007 and 2006, respectively


3



2Additional paid-in capital


240,681



170,442Deferred stock compensation


(739
)


(1,703
)Other comprehensive income


141



9Deficit accumulated during development stage


(164,095
)


(118,976
)Total stockholders equity


75,991



49,774Total liabilities and stockholders equity

$
149,125


$
105,766    66




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    CONSOLIDATED STATEMENTS OF OPERATIONS Period fromDecember 19,2000 (Inception)Year Ended December 31,


to December 31,2007


2006


2005


2007(In thousands, except per share amounts)Revenue

$



$
1,028


$
2,230


$
6,945Operating expenses:Research and development


45,645



36,494



26,235



143,118General and administrative


14,888



9,969



9,654



45,063Acquired in-process research and development














3,916Total operating expenses


60,533



46,463



35,889



192,097Loss from operations


(60,533
)


(45,435
)


(33,659
)


(185,152
)Interest and other income, net


5,626



2,687



1,615



11,192Interest expense


(1,003
)


(778
)


(358
)


(2,646
)Loss before non controlling interest in Symphony Allegro,
    Inc.


(55,910
)


(43,526
)


(32,402
)


(176,606
)Loss attributed to non controlling interest in Symphony Allegro,
    Inc.


10,791



1,720







12,511Net loss

$
(45,119
)

$
(41,806
)

$
(32,402
)

$
(164,095
)Basic and diluted net loss per common share

$
(1.58
)

$
(2.13
)

$
(18.98
)Shares used to compute basic and diluted net loss per common
    share


28,605



19,584



1,707    67




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##### Table of Contents





ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Issuance of common stock to founders at $0.22 per share in
    December 2000 in exchange for technology and cash of $8





$







$




454,536


$



$
100


$



$



$



$



$
100Issuance of Series A preferred stock for cash at $0.40 per
    share in July 2001, net of issuance costs of $9


2,500,000



991







































Issuance of Series A1 preferred stock at $1.55 per share in
    December 2001, in connection with merger


1,610,250



2,496







































Issuance of Series B preferred stock for cash at $1.40 per
    share in December 2001, net of issuance costs of $71


6,441,000



8,946







































Issuance of common stock in connection with merger at $1.10 per
    share in December 2001


















868,922







956



















956Warrants assumed in merger transaction


























10



















10Issuance of common stock for cash at $0.22 per share upon
    exercise of options in December 2001


















9,090







2



















2Compensation expense related to consultant stock options


























3



















3Net loss and comprehensive loss










































(5,652
)


(5,652
)Balance at December 31, 2001 (carried forward)


10,551,250


$
12,433






$




1,332,548


$



$
1,071


$



$



$



$
(5,652
)

$
(4,581
)    68




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2001 (brought forward)


10,551,250


$
12,433






$




1,332,548


$



$
1,071


$



$



$



$
(5,652
)

$
(4,581
)Issuance of common stock for cash at $0.22 per share upon
    exercise of options in February 2002


















10,606







3



















3Issuance of warrants to purchase Series B preferred stock
    in March 2002, in connection with equipment financing loan






27







































Issuance of common stock for cash at $0.22 per share upon
    exercise of options in July 2002


















2,180



























Issuance of common stock to stockholder at $0.99 per share in
    exchange for promissory note in July 2002


















53,156







53



(53
)














Issuance of Series C preferred stock for cash at $1.56 per
    share in September 2002, net of issuance costs of $108


28,870,005



44,892







































Repurchase of common stock for cash at $1.05 per share in
    October 2002


















(2,634
)






(3
)


















(3
)Issuance of common stock for cash at $1.05 per share for
    services upon exercise of warrants in December 2002


















9,368







10



















10Compensation expense related to consultant stock options


























10



















10Unrealized gain on investments






































51







51Net loss










































(8,163
)


(8,163
)Comprehensive loss














































(8,112
)Balance at December 31, 2002 (carried forward)


39,421,255


$
57,352






$




1,405,224


$



$
1,144


$
(53
)

$



$
51


$
(13,815
)

$
(12,673
)    69




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2002 (brought forward)


39,421,255


$
57,352






$




1,405,224


$



$
1,144


$
(53
)

$



$
51


$
(13,815
)

$
(12,673
)Issuance of common stock for cash at $0.22, $0.99 and $1.10 per
    share upon exercise of options


















74,903







47



















47Issuance of warrants to purchase Series C preferred stock
    in connection with equipment financing loan in January 2003






35







































Issuance of warrants to purchase Series C preferred stock
    in connection with equipment financing loan in September 2003






27







































Repurchase of common stock for cash at $1.05 per share in
    January 2003


















(1,172
)






(1
)


















(1
)Repurchase of common stock for cash at $0.22 per share in
    November 2003


















(14,772
)






(3
)


















(3
)Compensation expense related to consultant stock options


























31



















31Deferred stock compensation expense related to modification of
    consultant stock option


























1







(1
)










Unrealized loss on investments






































(55
)






(55
)Net loss










































(14,328
)


(14,328
)Comprehensive loss














































(14,383
)Balance at December 31, 2003 (carried forward)


39,421,255


$
57,414






$




1,464,183


$



$
1,219


$
(53
)

$
(1
)

$
(4
)

$
(28,143
)

$
(26,982
)    70




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2003 (brought forward)


39,421,255


$
57,414






$




1,464,183


$



$
1,219


$
(53
)

$
(1
)

$
(4
)

$
(28,143
)

$
(26,982
)Cancellation of unvested common stock at $0.99 per share in
    March 2004


















(24,365
)






(24
)


24















Repayment of vested portion of stockholder note receivable for
    cash






























29















29Issuance of warrants to purchase Series C preferred stock
    in connection with equipment financing loan in April 2004






20







































Issuance of common stock for cash at $0.22, $0.99 and $1.10 per
    share upon exercise of options


















100,192







72



















72Repurchase of common stock for cash at $1.05 per share in
    September 2004


















(404
)


























Issuance of Series D preferred stock at $1.29 per share in
    November and December 2004, net of issuance costs of $2,239


40,435,448



49,760







































Issuance of warrants to purchase common stock in connection with
    Series D financing in November 2004


























91



















91Compensation expense related to consultant stock options


























40



















40Compensation expense related to employee stock option
    modifications


























19



















19Amortization of deferred stock compensation


































1











1Unrealized loss on investments






































(41
)






(41
)Net loss










































(16,625
)


(16,625
)Comprehensive loss














































(16,666
)Balance at December 31, 2004 (carried forward)


79,856,703


$
107,194






$




1,539,606


$



$
1,417


$



$



$
(45
)

$
(44,768
)

$
(43,396
)    71




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2004 (brought forward)


79,856,703


$
107,194






$




1,539,606


$



$
1,417


$



$



$
(45
)

$
(44,768
)

$
(43,396
)Issuance of common stock upon exercise of options $0.22, $0.99,
    $1.10, per share


















380,508







357



















357Compensation expense related to consultant stock options


























195



















195Deferred stock compensation, net of $4 reversal in connection
    with employee terminations


























3,329







(3,329
)










Amortization of deferred stock compensation,


































404











404Variable compensation expense


























442



















442Unrealized gain on investments






































15







15Net loss










































(32,402
)


(32,402
)Comprehensive loss














































(32,387
)Balance at December 31, 2005


79,856,703


$
107,194






$




1,920,114


$



$
5,740


$



$
(2,925
)

$
(30
)

$
(77,170
)

$
(74,385
)    72




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2005 (brought forward)


79,856,703


$
107,194






$




1,920,114


$



$
5,740


$



$
(2,925
)

$
(30
)

$
(77,170
)

$
(74,385
)Issuance of common stock for cash and shares upon exercise of
    options at a weighted average price of $1.28 per share


















159,446







195



















195Issuance of common stock for cash under the Companys
    Employee Stock Purchase Plan


















131,682







896



















896Issuance of common stock for shares upon exercise of warrant


















85,359



























Issuance of common stock for cash, net of offering costs of
    $2,156


















6,325,000



1



44,901



















44,902Conversion of convertible preferred stock into common stock


(79,856,703
)


(107,194
)










15,197,712



1



107,193



















107,194Compensation expense related to consultant stock options


























145



















145Compensation expense related to fair value of employee share
    based awards issued after January 1, 2006


























1,601



















1,601Amortization of deferred stock compensation


































727











727Reversal of deferred stock compensation in connection with
    employee terminations


























(495
)






495











Variable compensation expense


























(442
)


















(442
)Issuance of warrant to Symphony Allegro Holdings LLC


























10,708















10,708Unrealized gain on investments






































39







39Net loss










































(41,806
)


(41,806
)Comprehensive loss














































(41,767
)Balance at December 31, 2006





$







$




23,819,313


$
2


$
170,442


$



$
(1,703
)

$
9


$
(118,976
)

$
49,774    73




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  CONSOLIDATED
    STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
    EQUITY (DEFICIT)  (Continued)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2006 (brought forward)





$







$




23,819,313


$
2


$
170,442


$



$
(1,703
)

$
9


$
(118,976
)

$
49,774Issuance of common stock for cash and shares upon exercise of
    options at a weighted average price of $1.28 per share


















204,423







432



















432Issuance of common stock for cash under the Companys
    Employee Stock Purchase Plan


















205,870







1,405















Issuance of common stock upon vesting of restricted stock units


















8,245



























Issuance of common stock for cash, net of offering costs of
    $4,743


















6,900,000



1



65,981



















65,982Compensation expense related to consultant stock options


























75



















75Compensation expense related to fair value of employee share
    based awards issued after January 1, 2006


























2,733



















2,733Amortization of deferred stock compensation


































577











577Reversal of deferred stock compensation in connection with
    employee terminations


























(387
)






387











Unrealized gain on investments






































132







132Net loss










































(45,119
)


(45,119
)Comprehensive loss














































(44,987
)Balance at December 31, 2007





$







$




31,137,851


$
3


$
240,681


$



$
(739
)

$
141


$
(164,095
)

$
75,991    74




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC
    (a development stage company)
    CONSOLIDATED STATEMENTS OF CASH FLOWS  Period FromDecember 19,2000Year Ended


(Inception) toDecember 31,


December 31,2007


2006


2005


2007(In thousands)Cash flows from operating activities:Net loss

$
(45,119
)

$
(41,806
)

$
(32,402
)

$
(164,095
)Adjustments to reconcile net loss to net cash used in operating
    activities:Loss attributed to noncontrolling interests


(10,791
)


(1,720
)






(12,511
)Stock compensation expense  consultants


75



145



195



500Stock compensation expense  employees


2,733



1,345



442



4,539Extinguishment of officer notes receivable










2,300



2,300Amortization of deferred stock compensation


577



727



404



1,708Issuance of common stock for intellectual property














92Charge for acquired in-process research and development














3,916Amortization of assembled workforce














222Amortization of debt discount and deferred interest


49



35



47



324Amortization of premium/(discount) on available-for-sale
    securities


(929
)


(1,035
)


444



70Depreciation


4,016



3,677



2,082



11,465Loss on disposal of property and equipment


23



28



6



66Changes in operating assets and liabilities:Receivables


(12,055
)


35



292



(12,055
)Prepaid expenses and other current assets


(114
)


534



(1,001
)


(1,371
)Other assets


42



7



(148
)


(2,601
)Accounts payable


(727
)


3,009



1,994



5,077Accrued clinical trial expense and other accrued expenses


898



505



251



2,688Deferred revenues


10,000











10,000Other liabilities


15,494



1,191



3,138



20,075Net cash used in operating activities


(35,828
)


(33,323
)


(21,956
)


(129,591
)Cash flows from investing activities:Purchase of available-for-sale securities


(62,466
)


(72,129
)


(39,074
)


(277,802
)Maturities of available-for-sale securities


51,064



69,194



60,639



239,820Purchase of available-for-sale securities held by Symphony
    Allegro, Inc.






(49,975
)






(49,975
)Maturities of available-for-sale securities held by Symphony
    Allegro, Inc.


10,507



19







10,526Decrease (increase) in restricted cash






(400
)


(19
)


(604
)Purchases of property and equipment


(19,059
)


(8,067
)


(5,609
)


(37,425
)Proceeds from disposal of property and equipment














3Cash paid for merger














(250
)Net cash provided by (used in) investing activities


(19,954
)


(61,358
)


15,937



(115,707
)Cash flows from financing activities:Proceeds from issuance of common stock and exercise of stock
    options and stock purchase rights


67,819



45,993



357



114,312Repurchase of common stock














(8
)Proceeds from issuance of convertible preferred stock














104,681Proceeds from repayment of stockholder note receivable














29Proceeds from equipment term loans


5,814



3,997



4,923



18,932Payments of equipment term loans and leases


(3,546
)


(2,235
)


(1,192
)


(8,482
)Proceeds from purchase of non controlling interest by preferred
    shareholders in Symphony Allegro, Inc., net of fees






47,171







47,171Net cash provided by financing activities


70,087



94,926



4,088



276,635Net increase (decrease) in cash and cash equivalents


14,305



245



(1,931
)


31,337Cash and cash equivalents at beginning of period


17,032



16,787



18,718



Cash and cash equivalents at end of period

$
31,337


$
17,032


$
16,787


$
31,337Supplemental disclosures of cash flow informationCash paid for interest

$
1,003


$
728


$
285


$
2,330Non cash investing and financing activities:Conversion of convertible preferred stock to common stock

$



$
107,194


$



$
107,194Warrant issued in conjunction with Symphony Allegro transaction

$



$
10,708


$



$
10,708    75




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    The
    Company and Basis of Presentation  Business
      Basis
    of Consolidation
  . Consolidation of Variable Interest Entities
  Reverse
    Stock Split
    Public
    Offerings
      2.
    Summary
    of Significant Accounting Policies  Use of
    Estimates
   76




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair
    Value of Financial Instruments
    Concentration
    of Credit Risk
    Cash
    Equivalents and Marketable Securities
            Property
    and Equipment
   77




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Restricted
    Cash
    December 31,2007


2006Mt. View facility

$
400


$
400Palo Alto facilities


163



163Palo Alto utility account


41



41$
604


$
604   Impairment
    of Long-Lived Assets
    Revenue
    Recognition
  Revenue Recognition in Financial Revision of Topic 13
    00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21
 78




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Research
    and Development
      Income
    Taxes
    Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
    Comprehensive
    Income (Loss)
    Share-Based
    Compensation
  Share-Based Payment. Accounting for Stock Issued to Employees
 79




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        Employee
    Share-Based Awards Granted Prior to January 1,
    2006
    2008


4712009


268$
739   Employee
    Share-Based Awards Granted On or Subsequent to January 1,
    2006
    Stock
    Options, Stock Purchase Rights and Restricted Stock
    Units
     80




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year Ended December 31,2007


2006Stock Option PlansWeighted-average expected term


6.1 years



6.1 yearsExpected volatility


73
%


80
%Risk-free interest rate


4.72
%


4.71
%Dividend yield


0
%


0
%Employee Stock Purchase PlanWeighted-average expected term


1.42 years



1.4 yearsExpected volatility


53
%


53
%Risk-free interest rate


4.31
%


4.77
%Dividend yield


0
%


0
%   Weighted-Average Expected Life.
    Volatility.
  Risk-Free Interest Rate.
  Dividend Yield.
  Forfeiture Rate.
    Nonemployee
    Stock Option Awards
   81




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Settlement
    and Modification of Stock Option Awards
          Recent
    Accounting Pronouncements
  Statement
    of Financial Accounting Standard No. 157
  Fair Value Measurements
  Statement
    of Financial Accounting Standard No. 159
  The
    Fair Value Option for Financial Assets and Financial Liabilities
 82




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Statement
    of Financial Accounting Standard No. 160
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Emerging
    Issues Task Force Issue
    No. 07-1
  No. 07-1 (EITF 07-1), Accounting for Collaborative Agreements Related to the
    Development and Commercialization of Intellectual Property. EITF 07-1 EITF 07-1 EITF 07-1
  Emerging
    Issues Task Force Issue
    No. 07-3
  No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities. EITF 07-3 EITF 07-3 EITF 07-3
  3.
    Net Loss
    per Share   83




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year Ended December 31,2007


2006


2005Outstanding stock options


3,207



2,611



2,008Unvested restricted stock units


93



34



Warrants to purchase common stock


2,016



2,016



178Convertible preferred stock










79,857   4.
    Cash,
    Cash Equivalents, Marketable Securities and Restricted
    Cash    December 31,2007


2006(In thousands)Cash

$
327


$
401Money market accounts


17,527



16,631Certificates of deposit


604



604Commercial paper


14,928



Government securities


5,998



Corporate debt securities


29,121



25,591Asset-backed securities


1,490



$
69,995


$
43,227Reported as:Cash and cash equivalents

$
31,337


$
17,032Marketable securities


38,054



25,591Restricted cash


604



604$
69,995


$
43,227        84




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  5.
    Property
    and Equipment    December 31,2007


2006(In thousands)Lab equipment

$
10,628


$
9,490Computer equipment and software


4,763



4,175Furniture


996



609Leasehold improvements


20,687



4,23137,074



18,505Less: accumulated depreciation


(10,918
)


(7,369
)$
26,156


$
11,136     6.
    Other
    Accrued Liabilities    December 31,2007


2006(In thousands)Accrued compensation

$
3,532


$
2,856Accrued professional fees


555



349Other


1,000



644$
5,087


$
3,849   7.
    Commitments  Equipment
    Financing Obligations
       85




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        2008

$
4,5862009


4,0482010


1,9162011


353Total

$
10,903   Operating
    Leases
         86




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    2008

$
4,4242009


4,6852010


4,9422011


5,0642012


5,189Thereafter


25,687Total minimum payments

$
49,991     8.
    License
    Agreements  Symphony
    Allegro, Inc.
  Staccato Staccato
       87




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Endo
    Pharmaceuticals, Inc.
  Staccato
  Staccato
   88




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    9.
    Related
    Party Transactions  Chief
    Executive Officer Note Receivable
        Senior
    Vice President of Corporate and Business Development Notes
    Receivable
         89




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Senior
    Vice President of Research and Development Note
    Receivable
      Extinguishment
    of Officer Notes
    paid-in-capital
     90




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Employee
    Loan
    10.
    Common
    Stock    Stock options outstanding


3,206,864Unvested restricted stock units outstanding


93,1252005 Equity Incentive Plan and 2005 Non Employee Director Stock
    Option Plan  shares available for issuance


339,250Employee Stock Purchase Plan  shares available for
    issuance


400,641Warrants outstanding


2,015,720Total


6,055,600   11.
    Warrants       91




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      12.
    Equity
    Incentive Plans  2005
    Equity Incentive Plan
        2005
    Non-Employee Directors Stock Option Plan
   92




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Outstanding OptionsNumber of


Weighted AverageShares


Exercise PriceOptions granted


298,351


$
0.34Options exercised


(9,090
)

$
0.22Balance as of December 31, 2001


289,261


$
0.34Options granted


210,777


$
1.03Options exercised


(65,942
)

$
0.84Options forfeited


(10,909
)

$
0.22Balance as of December 31, 2002


423,187


$
0.61Options granted


703,486


$
1.10Options exercised


(74,904
)

$
0.60Options forfeited


(50,092
)

$
0.57Balance as of December 31, 2003


1,001,677


$
0.95Options granted


893,952


$
1.10Options exercised


(100,192
)

$
0.74Options forfeited


(132,641
)

$
1.08Balance as of December 31, 2004


1,662,796


$
1.04Options granted


824,035


$
2.86Options exercised


(380,501
)

$
0.94Options forfeited


(98,310
)

$
1.08Balance as of December 31, 2005


2,008,020


$
1.80Options granted


848,075


$
7.71Options exercised


(160,662
)

$
1.28Options forfeited


(82,938
)

$
2.00Options cancelled


(1,453
)

$
8.64Balance as of December 31, 2006


2,611,042


$
5.23Options granted


1,054,656


$
9.10Options exercised


(204,423
)

$
2.11Options forfeited


(249,536
)

$
6.98Options cancelled


(4,875
)

$
6.60Balance as of December 31, 2007


3,206,864


$
6.56Options exercisable at:December 31, 2005


470,990


$
1.42December 31, 2006


901,425


$
4.74December 31, 2007


1,365,538


$
5.54    93




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Outstanding


ExercisableRemaining








RemainingContractual


Aggregate





Contractual


AggregateNumber


Life


Intrinsic


Number


Life


IntrinsicExercise Price

of Shares


(In Years)


Value


of Shares


(In Years)


Value$1.10 - 1.10


472,766



6.65


$
3,305,000



307,542



6.53


$
2,150,0001.38 - 3.30


338,595



7.52



2,071,000



188,143



7.49



1,156,0006.88 - 7.84


563,196



8.57



541,000



224,193



8.38



232,0008.00 - 8.00


707,549



6.59



64,000



565,158



6.28



51,0008.01 - 8.76


258,500



9.26



4,000



28,929



8.83



1,0008.89 - 8.89


419,720



9.56















8.91 - 11.70


446,538



9.18







51,393



8.74



3,206,864



8.01


$
5,985,000



1,365,538



6.99


$
3,590,000       WeightedNumber


Averageof


Grant-DateShares


Fair ValueOutstanding at December 31, 2005





$
Granted


34,680



7.00Released






Forfeited


(600
)


7.00Outstanding at December 31, 2006


34,080



7.00Granted


74,575



8.89Released


(8,245
)


7.00Forfeited


(7,285
)


7.71Outstanding at December 31, 2007


93,125



8.42     Year

Number of Shares2001


363,6362002


770,7322003


454,5452004


1,000,0002005


25,5442006


1,327,9902007


676,386  94




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      2005
    Employee Stock Purchase Plan
        13.
    401(k)
    Plan    14.
    Government
    Research Grants    15.
    Income
    Taxes   95




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Year Ended December 31,2007


2006


2005(In thousands)Federal tax benefit at statutory rate

$
(15,321
)

$
(14,214
)

$
(11,017
)State tax benefit net of federal effect


(2,629
)


(2,436
)


(1,889
)Research and development credits


(3,538
)


(1,189
)


(865
)Other permanent differences


20



17



9Officer loan deduction for tax










(1,602
)Share-based compensation


274



543



1,939Change in valuation allowance


21,193



17,317



14,761Other


1



(38
)


(1,336
)Total

$



$



$
     December 31,2007


2006(In thousands)Federal and state net operating loss carryforwards

$
60,516


$
43,217Federal and state research and development credit carryforwards


7,093



3,349Accrued liabilities


287



517Other


1,507



1,473Total deferred tax assets


69,403



48,556Valuation allowance


(69,403
)


(48,556
)Net deferred tax assets

$



$
   Accounting for Income Taxes
   96




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
      Balance at January 1, 2007

$
1,635Additions based on tax positions taken during a prior period


Reductions based on tax positions taken during a prior period


Additions based on tax positions taken during the current period


611Reductions based on tax positions taken during the current period


Reductions related to settlement of tax matters


Reductions related to a lapse of applicable statute of
    limitations


Balance at December 31, 2007

$
2,246    97




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  16.
    Development
    Agreement    Staccato
   98




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  17.
    Quarterly
    Results (Unaudited)    Quarter EndedMarch 31


June 30


September 30


December 31Fiscal 2007Loss from operations

$
(13,820
)

$
(14,159
)

$
(15,136
)

$
(17,418
)Loss before noncontrolling interest in Symphony Allegro,
    Inc.


(12,998
)


(12,922
)


(13,717
)


(16,273
)Net loss


(10,916
)


(10,278
)


(10,752
)


(13,173
)Basic and diluted net loss per share


(0.46
)


(0.36
)


(0.35
)


(0.42
)Shares used in computation of basic and diluted net loss per
    share


23,869



28,480



30,975



31,097Fiscal 2006Revenues

$
160


$
539


$
329


$
Loss from operations


(8,663
)


(11,181
)


(11,738
)


(13,853
)Loss before noncontrolling interest in Symphony Allegro,
    Inc.


(8,431
)


(10,578
)


(11,190
)


(13,327
)Net loss


(8,431
)


(10,578
)


(11,190
)


(11,607
)Basic and diluted net loss per share


(1.15
)


(0.45
)


(0.47
)


(0.49
)Shares used in computation of basic and diluted net loss per
    share


7,316



23,629



23,638



23,752  99




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures:
      Managements
    Annual Report on Internal Control Over Financial
    Reporting:
  Rules 13a-15(f) 15d-15(f). Internal Control-Integrated Framework Form 10-K
  Report of
    Independent Registered Public Accounting Firm
        100




---



##### Table of Contents



Changes
    in Internal Control Over Financial Reporting:
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant   101




---



##### Table of Contents



Item 11.
    Executive
    Compensation   Item 12.  Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   Item 13.  Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
    Financial Statement Schedules
    Exhibits
 102




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description of Document3
.5

Restated Certificate of Incorporation(1)3
.7

Amended and Restated Bylaws(1)3
.8u

Amendment to Amended and Restated Bylaws4
.1

Specimen Common Stock Certificate(1)4
.2

Second Amended and Restated Investors Rights Agreement
    between Registrant and certain holders of Preferred Stock dated
    November 5, 2004(1)10
.1

2005 Bonus Program(1)*10
.2

Form of Director/Officer Indemnification Agreement entered into
    between Registrant and each of its directors and officers(1)*10
.3

Form of Change of Control Agreement(1)*10
.4

2005 Equity Incentive Plan(1)*10
.5

Form of Option Grant Notice, Form of Option Agreement and Form
    of Notice of Exercise to 2005 Equity Incentive Plan(1)*10
.6

2005 Non-Employee Directors Stock Option Plan(1)10
.7

Form of Option Grant Notice, Form of Option Agreement and Form
    of Notice of Exercise to 2005 Non-Employee Directors Stock
    Option Plan(1)10
.8

2005 Employee Stock Purchase Plan(1)*10
.9

Form of Offering Document to 2005 Employee Stock Purchase
    Plan(1)*10
.10

Lease between Registrant and California Pacific Commercial
    Corporation dated March 20, 2002(1)10
.11

First Amendment to Lease between Registrant and California
    Pacific Commercial Corporation dated May 8, 2003(1)10
.12

Second Amendment to Lease between Registrant and California
    Pacific Commercial Corporation dated February 11, 2005(1)10
.13

Development Agreement between Registrant and Autoliv ASP, Inc.
    dated October 3, 2005(1)10
.14

Loan and Security Agreement between Registrant and Silicon
    Valley Bank dated March 20, 2002, as amended on
    January 7, 2003, September 3, 2003, March 18,
    2004 and May 16, 2005(1)10
.15

Master Security Agreement between Registrant and General
    Electric Capital Corporation dated May 17, 2005, as amended
    on May 18, 2005(1)10
.16

Promissory Note between Registrant and General Electric Capital
    Corporation dated June 15, 2005(1)10
.17

Promissory Note between Registrant and General Electric Capital
    Corporation dated August 24, 2005(1)10
.20

Warrant to Purchase shares of Series B Preferred Stock
    issued to Silicon Valley Bank dated March 20, 2002(1)10
.21

Warrant to Purchase shares of Series C Preferred Stock
    issued to Silicon Valley Bank dated January 7, 2003, as
    amended on March 4, 2003(1)10
.22

Warrant to Purchase shares of Series C Preferred Stock
    issued to Silicon Valley Bank dated September 19, 2003(1)10
.23

Warrant to Purchase shares of Series C Preferred Stock
    issued to Silicon Valley Bank dated April 7, 2004(1)10
.24

Lease Agreement between the Brittania, LLC and the Registrant
    dated August 25, 2006(2)10
.26

Purchase Option Agreement by and among Symphony Allegro Holdings
    LLC and Symphony Allegro, Inc. and Registrant dated
    December 1, 2006(2)10
.27

Warrant Purchase Agreement between Symphony Allegro Holdings LLC
    and Registrant dated December 1, 2006(2)10
.28

Warrant to Purchase shares of Common Stock issued to Symphony
    Allegro Holdings LLC dated December 1, 2006(2) 103




---



##### Table of Contents



ExhibitNumber

Description of Document10
.29

Amended and Restated Research and Development Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 2006(2)10
.30

Registration Rights Agreement between Symphony Allegro Holdings
    LLC and Registrant dated December 1, 2006(2)10
.31

Novated and Restated Technology License Agreement by and among
    Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and
    Registrant dated December 1, 2006(2)10
.32

Confidentiality Agreement by and among Symphony Allegro Holdings
    LLC and Symphony Allegro, Inc. and Registrant dated
    December 1, 2006(2)10
.33

2007 Performance Bonus Program*(2)10
.34

First Amendment to Lease between Britannia Hacienda VIII LLC and
    the Registrant dated May 4, 2007(3)10
.35

Second Amendment to Lease between Britannia Hacienda VIII LLC
    and the Registrant dated August 28, 2007(4)10
.36u

Manufacturing and Supply Agreement between Registrant and
    Autoliv ASP, Inc., dated November 2, 200710
.37u

License, Development and Supply Agreement between Registrant and
    Endo Pharmaceuticals, Inc., dated December 27, 200710
.38u

Offer Letter between the Registrant and Michael Simms, dated
    January 23, 2008.14
.1

Alexza Pharmaceuticals, Inc. Code of Business Conduct for
    Employees, Executive Officers and Directors(2)23
.1u

Consent of Independent Registered Public Accounting Firm24
.1u

Power of Attorney included on the signature pages hereto31
.1u

Section 302 Certification of CEO.31
.2u

Section 302 Certification of CFO.32
.1u

Section 906 Certifications of CEO and CFO.     *
    
    Management contract or compensation plan or arrangement.u
    
    Filed herein  
    
    Confidential treatment has been granted with respect to certain
    portions of this exhibit. This exhibit omits the information
    subject to this confidentiality request. Omitted portions have
    been filed separately with the SEC.  
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. This exhibit omits the
    information subject to this confidentiality request. Omitted
    portions have been filed separately with the SEC.(1)
    
    Incorporated by reference to exhibits to our Registration
    Statement on
    Form S-1
    filed on December 22, 2005, as amended (File
    No. 333-130644)(2)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    (File
    No. 000-51820)
    as filed with the SEC on March 29, 2007.(3)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on August 13, 2007(4)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on November 1, 2007 104




---



##### Table of Contents



SIGNATURES      By:
    /s/  THOMAS
    B. KING       POWER OF
    ATTORNEY
      Signature

Title/s/  THOMAS
    B. KINGThomas
    B. King

President, Chief Executive Officer and Director 
    (Principal Executive Officer)/s/  AUGUST
    J. MORETTIAugust
    J. Moretti

Senior Vice President and Chief Financial Officer 
    (Principal Financial and Accounting Officer)/s/  HAL
    V. BARRONHal
    V. Barron

Director/s/  SAMUEL
    D. COLELLASamuel
    D. Colella

Director/s/  ALAN
    D. FRAZIERAlan
    D. Frazier

DirectorDeepika
    R. Pakianathan

Director 105




---



##### Table of Contents



Signature

Title/s/  J.
    LEIGHTON READJ.
    Leighton Read

Director/s/  GORDON
    RINGOLDGordon
    Ringold

Director/s/  ISAAC
    STEINIsaac
    Stein

Director/s/  ALEJANDRO
    A. ZAFFARONIAlejandro
    A. Zaffaroni

Director  106




---



##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description of Document3
.5

Restated Certificate of Incorporation(1)3
.7

Amended and Restated Bylaws(1)3
.8u

Amendment to Amended and Restated Bylaws4
.1

Specimen Common Stock Certificate(1)4
.2

Second Amended and Restated Investors Rights Agreement
    between Registrant and certain holders of Preferred Stock dated
    November 5, 2004(1)10
.1

2005 Bonus Program(1)*10
.2

Form of Director/Officer Indemnification Agreement entered into
    between Registrant and each of its directors and officers(1)*10
.3

Form of Change of Control Agreement(1)*10
.4

2005 Equity Incentive Plan(1)*10
.5

Form of Option Grant Notice, Form of Option Agreement and Form
    of Notice of Exercise to 2005 Equity Incentive Plan(1)*10
.6

2005 Non-Employee Directors Stock Option Plan(1)10
.7

Form of Option Grant Notice, Form of Option Agreement and Form
    of Notice of Exercise to 2005 Non-Employee Directors Stock
    Option Plan(1)10
.8

2005 Employee Stock Purchase Plan(1)*10
.9

Form of Offering Document to 2005 Employee Stock Purchase
    Plan(1)*10
.10

Lease between Registrant and California Pacific Commercial
    Corporation dated March 20, 2002(1)10
.11

First Amendment to Lease between Registrant and California
    Pacific Commercial Corporation dated May 8, 2003(1)10
.12

Second Amendment to Lease between Registrant and California
    Pacific Commercial Corporation dated February 11, 2005(1)10
.13

Development Agreement between Registrant and Autoliv ASP, Inc.
    dated October 3, 2005(1)10
.14

Loan and Security Agreement between Registrant and Silicon
    Valley Bank dated March 20, 2002, as amended on January 7, 2003,
    September 3, 2003, March 18, 2004 and May 16, 2005(1)10
.15

Master Security Agreement between Registrant and General
    Electric Capital Corporation dated May 17, 2005, as amended on
    May 18, 2005(1)10
.16

Promissory Note between Registrant and General Electric Capital
    Corporation dated June 15, 2005(1)10
.17

Promissory Note between Registrant and General Electric Capital
    Corporation dated August 24, 2005(1)10
.20

Warrant to Purchase shares of Series B Preferred Stock issued to
    Silicon Valley Bank dated March 20, 2002(1)10
.21

Warrant to Purchase shares of Series C Preferred Stock issued to
    Silicon Valley Bank dated January 7, 2003, as amended on March
    4, 2003(1)10
.22

Warrant to Purchase shares of Series C Preferred Stock issued to
    Silicon Valley Bank dated September 19, 2003(1)10
.23

Warrant to Purchase shares of Series C Preferred Stock issued to
    Silicon Valley Bank dated April 7, 2004(1)10
.24

Lease Agreement between the Brittania, LLC and the Registrant
    dated August 25, 2006(2)10
.26

Purchase Option Agreement by and among Symphony Allegro Holdings
    LLC and Symphony Allegro, Inc. and Registrant dated December 1,
    2006(2)10
.27

Warrant Purchase Agreement between Symphony Allegro Holdings LLC
    and Registrant dated December 1, 2006(2)10
.28

Warrant to Purchase shares of Common Stock issued to Symphony
    Allegro Holdings LLC dated December 1, 2006(2) 107




---



##### Table of Contents



ExhibitNumber

Description of Document10
.29

Amended and Restated Research and Development Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 2006(2)10
.30

Registration Rights Agreement between Symphony Allegro Holdings
    LLC and Registrant dated December 1, 2006(2)10
.31

Novated and Restated Technology License Agreement by and among
    Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and
    Registrant dated December 1, 2006(2)10
.32

Confidentiality Agreement by and among Symphony Allegro Holdings
    LLC and Symphony Allegro, Inc. and Registrant dated December 1,
    2006(2)10
.33

2007 Performance Bonus Program*(2)10
.34

First Amendment to Lease between Britannia Hacienda VIII LLC and
    the Registrant dated May 4, 2007(3)10
.35

Second Amendment to Lease between Britannia Hacienda VIII LLC
    and the Registrant dated August 28, 2007(4)10
.36u

Manufacturing and Supply Agreement between Registrant and
    Autoliv ASP, Inc., dated November 2, 200710
.37u

License, Development and Supply Agreement between Registrant and
    Endo Pharmaceuticals, Inc., dated December 27, 200710
.38u

Offer Letter between the Registrant and Michael Simms, dated
    January 23, 2008.14
.1

Alexza Pharmaceuticals, Inc. Code of Business Conduct for
    Employees, Executive Officers and Directors(2)23
.1u

Consent of Independent Registered Public Accounting Firm24
.1u

Power of Attorney included on the signature pages hereto31
.1u

Section 302 Certification of CEO.31
.2u

Section 302 Certification of CFO.32
.1u

Section 906 Certifications of CEO and CFO.     *
    
    Management contract or compensation plan or arrangement.u
    
    Filed herein
    
    Confidential treatment has been granted with respect to certain
    portions of this exhibit. This exhibit omits the information
    subject to this confidentiality request. Omitted portions have
    been filed separately with the SEC.
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. This exhibit omits the
    information subject to this confidentiality request. Omitted
    portions have been filed separately with the SEC.(1)
    
    Incorporated by reference to exhibits to our Registration
    Statement on
    Form S-1
    filed on December 22, 2005, as amended (File
    No. 333-130644)(2)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    (File
    No. 000-51820)
    as filed with the SEC on March 29, 2007.(3)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on August 13, 2007(4)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on November 1, 2007 108