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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, 2006o

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)  1020 East Meadow Circle
 Palo Alto, California 94303
 (Address of Principal Executive
    Offices including Zip Code)
  Registrants telephone number, including area code:
 (650) 687-3900
  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
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ




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##### 



ANNUAL
    REPORT ON
    FORM 10-K
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
  
  TABLE OF
    CONTENTS
  PART IItem 1.


Business


3Item 1A.


Risk
    Factors


24Item 1B


Unresolved Staff
    Comments


40Item 2.


Properties


43Item 3.


Legal
    Proceedings


43Item 4.


Submission of
    Matters to a Vote of Security Holders


43PART 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


57Item 8.


Financial
    Statements and Supplementary Data


58Item 9.


Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


91Item 9A.


Controls and
    Procedures


91Item 9B.


Other
    Information


91PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


91Item 11.


Executive
    Compensation


92Item 12.


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


101Item 13.


Certain
    Relationships and Related Transactions and Director
    Independence


104Item 14.


Principal
    Accountant Fees and Services


105PART IVItem 15.


Exhibits and
    Financial Statement Schedules


105Signatures


108Exhibits
    Index


110EXHIBIT 3.7EXHIBIT 10.24EXHIBIT 10.25EXHIBIT 10.26EXHIBIT 10.27EXHIBIT 10.28EXHIBIT 10.29EXHIBIT 10.30EXHIBIT 10.31EXHIBIT 10.32EXHIBIT 10.33EXHIBIT 14.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   2




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Staccato Form 10-K
 PART I.  SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Some of the statements under Risk Factors,
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations, Business
    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 for 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 Staccato technology, the
    potential of such product candidates to lead to the development
    of safer or more effective therapies, our ability to enter into
    collaborations, our future operating expenses, our future
    losses, our future expenditures for research and development,
    the sufficiency of our cash resources and our use of proceeds
    from our initial public offering which was completed in March
    2006. 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
 3




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Staccato
    
    AZ-001 (Staccato prochlorperazine).  We are
    developing AZ-001 to treat patients suffering from acute
    migraine headaches. In December 2006, we completed enrollment of
    an at-home 400 patient, multi-center, double-blind,
    placebo-controlled Phase IIb clinical trial in patients
    suffering from moderate to severe acute migraine headaches. We
    announced the initial results of this trial in March 2007.
    AZ-004 (Staccato loxapine).  We are developing
    AZ-004 for the treatment of acute agitation in patients with
    schizophrenia. In January 2007, we completed enrollment of an
    in-clinic 120 patient, multi-center, double-blind,
    placebo-controlled Phase IIa clinical trial in patients
    with schizophrenia suffering from agitation. We announced the
    initial results of this trial in March 2007.
    AZ-002 (Staccato alprazolam).  We are
    developing AZ-002 for the acute treatment of panic attacks
    associated with panic disorder. In April 2006, we initiated an
    in-clinic, 36 patient, multi-center, double-blind,
    placebo-controlled, proof of concept Phase IIa clinical
    trial in patients with panic disorder.
    AZ-003 (Staccato fentanyl).  We are developing
    AZ-003 for the treatment of patients with acute pain, including
    patients with breakthrough cancer pain and postoperative
    patients with acute pain episodes. In December 2006, we
    completed enrollment and announced initial results of a
    Phase I clinical trial of AZ-003 in opioid naïve
    healthy subjects.  Staccato Staccato
  Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
 4




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##### Table of Contents



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.
    Traditional Inhalation.  Traditional dry powder
    and aerosolized inhalation delivery systems have been designed
    and used primarily for delivery of drugs to the lung airways,
    not 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, most 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: StaccatoTechnology
  Staccato Staccato
 5




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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 IV administration, 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 Staccatotechnology. The
    Staccatotechnology can deliver both water soluble and
    water insoluble drugs. Staccatotechnology eliminates the
    need for excipients and additives such as detergents,
    stabilizers and solvents, avoiding the side effects that may be
    associated with the excipients or additives.
    Design Flexibility.  The Staccatotechnology 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 Technology
  Staccato Staccato
  Staccato
    Technology
  Staccato
  Staccato Staccato
  6




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7




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Our
    Pipeline
    AlexzaCommercialProduct Candidate

API

Target Indication

Status

RightsAZ-001

Prochlorperazine

Migraine headaches

Completed Phase IIb Clinical
    Trial

WorldwideAZ-004

Loxapine

Acute agitation in schizophrenia
    patients

Completed Phase IIa Clinical
    Trial

Out-licensed with repurchase
    option*AZ-002

Alprazolam

Panic attacks

Completed Phase I Clinical
    Trial; Currently in Phase IIa Clinical Trial

Out-licensed with repurchase
    option*AZ-003

Fentanyl

Acute pain

Completed Phase I Clinical
    Trial

Worldwide     *
    
    Outlicensed to Symphony Allegro, Inc. and subject to an
    exclusive repurchase option.  AZ-001
    (Staccato prochlorperazine)
  Staccato
  Market
    Opportunity
     8




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Development
    Status
  Clinical
    Trials
  Clinical Trial Design. Staccato Staccato intent-to-treat
  Primary Efficacy Endpoint. 2-hours
  Additional Efficacy Endpoints. 2-hours
  2-hour
      Safety Evaluations.
 9




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Device Performance. intent-to-treat Staccato
  Preclinical
    Studies
  in vitro in vivo AZ-001.
  AZ-004
    (Staccato loxapine for acute agitation)
  AZ-004
  Market
    Opportunity
    Development
    Status
  Clinical
    Trials
  Clinical Trial Design. Staccato Staccato 4-hour follow-up 2-hour
 10




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intent-to-treat
  Primary Efficacy Endpoint.
  PEC
    Scores (Mean Values)
  Baseline


2-hour
    Post-Study Arms

Mean


Dose Mean


Significance10.0 mg AZ-004


17.3



8.8



p=0.00055.0 mg AZ-004


17.6



10.8



p=0.1067Placebo


17.7



12.7



na     Additional Efficacy Variables. 24-hour
  24-hour
  2-hour
  Safety Evaluations.
  Device Performance. intent-to-treat Staccato
  Preclinical
    Studies
    AZ-002
    (Staccato alprazolam)
   11




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Staccato
  Market
    Opportunity
      Development
    Status
  Clinical
    Trials
    proof-of-concept proof-of-concept
 12




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Preclinical
    Studies
    AZ-003
    (Staccato fentanyl)
  Staccato
  Market
    Opportunity
  Staccato
  Development
    Status
  Clinical
    Studies
   13




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Staccato
  Staccato
  Preclinical
    Studies
    Product
    Candidate Selection
  Staccato Staccato
    scale-up
  Staccato
  Our
    Strategy
    
    Focus on Acute and Intermittent Conditions.  We
    focus our development and commercialization efforts on product
    candidates based on our Staccatotechnology that are
    intended to address important unmet medical 14




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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 dose are required.  
    File One to Two INDs Per Year.  We have
    identified approximately 200 existing drugs that have shown
    initial vaporization feasibility using our Staccatosystem technology. We continue to screen and evaluate
    additional drugs as well as evaluate and develop screened drugs
    that have demonstrated initial vaporization feasibility. We plan
    to file one IND in 2007 and one to two INDs per year thereafter,
    as our resources permit.
    Develop Commercialization Capabilities.  We
    intend to build our own U.S. based specialty sales force to
    market and sell any future products that address focused patient
    or prescriber markets, such as psychiatrists.
    Establish Strategic Partnerships.  We intend to
    strategically partner with pharmaceutical companies to address
    markets that may require a larger sales force, greater marketing
    resources or specific expertise to maximize the value of some
    product candidates. For example, our arrangement with Symphony
    Allegro provided development capital. We also intend to seek
    international distribution partners for other product
    candidates. We may also enter into strategic partnerships with
    other pharmaceutical companies to combine our Staccatosystem 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
 15




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Manufacturing
    Staccato
         16




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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.        
    Phase I.  Phase I 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 I, the drug is usually tested for
    safety, including adverse effects, dosage tolerance, absorption,
    distribution, metabolism, excretion and pharmacodynamics. 17




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
    Phase II.  Phase II 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 IIa and Phase IIb,
    Phase IIa is commonly used to describe a Phase II
    clinical trial evaluating efficacy, adverse effects and safety
    risks and Phase IIb is commonly used to describe a
    subsequent Phase II clinical trial that also evaluates
    dosage tolerance and optimal dosage.
    Phase III.  If a compound is found to be
    potentially effective and to have an acceptable safety profile
    in Phase II studies, 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 III
    studies usually include several hundred to several thousand
    patients.
    Phase IV.  Phase IV 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 IV clinical trial requirement. These clinical trials
    are often referred to as Phase III/IV post approval
    clinical trials. Failure to promptly conduct Phase IV
    clinical trials could result in withdrawal of approval for
    products approved under accelerated approval regulations.       18




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method-of-use.
    and/or
     19




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Staccato Staccato
  Staccato Staccato Staccato
  paid-up
    Pharmaceutical
    Pricing and Reimbursement
     20




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
    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
  AZ-001
    (Staccato prochlorperazine)
  Staccato
  AZ-004
    (Staccato loxapine)
  Staccato
 21




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AZ-002
    (Staccato alprazolam)
  Staccato
  AZ-003
    (Staccato fentanyl)
  Staccato
  Competition
    
    develop products that are superior to other products in the
    market;
    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-001 would compete with available triptan drugs, such as
    Imitrex®,
    Zomig®
    and
    Maxalt®,
    and IV prochlorperazine;
    AZ-004 would compete with the injectable form of loxapine
    (Loxitane®)
    and other antipsychotic drugs, such as
    Zyprexa®
    and
    Geodon®; 22




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
    AZ-002 would compete with the oral tablet form of alprazolam and
    other benzodiazepines and antidepressant drugs, such as
    Klonopin®,
    Paxil®,
    Prozac®
    and
    Effexor®;
    and
    AZ-003 would compete with injectable and other forms of fentanyl
    and various generic oxycodone, hydrocodone and morphine products.    Employees
    Corporate
    Information
    Available
    Information
  Form 10-Q, Form 8-K 1-800-SEC-0330.
 23




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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.   24




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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 cost, timing and outcomes of regulatory proceedings;
    the cost and timing of developing sales and marketing
    capabilities;
    the cost and timing of developing manufacturing capacity;
    revenues received from any future products;
    payments received under any strategic partnerships;
    the filing, prosecution and enforcement of patent claims;
    the costs associated with moving to our new facility in 2007 and
    2008; and
    the costs associated with commercializing our product
    candidates, if they receive regulatory approval.      Unless
    our preclinical studies demonstrate the safety of our product
    candidates, we will not be able to commercialize our product
    candidates.
   25




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##### Table of Contents



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;
    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; 26




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
    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 planned move to a new facility in 2007.    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.
          AZ-001 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; 27




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
    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.
      
    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
 28




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##### Table of Contents



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.
    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.
       29




---



##### Table of Contents



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
  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.
   30




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##### Table of Contents



If we
    enter into additional strategic partnerships with pharmaceutical
    or biotechnology companies, 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;
    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.  If we
    fail to gain market acceptance among physicians, patients,
    third-party payors and the medical community, we will not become
    profitable.
  Staccato Staccato
 31




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##### Table of Contents




    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.
    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.
   32




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##### Table of Contents




    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.      and/or
     33




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##### Table of Contents



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.
             34




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##### Table of Contents



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.
      ®
        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.
   35




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##### Table of Contents



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.
   36




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##### Table of Contents



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 and AZ-003 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 Staccato
 37




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##### Table of Contents



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.
      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.
   38




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##### Table of Contents



Risks
    Relating to Owning Our Common Stock
  Our
    stock price may be extremely volatile, and you may not be able
    to resell your shares at or above the price you paid for the
    stock.
    
    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;
    costs or delays related to our planned facility relocation in
    2007;
    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.   39




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Directors,
    Executive Officers and Key Employees
    Name

Age

PositionThomas B. King


52


President, Chief Executive Officer
    and DirectorJames V. Cassella, Ph.D.


52


Senior Vice President, Research
    and DevelopmentAugust J. Moretti


56


Senior Vice President, Chief
    Financial Officer and SecretaryAnthony G. Tebbutt


59


Senior Vice President, Corporate
    Strategy & Business DevelopmentJeffrey S. Williams


42


Senior Vice President, Operations
    and ManufacturingJoseph L. Baker


52


Vice President, Commercial
    Manufacturing and Global Supply ChainWilliam C.
    Houghton, M.D.


64


Vice President, Clinical and
    Regulatory AffairsEmily Lee Kelley


49


Vice President, Human ResourcesWilliam L.
    Leschensky, M.D.


46


Vice President, Intellectual
    PropertyMichael J. Taylor, Ph.D.,
    D.A.B.T


53


Vice President, Preclinical
    DevelopmentSamuel D. Colella(2)(3)


67


DirectorAlan D. Frazier(1)


55


DirectorErnest Mario, Ph.D.(2)


68


DirectorDeepika R.
    Pakianathan, Ph.D.(2)


42


DirectorJ. Leighton Read, M.D.(1)


56


DirectorGordon Ringold, Ph.D.(2)


56


DirectorIsaac Stein(1)(3)(4)


60


DirectorAlejandro A.
    Zaffaroni, M.D.(3)


56


Director     (1)
    
    Member of the audit and ethics committee(2)
    
    Member of the compensation committee(3)
    
    Member of the nominating and corporate governance committee(4)
    
    Lead Director  Thomas B. King
  James V. Cassella, Ph.D.
 40




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##### Table of Contents



August J. Moretti
  Anthony G. Tebbutt
  Jeffrey S. Williams
  Joseph L. Baker
  William C. Houghton, M.D.
  Emily Lee Kelley
  William L. Leschensky, M.D.
 41




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##### Table of Contents



Michael J. Taylor, Ph.D.,DABT
  Samuel D. Colella
  Alan D. Frazier
  Ernest Mario, Ph.D.
  Deepika R. Pakianathan, Ph.D.
  J. Leighton Read, M.D.
 42




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##### Table of Contents



Gordon Ringold, Ph.D.
  Isaac Stein
  Alejandro A. Zaffaroni, M.D.
    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   43




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    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     10-month
  COMPARISON
    OF 10 MONTH CUMULATIVE TOTAL RETURN*
    Among Alexza Pharmaceuticals, Inc, The NASDAQ Composite Index
    And The NASDAQ Biotechnology Index
  
   *
    
    $100 invested on March 8, 2006 in stock or on
    February 8, 2006 in index-including reinvestment of
    dividends.   3/8/06



3/06



4/06



5/06



6/06



7/06



8/06



9/06



10/06



11/06



12/06Alexza Pharmaceuticals, Inc



100




115




106




96




86




86




82




94




96




98




134NASDAQ Composite



100




103




103




96




96




93




97




100




104




107




107NASDAQ Biotechnology



100




98




92




89




87




88




89




91




97




96




93   The stock price performance included in this graph is not
    necessarily indicative of future stock price performance
 44




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##### Table of Contents



Item 5B.  Use
    of Proceeds from the Sale of Registered Securities  Form S-1 (File No. 333-130644),
    
    approximately $2.3 million was used for working
    capital; and
    the remainder of the net proceeds from the offering,
    approximately $42.6 million, remain invested in cash, cash
    equivalents and marketable securities.   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 31,2006


2005


2004


2003


2002


2006(In thousands, except per share data)Consolidated Statement of
    Operations Data:Revenue

$
1,028


$
2,230


$
2,436


$
1,002


$
249


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


36,494



26,235



15,147



11,487



7,040



97,473General and administrative(1)


9,969



9,654



4,155



4,213



1,546



30,175Acquired in-process research and
    development






















3,916Total operating expenses(1)


46,463



35,889



19,302



15,700



8,586



131,564Loss from operations


(45,435
)


(33,659
)


(16,866
)


(14,698
)


(8,337
)


(124,619
)Interest and other income and
    interest expense, net


1,909



1,257



241



370



174



3,923Loss before noncontrolling
    interest in Symphony Allegro, Inc.


(43,526
)


(32,402
)


(16,625
)


(14,328
)


(8,163
)


(120,696
)Loss attributed to noncontrolling
    interest in Symphony Allegro, Inc.


1,720



















1,720Net loss

$
(41,806
)

$
(32,402
)

$
(16,625
)

$
(14,328
)

$
(8,163
)

$
118,976Basic and diluted net loss per
    common share

$
(2.13
)

$
(18.98
)

$
(11.41
)

$
(10.81
)

$
(6.67
)Shares used to compute basic and
    diluted net loss per common share


19,584



1,707



1,457



1,325



1,223     (1)
    
    Includes stock-based compensation as follows:  Period fromDecember 19,2000(Inception) toYear Ended December 31,


December 31,2006


2005


2004


2003


2002


2006(In thousands)Research and development

$
1,770


$
167


$
59


$
32


$
10


$
2,041General and administrative


447



874















1,321Total

$
2,217


$
1,041


$
59


$
32


$
10


$
3,362     46




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##### Table of Contents



December 31,2006


2005


2004


2003


2002(In thousands)Consolidated Balance Sheet
    Data:Cash, cash equivalents and
    marketable securities

$
42,623


$
38,369


$
62,294


$
28,387


$
37,492Investments held by Symphony
    Allegro, Inc.


49,956















Working capital


79,649



30,760



60,027



27,144



37,190Total assets


105,766



47,405



69,280



34,477



46,535Noncurrent portion of equipment
    financing obligations


5,865



5,155



1,840



1,551



693Convertible preferred stock






107,194



107,194



57,414



57,352Deficit accumulated during
    development stage


(118,976
)


(77,170
)


(44,768
)


(28,143
)


(13,815
)Total stockholders equity
    (deficit)


49,774



(74,385
)


(43,396
)


(26,982
)


(12,673
)   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
  
    AZ-001 for acute migraine headaches is prochlorperazine
    incorporated in a chemically heated, single dose Staccatodevice. We completed enrollment of a Phase IIb clinical
    trial for treatment of migraine headaches in December 2006. We
    announced the initial results of this trail in March 2007.
    AZ-004 for treatment of acute agitation in patients with
    schizophrenia is loxapine incorporated in a chemically heated,
    single dose Staccatodevice. We completed enrollment of a
    Phase IIa clinical trial of
    AZ-004 for
    treatment of acute agitation in patients with schizophrenia in
    January 2007. We announced initial results of this trail in
    March 2007.
    AZ-002 for acute treatment of panic attacks associated with
    panic disorder is alprazolam incorporated in a chemically
    heated, single dose Staccatodevice. We initiated a
    Phase IIa clinical trial of AZ-002 for acute treatment of
    panic attacks in April 2006.
    AZ-003 for acute pain is fentanyl incorporated in an
    electrically heated, multiple dose Staccatodevice. We
    completed a Phase I clinical trial of AZ-003 in December
    2006.     47




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##### Table of Contents



AZ-003
    Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
       48




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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 49




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##### Table of Contents




    fees paid to contract manufacturers in connection with the
    production of components and drug materials for preclinical
    studies and clinical trials.    Stock-Based
    Compensation
  Employee
    Equity Incentive Awards Issued on or Subsequent to
    January 1, 2006
  Share-Based Payment Accounting for Stock Issued to
    Employees
         50




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##### Table of Contents



Employee
    Equity Incentive Awards Issued Prior to January 1,
    2006
    
    in April 2005 at $1.38 per share primarily based on the
    continuing clinical development of our product candidates. At
    this time we had completed our Phase I clinical trial and
    had initiated our Phase IIa clinical trial of AZ-001, our
    preclinical studies of AZ-002 and AZ-004 had progressed; and we
    had a pre-IND meeting with the FDA with respect to AZ-003;
    in October 2005 at $3.30 per share upon receipt of the
    results of our Phase IIa clinical trial of AZ-001 and
    Phase I clinical trial of AZ-002, which are described in
    the section entitled Business in this prospectus.
    These results were sufficiently encouraging for us to consider
    undertaking the steps necessary to initiate our initial public
    offering; and
    in December 2005 at $6.88 per share in light of the results
    of our Phase I clinical trial of AZ-004 and the anticipated
    filing of a registration statement in connection with our
    initial public offering, which occurred on December 22,
    2005.     51




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##### Table of Contents



Accounting for Stock Appreciation Rights
    and other Variable Stock Option or Award Plans.
      Non-employee
    Equity Incentive Awards
  No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services
   52




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##### Table of Contents



Results
    of Operations
  Comparison
    of Years Ended December 31, 2006 and 2005
  Revenue.
  Operating
    Expenses
    Year Ended December 31,2006


2005


2004Non share-based compensation
    expenses:Research and development

$
34,724


$
26,067


$
15,088General and administrative


9,522



8,781



4,155Total non share-based compensation
    expenses


44,246



34,848



19,243Share-based compensation expenses:Research and development


1,770



167



59General and administrative


447



874



Total share-based compensation
    expenses


2,217



1,041



59Total operating expenses

$
46,463


$
35,889


$
19,302   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. 53




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##### Table of Contents



Year Ended December 31,2006


2005


2004


2003


Total(In thousands)Preclinical and clinical
    development:AZ-001

$
9,535


$
6,369


$
8,640


$
5,514


$
30,058AZ-002


3,094



3,803



1,930



490



9,317AZ-004


6,073



3,187



119







9,379AZ-003


3,687



5,021



1,706



936



11,350Other preclinical programs


5,627















5,627Total preclinical and clinical
    development


28,016



18,380



12,395



6,940



65,731Research


8,478



7,855
(1)


2,752



4,547



23,632Total research and development

$
36,494


$
26,235


$
15,147


$
11,487


$
89,363     (1)
    
    Research expenses in 2005 included $875,000 related to the
    extinguishment of officer notes receivable.      General and Administrative Expenses.
      Interest and Other Income and Interest Expense,
    Net.
 54




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##### Table of Contents



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, 2005 and 2004
  Revenue.
  Research and Development Expenses.
  General and Administrative Expenses.
  Interest and Other Income and Interest Expense,
    Net.
  Liquidity
    and Capital Resources
   55




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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;
    the hiring of a number of new employees at salary levels
    consistent with our estimates to support our continued growth
    during this period; and
    satisfaction of the condition to release additional funds under
    our equipment financing agreement in 2007.    Payments Due by PeriodLess ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


Thereafter(In thousands)Equipment financing obligations

$
9,929


$
3,466


$
5,956


$
507


$
Autoliv co-development payments


416



333



83







Operating lease obligations


28,425



1,756



3,928



5,017



17,724Total

$
38,770


$
5,555


$
9,967


$
5,524


$
17,724  56




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##### Table of Contents



Related
    Party Transactions
    Recent
    Accounting Pronouncements
  Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement 109
  Accounting Changes and Error Correction Reporting Accounting Changes in Interim Financial
    Statements
  Fair
    Value Measurements
  Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   57




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##### Table of Contents



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


59Consolidated
    Balance Sheets as of December 31, 2006 and 2005


60Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004 and for the period from December 19,
    2000 (inception) to December 31, 2006


61Consolidated
    Statements of Convertible Preferred Stock and Stockholders
    Equity (Deficit) for the period from December 19, 2000
    (inception) to December 31, 2006


62Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004 and for the period from December 19,
    2000 (inception) to December 31, 2006


68Notes to
    Consolidated Financial Statements


69  58




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             
    59




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC
    (a development stage company)CONSOLIDATED BALANCE SHEETS
  December 31,2006


2005(In thousands, exceptshare and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
17,032


$
16,787Marketable securities


25,591



21,582Investments held by Symphony
    Allegro, Inc.


49,956



Grant receivable






35Prepaid expenses and other current
    assets


1,263



1,797Total current assets


93,842



40,201Property and equipment, net


11,136



6,774Restricted cash


604



204Officer and employee notes
    receivable, net of unamortized discount


83



78Other assets


101



148Total assets

$
105,766


$
47,405LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
5,933


$
2,924Accrued clinical trial expense


1,641



361Other accrued expenses


3,849



4,438Current portion of equipment
    financing obligations


2,770



1,718Total current liabilities


14,193



9,441Other liabilities


1,191



Noncurrent portion of equipment
    financing obligations


5,865



5,155Noncontrolling interest in
    Symphony Allegro, Inc.


34,743



CommitmentsConvertible preferred stock,
    $0.0001 par value, no shares authorized at
    December 31, 2006 and 82,000,221 shares authorized at
    December 31, 2005; no shares issued and outstanding at
    December 31, 2006 and 79,856,703 shares issued and
    outstanding at December 31, 2005; aggregate liquidation
    preference of $109,513 at December 31, 2005






107,194Stockholders equity
    (deficit):Preferred stock, $0.0001 par
    value, 5,000,000 shares authorized at December 31,
    2006 and no shares authorized at December 31, 2005; no
    shares issued and outstanding at December 31, 2006 or 2005






Common stock, $0.0001 par
    value; 100,000,000 shares authorized at December 31,
    2006 and 112,500,000 shares authorized at December 31,
    2005; 23,819,313 shares issued and outstanding at
    December 31, 2006, 1,920,114 shares issued and
    outstanding at December 31, 2005


2



Additional paid-in capital


170,442



5,740Deferred stock compensation


(1,703
)


(2,925
)Other comprehensive income (loss)


9



(30
)Deficit accumulated during
    development stage


(118,976
)


(77,170
)Total stockholders equity
    (deficit)


49,774



(74,385
)Total liabilities, convertible
    preferred stock and stockholders equity (deficit)

$
105,766


$
47,405    60




---



##### 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 31,2006


2005


2004


2006(In thousands, except per share amounts)Revenue

$
1,028


$
2,230


$
2,436


$
6,945Operating expenses:Research and development


36,494



26,235



15,147



97,473General and administrative


9,969



9,654



4,155



30,175Acquired in-process research and
    development














3,916Total operating expenses


46,463



35,889



19,302



131,564Loss from operations


(45,435
)


(33,659
)


(16,866
)


(124,619
)Interest and other income, net


2,687



1,615



467



5,566Interest expense


(778
)


(358
)


(226
)


(1,643
)Loss before noncontrolling
    interest in Symphony Allegro, Inc.


(43,526
)


(32,402
)


(16,625
)


(120,696
)Loss attributed to noncontrolling
    interest in Symphony Allegro, Inc.


1,720











1,720Net loss

$
(41,806
)

$
(32,402
)

$
(16,625
)

$
(118,976
)Basic and diluted net loss per
    common share

$
(2.13
)

$
(18.98
)

$
(11.41
)Shares used to compute basic and
    diluted net loss per common share


19,584



1,707



1,457    61




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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
)    62




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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
)    63




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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
)    64




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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
)    65




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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
)    66




---



##### Table of Contents



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


TotalAdditional


Stockholder


Deferred


Other


During the


StockholdersConvertible 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    67




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC
    (a development stage company)CONSOLIDATED STATEMENTS OF CASH FLOWS
  Period FromDecember 19,2000(inception) toYear Ended December 31,


December 31,2006


2005


2004


2006(In thousands)Cash flows from operating
    activities:Net loss

$
(41,806
)

$
(32,402
)

$
(16,625
)

$
(118,976
)Adjustments to reconcile net loss
    to net cash used in operating activities:Loss attributed to noncontrolling
    interests


(1,720
)










(1,720
)Stock compensation
    expense  consultants


145



195



40



425Stock compensation
    expense  employees


1,345



442



19



1,806Extinguishment of officer notes
    receivable






2,300







2,300Amortization of deferred stock
    compensation


727



404







1,131Issuance 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


35



47



86



275Amortization of premium/discount on
    available-for-sale
    securities


(1,035
)


444



560



999Depreciation and amortization


3,677



2,082



972



7,449Loss on disposal of property and
    equipment


28



6







43Changes in operating assets and
    liabilities:Grant receivable


35



292



(14
)


Prepaid expenses and other current
    assets


534



(1,001
)


(143
)


(1,257
)Other assets


7



(148
)


(1,134
)


(2,643
)Accounts payable


3,009



1,994



268



5,804Accrued clinical trial expense and
    other accrued expenses


505



251



518



1,790Other liabilities


1,191



3,138



(33
)


4,581Net cash used in operating
    activities


(33,323
)


(21,956
)


(15,486
)


(93,763
)Cash flows from investing
    activities:Purchase of
    available-for-sale
    securities


(72,129
)


(39,074
)


(47,588
)


(215,336
)Maturities of
    available-for-sale
    securities


69,194



60,639



26,080



188,756Purchase 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.


19











19Decrease (increase) in restricted
    cash


(400
)


(19
)






(604
)Purchases of property and equipment


(8,067
)


(5,609
)


(2,168
)


(18,366
)Proceeds from disposal of property
    and equipment














3Cash paid for merger














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


(61,358
)


15,937



(23,676
)


(95,753
)Cash flows from financing
    activities:Proceeds from issuance of common
    stock and exercise of stock options and stock purchase rights


45,993



357



74



46,493Repurchase of common stock














(8
)Proceeds from issuance of
    convertible preferred stock










49,852



104,681Proceeds from repayment of
    stockholder note receivable










29



29Proceeds from equipment term loans


3,997



4,923



1,468



13,118Payments of equipment term loans
    and leases


(2,235
)


(1,192
)


(802
)


(4,936
)Proceeds from purchase of
    noncontrolling interest by preferred shareholders in Symphony
    Allegro, Inc., net of fees


47,171











47,171Net cash provided by financing
    activities


94,926



4,088



50,621



206,548Net increase (decrease) in cash and
    cash equivalents


245



(1,931
)


11,459



17,032Cash and cash equivalents at
    beginning of period


16,787



18,718



7,259



Cash and cash equivalents at end of
    period

$
17,032


$
16,787


$
18,718


$
17,032Supplemental disclosures of cash
    flow informationCash paid for interest

$
728


$
285


$
140


$
1,327Non 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    68




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##### 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
  one-for-five one-for-five one-for-five
  Initial
    Public Offering
    2.
    Summary
    of Significant Accounting Policies  Use of
    Estimates
    Fair
    Value of Financial Instruments
   69




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Concentration
    of Credit Risk
    Cash
    Equivalents and Marketable Securities
          Property
    and Equipment
     70




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Restricted
    Cash
    December 31,2006


2005Mt. View facility

$
400


$
Palo Alto facilities


163



163Palo Alto utility account


41



41$
604


$
204   Impairment
    of Long-Lived Assets
    Revenue
    Recognition
    Research
    and Development
     71




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Income
    Taxes
    Comprehensive
    Income (Loss)
    Stock-Based
    Compensation
    Year Ended December 31, 2006General &


Research &Administrative


Development


TotalEmployee stock options granted
    prior to January 1, 2006

$
253


$
474


$
727Employee share-based awards
    granted on or subsequent to January 1, 2006


415



335



750Employee Stock Purchase Plan


212



825



1,037Non-employee stock option awards


9



136



145Variable share-based compensation


(442
)






(442
)$
447


$
1,770


$
2,217   Year Ended December 31, 2005General &


Research &Administrative


Development


TotalEmployee stock options granted
    prior to January 1, 2006

$
169


$
235


$
404Non-employee stock option awards


10



185



195Variable share-based compensation


694



(252
)


442$
873


$
168


$
1,041   Year Ended December 31, 2004General &


Research &Administrative


Development


TotalEmployee stock options granted
    prior to January 1, 2006

$



$
19


$
19Non-employee stock option awards






40



40$



$
59


$
59   Share-Based Payment  An Amendment of FASB
    Statements No. 123 and 95.
 72




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Issued to
    Employees
      Employee
    Share-Based Awards Granted Prior to January 1,
    2006
    2007

$
6512008


6512009


401$
1,703   Employee
    Share-Based Awards Granted On or Subsequent to January 1,
    2006
    Stock
    Options, Stock Purchase Rights and Restricted Stock
    Units
     73




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31,2006Stock Option PlansWeighted-average expected term

6.1 yearsExpected volatility

80%Risk-free interest rate

4.71%Dividend yield

0%Employee Stock Purchase PlanWeighted-average expected term

1.4 yearsExpected volatility

53%Risk-free interest rate

4.77%Dividend yield

0%   Weighted-Average Expected Life.
    Volatility.
  Risk-Free Interest Rate.
  Dividend Yield.
  Forfeiture Rate.
   74




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Nonemployee
    Stock Option Awards
    Settlement
    and Modification of Stock Option Awards
          Recent
    Accounting Pronouncements
  Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement 109
  Accounting Changes and Error Corrections Reporting Accounting Changes in Interim Financial
    Statements
 75




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value Measurements
  3.
    Net Loss
    per Share    Year Ended December 31,2006


2005


2004HistoricalNumerator:Net loss

$
(41,806
)

$
(32,402
)

$
(16,625
)Denominator:Weighted-average common shares
    outstanding


19,584



1,707



1,471Less: Weighted-average unvested
    common shares subject to repurchase










(14
)Denominator for basic and diluted
    net loss per share


19,584



1,707



1,457Basic and diluted net loss per
    share

$
(2.13
)

$
(18.98
)

$
(11.41
)     Year Ended December 31,2006


2005


2004Outstanding stock options


2,611



2,008



1,663Unvested restricted stock units


34







Warrants to purchase common stock


2,015



178



178Convertible preferred stock






79,857



79,857  76




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Cash,
    Cash Equivalents, Marketable Securities and Restricted
    Cash    December 31,2006


2005(In thousands)Cash

$
401


$
1,749Money market accounts


16,631



13,298Certificates of deposit


604



204Commercial paper






1,740Government securities






7,948Corporate debt securities


25,591



3,662Asset-backed securities






9,972$
43,227


$
38,573Reported as:Cash and cash equivalents

$
17,032


$
16,787Marketable securities


25,591



21,582Restricted cash


604



204$
43,227


$
38,573     available-for-sale
    5.
    Property
    and Equipment    December 31,2006


2005(In thousands)Lab equipment

$
9,490


$
5,838Computer equipment and software


4,175



2,630Furniture


609



522Leasehold improvements


4,231



1,54418,505



10,534Less: accumulated depreciation


(7,369
)


(3,760
)$
11,136


$
6,774    77




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      6.
    Other
    Accrued Expenses    December 31,2006


2005(In thousands)Accrued compensation

$
2,856


$
3,447Accrued professional fees


349



774Accrued lease liability






38Other


644



179$
3,849


$
4,438   7.
    Commitments  Equipment
    Financing Obligations
         78




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##### Table of Contents



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

$
2,7702008


3,0372009


2,3372010


491Total

$
8,635   Operating
    Leases
        2007

$
1,7562008


1,6652009


2,2632010


2,4712011


2,545Thereafter


17,725Total minimum payments

$
28,425     8.
    Symphony
    Allegro, Inc.   79




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##### 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
       80




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Senior
    Vice President of Corporate and Business Development
    Notes Receivable
               81




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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
     82




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Obligations
    to a Former Officer
      Note Receivable
    from Stockholder
    Employee
    Loan
    10.
    Common
    Stock    Stock options outstanding


2,611,042Unvested restricted stock units
    outstanding


34,0802005 Equity Incentive Plan and
    2005 Non Employee Director Stock Option Plan  shares
    available for issuance


530,399Employee Stock Purchase
    Plan  shares available for issuance


368,318Warrants outstanding


2,015,720Total


5,559,559  83




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Convertible
    Preferred Stock    Shares


Common SharesIssued and


Issued uponOutstanding


ConversionConvertible Preferred Stock:Series A


2,500,000



463,780Series A-1


1,610,250



321,383Series B


6,441,000



1,237,366Series C


28,870,005



5,823,337Series D


40,435,448



7,351,84679,856,703



15,197,712   12.
    Warrants       84




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##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Black-Scholes
    13.
    Equity
    Incentive Plans  2005
    Equity Incentive Plan
        2005
    Non-Employee Directors Stock Option Plan
   85




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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 exercisable
    at:December 31, 2004


402,276


$
0.89December 31, 2005


470,990


$
1.42December 31, 2006


901,425


$
4.74    86




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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


AggregateExercise

Number


Life


Intrinsic


Number


Life


IntrinsicPrice

of Shares


(In Years)


Value


of Shares


(In Years)


Value$0.22 - 0.99


40,797



4.90


$
433,000



40,797



4.90


$
433,0001.10 - 1.10


545,630



7.61



5,615,000



228,234



7.39



2,349,0001.38 - 1.38


282,416



8.37



2,827,000



105,978



8.34



1,061,0003.30 - 3.30


190,169



8.29



1,538,000



64,854



7.31



525,0003.31 - 7.00


242,821



9.21



1,085,000



60,310



8.93



272,0007.20 - 7.74


329,500



9.65



1,378,000











7.75 - 8.00


777,109



7.71



2,634,000



400,652



7.12



1,358,0008.01 - 9.73


202,600



9.67



578,000



600



9.81



1,0002,611,042



8.30


$
16,088,000



901,425



7.37


$
5,999,000       WeightedNumber


Averageof


Grant-DateShares


Fair ValueOutstanding at December 31,
    2005





$
Granted


34,680



7.00Exercised






Forfeited


(600
)


7.00Outstanding at December 31,
    2006


34,080       Year

Number of Shares2001


363,6362002


770,7322003


454,5452004


1,000,0002005


25,5442006


1,327,990    87




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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
      14.
    401(k)
    Plan    15.
    Government
    Research Grants    16.
    Income
    Taxes      Year Ended December 31,2006


2005


2004(In thousands)Federal tax benefit at statutory
    rate

$
(14,214
)

$
(11,017
)

$
(5,653
)State tax benefit net of federal
    effect


(2,436
)


(1,889
)


(998
)Research and development credits


(1,189
)


(865
)


(453
)Deferred tax assets not benefited


17



9



25Officer loan deduction for tax






(1,602
)


Share-based compensation


543



1,939



Change in valuation allowance


17,317



14,761



7,079Other


(38
)


(1,336
)


Total

$



$



$
  88




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005(In thousands)Federal and state net operating
    loss carryforwards

$
43,217


$
24,857Federal and state research and
    development credit carryforwards


3,349



2,129Accrued liabilities


517



2,711Other


1,473



1,542Total deferred tax assets


48,556



31,239Valuation allowance


(48,556
)


(31,239
)Net deferred tax assets

$



$
   Accounting for Income Taxes
          17.
    Development
    Agreement   89




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
 (a development stage company)
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 18 
    Quarterly Results (Unaudited)
    Quarter EndedMarch 31


June 30


September 30


December 31Fiscal 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



23,752Fiscal 2005Revenues

$
1,019


$
853


$
175


$
183Loss from operations


(6,089
)


(6,844
)


(9,573
)


(11,153
)Net loss


(5,762
)


(6,491
)


(9,263
)


(10,886
)Basic and diluted net loss per
    share

$
(3.54
)

$
(3.86
)

$
(5.42
)

$
(6.02
)Shares used in computation of
    basic and diluted net loss per share


1,629



1,681



1,710



1,809  90




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures:  Rules 13a-15(e) 15d-15(e) Rules 13a-15(b) 15d-15(b)
  (b)
    Exemption
    from Managements Report on Internal Control Over Financial
    Reporting for 2006:    (c)
    Changes
    in Internal Control Over Financial Reporting:    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Code of
    Ethics
    Audit and
    Ethics Committee
   91




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##### Table of Contents



Section 16(a)
    Beneficial Ownership Reporting Compliance
      Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
  General.
      
    Base Salary.  Salary for each of our executive
    officers was based principally on an assessment of the executive
    officers current salary against individual performance and
    contribution to our overall strategic goals as well as
    comparable salaries at similar companies.
    Bonus.  Annual cash and equity incentive
    bonuses are awarded to executive officers based on the
    achievement of individual and company-wide performance
    objectives as a percent of base salary as well as bonuses for
    similar positions at similar companies.
    Long-Term Incentive Compensation.  Long-term
    incentive awards, comprised of stock option grants, are designed
    to link incentive compensation to our long-term performance and
    to align our executive officers interests with our
    stockholders interest.  .
  Role
    of Our Compensation Committee.
  Rule 16b-3
   92




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##### Table of Contents




    the annual base salary level;
    the annual incentive opportunity level; and
    long-term incentive opportunity level.      Cash
    and Long-Term Incentive Compensation.
      Executive
    Officer Compensation Program.
    Base Salary.
 93




---



##### Table of Contents



Bonus.
  th
         94




---



##### Table of Contents



Long-Term Incentive Compensation.
      Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Stock-Based
    Compensation. Summary
    Compensation Table Grants of Plan-Based
    Awards
   95




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##### Table of Contents



Severance and Change of Control Benefits.
  
    acceleration of vesting of all of the executives
    outstanding unvested options to purchase common stock;
    payment in a lump sum of the executives annual base salary
    plus the greater of the bonus paid for the latest completed
    fiscal year and the target bonus for the year in which the
    notification of the executives termination of employment
    occurs; and
    payment in a lump sum for 18 months of continued healthcare
    coverage.  W-2 gross-up gross-up
    Other Benefits.
  Perquisites. Indebtedness of Management and Related
    Agreements.
  Evolution of our Compensation Strategy.
 96




---



##### Table of Contents



Accounting and Tax Considerations. Share-Based Payment
    Summary.
  pay-for-performance,
  SUMMARY
    COMPENSATION TABLE
    Non-EquityIncentiveOption


Plan


All OtherSalary


Bonus


Awards


Compensation


Compensation


TotalName and Principal Position

Year


($)


($)


($)(2)


($)(12)


($)


($)Thomas B. King


2006



352,619







39,234



102,200
(1)


50,076
(3)


544,129President & Chief Executive


2005



305,000











134,200
(1)


2,113,970
(4)


2,553,170Officer and Director


2004



275,208











60,000
(1)


59,142
(3)


394,350James V. Cassella, Ph.D.


2006



288,750







81,736



56,595
(1)


36,500
(3)


463,581Senior Vice President


2005



263,638







24,179



15,019
(1)


926,544
(5)


1,229,380Research & Development


2004



142,147











25,000
(1)


179,421
(3)


346,568August J. Moretti


2006



288,750







133,186



56,595
(1)






478,531Senior Vice President, Chief


2005



262,500







105,964



55,000
(11)






423,464Financial Officer and Secretary(7)


2004



52,083











7,558
(1)






59,671Jeffrey S. Williams


2006



242,000







85,493



46,958
(1)


27,500
(3)


401,951Senior Vice President, Business


2005



230,000







26,230



18,083
(1)


1,073,983
(6)


1,348,296and Corporate Development


2004



171,096











11,500
(1)


196,649
(3)


379,245William C. Houghton, M.D.


2006



277,034







69,266



130,214
(9)






476,514Vice President, Clinical and


2005



36,490



50,000(10
)


13,664







75,000
(3)


175,154Regulatory Affairs(8)


2004























     (1)
    
    Represents cash bonuses earned in the current year and paid in
    the following year.(2)
    
    For options issued prior to January 1, 2006, amounts were
    calculated utilizing the provisions of Accounting Principles
    Board Opinion No. 25 Accounting for Stock Issued to
    Employees, and for options issued after January 1,
    2006, amounts were calculated utilizing the provisions of
    Statement of Financial Accounting Standards, or SFAS,
    No. 123R, Share-based Payments. Pursuant to SEC
    Rules, the amounts shown exclude the impact of estimated
    forfeitures related to service-based vesting. See Note 2 of
    the consolidated financial 97




---



##### Table of Contents



statements in our Annual Report for the year ended
    December 31, 2006 regarding assumption underlying valuation
    of equity awards.(3)
    
    Represents housing and relocation costs.(4)
    
    Represents loan extinguishment and payment of related taxes of
    $2,068,966 and housing allowance of $45,004 paid in cash. In
    March 2006, the aggregate exercise price of Mr. Kings
    outstanding options to purchase our common stock was increased
    by an aggregate of $2,068,966 in exchange for the loan
    extinguishment and payment of related taxes. See
    Indebtedness of Management and Related Agreements
    for more information.(5)
    
    Represents loan extinguishment and payment of related taxes of
    $862,069 and housing allowance and moving expenses of $64,475
    paid in cash. In March 2006, the aggregate exercise price of
    Dr. Cassellas outstanding options to purchase our
    common stock was increased by an aggregate of $862,069 in
    exchange for the loan extinguishment and payment of related
    taxes. See Indebtedness of Management and Related
    Agreements for more information.(6)
    
    Represents loan extinguishment and payment of related taxes of
    $1,034,483 and housing allowance and moving expenses of $39,500
    paid in cash. In March 2006, the aggregate exercise price of
    Mr. Williams. outstanding options to purchase our
    common stock was increased by an aggregate of $1,034,483 in
    exchange for the loan extinguishment and payment of related
    taxes. See Indebtedness of Management and Related
    Agreements for more information.(7)
    
    Mr. Moretti served as our part time Chief Financial Officer
    from August 2004 to February 2005. Since 2005, he has served as
    our Senior Vice President and Chief Financial Officer.(8)
    
    Dr. Houghton has served as our Vice President since
    November 2005.(9)
    
    Represents a bonus earned in 2006 but paid in 2007 of $53,900
    and a bonus earned and paid in 2006 of $76,314.(10)
    
    Represents a sign-on bonus paid in 2005.(11)
    
    Represents bonus earned in 2005, of which $41,250 was paid in
    2005 and $13,750 was paid in 2006.(12)
    
    Cash bonuses are paid under an incentive plan and therefore are
    reported in the column Non-Equity Incentive Plan
    Compensation.  2006
    Grants of Plan-Based Awards Table
    All OtherOptionAwards:





Grant DateEstimated Possible Payouts


Number of


Exercise or


Fair Value ofUnder Non-Equity Incentive


Securities


Base Price of


Stock andPlan Awards


Underlying


Option or


OptionGrant


Target


Maximum


Option


Award


AwardsName

Date


($)(1)


($)


(#)(2)


($)


($)(3)Thomas B. King


8/29/2006



162,500



162,500



81,000



7.20



418,996James V. Cassella, Ph.D.


8/29/2006



101,063



101,063



39,000



7.20



201,739August J. Moretti


8/29/2006



101,063



101,063



39,000



7.20



201,739Jeffrey S. Williams


8/29/2006



84,700



84,700



39,000



7.20



201,739William C.
    Houghton, M.D.


8/29/2006



96,250



96,250











     (1)
    
    This column sets forth the target amount of each named executive
    officers annual cash bonus award for the year ended
    December 31, 2006 under our 2006 Bonus Program. The actual
    cash bonus award earned for the year ended December 31,
    2006 for each named executive officer is set forth in the
    Summary Compensation Table 98




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##### Table of Contents



above. As such, the amounts set forth in this column do not
    represent additional compensation earned by the named executive
    officers for the year ended December 31, 2006. For more
    information regarding our 2006 Bonus Plan and the cash bonus
    awards granted to the named executive officers for the year
    ended December 31, 2006, see Compensation
    Discussion and Analysis   Bonus. Executive
    Officer Bonuses were paid out in a combination of 70% cash and
    30% in options to purchase Alexza common stock. The number of
    common shares eligible to purchase under the options was based
    on 1) the total bonus earned by each officer 2) the
    percentage of the total bonus earned allocated to stock options
    and 3) the valuation of the stock option as computed using
    the Black-Scholes valuation model on the date the option was
    granted.  (2)
    
    Stock option awards subject to four year vesting.(3)
    
    Represents the grant date fair value of each award determined in
    accordance with FAS 123(R).  Compensation Discussion and
    Analysis  Bonus
  2006
    Outstanding Equity Awards Value at Fiscal Year-End
    Table
    Number ofSecurities


Number ofUnderlying


SecuritiesUnexercised


Underlying


OptionOptions


Unexercised


Exercise


OptionExercisable


Options


Price


ExpirationName

(#)


Unexercisable


($)


DateThomas B. King


215,907



56,821



8.00



7/30/201323,203



131,493



1.10



12/15/20144,068



23,054



8.00



3/7/2016



81,000



7.20



8/29/2016James V. Cassella, Ph.D.


68,181



40,909



8.00



7/8/2014



27,119



1.38



9/1/20153,185







6.88



12/7/2015



16,517



8.00



3/7/2016



39,000



7.20



8/29/2016August J. Moretti


8,258



9,470



1.10



10/28/201456,249



66,478



1.38



4/14/201518,181







6.88



12/7/2015



39,000



7.20



8/29/2016Jeffrey S. Williams


75,000



34,090



8.00



4/7/2014



1,074



1.38



9/1/20153,835







6.88



12/7/2015



42,562



8.00



3/7/2016



39,000



7.20



8/29/2016William C.
    Houghton, M.D.


14,772



39,773



3.30



10/20/2015  99




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##### Table of Contents



Option
    Exercises and Stock Vested
    Option AwardsNumber of shares


Value Realized onName

Acquired on Exercise


Exercise($)Thomas B. King






James V. Cassella, Ph.D.






August J. Moretti


2,727



15,762Jeffrey S. Williams






William C. Houghton, M.D.






   2006
    Director Compensation Table
    Fees Earned or


OptionName

Paid in Cash($)


Awards($)(2)


Total($)Thomas B. King(1)










Samuel D. Colella


53,000



29,146



82,146Alan D. Frazier


49,000



29,146



78,146Ernest Mario, Ph.D.


40,500



29,146



69,646Deepika R.
    Pakianathan, Ph.D.


49,000



29,146



78,146J. Leighton Read, M.D.


45,000



29,146



74,146Gordon Ringold, Ph.D.


48,500



29,146



77,646Isaac Stein


57,000



29,146



86,146Alejandro A.
    Zaffaroni, M.D.


44,500



29,146



73,646     (1)
    
    See Summary Compensation Table for disclosure related to Thomas
    B. King, who is also one of our named executive officers.(2)
    
    Amounts calculated utilizing the provisions of Statement of
    Financial Accounting Standards, or SFAS, No. 123R,
    Share-based Payments. See Note 2 of the
    consolidated financial statements in our Annual Report for the
    year ended December 31, 2006 regarding assumptions
    underlying valuation of equity awards. The full grant date fair
    value of the awards to each director, computed in accordance
    with SFAS 123R is $142,893. At fiscal year end each
    director, excluding Mr. King, has an option to purchase
    25,000 shares of our common stock. See Executive
    Compensation  Summary Compensation Table for
    disclosure of Mr. Kings equity awards.   100




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##### Table of Contents



2006
    Potential Payments Upon Termination or Change in
    Control
    Change of Control


No Change of ControlEquity


Health Care





Equity


Health CareName

Salary($)(1)


Acceleration($)(2)


Benefits($)(4)


Salary($)


Acceleration($)


Benefits($)Thomas B. King


547,500



2,006,716



28,429











James V. Cassella, Ph.D.


410,063



656,174



28,429











August J. Moretti


410,063



1,196,515
(3)


28,429











Jeffrey S. Williams


340,875



466,367



28,429











William C. Houghton, M.D.


391,500







21,716











     (1)
    
    Includes one year salary plus the current year target bonus.(2)
    
    Value of the stock options, as computed using the Black-Scholes
    valuation model, assuming all options were fully vested as of
    December 31, 2006.(3)
    
    Includes an estimated $216,218 of
    gross-up
    payment to Mr. Moretti to compensate him for taxes imposed
    under Section 4999 and any related income taxes imposed
    under the Internal Revenue Code and state and local authorities
    for the
    gross-up
    payment pursuant to the terms of our Change of Control Agreement.(4)
    
    Includes a lump sum payment for 18 months of continued
    healthcare coverage.  Compensation Discussion and
    Analysis  Severance and Change of Control
    Benefits
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters      101




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##### Table of Contents



Number of


Shares Issuable


PercentageShares


Pursuant to Options


of SharesBeneficially


Exercisable Within 60


BeneficiallyOwned


Days of March 16, 2007


Owned5% StockholdersEntities affiliated with Frazier
    Healthcare Ventures(1)


2,183,127







9.14
%Entities affiliated with Versant
    Ventures(2)


2,183,128







9.14
%Entities affiliated with Alloy
    Ventures(3)


1,353,950







5.67
%Named Executive Officers and
    DirectorsThomas B. King(4)


182,597



289,697



*James V. Cassella


2,653



84,157



*August J. Moretti


5,741



99,267



*Jeffrey S. Williams


2,001



96,471



*William Houghton, M.D.


3,125



21,814



*Samuel D. Colella(2)


2,183,128



7,291



9.14
%Alan D. Frazier(1)


2,183,127



7,291



9.14
%Ernest Mario, Ph. D.


18,181



7,291



*Deepika R.
    Pakainathan, Ph.D.(5)


990,678



7,291



4.14
%J. Leighton Read, M.D.(3)


1,353,950



7,291



5.67
%Gordon Ringold, Ph.D.(6)


100,555



7,291



*Isaac Stein(7)


117,653



7,291



*Alejandro A.
    Zaffaroni, M.D.(8)


1,073,360



7,291



4.49
%All directors and named executive
    officers as a group (13 persons)(9)


8,216,749



649,734



33.49
%     *
    
    Less than 1% of our outstanding common stock.(1)
    
    Includes 583,931 shares held by Frazier
    Healthcare III, L.P., 1,586,752 shares held by Frazier
    Healthcare IV, L.P., 4,390 shares held by Frazier
    Affiliates III, L.P. and 8,054 shares held by Frazier
    Affiliates IV, L.P. Mr. Frazier is the president and
    controlling stockholder of Frazier and Company, Inc., the
    managing member of FHM III, LLC, which is the general
    partner of Frazier Healthcare III, L.P. and Frazier
    Affiliates III, L.P., and he shares voting and investment
    power over the shares held by these entities. He is also a
    managing member of FHM IV, LLC, which is the general partner of
    FHM IV, LP, which is the general partner of Frazier Healthcare
    IV, L.P. and Frazier Affiliates IV, L.P., and he shares voting
    and investment power over the shares held by those entities. He
    disclaims beneficial ownership of the shares held by these
    entities, except to the extent of his proportionate pecuniary
    interest therein. The address for all entities and individuals
    affiliated with Frazier Healthcare Ventures is Two Union Square,
    Suite 3200, 601 Union Street, Seattle, WA 98101.(2)
    
    Includes 2,153,442 shares held by Versant Venture
    Capital II, L.P., 10,440 shares held by Versant
    Affiliates
    Fund II-A,
    L.P. and 19,246 shares held by Versant Side Fund II,
    L.P. (together the Versant Funds). Mr. Colella
    is a managing member of Versant Ventures II, LLC, which is
    the general partner of each of the Versant Funds, and he shares
    voting and investment power over the shares held by these
    entities. He disclaims beneficial ownership of the shares held
    by these entities, except to the extent of his proportionate
    pecuniary interest therein. The address for all entities and
    individuals affiliated with Versant Ventures is 3000 Sand Hill
    Road, Building 4, Ste. 210, Menlo Park, CA 94025.(3)
    
    Includes 35,594 shares held by Alloy Partners 2002, L.P.
    and 1,318,356 shares held by Alloy Ventures 2002, L.P.
    (together, the Alloy Funds). Dr. Read is a
    managing member of Alloy Ventures 2002, LLC, which is the
    general partner of each of the Alloy Funds, and he shares voting
    and investment power over the shares held by these entities. He
    disclaims beneficial ownership of the shares held by these
    entities, except to the extent of his proportionate pecuniary
    interest therein. The address for all entities and individuals
    affiliated with Alloy Ventures is 400 Hamilton Avenue,
    4th Floor, Palo Alto, CA 94301. 102




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##### Table of Contents



(4)
    
    Includes 181,542 shares held by the Thomas and Beth King
    2000 Family Trust, of which Mr. King and his spouse are
    trustees.(5)
    
    Includes 979,880 shares held by Delphi Ventures VI, L.P.
    and 9,798 shares held by Delphi BioInvestments VI, L.P.
    (together, the Delphi Funds). Dr. Pakianathan
    is a managing member of Delphi Management Partners VI, LLC,
    which is the general partner of each of the Delphi Funds, and
    she shares voting and investment power over the shares held by
    these entities. She disclaims beneficial ownership of the shares
    held by these entities, except to the extent of her
    proportionate pecuniary interest therein. The address for all
    entities and individuals affiliated with Delphi Ventures is 3000
    Sand Hill Road, Building 1, Ste. 135, Menlo Park, CA 94025.(6)
    
    Includes 9,276 shares held by the Gordon Ringold and Tanya
    Zurucki 1999 Reversible Trust, of which Dr. Ringold and his
    spouse are trustees.(7)
    
    Includes 117,653 shares held by The Stein 1995 Revocable
    Trust, of which Mr. Stein and his spouse are trustees.(8)
    
    Includes 269,090 shares held by Zaffaroni Partners, L.P.,
    of which Dr. Zaffaroni and his spouse are general and
    limited partners, 38,317 shares held by his spouse,
    354,420 shares held by the Silveira Irrevocable Trust u/a/d
    7/29/87, of
    which Dr. Zaffaroni and his spouse are trustees and
    355,035 shares held by the Lida Zaffaroni 2005 Annuity
    Trust #1, of which Dr. Zaffaronis spouse holds a
    pecuniary interest in the annuity provided for in the trust
    agreement.(9)
    
    See notes (1) through (8).  Securities
    Authorized for Issuance Under Equity Compensation
    Plans
      (a)


(b)


(c)Number of Securities


Weighted-Average


Number of Securities Remainingto be Issued Upon


Exercise Price of


Available for Future IssuanceExercise of


Outstanding


Under Equity CompensationOutstanding Options,


Options, Warrants


Plans (Excluding SecuritiesPlan category

Warrants and Rights


and Rights


Reflected in Column (a))Equity compensation plans approved
    by security holders


564,479


$
5.23



898,717
(1)(2)Equity compensation plans not
    approved by security holders










Total


564,479


$
5.23



898,717     (1)
    
    The 2005 Plan incorporates an evergreen formula pursuant to
    which on each January 1, the aggregate number of shares
    reserved for issuance under the 2005 Plan will increase by a
    number equal to the lesser of (i) 1,000,000 shares,
    (ii) 2% of the outstanding shares on December 31 of
    the preceding calendar year, or (iii) an amount determined
    by our Board of Directors.The Directors Plan incorporates an evergreen formula
    pursuant to which on each January 1, the aggregate number
    of shares reserved for issuance under the Directors Plan
    will increase by the number of shares subject to options granted
    during the preceding calendar year less the number of shares
    that revert back to the share reserve during the preceding
    calendar year.The ESPP incorporates an evergreen formula pursuant to which on
    each January 1, the aggregate number of shares reserved for
    issuance under the ESPP will increase by a number equal to the
    lesser of (i) 250,000 shares, (ii) 1% of the
    outstanding shares on December 31 of the preceding calendar
    year, or (iii) an amount determined by our Board of
    Directors.(2)
    
    Of these shares, 368,318 shares remain available for
    purchase under the ESPP. 103




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence  Indebtedness
    of Management and Related Agreements
        Policies
    and Procedures for Review of Related Party
    Transactions
     104




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##### Table of Contents



Item 14.
    Principal
    Accountant Fees and Services    2006


2005Audit fees(1)

$
314,518


$
751,344Tax fees(2)


17,050



10,000All other fees(3)


1,500



1,500Total

$
333,068


$
762,844     (1)
    
    Audit fees consisted of professional services rendered by
    Ernst & Young LLP for the audit of our annual financial
    statements, review of unaudited interim financial statements
    included in our quarterly reports on
    Form 10-Q,
    consultation regarding financial accounting and reporting
    standards as well as assistance with and review of our
    S-1 filing
    and other documents filed with the SEC.(2)
    
    Tax fees included income tax return preparation fees.(3)
    
    Other fees consist of subscription fees paid for access to
    Ernst & Youngs Accounting & Auditing
    Research Tool. PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
    Financial Statement Schedules
    Exhibits
  EXHIBIT INDEX
  ExhibitNumber

Description of Document3
.1

Restated Certificate of
    Incorporation 105




---



##### Table of Contents



ExhibitNumber

Description of Document3
.6

Amended and Restated Bylaws3
.7

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
.19

Warrant to Purchase shares of
    Common Stock issued to Montgomery 2004-3 Partnership dated
    November 5, 2004(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, 200610
.25

2006 Performance Bonus Program*10
.26

Purchase Option Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 200610
.27

Warrant Purchase Agreement between
    Symphony Allegro Holdings LLC and Registrant dated
    December 1, 2006 106




---



##### Table of Contents



ExhibitNumber

Description of Document10
.28

Warrant to Purchase shares of
    Common Stock  issued to Symphony Allegro Holdings LLC dated
    December 1, 200610
.29

Amended and Restated Research and
    Development Agreement by and among Symphony Allegro Holdings LLC
    and Symphony Allegro, Inc. and Registrant dated December 1,
    200610
.30

Registration Rights Agreement
    between Symphony Allegro Holdings LLC and Registrant dated
    December 1, 200610
.31

Novated and Restated Technology
    License Agreement by and among Symphony Allegro Holdings LLC and
    Symphony Allegro, Inc. and Registrant dated December 1, 200610
.32

Confidentiality Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 200610
.33

2007 Performance Bonus Program*14
.1

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

Consent of Independent Registered
    Public Accounting Firm24
.1

Power of Attorney included on this
    signature pages hereto31
.1

Section 302 Certification of
    CEO.31
.2

Section 302 Certification of
    CFO.32
.1

Section 906 Certifications of
    CEO and CFO.     *
    
    Management contract or compensation plan or arrangement.
    
    Previously filed
    
    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) 107




---



##### Table of Contents



SIGNATURES      By:
    /s/  THOMAS
    B. KING       POWER OF
    ATTORNEY
  attorneys-in-fact attorneys-in-fact attorneys-in-fact
    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/  SAMUEL
    D. COLELLASamuel
    D. Colella

Director/s/  ALAN
    D. FRAZIERAlan
    D. Frazier

Director/s/  ERNEST
    MARIOErnest
    Mario

Director/s/  DEEPIKA
    R.
    PAKIANATHANDeepika
    R. Pakianathan

Director 108




---



##### 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  109




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##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description of Document3
.1

Restated Certificate of
    Incorporation3
.6

Amended and Restated Bylaws3
.7

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
.19

Warrant to Purchase shares of
    Common Stock issued to Montgomery 2004-3 Partnership dated
    November 5, 2004(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, 200610
.25

2006 Performance Bonus Program*10
.26

Purchase Option Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 2006 110




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##### Table of Contents



ExhibitNumber

Description of Document10
.27

Warrant Purchase Agreement between
    Symphony Allegro Holdings LLC and Registrant dated
    December 1, 200610
.28

Warrant to Purchase shares of
    Common Stock  issued to Symphony Allegro Holdings LLC dated
    December 1, 200610
.29

Amended and Restated Research and
    Development Agreement by and among Symphony Allegro Holdings LLC
    and Symphony Allegro, Inc. and Registrant dated December 1,
    200610
.30

Registration Rights Agreement
    between Symphony Allegro Holdings LLC and Registrant dated
    December 1, 200610
.31

Novated and Restated Technology
    License Agreement by and among Symphony Allegro Holdings LLC and
    Symphony Allegro, Inc. and Registrant dated December 1, 200610
.32

Confidentiality Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 200610
.33

2007 Performance Bonus Program*14
.1

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

Consent of Independent Registered
    Public Accounting Firm24
.1

Power of Attorney included on this
    signature pages hereto31
.1

Section 302 Certification of
    CEO.31
.2

Section 302 Certification of
    CFO.32
.1

Section 906 Certifications of
    CEO and CFO.     *
    
    Management contract or compensation plan or arrangement.
    
    Previously filed
    
    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) 111