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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2008o

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

77-0567768(State or Other Jurisdiction
    of
    Incorporation or Organization)

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

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

Nasdaq Global Market   Securities registered pursuant to Section 12 (g) of
    the Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





ANNUAL
    REPORT ON
    FORM 10-K
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
  TABLE OF
    CONTENTS
   
 PART IItem 1.

Business


3Item 1A.

Risk Factors


31Item 1B

Unresolved Staff Comments


48Item 2.

Properties


48Item 3.

Legal Proceedings


48Item 4.

Submission of Matters to a Vote of Security
    Holders


48PART IIItem 5.

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


48Item 5B.

Use of Proceeds from the Sale of Registered
    Securities


48Item 5C.

Treasury Stock


48Item 6.

Selected Financial Data


49Item 7.

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


50Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risks


65Item 8.

Financial Statements and Supplementary Data


66Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


103Item 9A.

Controls and Procedures


103Item 9B.

Other Information


105PART IIIItem 10.

Directors and Executive Officers of the
    Registrant


105Item 11.

Executive Compensation


105Item 12.

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


105Item 13.

Certain Relationships and Related Transactions
    and Director Independence


106Item 14.

Principal Accountant Fees and Services


106PART IVItem 15.

Exhibits and Financial Statement Schedules


106Signatures


110Exhibits Index


112EX-10.3EX-10.42EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   2




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Staccato Staccato Form 10-K
 PART I.  SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Some of the statements under Business, Risk
    Factors, Managements Discussion and Analysis
    of Financial Condition and Results of Operations and
    elsewhere in this Annual Report constitute forward-looking
    statements. In some cases, you can identify forward-looking
    statements by the following words: may,
    will, could, would,
    should, expect, intend,
    plan, anticipate, believe,
    estimate, predict, project,
    potential, continue, ongoing
    or the negative of these terms or other comparable terminology,
    although not all forward-looking statements contain these words.
    Examples of these statements include, but are not limited to,
    statements regarding the following: the prospects of us
    receiving approval to market AZ-004, our anticipated timing for
    filing or receiving approval for our New Drug Application for
    AZ-004, the implications of interim or final results of our
    clinical trials, the progress and timing of our research
    programs, including clinical testing, our anticipated timing for
    filing additional Investigational New Drug Applications with the
    United States Food and Drug Administration, the initiation or
    completion of Phase 1, Phase 2 or Phase 3 clinical testing for
    our product candidates, the extent to which our issued and
    pending patents may protect our products and technology, the
    potential of such product candidates to lead to the development
    of safe or effective therapies, our ability to enter into
    collaborations, our future operating expenses, our future
    losses, our future expenditures, and the sufficiency of our cash
    resources. These statements involve known and unknown risks,
    uncertainties and other factors that may cause our actual
    results, levels of activity, performance or achievements to be
    materially different from the information expressed or implied
    by these forward-looking statements. While we believe that we
    have a reasonable basis for each forward-looking statement
    contained in this Annual Report, we caution you that these
    statements are based on a combination of facts and factors
    currently known by us and our projections of the future, about
    which we cannot be certain.
  In addition, you should refer to the Risk Factors
    section of this Annual Report for a discussion of other
    important factors that may cause our actual results to differ
    materially from those expressed or implied by our
    forward-looking statements. As a result of these factors, we
    cannot assure you that the forward-looking statements in this
    Annual Report will prove to be accurate. Furthermore, if our
    forward-looking statements prove to be inaccurate, the
    inaccuracy may be material. In light of the significant
    uncertainties in these forward-looking statements, you should
    not regard these statements as a representation or warranty by
    us or any other person that we will achieve our objectives and
    plans in any specified time frame, or at all.
  We undertake no obligation to publicly update any
    forward-looking statements, whether as a result of new
    information, future events or otherwise. You are advised,
    however, to consult any further disclosures we make on related
    subjects in our Quarterly Reports on
    Form 10-Q,
    Current Reports on
    Form 8-K,
    and our website.
  Item 1.
    Business  Staccato Staccato
 3




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Staccato Staccato
    
    AZ-004 (Staccatoloxapine).  We are
    developing AZ-004 for the acute treatment of agitation in
    patients with schizophrenia or bipolar disorder. We project a
    new drug application, or NDA, submission in the first quarter of
    2010.  AZ-004. 24-hour 24-hour 4-hour follow-up 24-hour AZ-004
  AZ-004 24-hour CGI-I 24-hour 4-hour follow-up 24-hour
 4




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
    AZ-104(Staccatoloxapine).  We are
    developing AZ-104 to treat patients suffering from acute
    migraine headaches. AZ-104 is a lower-dose version of AZ-004.
    AZ-104 has completed a Phase 2a in-clinic study in migraine
    patients. In January 2009, we initiated an outpatient,
    multi-center, randomized, double-blind, single-dose,
    placebo-controlled study intended to enroll 360 patients
    who have migraines, with or without aura. Two dose levels of
    AZ-104 are being evaluated in the clinical trial, 1.25mg and
    2.5 mg. The primary efficacy endpoint for the trial is
    headache pain relief at 2 hours post-dose, using the
    standard IHS 4-point rating scale. Secondary efficacy endpoints
    for the trial include pain relief and other symptom assessments
    at various time points. Safety evaluations will also be made
    throughout the clinical trial period.    
    AZ-001 (Staccatoprochlorperazine).  We
    are developing AZ-001 to treat patients suffering from acute
    migraine headaches. During the third quarter of 2008, we
    conducted an end-of-Phase 2 meeting with the FDA. We believe we
    have a clear understanding of the development requirements for
    filing an NDA for this product candidate. We have completed four
    clinical trials with AZ-001, enrolling 629 patients, and
    have announced positive results from these studies. These
    studies consist of a 54 subject Phase 1 study in healthy
    volunteers, a 75 patient Phase 2a in-clinic study in
    migraine patients, a 452 patient Phase 2b study in
    outpatient migraine patients and a 48 subject thorough QT study
    in healthy volunteers. We do not intend to conduct any AZ-001
    Phase 3 studies without a partner, and we are continuing to seek
    partners for our Staccatomigraine product candidates,
    AZ-001 and AZ-104.
    AZ-007(Staccatozaleplon).  We are
    developing AZ-007 for the treatment of insomnia in patients who
    have difficulty falling asleep, including patients who awake in
    the middle of the night and have difficulty falling back asleep.
    We have completed and announced positive results from a Phase 1
    clinical trial of AZ-007. We do not intend to conduct any AZ-007
    Phase 2 studies without a partner in 2009.
    AZ-003(Staccatofentanyl).  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. We have
    completed and announced positive results from a Phase 1 clinical
    trial of AZ-003 in opioid naïve healthy subjects.  Staccato
 5




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
    AZ-002(Staccatoalprazolam).  AZ-002 has completed a Phase
    1 clinical trial in 50 healthy volunteers and a Phase 2a
    proof-of-concept clinical trial for the treatment of panic
    attacks, an indication we are not planning to pursue. However,
    given the safety profile, the successful and reproducible
    delivery of alprazolam, and the IV-like pharmacological effect
    demonstrated to date, we and Symphony Allegro are assessing
    AZ-002 for other possible indications and renewed clinical
    development. AZ-002 has been licensed to Symphony Allegro, and
    we have the right to repurchase all rights to this product
    candidate.  Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
  Staccato
  24-month
 6




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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 local delivery of drugs to the
    respiratory airways, not to the deep lung for rapid systemic
    drug delivery. Certain recent variants of these systems,
    however, can provide systemic delivery of drugs, either for the
    purpose of rapid onset of action or to enable noninvasive
    delivery of drugs that are not orally bioavailable.
    Nevertheless, many of these systems have difficulty in
    generating appropriate drug particle sizes or consistent emitted
    doses for deep lung delivery. To achieve appropriate drug
    particle sizes and consistent emitted doses, most traditional
    inhalation systems require the use of excipients and additives
    such as detergents, stabilizers and solvents, which may
    potentially cause toxicity or allergic reactions. Many
    traditional inhalation devices require patient coordination to
    deliver the correct drug dose, leading to potentially wide
    variations in the drug delivered to a patient.   7




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Our
    Solution: StaccatoSystem
  Staccato Staccato
  Staccato
  
    Rapid Onset.  The aerosol produced with the
    Staccatosystem is designed to be rapidly absorbed
    through the deep lung with a speed of therapeutic onset
    comparable to an IV injection, generally achieving peak
    plasma levels of drug in two to five minutes.
    Ease of Use.  The Staccatosystem is
    breath actuated, and a patient simply inhales to administer the
    drug dose. Unlike injections, the Staccatosystem is
    noninvasive and does not require caregiver assistance. The
    aerosol produced with the Staccatosystem is relatively
    insensitive to patient inhalation rates. Unlike many other
    inhalation technologies, the patient does not need to learn a
    special breathing pattern. In addition, the Staccatodevice is small and easily portable.
    Consistent Particle Size and Dose.  The
    Staccatosystem uses rapid heating of the drug film to
    create consistent and appropriate particle sizes for deep lung
    inhalation and absorption into the bloodstream. The Staccatosystem also produces a consistent high emitted dose,
    regardless of the patients breathing pattern.
    Broad Applicability.  We have screened over 400
    drugs, and approximately 200 have exhibited initial vaporization
    feasibility using our Staccatosystem. The Staccatosystem can deliver both water soluble and water insoluble
    drugs and eliminates the need for excipient and additives such
    as detergents, stabilizers and solvents, avoiding the side
    effects that may be associated with the excipient or additives.
    Design Flexibility.  The Staccatosystem
    can incorporate lockout and multiple dose features, potentially
    enhancing safety, convenience of patient titration and a variety
    of administration regimens.  Drug
    Candidates Based on the Staccato System
  Staccato Staccato
  Staccato
    System
  Staccato
 8




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Staccato Staccato
  
    
    Staccato
 9




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Our
    Pipeline
    AlexzaCommercialProduct Candidate

API

Target Indication

Status

RightsAZ-004

Loxapine

Acute agitation in schizophrenia or bi-polar disorder patients

Completed pivotal
    Phase 3 studies

Out-licensed with exclusive repurchase option*AZ-104

Loxapine

Migraine headaches

Phase 2 on-going

Out-licensed with exclusive repurchase option*AZ-001

Prochlorperazine

Migraine headaches

Phase 2 completed

WorldwideAZ-007

Zaleplon

Insomnia

Phase 1 completed

WorldwideAZ-003

Fentanyl

Acute pain

Phase 1 completed

WorldwideAZ-002

Alprazolam

Panic attacks

Phase 2 on-going

Out-licensed with exclusive repurchase option*     *
    
    Licensed to Symphony Allegro  ACUTE
    AGITATION PROGRAM: AZ-004 (Staccato loxapine)
  Staccato
          Staccato
 10




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Staccato
      Development
    Status
  Clinical
    Trials Phase 3 Clinical Program
  Phase
    3  Bipolar Patients
  24-hour 4-hour follow-up 24-hour 24-hour
  Primary Efficacy Endpoint. 2-hour
  PEC
    Scores (Mean Values)
  p-Value for ChangeStudy Arm

Baseline


2-Hour Post-Dose


from Baseline vs. Placebo10 mg AZ-004 (n=105)


17.3



8.3



< 0.00015 mg AZ-004 (n=104)


17.4



9.3



<0.0001Placebo (n=105)


17.7



12.9



   Key Secondary Efficacy Endpoint. 2-hour 2-hour
 11




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CGI-I
    Scores (Mean Values)
  Study Arm

2-Hour Post-Dose


p-Value10 mg AZ-004 (n=105)


1.9



< 0.00015 mg AZ-004 (n=104)


2.1



< 0.0001Placebo (n=105)


3.0



   Additional Efficacy Endpoints. 24-hour 2-hour
  4-hour and/or and/or 24-hour
    Safety Evaluations.
  Phase 3
    Trial  Schizophrenic Patients
  24-hour 4-hour follow-up 24-hour 24-hour
  Primary Efficacy Endpoint. 2-hour
  PEC
    Scores (Mean Values)
  p-Value for ChangeStudy Arm

Baseline


2-Hour Post-Dose


from Baseline vs. Placebo10 mg AZ-004 (n=112)


17.6



9.0



< 0.00015 mg AZ-004 (n=116)


17.8



9.8



0.0004Placebo (n=115)


17.4



11.8



  12




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Key Secondary Efficacy Endpoint. 2-hour 2-hour
  CGI-I
    Scores (Mean Values)
  Study Arm

2-Hour Post-Dose


p-Value10 mg AZ-004 (n=112)


2.1



< 0.00015 mg AZ-004 (n=115)


2.3



0.0015Placebo (n=115)


2.8



   Additional Efficacy Endpoints. 24-hour
  4-hour
  Safety Evaluations.
  Preclinical
    Studies
    Current
    Status
    MIGRAINE
    HEADACHE PROGRAM: AZ-001 (Staccato prochlorperazine) and AZ-104
    (Staccato loxapine)
  Staccato Staccato
 13




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AZ-001
  AZ-001
    (Staccato prochlorperazine)
  Staccato
  Development
    Status
  Regulatory
    Status
    Clinical
    Trials
    2-hours
  Primary Efficacy Endpoint. 2-hours
 14




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Additional Efficacy Endpoints. 2-hours
  2-hour
      Safety Evaluations.
  Preclinical
    Studies
  in vitro in vivo 28-day 28-day
 15




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AZ-104
    (Staccato loxapine)
    Development
    Status
  Clinical
    Trials
  Phase 2b
    Clinical Trial
    Phase 2a
    Clinical Trial
    Primary Efficacy Endpoint. 4-hour
  Primary Efficacy Endpoint  Pain Relief at
    2-Hous Post-DosePatientsNumber of


Achieving


Percent Pain


p-valueTreatment

Patients


Pain Relief


Relief


vs. PlaceboPlacebo


39



20



51.3
%


na1.25 mg


43



29



67.4
%


0.182.5 mg


43



34



79.1
%


0.01
*5 mg


43



33



76.7
%


0.02
*     *
    
    Statistically significant results  Additional Efficacy Endpoints. 2-hour
 16




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4-hour
  2-hour
    Safety Evaluations.
  Preclinical
    Studies
    INSOMNIA
    PROGRAM: AZ-007 (Staccato zaleplon)
    Market
    Opportunity
    30-60 20-30
 17




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Development
    Status
  Clinical
    Studies
        Preclinical
    Studies
    ACUTE
    PAIN PROGRAM: AZ-003 (Staccato fentanyl)
  Staccato Staccato
  Staccato
 18




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Development
    Status
  Clinical
    Studies
    Staccato
    Preclinical
    Studies
    AZ-002
    (Staccato alprazolam)
  Staccato
 19




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Development
    Status
  Clinical
    Trials
    Staccato
  Preclinical
    Studies
    Product
    Candidate Selection
  Staccato Staccato
    scale-up
 20




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Our
    Strategy
    
    Focus on Acute and Intermittent Conditions.  We
    focus our development and commercialization efforts on product
    candidates based on our Staccatosystem that are intended
    to address important unmet medical and patient needs in the
    treatment of acute and intermittent conditions. To meet these
    needs, we believe that products that provide rapid onset, ease
    of use, noninvasive administration and, in some cases, patient
    titration of dosage are required.
    Establish Strategic Partnerships.  We intend to
    strategically partner with pharmaceutical and other companies to
    provide development funding or to address markets that may
    require a larger sales force, greater marketing resources or
    specific expertise to maximize the value of some product
    candidates. We also intend to seek international distribution
    partners for our product candidates. We may also enter into
    strategic partnerships with other pharmaceutical companies to
    combine our Staccato system with their proprietary
    compounds.
    Retain and Control Product Manufacturing.  We
    own all manufacturing rights to our product candidates. We
    intend to internally complete the final manufacture and assembly
    of our product candidates and any future products, potentially
    enabling greater intellectual property protection and economic
    return from our future products. We also believe controlling the
    final manufacture and assembly reduces the risk of supply
    interruptions and allows more cost effective manufacturing.  Licensing
    Collaborations
  Symphony
    Allegro, Inc.
  Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato Staccato
 21




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##### Table of Contents



Endo
    Pharmaceuticals, Inc.
  Staccato
  Research
    and Development
    Year Ended December 31,Preclinical and Clinical Development:

2008


2007


2006AZ-004/104

$
26,789


$
15,524


$
6,073AZ-003


17,070



1,474



3,687AZ-001


1,151



8,163



9,535AZ-002


1,898



3,795



3,094AZ-007


1,773



8,214



2,384Other preclinical programs










3,243Total preclinical and clinical development


48,681



37,170



28,016Research


12,884



8,475



8,478Total research and development

$
61,565


$
45,645


$
36,494   Manufacturing
    Staccato
 22




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Staccato
           23




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Product
    Commercialization
  Staccato
  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 1.  Phase 1 clinical trials involve the
    initial introduction of the drug into human subjects, frequently
    healthy volunteers. These studies are designed to determine the
    metabolism and pharmacologic actions of the drug in humans, the
    adverse effects associated with increasing doses and, if
    possible, to gain early 24




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evidence of effectiveness. In Phase 1 clinical trials, the drug
    is usually tested for safety, including adverse effects, dosage
    tolerance, absorption, distribution, metabolism, excretion and
    pharmacodynamics.  
    Phase 2.  Phase 2 clinical trials usually
    involve studies in a limited patient population to
    (1) evaluate the efficacy of the drug for specific,
    targeted indications; (2) determine dosage tolerance and
    optimal dosage; and (3) identify possible adverse effects
    and safety risks. Although there are no statutory or regulatory
    definitions for Phase 2a and Phase 2b, Phase 2a is commonly used
    to describe a Phase 2 clinical trial evaluating efficacy,
    adverse effects and safety risks and Phase 2b is commonly used
    to describe a subsequent Phase 2 clinical trial that also
    evaluates dosage tolerance and optimal dosage.
    Phase 3.  If a compound is found to be
    potentially effective and to have an acceptable safety profile
    in Phase 2 clinical trials, the clinical trial program will be
    expanded to further demonstrate clinical efficacy, optimal
    dosage and safety within an expanded patient population at
    geographically dispersed clinical trial sites. Phase 3 clinical
    trials usually include several hundred to several thousand
    patients.
    Phase 4.  Phase 4 clinical trials are studies
    required of, or agreed to, by a sponsor that are conducted after
    the FDA has approved a product for marketing. These studies are
    used to gain additional experience from the treatment of
    patients in the intended therapeutic indication and to document
    a clinical benefit in the case of drugs approved under
    accelerated approval regulations. If the FDA approves a product
    while a company has ongoing clinical trials that were not
    necessary for approval, a company may be able to use the data
    from these clinical trials to meet all or part of any Phase 4
    clinical trial requirement. These clinical trials are often
    referred to as Phase
    3/4
    post-approval clinical trials. Failure to promptly conduct Phase
    4 clinical trials could result in withdrawal of approval for
    products approved under accelerated approval regulations.       25




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and/or
     26




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Staccato Staccato
  Staccato Staccato Staccato
  paid-up
    Pharmaceutical
    Pricing and Reimbursement
     27




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##### Table of Contents




    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-004/AZ-104
    (Staccato loxapine)
  Staccato
  AZ-001
    (Staccato prochlorperazine)
  Staccato
 28




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AZ-003
    (Staccato fentanyl)
  Staccato
  AZ-007
    (Staccato zaleplon)
  Staccato
  AZ-002
    (Staccato alprazolam)
  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
 29




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
    AZ-004 would compete with the injectable form of loxapine
    (Loxitane®)

    and other antipsychotic drugs, such as
    Zyprexa®

    Geodon®

    and
    Abilify®;
    AZ-001 and AZ-104 would compete with available triptan drugs,
    such as
    Imitrex®,

    Zomig®

    and
    Maxalt®,

    and IV prochlorperazine;
    AZ-003 would compete with injectable and other forms of fentanyl
    and various generic oxycodone, hydrocodone and morphine
    products; and
    AZ-007 would compete with non-benzodiazepine GABA-A receptor
    agonists, which include
    Ambien®

    (immediate release and controlled-release tablets),
    Sonata®,

    and
    Lunesta®.    Employees
  Staccato
    Corporate
    Information
    Available
    Information
  Form 10-Q, Form 8-K 1-800-SEC-0330.
 30




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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.   31




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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;
    our ability to draw on our equity line of credit with Azimuth;
    the cost, timing and outcomes of regulatory proceedings;
    the cost and timing of developing sales and marketing
    capabilities prior to receipt of any regulatory approval of our
    product candidates;
    the cost and timing of developing manufacturing capacity;
    revenues received from any future products;
    payments received under any future strategic partnerships;
    the filing, prosecution and enforcement of patent
    claims; and
    the costs associated with commercializing our product
    candidates, if they receive regulatory approval.    
    we do not use our currently available funds to repurchase rights
    from Symphony Allegro;
    expenditures related to continued preclinical and clinical
    development of our lead product candidates during this period
    within budgeted levels;
    the timing and amount of payments from Symphony Allegro;
    no unexpected costs related to the development of our
    manufacturing capability; and
    no growth in the number of our employees during this period.   32




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Unstable
    market conditions may have serious adverse consequences on our
    business.
    Unless
    our preclinical studies demonstrate the safety of our product
    candidates, we will not be able to commercialize our product
    candidates.
  Staccato
  
    our preclinical testing may produce inconclusive or negative
    safety results, which may require us to conduct additional
    preclinical testing or to abandon product candidates that we
    believed to be promising;
    our product candidates may have unfavorable pharmacology,
    toxicology or carcinogenicity; and
    our product candidates may cause undesirable side effects.    Preclinical
    studies indicated possible adverse impact of pulmonary delivery
    of AZ-001.
  28-day
 33




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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;
    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.    Continuing
    development of our single dose version device may delay
    regulatory submissions and marketing approval for
    AZ-004
  Staccato
 34




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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.
    Staccato
    If our
    product candidates fail to show a clinically significant benefit
    compared to placebo, they will not be approved for
    marketing.
  Staccato
  Regulatory
    authorities may not approve our product candidates even if they
    meet safety and efficacy endpoints in clinical
    trials.
    
    a product candidate may not be considered safe or effective;
    the manufacturing processes or facilities we have selected may
    not meet the applicable requirements; and
    changes in their approval policies or adoption of new
    regulations may require additional work on our part.     35




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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
 36




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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.
          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
 37




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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.
  AZ-003.
 38




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If we
    enter into additional strategic partnerships, we may be required
    to relinquish important rights to and control over the
    development of our product candidates or otherwise be subject to
    terms unfavorable to us.
    
    we may not be able to control the amount and timing of resources
    that our strategic partners devote to the development or
    commercialization of product candidates;
    strategic partners may delay clinical trials, provide
    insufficient funding, terminate a clinical trial or abandon a
    product candidate, repeat or conduct new clinical trials or
    require a new version of a product candidate for clinical
    testing;
    strategic partners may not pursue further development and
    commercialization of products resulting from the strategic
    partnering arrangement or may elect to discontinue research and
    development programs;
    strategic partners may not commit adequate resources to the
    marketing and distribution of any future products, limiting our
    potential revenues from these products;
    disputes may arise between us and our strategic partners that
    result in the delay or termination of the research, development
    or commercialization of our product candidates or that result in
    costly litigation or arbitration that diverts managements
    attention and consumes resources;
    strategic partners may experience financial difficulties;
    strategic partners may not properly maintain or defend our
    intellectual property rights or may use our proprietary
    information in a manner that could jeopardize or invalidate our
    proprietary information or expose us to potential litigation;
    business combinations or significant changes in a strategic
    partners business strategy may also adversely affect a
    strategic partners willingness or ability to complete its
    obligations under any arrangement;
    strategic partners could independently move forward with a
    competing product candidate developed either independently or in
    collaboration with others, including our competitors; and
    strategic partners could terminate the arrangement or allow it
    to expire, which would delay the development and may increase
    the cost of developing our product candidates.  We
    have exclusively licensed certain intellectual property rights
    to Staccato alprazolam and Staccato loxapine in connection with
    our Symphony Allegro arrangement and will not receive material
    future royalties or revenues with respect to this intellectual
    property unless we exercise an option to repurchase the rights
    to the programs in the future through the acquisition of
    Symphony Allegro. We may not obtain sufficient clinical data in
    order to determine whether we should exercise this option prior
    to the expiration of the development period, and even if we
    decide to exercise the option, we may not have the financial
    resources to exercise it in a timely manner.
  Staccato Staccato Staccato Staccato Staccato Staccato
 39




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Staccato Staccato Staccato Staccato
    If we
    fail to gain market acceptance among physicians, patients,
    third-party payors and the medical community, we will not become
    profitable.
  Staccato Staccato
  
    demonstration of efficacy and safety in clinical trials;
    the existence, prevalence and severity of any side effects;
    potential or perceived advantages or disadvantages compared to
    alternative treatments;
    perceptions about the relationship or similarity between our
    product candidates and the parent drug compound upon which each
    product candidate is based;
    the timing of market entry relative to competitive treatments;
    the ability to offer any future products for sale at competitive
    prices;
    relative convenience, product dependability and ease of
    administration;
    the strength of marketing and distribution support;
    the sufficiency of coverage and reimbursement of our product
    candidates by governmental and other third-party payors; and
    the product labeling or product insert required by the FDA or
    regulatory authorities in other countries.  Our
    pipeline may be limited by the number of drug compounds suitable
    for use with the Staccato system.
  Staccato Staccato Staccato
 40




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##### Table of Contents



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.
      
    we might not have been the first to make the inventions covered
    by each of our pending patent applications and issued patents;
    we might not have been the first to file patent applications for
    these inventions;
    others may independently develop similar or alternative
    technologies or duplicate any of our technologies;
    it is possible that none of our pending patent applications will
    result in issued patents;
    the claims of our issued patents may be narrower than as filed
    and not sufficiently broad to prevent third parties from
    circumventing them;
    we may not develop additional proprietary technologies or drug
    candidates that are patentable;
    our patent applications or patents may be subject to
    interference, opposition or similar administrative proceedings;
    any patents issued to us or our potential strategic partners may
    not provide a basis for commercially viable products or may be
    challenged by third parties in the course of litigation or
    administrative proceedings such as reexaminations or
    interferences; and
    the patents of others may have an adverse effect on our ability
    to do business.  Even
    if valid and enforceable patents cover our product candidates
    and technologies, the patents will provide protection only for a
    limited amount of time.
   41




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and/or
      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.
       42




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Competition
    in the pharmaceutical industry is intense. If our competitors
    are able to develop and market products that are more effective,
    safer or less costly than any future products that we may
    develop, our commercial opportunity will be reduced or
    eliminated.
      AZ-001.
    ® ® ®
     43




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If we
    are unable to establish sales and marketing capabilities or
    enter into agreements with third parties to market and sell our
    product candidates, we may be unable to generate significant
    product revenue.
    and/or
  
    our inability to recruit and retain adequate numbers of
    effective sales and marketing personnel;
    the inability of sales personnel to obtain access to or persuade
    adequate numbers of physicians to prescribe any future products;
    the lack of complementary products to be offered by sales
    personnel, which may put us at a competitive disadvantage
    relative to companies with more extensive product lines; and
    unforeseen costs and expenses associated with creating an
    independent sales and marketing organization.    If we
    lose our key personnel or are unable to attract and retain
    additional personnel, we may be unable to develop or
    commercialize our product candidates.
   44




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If
    plaintiffs bring product liability lawsuits against us, we may
    incur substantial liabilities and may be required to limit
    commercialization of the product candidates that we may
    develop.
    Our
    product candidates AZ-002, AZ-003 and AZ-007 contain drug
    substances which are regulated by the U.S. Drug Enforcement
    Administration. Failure to comply with applicable regulations
    could harm our business.
    The
    single dose version of our Staccato system contains materials
    that are regulated by the U.S. government, and failure to comply
    with applicable regulations could harm our
    business.
  Staccato Staccato Staccato Staccato Staccato
 45




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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.
   46




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Risks
    Relating to Owning Our Common Stock
  Our
    stock price has been and may continue to be extremely
    volatile.
    
    actual or anticipated results and timing of our clinical trials;
    actual or anticipated regulatory approvals of our product
    candidates or competing products;
    changes in laws or regulations applicable to our product
    candidates;
    changes in the expected or actual timing of our development
    programs, including delays or cancellations of clinical trials
    for our product candidates;
    period to period fluctuations in our operating results;
    announcements of new technological innovations or new products
    by us or our competitors;
    changes in financial estimates or recommendations by securities
    analysts;
    conditions or trends in the life science and biotechnology
    industries;
    changes in the market valuations of other life science or
    biotechnology companies;
    developments in domestic and international governmental policy
    or regulations;
    announcements by us or our competitors of significant
    acquisitions, strategic partnerships, joint ventures or capital
    commitments;
    additions or departures of key personnel;
    disputes or other developments relating to proprietary rights,
    including patents, litigation matters and our ability to obtain
    patent protection for our technologies;
    sales of our common stock (or other securities) by us, including
    sales under our equity line of credit arrangement with
    Azimuth; and
    sales and distributions of our common stock by our stockholders.    If we
    sell shares of our common stock under our equity line of credit
    or in other future financings, existing common stock holders
    will experience immediate dilution and, as a result, our stock
    price may go down.
   47




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    2008

High


LowFirst Quarter

$
8.16


$
5.76Second Quarter


7.55



3.75Third Quarter


6.20



3.85Fourth Quarter


4.91



1.16   2007

High


LowFirst Quarter

$
15.80


$
8.52Second Quarter


12.80



7.86Third Quarter


10.10



7.11Fourth Quarter


9.72



7.00     Item 5B.
    Use
    of Proceeds from the Sale of Registered Securities    Item 5C.
    Treasury
    Stock   48




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


December 31,2008


2007


2006


2005


2004


2008(In thousands, except per share data)Consolidated Statement of Operations Data:Revenue

$
486


$



$
1,028


$
2,230


$
2,436


$
7,431Operating expenses:Research and development(1)


61,565



45,645



36,494



26,235



15,147



204,683General and administrative(1)


17,641



14,888



9,969



9,654



4,155



62,704Acquired in-process research and development






















3,916Total operating expenses(1)


79,206



60,533



46,463



35,889



19,302



271,303Loss from operations


(78,720
)


(60,533
)


(45,435
)


(33,659
)


(16,866
)


(263,872
)Interest and other income and interest expense, net


1,679



4,623



1,909



1,257



241



10,225Loss before noncontrolling interest in Symphony Allegro,
    Inc.


(77,041
)


(55,910
)


(43,526
)


(32,402
)


(16,625
)


(253,647
)Loss attributed to noncontrolling interest in Symphony Allegro,
    Inc.


18,591



10,791



1,720











31,102Net loss

$
(58,450
)

$
(45,119
)

$
(41,806
)

$
(32,402
)

$
(16,625
)

$
(222,545
)Basic and diluted net loss per common share

$
(1.81
)

$
(1.58
)

$
(2.13
)

$
(18.98
)

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


32,297



28,605



19,584



1,707



1,457     (1)
    
    Includes stock-based compensation as follows:  Period fromDecember 19,2000(Inception) toYear Ended December 31,


December 31,2008


2007


2006


2005


2004


2008(In thousands)Research and development

$
2,926


$
1,885


$
1,770


$
167


$
59


$
6,852General and administrative


2,520



1,531



447



874







5,372Total

$
5,446


$
3,416


$
2,217


$
1,041


$
59


$
12,224     49




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December 31,2008


2007


2006


2005


2004(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities

$
37,556


$
69,391


$
42,623


$
38,369


$
62,294Investments held by Symphony Allegro, Inc.


21,318



39,449



49,956







Working capital


42,771



106,092



79,649



30,760



60,027Total assets


84,635



149,125



105,766



47,405



69,280Noncurrent portion of equipment financing obligations


2,515



6,317



5,865



5,155



1,840Convertible preferred stock














107,194



107,194Deficit accumulated during development stage


(222,545
)


(164,095
)


(118,976
)


(77,170
)


(44,768
)Total stockholders equity (deficit)


33,693



75,991



49,774



(74,385
)


(43,396
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following Managements Discussion and Analysis of
    Financial Condition and Results of Operations contains
    forward-looking statements that are based upon current
    expectations. In some cases, you can identify forward-looking
    statements by terminology such as may,
    will, should, expect,
    plan, anticipate, believe,
    estimate, predict, intend,
    potential or continue or the negative of
    these terms or other comparable terminology. Forward-looking
    statements involve risks and uncertainties. Our actual results
    and the timing of events could differ materially from those
    discussed in our forward-looking statements as a result of many
    factors, including those set forth under Risk
    Factors and elsewhere in this Annual Report on
    Form 10-K.
  Overview
  Staccato Staccato
  Staccato Staccato
    
    AZ-004 (Staccato loxapine).  We are developing
    AZ-004 for the acute treatment of agitation in patients with
    schizophrenia or bipolar disorder. In 2008 we successfully
    completed two pivotal Phase 3 clinical trials and we project a
    New Drug Application, or NDA, submission in the first quarter of
    2010.
    AZ-104(Staccato loxapine).  We are
    developing AZ-104 to treat patients suffering from acute
    migraine headaches. AZ-104 is a lower-dose version of AZ-004.
    AZ-104 has completed a Phase 2a in-clinic study and we initiated
    an out-patient Phase 2b clinical trial in January 2009. AZ-104
    has been licensed to Symphony Allegro, and we have the right to
    repurchase all rights to this product candidate 50




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##### Table of Contents




    AZ-001 (Staccato prochlorperazine).  We are
    developing AZ-001 to treat patients suffering from acute
    migraine headaches. During the third quarter of 2008, we
    conducted an end-of-Phase 2 meeting with the FDA. We believe we
    have a clear understanding of the development requirements for
    filing an NDA for this product candidate. We do not intend to
    conduct any AZ-001 Phase 3 studies without a partner, and we are
    continuing to seek partners for our Staccatomigraine
    product candidates, AZ-001 and AZ-104.
    AZ-007(Staccato zaleplon).  We are
    developing AZ-007 for the treatment of insomnia in patients who
    have difficulty falling asleep, including patients who awake in
    the middle of the night and have difficulty falling back asleep.
    AZ-007 has completed Phase 1 testing. We do not intend to
    conduct any AZ-007 Phase 2 studies without a partner in 2009.
    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. We have
    completed and announced positive results from a Phase 1 clinical
    trial of AZ-003 in opioid naïve healthy subjects.  Staccato
  
    AZ-002 (Staccato alprazolam).  AZ-002 has
    completed a Phase 2a proof-of-concept clinical trial for the
    treatment of panic attacks, an indication the Company is not
    planning to pursue. However, given the safety profile, the
    successful and reproducible delivery of alprazolam, and the
    IV-like pharmacological effect demonstrated to date, we and
    Symphony Allegro are assessing AZ-002 for other possible
    indications and renewed clinical development. AZ-002 has been
    licensed to Symphony Allegro, and we have the right to
    repurchase all rights to this product candidate.  Staccato Staccato Staccato Staccato Staccato Staccato
 51




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Staccato Staccato Staccato Staccato
  Staccato
  24-month
     52




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Critical
    Accounting Estimates and Judgments
   53




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Preclinical
    Study and Clinical Trial Accruals
    
    fees paid to contract research organizations in connection with
    preclinical studies;
    fees paid to contract research organizations and other clinical
    sites in connection with clinical trials; and
    fees paid to contract manufacturers in connection with the
    production of components and drug materials for preclinical
    studies and clinical trials.    Share-Based
    Compensation
  Share-Based Payment Accounting for Stock Issued to
    Employees
     54




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##### Table of Contents



Form 10-K
  Symphony
    Allegro, Inc.
  Staccato Staccato Staccato Staccato Staccato Staccato
 55




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Consolidation of
    Variable Interest Entities
          Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 5
   56




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Revenue
    Recognition
  Revenue Recognition in Financial Revision of Topic 13.
  00-21, Revenue Arrangements with Multiple Deliverables EITF 00-21. EITF 00-21
    Results
    of Operations
  Comparison
    of Years Ended December 31, 2008 and 2007
  Revenue.
  Operating
    Expenses
    Year Ended December 31,2008


2007


2006Non share-based compensation expenses:Research and development

$
58,639


$
43,760


$
34,724General and administrative


15,121



13,357



9,522Total non share-based compensation expenses


73,760



57,117



44,246Share-based compensation expenses:Research and development


2,926



1,885



1,770General and administrative


2,520



1,531



447Total share-based compensation expenses


5,446



3,416



2,217Total operating expenses

$
79,206


$
60,533


$
46,463  57




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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, certain incremental charges related to officer loan
    extinguishments and non-cash stock-based compensation expense.    Year Ended December 31,FromDecember 19,2000(Inception)ThroughDecember 31,Preclinical and Clinical Development:

2008


2007


2006


2005


2004


2008.(In thousands)AZ-004/104

$
26,789


$
15,524


$
6,073


$
3,187


$
119


$
51,692AZ-003


17,070



1,474



3,687



5,021



1,706



29,894AZ-001


1,151



8,163



9,535



6,369



8,640



39,372AZ-002


1,898



3,795



3,094



3,803



1,930



15,010AZ-007


1,773



8,214



2,384











12,371Other preclinical programs










3,243











3,243Total preclinical and clinical development


48,681



37,170



28,016



18,380



12,395



151,582Research


12,884



8,475



8,478



7,855



2,752



53,101Total research and development

$
61,565


$
45,645


$
36,494


$
26,235


$
15,147


$
204,683     
    increased spending on our AZ-004/104 product candidates as we
    continued development of these product candidates under the
    Symphony Allegro agreement, including our first Phase 3 clinical
    trial of AZ-004 which began enrollment in February 2008 and
    completed enrollment in June 2008 and our second Phase 3
    clinical trial of AZ-004 which began enrollment in July 2008 and
    completed enrollment in October 2008,
    increased spending on our AZ-003 product candidate as we
    continued development of this product candidate under the Endo
    agreement, and
    increased research expenses as we increased our device
    development and manufacturing process
    scale-up
    efforts. 58




---



##### Table of Contents




    our AZ-001 product candidate due to Phase 2b clinical trial
    efforts and ongoing non clinical efforts occurring in 2007,
    our AZ-002 product candidate due to higher development and
    manufacturing efforts to modify the AZ-002 device and
    manufacture clinical trial materials for the Phase 2a trial in
    2007, and
    our AZ-007 product candidate due to the preclinical and
    regulatory efforts in 2007 to support and prepare the IND filing
    that occurred in the fourth quarter of 2007.    General and Administrative Expenses.
      Interest and Other Income, Net.
  Interest Expense.
  Loss Attributed to Noncontrolling Interest in Symphony
    Allegro. Consolidation of Variable Interest Entities an
    Interpretation of Accounting Research Bulletin No. 51,
 59




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2007 and 2006
  Revenue.
  Operating
    Expenses
  Research and Development Expenses.
  
    increased spending on our AZ-004/104 and AZ-002 product
    candidates as we continued development of these product
    candidates under the Symphony Allegro agreement, including the
    launch of a Phase 2a clinical trial of AZ-104 at the end of the
    second quarter of 2007, and
    the increased spending on our AZ-007 product candidate.    
    our AZ-001 product candidate due to the completion of the Phase
    2b clinical trial in the first quarter of 2007,
    our AZ-003 product candidate, as we significantly reduced
    development on this program until we obtained a developmental
    partner, and
    our other preclinical development as we focused our efforts on
    our AZ-007 product candidate.  General and Administrative Expenses.
    Interest and Other Income, Net.
  Interest Expense.
  Loss Attributed to Noncontrolling Interest in Symphony
    Allegro.
  Liquidity
    and Capital Resources
   60




---



##### Table of Contents




    expenditures related to continued preclinical and clinical
    development of our lead product candidates during this period
    within budgeted levels;
    the timing and amount of payments from Symphony Allegro;
    no unexpected costs related to the development of our
    manufacturing capability; and
    no growth in the number of our employees during this period.   61




---



##### Table of Contents




    the scope, rate of progress, results and costs of our
    preclinical studies, clinical trials and other research and
    development activities;
    the terms and timing of any distribution, strategic partnerships
    or licensing agreements that we may establish;
    the terms and timing of any repurchase of rights from Symphony
    Allegro, which ranges from $92.5 million at March 31,
    2009 to $122.5 million through December 1, 2010;
    our ability to draw on our equity line of credit with Azimuth;
    the cost, timing and outcomes of regulatory approvals;
    the number and characteristics of product candidates that we
    pursue;
    the cost and timing of establishing manufacturing, marketing and
    sales capabilities;
    the cost of establishing clinical and commercial supplies of our
    product candidates;
    the cost of preparing, filing, prosecuting, defending and
    enforcing any patent claims and other intellectual property
    rights; and
    the extent to which we acquire or invest in businesses, products
    or technologies, although we currently have no commitments or
    agreements relating to any of these types of transactions.  24-month
    Contractual
    Obligations
   62




---



##### Table of Contents



Payments Due by PeriodLess ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


Thereafter(In thousands)Equipment financing obligations

$
7,264


$
4,595


$
2,669


$



$
Operating lease obligations


45,686



4,558



10,154



10,182



20,792Total

$
52,950


$
9,153


$
12,823


$
10,182


$
20,792   Staccato
  Recently
    Adopted Accounting Pronouncements
  Statement
    of Financial Accounting Standard No. 157 and Staff Position
    157-2
  Fair Value
    Measurements,
  
    Level 1  Quoted prices in active markets
    for identical assets or liabilities.
    Level 2  Inputs other than Level 1
    that are observable, either directly or indirectly, such as
    quoted prices for similar assets or liabilities; quoted prices
    in markets that are not active; or other inputs that are
    observable or can be corroborated by observable market data for
    substantially the full term of the assets or liabilities. 63




---



##### Table of Contents




    Level 3  Unobservable inputs that are
    supported by little or no market activity and that are
    significant to the fair value of the assets or liabilities.  157-2 Partial Deferral of the Effective Date of Statement 157 FSP 157-2. FSP 157-2
  FSP 157-2,
  Emerging
    Issues Task Force Issue
    No. 07-3
  No. 07-3, EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities. EITF 07-3 EITF 07-3 EITF 07-3
  Recently
    Issued Accounting Pronouncements
  Statement
    of Financial Accounting Standard No. 141(R)
  Business Combinations
  Statement
    of Financial Accounting Standard No. 160
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Off-Balance
    Sheet Arrangements
   64




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   65




---



##### 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


67Consolidated Balance Sheets as of
    December 31, 2008 and 2007


68Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006 and for the
    period from December 19, 2000 (inception) to
    December 31, 2008


69Consolidated Statements of Convertible Preferred
    Stock and Stockholders Equity (Deficit) for the period
    from December 19, 2000 (inception) to December 31,
    2008


70Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006 and for the
    period from December 19, 2000 (inception) to
    December 31, 2008


78Notes to Consolidated Financial Statements


79  66




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             
    67




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC
    (a development stage company)
 CONSOLIDATED
    BALANCE SHEETS  December 31,2008


2007(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
26,036


$
31,337Marketable securities


11,520



38,054Investments held by Symphony Allegro, Inc.


21,318



39,449Other receivables






12,055Prepaid expenses and other current assets


1,130



1,377Total current assets


60,004



122,272Property and equipment, net


24,152



26,156Restricted cash


400



604Other assets


79



93Total assets

$
84,635


$
149,125LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
4,928


$
5,206Accrued clinical trial liabilities


1,294



1,301Other accrued liabilities


5,205



5,087Deferred revenues


1,667



Current portion of equipment financing obligations


4,139



4,586Total current liabilities


17,233



16,180Deferred rent


17,386



16,685Deferred revenue


7,847



10,000Noncurrent portion of equipment financing obligations


2,515



6,317Other noncurrent liabilities


600



Commitments (See Note 7)Non controlling interest in Symphony Allegro, Inc.


5,361



23,952Stockholders equity:Preferred stock, $0.0001 par value, 5,000,000 shares
    authorized at December 31, 2008 and 2007; no shares issued
    and outstanding at December 31, 2008 or 2007






Common stock, $0.0001 par value; 100,000,000 shares
    authorized at December 31, 2008 and 2007; 32,820,874 and
    31,137,857 shares issued and outstanding at
    December 31, 2008 and 2007, respectively


3



3Additional paid-in capital


256,426



240,681Deferred stock compensation


(219
)


(739
)Other comprehensive income


28



141Deficit accumulated during development stage


(222,545
)


(164,095
)Total stockholders equity


33,693



75,991Total liabilities and stockholders equity

$
84,635


$
149,125    68




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##### Table of Contents



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


to December 31,2008


2007


2006


2008(In thousands, except per share amounts)Revenue

$
486


$



$
1,028


$
7,431Operating expenses:Research and development


61,565



45,645



36,494



204,683General and administrative


17,641



14,888



9,969



62,704Acquired in-process research and development














3,916Total operating expenses


79,206



60,533



46,463



271,303Loss from operations


(78,720
)


(60,533
)


(45,435
)


(263,872
)Interest and other income, net


2,614



5,626



2,687



13,806Interest expense


(935
)


(1,003
)


(778
)


(3,581
)Loss before non controlling interest in Symphony Allegro,
    Inc.


(77,041
)


(55,910
)


(43,526
)


(253,647
)Loss attributed to non controlling interest in Symphony Allegro,
    Inc.


18,591



10,791



1,720



31,102Net loss

$
(58,450
)

$
(45,119
)

$
(41,806
)

$
(222,545
)Basic and diluted net loss per common share

$
(1.81
)

$
(1.58
)

$
(2.13
)Shares used to compute basic and diluted net loss per common
    share


32,297



28,605



19,584    69




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##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


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





$







$




454,536


$



$
100


$



$



$



$



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


2,500,000



991







































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


1,610,250



2,496







































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


6,441,000



8,946







































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


















868,922







956



















956Warrants assumed in merger transaction


























10



















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


















9,090







2



















2Compensation expense related to consultant stock options


























3



















3Net loss and comprehensive loss










































(5,652
)


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


10,551,250


$
12,433






$




1,332,548


$



$
1,071


$



$



$



$
(5,652
)

$
(4,581
)    70




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 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
)    71




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 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
)    72




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 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
)    73




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


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


79,856,703


$
107,194






$




1,920,114


$



$
5,740


$



$
(2,925
)

$
(30
)

$
(77,170
)

$
(74,385
)    74




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


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


79,856,703


$
107,194






$




1,920,114


$



$
5,740


$



$
(2,925
)

$
(30
)

$
(77,170
)

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


















159,446







195



















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


















131,682







896



















896Issuance of common stock for shares upon exercise of warrant


















85,359



























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


















6,325,000



1



44,901



















44,902Conversion of convertible preferred stock into common stock


(79,856,703
)


(107,194
)










15,197,712



1



107,193



















107,194Compensation expense related to consultant stock options


























145



















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


























1,601



















1,601Amortization of deferred stock compensation


































727











727Reversal of deferred stock compensation in connection with
    employee terminations


























(495
)






495











Variable compensation expense


























(442
)


















(442
)Issuance of warrant to Symphony Allegro Holdings LLC


























10,708



















10,708Unrealized gain on investments






































39







39Net loss










































(41,806
)


(41,806
)Comprehensive loss














































(41,767
)Balance at December 31, 2006 (carried forward)





$







$




23,819,319


$
2


$
170,442


$



$
(1,703
)

$
9


$
(118,976
)

$
49,774    75




---



##### Table of Contents



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


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


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





$







$




23,819,319


$
2


$
170,442


$



$
(1,703
)

$
9


$
(118,976
)

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


















204,423







432



















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


















205,870







1,405



















1,405Issuance of common stock upon vesting of restricted stock units


















8,245



























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


















6,900,000



1



65,981



















65,982Compensation expense related to consultant stock options


























75



















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


























2,733



















2,733Amortization of deferred stock compensation


































577











577Reversal of deferred stock compensation in connection with
    employee terminations


























(387
)






387











Unrealized gain on investments






































132







132Net loss










































(45,119
)


(45,119
)Comprehensive loss














































(44,987
)Balance at December 31, 2007(carried forward)





$







$




31,137,857


$
3


$
240,681


$



$
(739
)

$
141


$
(164,095
)

$
75,991    76




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
  DeficitAccumulated


TotalConvertible














Additional


Stockholder


Deferred


Other


During the


StockholdersPreferred Stock


Preferred Stock


Common Stock


Paid-In


Note


Stock


Comprehensive


Development


EquityShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Compensation


(Loss) Income


Stage


(Deficit)(In thousands, except share and per share amounts)Balance at December 31, 2007 (brought forward)





$







$




31,137,857


$
3


$
240,681


$



$
(739
)

$
141


$
(164,095
)

$
75,991Issuance of common stock and common stock warrant for cash


















1,250,000







9,840



















9,840Issuance of common stock for cash and shares upon exercise of
    options at a weighted average price of $1.55 per share


















104,428







161



















161Issuance of common stock for cash under the Companys
    Employee Stock Purchase Plan


















305,146







1,172



















1,172Issuance of common stock upon vesting of restricted stock units


















23,443



























Compensation expense related to consultant stock options


























22



















22Compensation expense related to fair value of employee share
    based awards issued after January 1, 2006


























4,633



















4,633Amortization of deferred stock compensation


































437











437Reversal of deferred stock compensation in connection with
    employee terminations


























(83
)






83











Unrealized loss on investments






































(113
)






(113
)Net loss










































(58,450
)


(58,450
)Comprehensive loss














































(58,563
)Balance at December 31, 2008





$







$




32,820,874


$
3


$
256,426


$



$
(219
)

$
28


$
(222,545
)

$
33,693    77




---



##### 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 31,2008


2007


2006


2008(In thousands)Cash flows from operating activities:Net loss

$
(58,450
)

$
(45,119
)

$
(41,806
)

$
(222,545
)Adjustments to reconcile net loss to net cash used in operating
    activities:Loss attributed to noncontrolling interests


(18,591
)


(10,791
)


(1,720
)


(31,102
)Share-based compensation expense


5,092



3,385



2,217



11,839Extinguishment of officer note receivable














2,300Issuance 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


38



49



35



362Amortization of discount on available-for-sale securities


(797
)


(929
)


(1,035
)


(727
)Depreciation


5,294



4,016



3,677



16,759Loss on disposal of property and equipment


17



23



28



83Changes in operating assets and liabilities:Receivables


12,055



(12,055
)


35



Prepaid expenses and other current assets


247



(114
)


534



(1,124
)Other assets


(24
)


42



7



(2,625
)Accounts payable


(278
)


(727
)


3,009



4,799Accrued clinical trial expense and other accrued liabilities


111



898



505



2,799Deferred revenues


(486
)


10,000







9,514Other liabilities


701



15,494



1,191



20,776Net cash used in operating activities


(55,071
)


(35,828
)


(33,323
)


(184,662
)Cash flows from investing activities:Purchase of available-for-sale securities


(47,111
)


(62,466
)


(72,129
)


(324,913
)Maturities of available-for-sale securities


74,329



51,064



69,194



314,149Purchase 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.


18,131



10,507



19



28,657Decrease (increase) in restricted cash


204







(400
)


(400
)Purchases of property and equipment


(2,732
)


(19,059
)


(8,067
)


(40,157
)Proceeds from disposal of property and equipment


25











28Cash paid for merger














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


42,846



(19,954
)


(61,358
)


(72,861
)Cash flows from financing activities:Proceeds from issuance of common stock and exercise of stock
    options and stock purchase rights


11,173



67,819



45,993



125,485Repurchase of common stock














(8
)Proceeds from issuance of convertible preferred stock














104,681Proceeds from repayment of stockholder note receivable














29Proceeds from equipment term loans






5,814



3,997



18,932Payments of equipment term loans and leases


(4,249
)


(3,546
)


(2,235
)


(12,731
)Proceeds from purchase of non controlling interest by preferred
    shareholders in Symphony Allegro, Inc., net of fees










47,171



47,171Net cash provided by financing activities


6,924



70,087



94,926



283,559Net increase (decrease) in cash and cash equivalents


(5,301
)


14,305



245



26,036Cash and cash equivalents at beginning of period


31,337



17,032



16,787



Cash and cash equivalents at end of period

$
26,036


$
31,337


$
17,032


$
26,036Supplemental disclosures of cash flow informationCash paid for interest

$
935


$
1,003


$
728


$
3,265Non 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    78




---



##### 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
  Public
    Offerings
      Equity
    Financing Facility
  24-month
   79




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Registered
    Direct Equity Issuance
        2.
    Summary
    of Significant Accounting Policies  Use of
    Estimates
    Significant
    Risks and Uncertainties
    Fair
    Value of Financial Instruments
    Fair Value
    Measurements
 80




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    Level 1  Quoted prices in active markets
    for identical assets or liabilities.
    Level 2  Inputs other than Level 1
    that are observable, either directly or indirectly, such as
    quoted prices for similar assets or liabilities; quoted prices
    in markets that are not active; or other inputs that are
    observable or can be corroborated by observable market data for
    substantially the full term of the assets or liabilities.
    Level 3  Unobservable inputs that are
    supported by little or no market activity and that are
    significant to the fair value of the assets or liabilities.  157-2 Partial Deferral of the Effective Date of Statement 157 (FSP 157-2). FSP 157-2
  FSP 157-2,
      Level 1


Level 2


Level 3


TotalMoney market funds

$
19,350


$



$



$
19,350Money market fund held by Symphony Allegro, Inc.


21,318











21,318Corporate debt securities






9,649







9,649Government securities






1,505







1,505Government-sponsored enterprises






6,620







6,620Total

$
40,668


$
17,774


$



$
58,442     Concentration
    of Credit Risk
   81




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash
    Equivalents and Marketable Securities
            Property
    and Equipment
    Restricted
    Cash
    December 31,2008


2007Mt. View facility

$
400


$
400Palo Alto facilities






163Palo Alto utility account






41$
400


$
604  82




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Impairment
    of Long-Lived Assets
    Revenue
    Recognition
  Revenue Recognition
    in Financial Revision of Topic 13
    00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21
  Research
    and Development
     83




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    Taxes
    Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
    Comprehensive
    Income (Loss)
    Share-Based
    Compensation
  Share-Based Payment. Accounting for Stock Issued to Employees
     84




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Employee
    Share-Based Awards Granted Prior to January 1,
    2006
    Employee
    Share-Based Awards Granted On or Subsequent to January 1,
    2006
    Stock
    Options, Stock Purchase Rights and Restricted Stock
    Units
      Year Ended December 31,2008


2007


2006Stock Option PlansWeighted-average expected term


5.0 years



6.1 years



6.1 yearsExpected volatility


67
%


73
%


80
%Risk-free interest rate


3.14
%


4.72
%


4.71
%Dividend yield


0
%


0
%


0
%Employee Stock Purchase PlanWeighted-average expected term


1.65 years



1.42 years



1.4 yearsExpected volatility


71
%


53
%


53
%Risk-free interest rate


2.68
%


4.31
%


4.77
%Dividend yield


0
%


0
%


0
%   Weighted-Average Expected Life
 85




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Volatility
  Risk-Free Interest Rate.
  Dividend Yield
  Forfeiture Rate
  Restricted Stock Units
    Settlement
    and Modification of Stock Option Awards
     86




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
  Statement
    of Financial Accounting Standard No. 141R
  Business
    Combinations
  Statement
    of Financial Accounting Standard No. 160
  Noncontrolling Interests in
    Consolidated Financial Statements  An Amendment of
    ARB No. 51
  Emerging
    Issues Task Force Issue
    No. 07-3
  No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities. EITF 07-3 EITF 07-3 EITF 07-3
  3.
    Net Loss
    per Share   87




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Outstanding stock options


4,183



3,207



2,611Unvested restricted stock units


172



93



34Warrants to purchase common stock


2,431



2,016



2,016Convertible preferred stock










   4.
    Cash,
    Cash Equivalents, Marketable Securities and Restricted
    Cash    December 31,2008


2007(In thousands)Cash

$
432


$
327Money market accounts


19,350



17,527Certificates of deposit


400



604Government debt securities


1,505



Government-sponsored enterprise debt securities


6,620



5,998Corporate debt securities


9,649



44,049Asset-backed securities






1,490$
37,956


$
69,995Reported as:Cash and cash equivalents

$
26,036


$
31,337Marketable securities


11,520



38,054Restricted cash


400



604$
37,956


$
69,995     5.
    Property
    and Equipment    December 31,2008


2007(In thousands)Lab equipment

$
12,038


$
10,628Computer equipment and software


4,885



4,763Furniture


1,123



996Leasehold improvements


19,135



20,68737,181



37,074Less: accumulated depreciation


(13,029
)


(10,918
)$
24,152


$
26,156  88




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.
    Other
    Accrued Liabilities    December 31,2008


2007(In thousands)Accrued compensation

$
4,012


$
3,532Accrued professional fees


439



555Other


754



1,000$
5,205


$
5,087   7.
    Commitments  Equipment
    Financing Obligations
        2009

$
4,1392010


2,0882011


427Total

$
6,654   Operating
    Leases
     89




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2009

$
4,5582010


5,0162011


5,1382012


5,2632013


4,919Thereafter


20,792Total minimum payments

$
45,686       Manufacturing
    and Supply Agreement
  Staccato
 90




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    License
    Agreements  Symphony
    Allegro, Inc.
  Staccato Staccato
          Consolidation of Variable Interest Entities,
 91




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Endo
    Pharmaceuticals, Inc.
  Staccato Staccato
    9.
    Related
    Party Transactions  Extinguishment
    of Officer Notes
   92




---



##### Table of Contents



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


4,183,348Unvested restricted stock units outstanding


171,9542005 Equity Incentive Plan and 2005 Non Employee Director Stock
    Option Plan  shares available for issuance


1,330,906Employee Stock Purchase Plan  shares available for
    issuance


345,495Warrants outstanding


2,431,242Total


8,461,845   11.
    Warrants   93




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock
 94




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Equity
    Incentive Plans  2005
    Equity Incentive Plan
        2005
    Non-Employee Directors Stock Option Plan
   95




---



##### Table of Contents



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


Weighted AverageShares


Exercise PriceOptions granted


298,351


$
0.34Options exercised


(9,090
)

$
0.22Balance as of December 31, 2001


289,261


$
0.34Options granted


210,777


$
1.03Options exercised


(65,942
)

$
0.84Options forfeited


(10,909
)

$
0.22Balance as of December 31, 2002


423,187


$
0.61Options granted


703,486


$
1.10Options exercised


(74,904
)

$
0.60Options forfeited


(50,092
)

$
0.57Balance as of December 31, 2003


1,001,677


$
0.95Options granted


893,952


$
1.10Options exercised


(100,192
)

$
0.74Options forfeited


(132,641
)

$
1.08Balance as of December 31, 2004


1,662,796


$
1.04Options granted


824,035


$
2.86Options exercised


(380,501
)

$
0.94Options forfeited


(98,310
)

$
1.08Balance as of December 31, 2005


2,008,020


$
1.80Options granted


848,075


$
7.71Options exercised


(160,662
)

$
1.28Options forfeited


(82,938
)

$
2.00Options cancelled


(1,453
)

$
8.64Balance as of December 31, 2006


2,611,042


$
5.23Options granted


1,054,656


$
9.10Options exercised


(204,423
)

$
2.11Options forfeited


(249,536
)

$
6.98Options cancelled


(4,875
)

$
6.60Balance as of December 31, 2007


3,206,864


$
6.56Options granted


1,472,171


$
5.26Options exercised


(104,428
)

$
1.55Options forfeited


(190,284
)

$
7.20Options cancelled


(200,975
)

$
7.81Balance as of December 31, 2008


4,183,348


$
6.14Options exercisable at:December 31, 2006


901,425


$
4.74December 31, 2007


1,365,538


$
5.54December 31, 2008


1,950,662


$
6.02    96




---



##### Table of Contents



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


ExercisableRemaining








RemainingContractual


Aggregate





Contractual


AggregateNumber


Life


Intrinsic


Number


Life


IntrinsicExercise Price

of Shares


(In Years)


Value


of Shares


(In Years)


Value$1.10 - 1.38


606,087



5.89


$
1,197,000



539,132



5.87


$
1,068,0002.64 - 4.24


243,680



8.58



4,000



58,624



7.03



4.35 - 4.35


523,700



9.52















4.41 - 6.24


482,900



9.35







5,466



9.40



6.55 - 7.20


597,323



7.85







348,338



7.76



7.30 - 7.90


155,722



8.75







58,854



8.67



8.00 - 8.00


600,457



5.63







530,430



5.45



8.01 - 8.89


625,420



8.46







236,620



8.41



8.91 - 11.70


348,059



8.15







173,198



8.09



4,183,348



7.82


$
1,201,000



1,950,662



6.73


$
1,068,000       WeightedNumber


Averageof


Grant - DateShares


Fair ValueOutstanding at January 1, 2006





$
Granted


34,680



7.00Released






Forfeited


(600
)


7.00Outstanding at December 31, 2006


34,080



7.00Granted


74,575



8.89Released


(8,245
)


7.00Forfeited


(7,285
)


7.71Outstanding at December 31, 2007


93,125



8.42Granted


112,423



4.35Released


(23,443
)


8.33Forfeited


(10,151
)


7.00Outstanding at December 31, 2008


171,954



5.86    97




---



##### Table of Contents



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

Number of Shares2001


363,6362002


770,7322003


454,5452004


1,000,0002005


25,5442006


1,327,9902007


676,3862008


2,174,840       2005
    Employee Stock Purchase Plan
        13.
    401(k)
    Plan    14.
    Government
    Research Grants   98




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    15.
    Income
    Taxes      Year Ended December 31,2008


2007


2006(In thousands)Federal tax benefit at statutory rate

$
(19,873
)

$
(15,321
)

$
(14,214
)State tax benefit net of federal effect


(3,402
)


(2,629
)


(2,436
)Research and development credits


(2,693
)


(3,538
)


(1,189
)Other permanent differences


19



20



17Share-based compensation


1,450



274



543Change in valuation allowance


24,567



21,193



17,317Other


(68
)


1



(38
)Total

$



$



$
     December 31,2008


2007(In thousands)Federal and state net operating loss carryforwards

$
58,451


$
60,516Federal and state research and development credit carryforwards


10,210



7,093Accrued liabilities


2,736



287Capitalized research and development costs


23,216



829Other


42



678Total deferred tax assets


94,655



69,403Valuation allowance


(94,655
)


(69,403
)Net deferred tax assets

$



$
   Accounting for Income Taxes
 99




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             100




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance at January 1, 2007

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


Reductions based on tax positions taken during a prior period


Additions based on tax positions taken during the current period


611Reductions based on tax positions taken during the current period


Reductions related to settlement of tax matters


Reductions related to a lapse of applicable statute of
    limitations


Balance at December 31, 2007

$
2,246Additions based on tax positions taken during a prior period


Reductions based on tax positions taken during a prior period


(1,067
)Additions based on tax positions taken during the current period


401Reductions based on tax positions taken during the current period


Reductions related to settlement of tax matters


Reductions related to a lapse of applicable statute of
    limitations


Balance at December 31, 2008

$
1,580     16.
    Development
    Agreement    Staccato
 101




---



##### Table of Contents



ALEXZA
    PHARMACEUTICALS, INC.
    (a development stage company)
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    17.
    Subsequent
    Events    18.
    Quarterly
    Results (Unaudited)    Quarter EndedMarch 31


June 30


September 30


December 31Fiscal 2008Loss from operations

$
(19,155
)

$
(20,500
)

$
(21,067
)

$
(17,998
)Loss before noncontrolling interest in Symphony Allegro,
    Inc.


(18,366
)


(20,013
)


(20,758
)


(17,904
)Net loss


(14,609
)


(14,122
)


(14,692
)


(15,027
)Basic and diluted net loss per share


(0.47
)


(0.43
)


(0.45
)


(0.46
)Shares used in computation of basic and diluted net loss per
    share


31,225



32,532



32,610



32,821Fiscal 2007Loss from operations

$
(13,820
)

$
(14,159
)

$
(15,136
)

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


(12,998
)


(12,922
)


(13,717
)


(16,273
)Net loss


(10,916
)


(10,278
)


(10,752
)


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


(0.46
)


(0.36
)


(0.35
)


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


23,869



28,480



30,975



31,097  102




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures:
      Managements
    Annual Report on Internal Control Over Financial
    Reporting:
  Rules 13a-15(f) 15d-15(f). Internal Control  Integrated Framework Form 10-K
 103




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                 
    104




---



##### Table of Contents



Changes
    in Internal Control Over Financial Reporting:
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    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


4,355,302


$
5.90



1,676,401
(1)(2)Equity compensation plans not approved by security holders










Total


4,355,302


$
5.90



1,676,401  105




---



##### Table of Contents



(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.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.(2)
    
    Of these shares, 345,495 shares remain available for
    purchase under the ESPP.  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
    Financial Statement Schedules
    Exhibits
 106




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description of Document3
.5

Restated Certificate of Incorporation(1)3
.7

Amended and Restated Bylaws(1)3
.8

Amendment to Amended and Restated Bylaws(5)4
.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
.2

Form of Director/Officer Indemnification Agreement entered into
    between Registrant and each of its directors and officers(9)*10
.3u

Form of Change of Control Agreement*10
.4

2005 Equity Incentive Plan(8)*10
.5

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Warrant to Purchase shares of Common Stock issued to Symphony
    Allegro Holdings LLC dated December 1, 2006(2)10
.29

Amended and Restated Research and Development Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 2006(2) 107




---



##### Table of Contents



ExhibitNumber

Description of Document10
.30

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

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

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

2007 Performance Bonus Program*(2)10
.34

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

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

Manufacturing and Supply Agreement between Registrant and
    Autoliv ASP, Inc., dated November 2, 2007(5)10
.38

Offer Letter between the Registrant and Michael Simms, dated
    January 23, 2008(5)10
.39

Stock and Warrant Purchase Agreement between Registrant and
    Biomedical Investment Fund Pte Ltd., dated March 26,
    2008(6)10
.40

Warrant to Purchase shares of Common Stock issued to Biomedical
    Investment Fund Pte Ltd. dated March 27, 2008(6)10
.41

Common Stock Purchase Agreement between Registrant and Azimuth
    Opportunity Ltd. dated March 31, 2008(7)10
.42u

Form of Notice of Grant of Award and Stock Unit Award Agreement
    to 2005 Equity Incentive Plan10
.43

2006 Performance Bonus Program*(10)10
.44

2008 Performance Bonus Program*(11)10
.45

2009-2010
    Performance Based Incentive Program*(12)14
.1

Alexza Pharmaceuticals, Inc. Code of Business Conduct for
    Employees, Executive Officers and Directors(2)21
.1u

Subsidiaries of Registrant23
.1u

Consent of Independent Registered Public Accounting Firm24
.1u

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

Section 302 Certification of CEO.31
.2u

Section 302 Certification of CFO.32
.1u

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




---



##### Table of Contents



(4)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on November 1, 2007(5)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    (File No.
    000-51820)
    as filed with the SEC on March 17, 2008(6)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on March 17, 2008(7)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on March 31, 2008(8)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on May 30, 2008.(9)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on July 14, 2008.(10)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on June 5, 2006.(11)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on April 16, 2008.(12)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on February 24, 2009. 109




---



##### Table of Contents



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

Title/s/  THOMAS
    B. KINGThomas
    B. King

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

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

Director/s/  SAMUEL
    D. COLELLASamuel
    D. Colella

Director/s/  ALAN
    D. FRAZIERAlan
    D. Frazier

Director/s/  DEEPIKA
    R. PAKIANATHANDeepika
    R. Pakianathan

Director 110




---



##### Table of Contents



Signature

Title/s/  J.
    LEIGHTON READJ.
    Leighton Read

Director/s/  GORDON
    RINGOLDGordon
    Ringold

Director/s/  ISAAC
    STEINIsaac
    Stein

Director  111




---



##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description of Document3
.5

Restated Certificate of Incorporation(1)3
.7

Amended and Restated Bylaws(1)3
.8

Amendment to Amended and Restated Bylaws(5)4
.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
.2

Form of Director/Officer Indemnification Agreement entered into
    between Registrant and each of its directors and officers(9)*10
.3u

Form of Change of Control Agreement*10
.4

2005 Equity Incentive Plan(8)*10
.5

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Warrant to Purchase shares of Common Stock issued to Symphony
    Allegro Holdings LLC dated December 1, 2006(2)10
.29

Amended and Restated Research and Development Agreement by and
    among Symphony Allegro Holdings LLC and Symphony Allegro, Inc.
    and Registrant dated December 1, 2006(2) 112




---



##### Table of Contents



ExhibitNumber

Description of Document10
.30

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

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

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

2007 Performance Bonus Program*(2)10
.34

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

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

Manufacturing and Supply Agreement between Registrant and
    Autoliv ASP, Inc., dated November 2, 2007(5)10
.38

Offer Letter between the Registrant and Michael Simms, dated
    January 23, 2008(5)10
.39

Stock and Warrant Purchase Agreement between Registrant and
    Biomedical Investment Fund Pte Ltd., dated March 26,
    2008(6)10
.40

Warrant to Purchase shares of Common Stock issued to Biomedical
    Investment Fund Pte Ltd. dated March 27, 2008(6)10
.41

Common Stock Purchase Agreement between Registrant and Azimuth
    Opportunity Ltd. dated March 31, 2008(7)10
.42u

Form of Notice of Grant of Award and Stock Unit Award Agreement
    to 2005 Equity Incentive Plan10
.43

2006 Performance Bonus Program*(10)10
.44

2008 Performance Bonus Program*(11)10
.45

2009-2010
    Performance Based Incentive Program*(12)14
.1

Alexza Pharmaceuticals, Inc. Code of Business Conduct for
    Employees, Executive Officers and Directors(2)21
.1u

Subsidiaries of Registrant23
.1u

Consent of Independent Registered Public Accounting Firm24
.1u

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

Section 302 Certification of CEO.31
.2u

Section 302 Certification of CFO.32
.1u

Section 906 Certifications of CEO and CFO.     *
    
    Management contract or compensation plan or arrangement.u
    
    Filed herein
    
    Confidential treatment has been granted with respect to certain
    portions of this exhibit. This exhibit omits the information
    subject to this confidentiality request. Omitted portions have
    been filed separately with the SEC.
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. This exhibit omits the
    information subject to this confidentiality request. Omitted
    portions have been filed separately with the SEC.(1)
    
    Incorporated by reference to exhibits to our Registration
    Statement on
    Form S-1
    filed on December 22, 2005, as amended (File No.
    333-130644)(2)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    (File No.
    000-51820)
    as filed with the SEC on March 29, 2007.(3)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on August 13, 2007 113




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##### Table of Contents



(4)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    (File
    No. 000-51820)
    as filed with the SEC on November 1, 2007(5)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    (File No.
    000-51820)
    as filed with the SEC on March 17, 2008(6)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on March 17, 2008(7)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on March 31, 2008(8)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on May 30, 2008.(9)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on July 14, 2008.(10)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on June 5, 2006.(11)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on April 16, 2008.(12)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    (File No.
    000-51820)
    as filed with the SEC on February 24, 2009. 114