**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
| **ý** | ** ** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934.**                                                                                                                                                                                                   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                            |
| ** ** | ** ** | **For the quarterly period ended June 30, 2005.**                                                                                                                                                                                                                                                     |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                            |
| **o**      | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934.**                                                                                                                                                                                                  |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                            |
| ** ** | ** ** | **For the transition period from                        to                      .** |

 

**Commission File Number**

**000-29815**

 

**AllosTherapeutics, Inc.**

(Exact name of Registrant as specified in its charter)

 
| **Delaware**                                                   | ** ** | **54-1655029**                        |
|----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incoporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**11080 CirclePoint Road, Suite 200**

**Westminster, Colorado  80020**

**(303) 426-6262**

(Address, including zip code, and telephone number,including area code, of principal executive offices)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes        ý                           No          o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

Yes        ý                           No          o

 

Asof August 5, 2005, there were 55,015,757 shares of the registrant’s CommonStock, par value $0.001 per share, outstanding.

 

This quarterly report on Form 10-Q consists of 19 pages.

 

 

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**ALLOS THERAPEUTICS, INC.**

 

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| PART I.  Financial Information |                                                                                                                                                                                                                  |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM 1.                             | Financial Statements                                                                                                                                                                                                  |   |
|                                | Balance Sheets (unaudited) — as of  December 31, 2004 and June 30, 2005                                                                                                                           |   |
|                                | Statements  of Operations (unaudited) — for the three- and six-month periods ended June  30, 2004 and 2005 and the cumulative period from September 1, 1992 (date  of inception) through June 30, 2005 |   |
|                                | Statements  of Cash Flows (unaudited) — for the six-month periods ended June 30, 2004 and  2005 and the cumulative period from September 1, 1992 (date of  inception) through June 30, 2005                 |   |
|                                | Notes to Financial Statements  (unaudited)                                                                                                                                                                            |   |
| ITEM 2.                             | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                                                                                                           |   |
| ITEM 3.                             | Quantitative and Qualitative  Disclosures About Market Risk                                                                                                                                                           |   |
| ITEM 4.                             | Controls and Procedures                                                                                                                                                                                               |   |
| PART II.  Other Information    |                                                                                                                                                                                                                  |
| ITEM 1.                             | Legal Proceedings                                                                                                                                                                                                     |   |
| ITEM 2.                             | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                                                                                          |   |
| ITEM 3.                             | Defaults Upon Senior Securities                                                                                                                                                                                       |   |
| ITEM 4.                             | Submission of Matters to a Vote of Security Holders                                                                                                                                                                   |   |
| ITEM 5.                             | Other Information                                                                                                                                                                                                     |   |
| ITEM 6.                             | Exhibits                                                                                                                                                                                                              |   |
| SIGNATURES                          |                                                                                                                                                                                                                  |

 

NOTE:

 

*Unless the context requires otherwise, references in thisreport to “Allos,” the “Company,” “we,” “us,” and “our” refer to AllosTherapeutics, Inc.*

 

*“Allos”, the Allos logo, EFAPROXYNTM (efaproxiral), and allother Allos names are trademarks of Allos Therapeutics, Inc. in the UnitedStates and in other selected countries. All other brand names or trademarks appearingin this report are the property of their respective holders.*

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.****                                                    ****FINANCIAL STATEMENTS**

 

**ALLOS THERAPEUTICS, INC.**

**BALANCE SHEETS**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                     | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------|------------|
| ** **                                                                                                                                                                                                                     | ** ** | **2004**              | ** ** | **2005**     | ** ** |
| **ASSETS**                                                                                                                                                                                                                     |       |                  |       |         |       |
| Current assets:                                                                                                                                                                                                                |       |                  |       |         |       |
| Cash and cash equivalents                                                                                                                                                                                                      |       | $                     | 1,108,726  |         | $          | 2,981,147 |   |
| Restricted cash                                                                                                                                                                                                                |       | 550,000               |       | 550,000      |       |
| Investments in marketable securities                                                                                                                                                                                           |       | 22,601,805            |       | 48,980,203   |       |
| Prepaid research and development expenses                                                                                                                                                                                      |       | 272,061               |       | 399,520      |       |
| Prepaid expenses and other assets                                                                                                                                                                                              |       | 522,591               |       | 1,003,535    |       |
| Total current assets                                                                                                                                                                                                           |       | 25,055,183            |       | 53,914,405   |       |
| Investments in marketable securities                                                                                                                                                                                           |       | 138,055               |       | 10,609,629   |       |
| Property and equipment, net                                                                                                                                                                                                    |       | 980,242               |       | 829,783      |       |
| Total assets                                                                                                                                                                                                                   |       | $                     | 26,173,480 |         | $          | 65,353,817 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                 |       |                  |       |         |       |
| Current liabilities:                                                                                                                                                                                                           |       |                  |       |         |       |
| Trade accounts payable and accrued expenses                                                                                                                                                                                    |       | $                     | 648,345    |         | $          | 630,531 |   |
| Accrued research and development expenses                                                                                                                                                                                      |       | 894,977               |       | 715,933      |       |
| Accrued bonus and employee benefits                                                                                                                                                                                            |       | 767,155               |       | 714,697      |       |
| Total current liabilities                                                                                                                                                                                                      |       | 2,310,477             |       | 2,061,161    |       |
| Commitments and contingencies (Note 8)                                                                                                                                                                                         |       |                  |       |         |       |
|                                                                                                                                                                                                                           |       |                  |       |         |       |
| Stockholders’ equity:                                                                                                                                                                                                     |       |                  |       |         |       |
| Preferred stock, $0.001 par value;  10,000,000 shares authorized at December 31, 2004 and June 30, 2005;  no shares issued or outstanding                                                                            |       | —                |       | —       |       |
| Series A Junior Participating Preferred  Stock, $0.001 par value; 1,000,000 shares designated from authorized  preferred stock at December 31, 2004 and June 30, 2005; no shares issued  or outstanding                   |       | —                |       | —       |       |
| Series A Exchangeable Preferred Stock,  $0.001 par value; no and 2,714,932 shares designated from authorized  preferred stock at December 31, 2004 and June 30, 2005, respectively; no  shares issued or outstanding      |       | —                |       | —       |       |
| Common stock, $0.001 par value; 75,000,000  shares authorized at December 31, 2004 and June 30, 2005; 31,175,783 and  55,015,757 shares issued and outstanding at December 31, 2004 and June  30, 2005, respectively |       | 31,176                |       | 33,844       |       |
| Additional paid-in capital                                                                                                                                                                                                     |       | 181,453,476           |       | 231,546,159  |       |
| Deferred compensation related to stock  based compensation                                                                                                                                                                     |       | (34,820               | )          | (9,229       | )          |
| Deficit accumulated during the development  stage                                                                                                                                                                              |       | (157,586,829          | )          | (168,278,118 | )          |
| Total stockholders’ equity                                                                                                                                                                                                |       | 23,863,003            |       | 63,292,656   |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                |       | $                     | 26,173,480 |         | $          | 65,353,817 |   |

 

***The accompanying notes are anintegral part of these financial statements.***

 

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**ALLOSTHERAPEUTICS, INC.STATEMENTS OF OPERATIONS**

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** | **Cumulative  Period from  September 1, 1992  (date of inception)  through June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2004**                              | ** ** | **2005**                            | ** ** | **2004**                                                                                        | ** ** | **2005** | ** ** | **2005** | ** ** |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Operating expenses:                                                   |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Research and development                                              |       | $                                     | 3,446,545  |                                | $          | 2,620,782                                                                                       |       | $ | 5,435,112 |   | $ | 4,968,929 |   | $ | 87,286,748 |   |
| Clinical manufacturing                                                |       | 1,373,815                             |       | 267,992                             |       | 2,156,385                                                                                       |       | 627,738 |   | 26,142,863 |   |
| Marketing, general and administrative                                 |       | 2,441,511                             |       | 2,614,918                           |       | 4,954,513                                                                                       |       | 4,807,625 |   | 64,046,111 |   |
| Restructuring costs                                                   |       | —                                |       | —                              |       | —                                                                                          |       | 380,086 |   | 1,018,156 |   |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Total operating expenses                                              |       | 7,261,871                             |       | 5,503,692                           |       | 12,546,010                                                                                      |       | 10,784,378 |   | 178,493,878 |   |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Loss from operations                                                  |       | (7,261,871                            | )          | (5,503,692                          | )          | (12,546,010                                                                                     | )          | (10,784,378 | ) | (178,493,878 | ) |
| Gain on settlement claims                                             |       | —                                |       | —                              |       | —                                                                                          |       | — |   | 5,110,083 |   |
| Interest and other income, net                                        |       | 111,284                               |       | 507,462                             |       | 248,898                                                                                         |       | 716,578 |   | 15,342,141 |   |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Net loss                                                              |       | (7,150,587                            | )          | (4,996,230                          | )          | (12,297,112                                                                                     | )          | (10,067,800 | ) | (158,041,654 | ) |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Dividend related to beneficial conversion  feature of preferred stock |       | —                                |       | (623,489                            | )          | —                                                                                          |       | (623,489 | ) | (10,236,464 | ) |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Net loss attributable to common  stockholders                         |       | $                                     | (7,150,587 | )                                   | $          | (5,619,719                                                                                      | )          | $ | (12,297,112 | ) | $ | (10,691,289 | ) | $ | (168,278,118 | ) |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Basic and diluted net loss per share                                  |       | $                                     | (0.23      | )                                   | $          | (0.13                                                                                           | )          | $ | (0.40 | ) | $ | (0.29 | ) |   |   |
|                                                                  |       |                                  |       |                                |       |                                                                                            |       |   |   |   |   |
| Weighted average shares outstanding:   basic and diluted         |       | 31,139,289                            |       | 42,683,395                          |       | 31,124,616                                                                                      |       | 36,961,378 |   |   |   |

 

***The accompanying notes are anintegral part of these financial statements.***

 

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**ALLOSTHERAPEUTICS, INC.STATEMENTS OF CASH FLOWS(unaudited)**

** **
| ** **                                                                                              | ** ** | **Six Months Ended  June 30,** | ** **  | **Cumulative Period  From September 1, 1992  (date of inception)  through** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------|-------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2004**                       | ** **  | **2005**                                                                         | ** ** | **June 30, 2005** | ** ** |
| Cash Flows From Operating Activities:                                                                   |       |                           |        |                                                                             |       |   |   |
| Net loss                                                                                                |       | $                              | (12,297,112 | )                                                                                | $          | (10,067,800 | ) | $ | (158,041,654 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                            |       |                           |        |                                                                             |       |   |   |
| Depreciation and amortization                                                                           |       | 282,172                        |        | 225,740                                                                          |       | 2,599,647 |   |
| Stock-based compensation                                                                                |       | 139,867                        |        | 456,092                                                                          |       | 22,022,324 |   |
| Write-off of long-term investment                                                                       |       | —                         |        | —                                                                           |       | 1,000,000 |   |
| Other                                                                                                   |       | —                         |        | —                                                                           |       | 98,942 |   |
| Changes in operating assets and  liabilities:                                                           |       |                           |        |                                                                             |       |   |   |
| Prepaids and other assets                                                                               |       | (220,441                       | )           | (608,403                                                                         | )          | (1,393,055 | ) |
| Interest receivable on investments                                                                      |       | 21,195                         |        | (317,289                                                                         | )          | (739,839 | ) |
| Trade accounts payable and accrued expenses                                                             |       | 114,075                        |        | (17,814                                                                          | )          | 630,531 |   |
| Accrued research and development expenses                                                               |       | 513,565                        |        | (179,044                                                                         | )          | 715,933 |   |
| Accrued bonus and employee benefits                                                                     |       | (64,622                        | )           | (52,458                                                                          | )          | 714,697 |   |
| Net cash used in operating activities                                                                   |       | (11,511,301                    | )           | (10,560,976                                                                      | )          | (132,392,474 | ) |
|                                                                                                    |       |                           |        |                                                                             |       |   |   |
| Cash Flows From Investing Activities:                                                                   |       |                           |        |                                                                             |       |   |   |
| Acquisition of property and equipment                                                                   |       | (33,246                        | )           | (75,281                                                                          | )          | (3,175,245 | ) |
| Purchases of marketable securities                                                                      |       | (20,837,089                    | )           | (54,421,684                                                                      | )          | (377,286,845 | ) |
| Proceeds from sales of marketable  securities                                                           |       | 29,709,000                     |        | 17,889,000                                                                       |       | 318,436,852 |   |
| Purchase of long-term investment                                                                        |       | —                         |        | —                                                                           |       | (1,000,000 | ) |
| Payments received on notes receivable                                                                   |       | —                         |        | —                                                                           |       | 49,687 |   |
| Net cash provided by (used in) investing  activities                                                    |       | 8,838,665                      |        | (36,607,965                                                                      | )          | (62,975,551 | ) |
|                                                                                                    |       |                           |        |                                                                             |       |   |   |
| Cash Flows From Financing Activities:                                                                   |       |                           |        |                                                                             |       |   |   |
| Principal payments under capital leases                                                                 |       | —                         |        | —                                                                           |       | (422,088 | ) |
| Proceeds from sales leaseback                                                                           |       | —                         |        | —                                                                           |       | 120,492 |   |
| Pledging restricted cash                                                                                |       | —                         |        | —                                                                           |       | (550,000 | ) |
| Proceeds from issuance of preferred stock,  net of issuance costs                                       |       | —                         |        | 48,884,831                                                                       |       | 89,170,640 |   |
| Proceeds from issuance of common stock,  associated with stock options and employee stock purchase plan |       | 124,758                        |        | 156,531                                                                          |       | 1,135,516 |   |
| Proceeds from issuance of common stock, net  of issuance costs                                          |       | (8,279                         | )           | —                                                                           |       | 108,894,612 |   |
| Net cash provided by financing activities                                                               |       | 116,479                        |        | 49,041,362                                                                       |       | 198,349,172 |   |
| Net increase (decrease) in cash and cash  equivalents                                                   |       | (2,556,157                     | )           | 1,872,421                                                                        |       | 2,981,147 |   |
| Cash and cash equivalents, beginning of  period                                                         |       | 4,642,305                      |        | 1,108,726                                                                        |       | — |   |
| Cash and cash equivalents, end of period                                                                |       | $                              | 2,086,148   |                                                                             | $          | 2,981,147 |   | $ | 2,981,147 |   |
|                                                                                                    |       |                           |        |                                                                             |       |   |   |
| Supplemental Schedule of Non-cash  Operating and Financing Activities:                             |       |                           |        |                                                                             |       |   |   |
| Cash paid for interest                                                                                  |       | $                              | —      |                                                                             | $          | — |   | $ | 1,033,375 |   |
| Issuance of stock in exchange for license  agreement                                                    |       | —                         |        | —                                                                           |       | 40,000 |   |
| Capital lease obligations incurred for  acquisition of property and equipment                           |       | —                         |        | —                                                                           |       | 422,088 |   |
| Issuance of stock in exchange for notes  receivable                                                     |       | —                         |        | —                                                                           |       | 139,687 |   |
| Issuance of common stock in exchange for  Series A Exchangeable Preferred Stock                         |       | —                         |        | 49,508,320                                                                       |       | 49,508,320 |   |

 

***The accompanying notes are anintegral part of these financial statements.***

 

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**ALLOSTHERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS(unaudited)**

 

**1.****             ****Basis of Presentation**

 

The unaudited financialstatements of Allos Therapeutics, Inc., a company in the development stage(referred to herein as the “Company,” “we,” “us” or “our”), included hereinreflect all adjustments, consisting only of normal recurring adjustments, whichin the opinion of management are necessary to fairly state the financialposition, results of operations and cash flows of the Company for the periodspresented. Certain information and footnote disclosures normally included inaudited financial information prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted pursuant to the Securities and Exchange Commission’s rules andregulations. The results of operations for the periods ended June 30, 2005 arenot necessarily indicative of the results to be expected for any subsequentquarter or for the entire fiscal year ending December 31, 2005. Thesefinancial statements should be read in conjunction with the audited financialstatements and notes thereto which are included in our Annual Report on Form10-K for the year ended December 31, 2004 for a broader discussion of ourbusiness and the opportunities and risks inherent in such business.

 

We have never generated anyrevenue from product sales and have experienced significant net losses sinceour inception in 1992. We have incurred these losses principally from costsincurred in our research and development programs and from our general andadministrative expenses. We expect to continue incurring net losses for theforeseeable future. The presence and size of these potential net losses willdepend, in large part, on if and when we obtain regulatory approval in theUnited States or Europe to market our lead product candidate, EFAPROXYN, as anadjunct to radiation therapy for the treatment of brain metastases originatingfrom breast cancer. Our ability to generate revenue and achieve profitabilityis dependent on our ability, alone or with partners, to successfully completethe development of our product candidates, conduct clinical trials, obtain thenecessary regulatory approvals, and manufacture and market our productcandidates.

 

Based upon the currentstatus of our product development and commercialization plans, we believe thatour existing cash, cash equivalents, and investments in marketable securitieswill be adequate to satisfy our capital needs through at least the firstquarter of 2007. We anticipate continuing our current development programsand/or beginning other long-term development projects on new products or technologies.These projects may require many years and substantial expenditures to completeand may ultimately be unsuccessful. Therefore, we may need to obtain additionalfunds from outside sources to continue research and development activities,fund operating expenses, pursue regulatory approvals and build sales andmarketing capabilities, as necessary. However, our actual capital requirementswill depend on many factors, including:

 

•                  the status of our product developmentprograms;

•                  the time and cost involved in conductingclinical trials and obtaining regulatory approvals;

•                  the time and cost involved in filing,prosecuting and enforcing patent claims;

•                  competing technological and marketdevelopments; and

•                  our ability to market and distribute ourfuture products and establish new collaborative and licensing arrangements.

 

**2.****             ****Cash, Cash Equivalents, andInvestments in Marketable Securities**

 

Allhighly liquid investments with an original maturity of three months or less areconsidered to be cash equivalents. The carrying values of our cash equivalentsand investments in marketable securities approximate their market values basedon quoted market prices. We account for investments in marketable securities inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 115,*Accounting for Certain Investments in Debt andEquity Securities*. Investments in marketable securities areclassified as held to maturity and are carried at cost plus accrued interest.Substantially all of our marketable securities are held in corporate notes withremaining maturities ranging from one to twenty months.

 

**3.****             ****Accrued Research andDevelopment Expenses**

 

Werecord accruals for contracted third-party development activity, includingestimated clinical study costs, which will be invoiced to us in a subsequentaccounting period. Clinical study costs represent costs incurred by clinicalresearch organizations and clinical sites. These costs are recorded as acomponent of research and development expenses. Management accrues costs forthese clinical studies based on the progress of the clinical trials, includingpatient enrollment, dosing levels of patients enrolled, estimated costs to dosepatients, invoices received and contracted costs when evaluating the adequacyof the accrued liabilities. Significant judgments and estimates are made andused in determining the accrued balance in any accounting period. Actualresults could differ from these estimates.

 

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**4.****             ****Series A ExchangeablePreferred Stock Financing**

 

On March 2, 2005, weentered into a Securities Purchase Agreement with Warburg Pincus Private EquityVIII, L.P. (“Warburg”) and certain other investors pursuant to which we issuedand sold an aggregate of 2,352,443 shares of Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) at a price per share of $22.10(the “Preferred Purchase Price”), for aggregate gross proceeds of approximately$52.0 million (the “Preferred Stock Financing”). We incurred offeringexpenses of approximately $3.1 million in connection with the sale of theExchangeable Preferred, resulting in net proceeds to the Company ofapproximately $48.9 million. The shares were sold under our shelfRegistration Statement on Form S-3 (File No. 333-113353) declaredeffective by the Securities and Exchange Commission on April 21, 2004. Theclosing of the sale of 2,262,443 shares of Exchangeable Preferred to Warburgoccurred on March 4, 2005. The closing of the sale of an additional 90,000shares of Exchangeable Preferred to certain other investors occurred onMarch 8, 2005.

 

OnMay 18, 2005, at our 2005 Annual Meeting of Stockholders, our stockholdersvoted to approve the issuance of shares of our common stock upon exchange ofshares of the Exchangeable Preferred.  Asa result of such approval, on May 18, 2005, we issued a total of 23,524,430shares of common stock upon exchange of 2,352,443 shares of ExchangeablePreferred (the “Share Exchange”).  As aresult of the Share Exchange, we reclassified $48.9 million associated with theExchangeable Preferred from temporary equity to common stock and additionalpaid in capital in the stockholders’ equity section of our balance sheet.

 

ThePreferred Purchase Price represented a 7.5% discount to the 20-day trailing averageclosing price of the Company’s common stock on the Nasdaq National Market as ofMarch 2, 2005, calculated on an as-exchanged for common stock basis.  In connection with the Share Exchange, theCompany recorded a deemed dividend related to the beneficial conversion featureof the Exchangeable Preferred equal to $623,489, representing the differencebetween the effective conversion price per share of common stock and the marketvalue per share of common stock as of the closing date of the Preferred StockFinancing.  As reflected on theStatements of Operations, this dividend increases the net loss attributable tocommon stockholders for the three- and six-month periods ended June 30, 2005.

 

Inconnection with the sale of Exchangeable Preferred, we entered into aRegistration Rights Agreement dated March 4, 2005 pursuant to which wegranted certain registration rights with respect to the shares of common stock,issued upon exchange of the Exchangeable Preferred.

 

Pursuantto the Securities Purchase Agreement, for so long as Warburg owns at leasttwo-thirds of the shares of common stock issued upon exchange of suchExchangeable Preferred, we will nominate and use our reasonable best efforts tocause to be elected and cause to remain as directors on our board of directorstwo individuals designated by Warburg (each, an “Investor Designee” andcollectively, the “Investor Designees”). If Warburg no longer has the right todesignate two members of our board of directors, then, for so long as Warburgowns at least 50% of shares of common stock issued upon exchange of suchExchangeable Preferred, we will nominate and use our reasonable best efforts tocause to be elected and cause to remain as a director on our board ofdirectors, one Investor Designee. In addition, subject to applicable law andthe rules and regulations of the Securities and Exchange Commission and TheNasdaq Stock Market, we will use our reasonable best efforts to cause one ofthe Investor Designees to be a member of each principal committee of our boardof directors. Effective upon the closing of the sale of Exchangeable Preferredto Warburg on March 4, 2005, Messrs. Stewart Hen and Jonathan Leff, each ofwhom is a Managing Director of Warburg, were appointed to the board ofdirectors pursuant to Warburg’s right to nominate directors.

 

**5.****             ****Stock-Based Compensation**

 

Weaccount for grants of stock options according to the intrinsic value method asprescribed by the Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB 25”) and related Interpretations. Pro forma net loss information, asrequired by SFAS No. 123,*Accountingfor Stock-Based Compensation* (“SFAS 123”), is presented belowin accordance with SFAS No. 148,*Accounting for Stock-Based Compensation—Transition and Disclosure* (“SFAS 148”).Any deferred stock-based compensation calculated according to APB 25 isamortized over the vesting period of the individual options, generallyfour years, in accordance with Financial Accounting Standards Board (“FASB”)Interpretation No. 28,*Accounting forStock Appreciation Rights and Other Variable Stock Option and Award Plans*(“FIN 28”).

 

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OnJanuary 12, 2000, the Company granted Dr. Stephen J. Hoffman a stockoption to purchase 328,971 shares of common stock at $2.42 per share (the “1995Plan Option”) under the terms of the Company’s 1995 Stock Option Plan (the “1995Plan”).  Dr. Hoffman has served as a member of the Board since 1994 and asthe Company’s Chairman of the Board since December 2001.  He alsoserved as the Company’s President and Chief Executive Officer fromJuly 1994 to December 2001.  Effective February 28, 2003,the Company entered into a two-year consulting agreement with Dr. Hoffman andterminated the employment agreement previously entered into with him inJanuary 2001.  The consulting agreement expired in accordance withits terms on February 28, 2005.  On May 18, 2005, in recognition ofDr. Hoffman’s efforts and services on behalf of the Company and as an incentivefor Dr. Hoffman’s continued service as the Company’s non-executive Chairman ofthe Board, the Compensation Committee recommended and the Board approved anamendment to the 1995 Plan Option to extend the exercise period for such optionuntil the earlier of (i) January 12, 2010 (the expiration date of suchoption), or (ii) three months after the date that Dr. Hoffman ceases to serveas a director of the Company.  Prior to such amendment, the 1995 PlanOption would have expired on May 28, 2005, or three months after the expirationof Dr. Hoffman’s consulting agreement with the Company.  Except asset forth above, the 1995 Plan Option remains in full force and effect inaccordance with its original terms.  Inconjunction with this amendment to the 1995 Plan Option, the Company recordednon-cash stock-based compensation expense of $462,000 during the three monthsended June 30, 2005 in accordance with SFAS 123.  This expense is reflected in marketing,general and administrative expenses on the Statements of Operations for thethree- and six-month periods ended June 30, 2005.

 

Thefollowing table illustrates the effect on net loss and loss per share if we hadapplied the fair value recognition provisions of SFAS 123 to stock-basedcompensation for the three- and six-month periods ended June 30, 2004 and 2005.Such pro forma disclosures may not be representative of the pro forma effect infuture years because options vest over several years and additional grants maybe made each year.

 
| ** **                                                                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                | ** ** | **2004**                              | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                      |       |                                  |       |                                |       |   |   |   |   |
| Net loss attributable to common  stockholders, as reported                                |       | $                                     | (7,150,587 | )                                   | $          | (5,619,719 | ) | $ | (12,297,112 | ) | $ | (10,691,289 | ) |
| Add: Stock-based compensation expense  included in reported net loss                      |       | 49,065                                |       | 471,586                             |       | 139,867 |   | 456,092 |   |
|                                                                                      |       |                                  |       |                                |       |   |   |   |   |
| Deduct: Stock-based compensation expense as  determined under the fair value based method |       | (529,048                              | )          | (809,312                            | )          | (1,073,136 | ) | (1,202,656 | ) |
|                                                                                      |       |                                  |       |                                |       |   |   |   |   |
| Pro forma net loss                                                                        |       | $                                     | (7,630,570 | )                                   | $          | (5,957,445 | ) | $ | (13,230,381 | ) | $ | (11,437,853 | ) |
|                                                                                      |       |                                  |       |                                |       |   |   |   |   |
| Basic and diluted net loss per share – as  reported                                  |       | $                                     | (0.23      | )                                   | $          | (0.13 | ) | $ | (0.40 | ) | $ | (0.29 | ) |
|                                                                                      |       |                                  |       |                                |       |   |   |   |   |
| Basic and diluted net loss per share – pro  forma                                    |       | $                                     | (0.25      | )                                   | $          | (0.14 | ) | $ | (0.43 | ) | $ | (0.31 | ) |

 

The following assumptionswere used in estimating the stock-based compensation expense, as determinedunder the fair value based method, for activity during the three- and six-monthperiods ended June 30, 2004 and 2005.

 
| ** **                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **2004**                              | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2005** | ** ** |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Stock option plans:             |       |                                  |       |                                |       |   |   |   |   |
| Expected dividend yield         |       | 0                                     | %          | 0                                   | %          | 0 | % | 0 | % |
| Expected stock price volatility |       | 126                                   | %          | 83                                  | %          | 65% - 126 | % | 83% - 85 | % |
| Risk free interest rate         |       | 2.6% - 5.5                            | %          | 3.8                                 | %          | 2.6% - 5.5 | % | 3.7% - 4.0 | % |
| Expected life (years)           |       | 5.0                                   |       | 5.0                                 |       | 5.0 |   | 4.0 – 5.0 |   |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Stock purchase plan:            |       |                                  |       |                                |       |   |   |   |   |
| Expected dividend yield         |       | 0                                     | %          | 0                                   | %          | 0 | % | 0 | % |
| Expected stock price volatility |       | 64% - 119                             | %          | 69                                  | %          | 64% - 119 | % | 69 | % |
| Risk free interest rate         |       | 0.94                                  | %          | 1.6                                 | %          | 0.94 | % | 1.6 | % |
| Expected life (years)           |       | 1.5 – 2.0                        |       | 2                                   |       | 1.5 – 2.0 |   | 2 |   |

 

8

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**6.****             ****Net Loss Per Share**

 

Basic and diluted net lossper share have been computed by dividing the net loss attributable to commonstockholders for each period by the weighted average number of common sharesoutstanding during each respective period. Shares of common stock issuable uponthe exercise of outstanding stock options and warrants were excluded from thecalculation of diluted net loss per share as the effect of including suchshares was anti-dilutive.

 

**7.****             ****Restructuring Costs**

 

InJanuary 2005, we executed agreements to sublease approximatelythree-quarters of the 12,708 square feet of excess space in our corporateoffices located in Westminster, Colorado. The term of each sublease agreementis through the term of our office lease, or October 31, 2008. The actualrental payments to us under the sublease agreements approximate $230,000. Asthe Company’s obligations under our primary lease are in excess of the sum ofthe actual and expected sublease rental payments for this excess space, werecorded a loss of approximately $380,000 in the six months ended June 30,2005.

 

**8.**              **Commitments andContingencies**

 

*Commitments*

 

InJune 2005, we entered into a Manufacturing Agreement (the “Agreement”) withHovione Inter Limited (“Hovione”) covering the supply of EFAPROXYN bulk drugsubstance, or efaproxiral sodium.  Underthe terms of the Agreement, we are required to purchase a negotiated percentageof our annual requirements for efaproxiral sodium from Hovione.  We must also meet annual minimum purchaserequirements of efaproxiral sodium from Hovione equal to $2,000,000 in 2006,$3,500,000 in 2007, $5,000,000 in 2008, and $5,000,000 in each year thereafter throughthe end of the term of the agreement.  Inthe event that we do not meet these annual minimum purchase requirements, wehave the option to pay extension fees to move the annual requirements out byone year.  These extension fees are equalto $100,000 for a first extension, $150,000 for a second extension, and$200,000 for a third and final extension, if necessary.

 

The Agreement has a term of seven years followingour receipt of approval, if any, from the United States Food and DrugAdministration to market EFAPROXYN in the United States.  The Company and Hovione each have customarytermination rights, including termination for material breach or other eventsrelating to insolvency or bankruptcy.  In addition, we may terminate theAgreement at any time if we decide to discontinue development or, if approved,marketing of EFAPROXYN.

 

*Contingencies*

 

TheCompany and one of our officers have been named as defendants in a purportedsecurities class action lawsuit filed in May 2004 in the United StatesDistrict Court for the District of Colorado. An amended complaint was filed inAugust 2004. The lawsuit is brought on behalf of a purported class ofpurchasers of our securities during the period from April 23, 2003 toApril 29, 2004, and is seeking unspecified damages relating to theissuance of allegedly false and misleading statements regarding EFAPROXYNduring this period and subsequent declines in our stock price.  On October 12, 2004, we filed a motionto dismiss the case with prejudice. That motion remains pending.

 

Webelieve the claims set forth in the pending lawsuit are without merit, and weintend to vigorously defend against them. This lawsuit has been tendered to ourinsurance carriers.  As with any litigationproceeding, we cannot predict with certainty the eventual outcome of pendinglitigation.  If we are not successful inour defense against such claims, we could be forced to make significantpayments to the plaintiffs, and such payments could have a material adverseeffect on our business, financial condition, results of operations and cashflows to the extent such payments are not covered by our insurance carriers.Even if our defense against such claims is successful, the litigation couldresult in substantial costs and divert management’s attention and resources,which could adversely affect our business.

 

InJuly 2005, a shareholder of the Company commenced a stockholder’s derivativeaction in the United States District Court for the District of Colorado againstseveral current and former directors of the Company, naming the Company as anominal defendant.  The factual allegations in the derivative action aresubstantially the same as the factual allegations in the purported securitiesclass action lawsuit filed in May 2004.  Plaintiff contends that theindividual defendants breached fiduciary duties owed to the Company, committedan “abuse of control,” gross mismanagement, waste of corporate assets, andunjust enrichment, and that one of the defendants is liable under theSarbanes-Oxley Act.  As with thesecurities lawsuit, the litigation could result in substantial costs anddiversion of management’s attention and resources, which could adversely affectour business.

 

Weenter into indemnification provisions under our agreements with other companiesin our ordinary course of business, typically with business partners,contractors, clinical sites and suppliers. Under these provisions we generallyindemnify and hold harmless the indemnified party for losses suffered orincurred by the indemnified party as a result of our activities. Theseindemnification provisions generally survive termination of the underlyingagreement. The maximum potential amount of future payments we could be requiredto make under these indemnification provisions is unlimited. We have notincurred material costs to

 

9

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defendlawsuits or settle claims related to these indemnification agreements. As aresult, the estimated fair value of these agreements is minimal. Accordingly,we have no liabilities recorded for these agreements as of June 30, 2005.

 

**9.****             ****Recently Issued AccountingPronouncement**

 

In December 2004, theFASB issued SFAS No. 123 (revised 2004),*Share-Based Payment* (“SFAS 123R”), which revises SFAS 123 andsupersedes APB 25. SFAS 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair values. The pro forma disclosurespreviously permitted under SFAS 123 no longer will be an alternative tofinancial statement recognition. We are required to adopt SFAS 123R in thefirst quarter of fiscal 2006, beginning January 1, 2006. UnderSFAS 123R, we must determine the appropriate fair value model to be usedfor valuing share-based payments, the amortization method for compensation costand the transition method to be used at date of adoption. The transitionmethods include prospective and retroactive adoption options. Under the retroactiveoption, prior periods may be restated either as of the beginning of the year ofadoption or for all periods presented. The prospective method requires thatcompensation expense be recorded for all unvested stock options and restrictedstock at the beginning of the first quarter of adoption of SFAS 123R,while the retroactive methods would record compensation expense for allunvested stock options and restricted stock beginning with the first periodrestated. We are evaluating the requirements of SFAS 123R and expect thatthe adoption of SFAS 123R will have a material impact on our results ofoperations and loss per share. We have not yet determined the method ofadoption or the effect of adopting SFAS 123R, and have not determinedwhether the adoption will result in amounts that are similar to the current proforma disclosures under SFAS 123.

 

10

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**ITEM 2.****                 ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations, as well as information containedelsewhere in this report, contains statements that constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. These forward-looking statements include, but are not limitedto, statements concerning our plans to continue development of our currentproduct candidates; conduct clinical trials with respect to our productcandidates; seek regulatory approvals; address certain markets; initiatemarketing activities related to commercialization of our products; raiseadditional capital; hire sales and marketing personnel; develop relationshipswith pharmaceutical companies; obtain and protect rights to technology;establish new collaborative and licensing agreements; and evaluate additionalproduct candidates for in-license and subsequent clinical and commercialdevelopment. In some cases, these statements may be identified by terminologysuch as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”“estimates,” “predicts,” “potential” or “continue,” or the negative of suchterms and other comparable terminology. Although we believe that theexpectations reflected in the forward-looking statements contained herein arereasonable, we cannot guarantee future results, levels of activity, performanceor achievements. These statements involve known and unknown risks anduncertainties that may cause our or our industry’s results, levels of activity,performance or achievements to be materially different from those expressed orimplied by the forward-looking statements. Factors that could cause orcontribute to such differences include, but are not limited to, those mentionedin the discussion below and those described in the “Risk Factors”discussion of our Annual Report on Form 10-K for the year endedDecember 31, 2004 filed with the Securities and Exchange Commission. As aresult, you should not place undue reliance on these forward-lookingstatements. All forward-looking statements included in this report are based oninformation available to us as of the date hereof and we undertake noobligation to revise any forward-looking statements in order to reflect anysubsequent events or circumstances. Forward-looking statements not specificallydescribed above also may be found in these and other sections of this report.*

 

**Overview**

 

AllosTherapeutics, Inc. is a biopharmaceutical company that is focused ondeveloping and commercializing innovative small molecule drugs for improvingcancer treatments. Small molecule drugs, in general, are non-protein productsproduced by chemical synthesis rather than biological methods. We strive todevelop drugs that improve the treatment of cancer and enhance the power ofcurrent therapies. Our goal is to build a profitable company by generatingincome from products we develop and commercialize, either alone or togetherwith one or more potential strategic partners. Our focus is on productopportunities that leverage our internal clinical development and regulatoryexpertise and address important medical markets. We endeavor to grow ourexisting portfolio of product candidates through ongoing product acquisitionand in-licensing efforts.

 

Wehave never generated any revenue from product sales and have experiencedsignificant net losses since our inception in 1992. We have incurred theselosses principally from costs incurred in our research and development programsand from our general and administrative expenses. We expect to continueincurring net losses for the foreseeable future. The presence and size of thesepotential net losses will depend, in large part, on if and when we obtain regulatoryapproval in the United States or Europe to market our lead product candidate,EFAPROXYN, as an adjunct to radiation therapy for the treatment of brainmetastases originating from breast cancer. Our ability to generate revenue andachieve profitability is dependent on our ability, alone or with partners, tosuccessfully complete the development of our product candidates, conductclinical trials, obtain the necessary regulatory approvals, and manufacture andmarket our product candidates.

 

Wehave three product candidates that are currently under development: EFAPROXYN(efaproxiral), formerly known as RSR13, PDX (pralatrexate) and RH1.

 

•    **EFAPROXYN** is the first synthetic smallmolecule designed to sensitize hypoxic, or oxygen-deprived, areas of tumors duringradiation therapy by facilitating the release of oxygen from hemoglobin, theoxygen-carrying protein contained within red blood cells, and increasing thelevel of oxygen in tumors. The presence of oxygen in tumors is an essentialelement for the effectiveness of radiation therapy. By increasing tumoroxygenation, we believe EFAPROXYN has the potential to enhance the efficacy ofstandard radiation therapy.

 

11

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InDecember 2003, we submitted a New Drug Application, or NDA, to the UnitedStates Food and Drug Administration, or FDA, for approval to market EFAPROXYNin the United States as an adjunct to whole brain radiation therapy, or WBRT,for the treatment of patients with brain metastases originating from breastcancer. The NDA was based on the findings from our randomized, open labelPhase 3 clinical trial of EFAPROXYN in patients with brain metastases,which we called REACH. The results from the REACH trial were announced inApril 2003. In May 2004, the FDA’s Oncologic Drug Advisory Committee,or ODAC, reviewed the NDA and voted not to recommend approval of EFAPROXYN forthis indication based on the data from the REACH trial. However, inJune 2004, the FDA issued an “approvable letter” in which it indicatedthat before the NDA may be approved, it would be necessary for us tosuccessfully complete our ongoing Phase 3 clinical trial of EFAPROXYN inpatients with brain metastases originating from breast cancer and submit theresults as a NDA amendment for the FDA’s review. In the letter, the FDA stated,“if the study shows effectiveness in this population (increased survival) usingthe pre specified analysis, and the study is otherwise satisfactory, we believeit would, together with the subset result in the [REACH trial], supportapproval.”

 

Theongoing Phase 3 trial referenced in the FDA’s approvable letter wasinitiated in February 2004. This pivotal Phase 3 trial, which iscalled ENRICH (**EN**hancing wholebrain**R**adiation therapy**I**n patients with breast**C**ancer and**H**ypoxic brain metastases), will seek to enroll approximately360 patients at up to 125 cancer centers across North America, Europe and SouthAmerica. The primary endpoint of the trial will measure the difference insurvival between patients receiving whole brain radiation therapy, or WBRT,plus supplemental oxygen, with or without EFAPROXYN. We currently anticipatethat enrollment in the trial will be completed during the second half of2006.  We plan to report preliminaryresults from the ENRICH trial approximately six months following the completionof enrollment in the trial.

 

InJune 2004, we filed a Marketing Authorization Application, or MAA, withthe European Medicines Agency, or EMEA, for approval to market EFAPROXYN inEurope as an adjunct to WBRT for the treatment of patients with brainmetastases originating from breast cancer. As with our NDA, the MAA is based on the findings from the REACHtrial.  The MAA was filed under the EMEA’scentralized procedure, which is used when marketing authorization is appliedfor in all EMEA member states simultaneously. In October 2004, we received the EMEA’s Day 120 List of Questionsrelating to the MAA, to which we responded in April 2005.  In June 2005, we received the EMEA’s Day 180List of Outstanding Issues, to which we must respond by September 14, 2005.

 

InAugust 2004, the FDA awarded orphan drug status to EFAPROXYN for use as anadjunct to WBRT for the treatment of patients with brain metastases originatingfrom breast cancer. The FDA may award orphan drug designation to drugs thattarget conditions affecting 200,000 or fewer U.S. patients per year and providea significant therapeutic advantage over existing treatments. The orphan drugdesignation provides for U.S. marketing exclusivity for seven years followingmarketing approval by the FDA.

 

Inaddition to the Phase 3 ENRICH trial, we are currently enrolling patientsin the following clinical trials involving EFAPROXYN: (i) a Phase 1clinical trial in patients with locally advanced non-small cell lung cancer, orNSCLC, receiving concurrent chemoradiotherapy (chemotherapy and radiationtherapy administered at the same time) in combination with EFAPROXYN,(ii) a Phase 1b/2 clinical trial of EFAPROXYN in patients withlocally advanced cancer of the cervix receiving concurrent chemoradiotherapy,and (iii) a Phase 1b/2 study of EFAPROXYN administered with BCNU(carmustine) chemotherapy for the treatment of patients with recurrentmalignant glioma, a type of primary brain cancer.

 

•    **PDX** is a small molecule chemotherapeutic agentthat inhibits dihydrofolate reductase, or DHFR, a folic acid (folate)-dependentenzyme involved in the building of nucleic acid, or DNA, and other processes.Preclinical data suggests that PDX has an enhanced potency and toxicity profilerelative to methotrexate and other related DHFR inhibitors. Drugs that inhibitDHFR, such as methotrexate, were among the first antifolate chemotherapeuticagents discovered. Methotrexate remains one of the most widely appliedantifolate chemotherapeutics and has been used to treat leukemia, breast,bladder, gastric, esophageal, head, and neck cancers. We believe PDX has thepotential to be delivered as a single agent or in combination therapy regimens.

 

Clinicaltrials currently enrolling patients involving PDX include: (i) aPhase 1/2 single-agent study in patients with non-Hodgkin’s lymphoma orHodgkin’s Disease, and (ii) a Phase 1 single-agent study to determinethe maximum tolerated dose of PDX with vitamin B12 and folic acidsupplementation in patients with NSCLC.

 

Duringthe second quarter of 2005, enrollment was completed in a Phase 1combination study of PDX with docetaxel in patients with advanced cancer,including NSCLC, and we completed our objective of identifying the maximumtolerated dose.

 

**•****    RH1** is a small molecule chemotherapeutic agentthat is bioactivated by the enzyme DT-diaphorase, or DTD, which isover-expressed in many tumors relative to normal tissue, including lung, colon,breast and liver tumors. Because RH1 is bioactivated in the presence of DTD, ithas the potential to provide targeted drug delivery to these tumor types whilelimiting the toxicity to normal tissue. RH1 has undergone in vivo efficacytesting by the Developmental Therapeutics Program of the National CancerInstitute and has demonstrated significant activity in both NSCLC and ovarianxenograft models.

 

12

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RH1is currently being evaluated in patients with advanced solid tumors refractoryto other chemotherapy regimens in an open label, Phase 1 dose escalationstudy to test the safety, tolerability and pharmacokinetics of escalating dosesof RH1.

 

**Series A Exchangeable Preferred Stock Financing**

 

On March 2, 2005, weentered into a Securities Purchase Agreement with Warburg Pincus Private EquityVIII, L.P. (“Warburg”) and certain other investors pursuant to which we issuedand sold an aggregate of 2,352,443 shares of Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) at a price per share of $22.10,for aggregate gross proceeds of approximately $52.0 million (“thePreferred Stock Financing”). We incurred offering expenses of approximately$3.1 million in connection with the sale of the Exchangeable Preferred,resulting in net proceeds to the Company of approximately $48.9 million.The shares were sold under our shelf Registration Statement on Form S-3(File No. 333-113353) declared effective by the Securities and ExchangeCommission on April 21, 2004. The closing of the sale of 2,262,443 sharesof Exchangeable Preferred to Warburg occurred on March 4, 2005. Theclosing of the sale of an additional 90,000 shares of Exchangeable Preferred tocertain other investors occurred on March 8, 2005. A summary of thematerial terms of the Preferred Stock Financing is contained in the “RecentDevelopment” section of Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations in our Annual Report on Form 10-Kfor the year ended December 31, 2004.

 

OnMay 18, 2005, at our 2005 Annual Meeting of Stockholders, our stockholdersvoted to approve the issuance of shares of our common stock upon exchange ofshares of the Exchangeable Preferred.  Asa result of such approval, on May 18, 2005, we issued a total of 23,524,430shares of common stock upon exchange of 2,352,443 shares of ExchangeablePreferred.

 

**Results of Operations**

 

*Research and Development.* Research and development expensesinclude the costs of basic research, nonclinical studies, clinical trials,regulatory affairs, biostatistical data analysis, patents, trademarks andlicensing fees for new products.

 
| ** **               | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **2004**                         | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **(in millions)**                | ** ** |
| Research and development |       | $                                | 3.4        |                           | $          | 2.6 |   | $ | 5.4 |   | $ | 5.0 |   |
|                          |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

The$826,000 decrease in research and development expenses in the three monthsended June 30, 2005 as compared to the same period in 2004 was due primarilyto: (i) a $1,000,000 decrease in licensing fees related to a milestone paymentfor PDX made in the second quarter of 2004, (ii) a $277,000 decrease inregulatory fees related to our MAA filing in the second quarter of 2004, (iii)a $262,000 decrease in consulting costs related to our meeting with ODAC in thesecond quarter of 2004, (iv) a $173,000 decrease in personnel costs due tolower headcount, and (v) a $120,000 decrease in stock-based compensationexpense, partially offset by a $1,033,000 increase in clinical trial costs, dueprimarily to increased patient enrollment in ENRICH.

 

The$466,000 decrease in research and development expenses in the six months endedJune 30, 2005 as compared to the same period in 2004 was due primarily to: (i)a $1,000,000 decrease in licensing fees related to a milestone payment for PDXmade in the second quarter of 2004, (ii) a $459,000 decrease in consultingcosts related to our meeting with ODAC in the second quarter of 2004, (iii) a$388,000 decrease in personnel costs due to lower headcount and (iv) a $277,000decrease in regulatory fees related to our MAA filing in the second quarter of2004, partially offset by a $1,607,000 increase in clinical trial costs, dueprimarily to increased patient enrollment in ENRICH.

 

Forthe remainder of 2005, we expect our quarterly research and developmentexpenses to increase moderately relative to the amount recorded for the threemonths ended June 30, 2005, due primarily to costs associated with increasingenrollment in our Phase 3 ENRICH trial. The amount and timing of theincreased costs related to our clinical trials is difficult to predict due tothe uncertainty inherent in the timing of clinical trial initiations, the rateof patient enrollment and the detailed design of future trials.

 

*Clinical Manufacturing.* Clinical manufacturing expenses includethird party manufacturing costs for EFAPROXYN for use in clinical trials, costsassociated with pre-commercial scale-up of manufacturing to support anticipatedcommercial requirements, and development activities for clinical trial materialfor PDX.

 
| ** **             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **             | ** ** | **2004**                         | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **             | ** ** | **(in millions)**                | ** ** |
| Clinical manufacturing |       | $                                | 1.4        |                           | $          | 0.3 |   | $ | 2.2 |   | $ | 0.6 |   |
|                        |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

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The$1.1 million decrease in clinical manufacturing expenses in the three monthsended June 30, 2005 as compared to the same period in 2004 was due primarilyto: (i) a $675,000 decrease in third-party manufacturing costs for bulk drugsubstance and formulated drug product for EFAPROXYN, (ii) a $283,000 decreasein third-party manufacturing costs for bulk drug substance and formulated drugproduct for PDX, and (iii) a $89,000 decrease in personnel costs due to lowerheadcount.

 

The$1.5 million decrease in clinical manufacturing expenses in the six monthsended June 30, 2005 as compared to the same period in 2004 was due primarilyto: (i) a $727,000 decrease in third-party manufacturing costs for bulk drugsubstance and formulated drug product for EFAPROXYN, (ii) a $495,000 decreasein third-party manufacturing costs for bulk drug substance and formulated drugproduct for PDX, and (iii) a $187,000 decrease in personnel costs due to lowerheadcount.

 

Wecurrently have a sufficient supply of EFAPROXYN bulk drug substance andformulated drug product to support our EFAPROXYN clinical trial requirements for2005.  In addition, we currently have asufficient supply of PDX bulk drug substance to support our PDX clinical trialrequirements for 2005, although we may need to purchase additional quantitiesof PDX formulated drug product.  As aresult, we expect our clinical manufacturing expenses to remain stable for thesecond half of 2005 relative to the amount recorded for the six months endedJune 30, 2005.

 

*Marketing, General and Administrative.* Marketing, general and administrativeexpenses include costs for pre-marketing activities, executive administration,corporate offices and related infrastructure, and corporate development.

 
| ** **                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **2004**                         | ** ** | **2005**                       | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **(in millions)**                | ** ** |
| Marketing, general and administrative |       | $                                | 2.4        |                           | $          | 2.6 |   | $ | 5.0 |   | $ | 4.8 |   |
|                                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

The$173,000 increase in marketing, general and administrative expenses in thethree months ended June 30, 2005 as compared to the same period in 2004 was dueprimarily to a $595,000 increase in stock-based compensation expense primarilyattributable to $462,000 of expense recorded in the second quarter of 2005related to the amendment of certain stock options (see Footnote 5 of Part I.Financial Information in this Form 10-Q) and a $128,000 net recovery of stock-basedcompensation expense recorded in the second quarter of 2004, partially offsetby: (i) a $181,000 decrease in consulting costs primarily relating to ourcompliance efforts with the Sarbanes Oxley Act of 2002 and consulting costsincurred in preparation for potential commercialization of EFAPROXYN, (ii) a$88,000 decrease in marketing costs, and (iii) a $75,000 decrease in publicrelations costs due to reduced use of third-party agencies.

 

The$147,000 decrease in marketing, general and administrative expenses in the sixmonths ended June 30, 2005 as compared to the same period in 2004 was dueprimarily to a $524,000 increase in stock-based compensation expense primarilyattributable to $462,000 of expense recorded in the second quarter of 2005 relatedto the amendment of certain stock options and a $56,000 net recovery ofstock-based compensation expense recorded in the second quarter of 2004,partially offset by: (i) a $214,000 decrease in consulting costs primarilyrelating to our compliance efforts with the Sarbanes Oxley Act of 2002 andconsulting costs incurred in preparation for potential commercialization ofEFAPROXYN, and (ii) a $189,000 decrease in public relations costs due toreduced use of third-party agencies.

 

Weexpect our marketing, general and administrative expenses to moderatelydecrease for the second half of 2005 relative to the amount recorded for thesix months ended June 30, 2005 as we expect a decrease in stock-basedcompensation expense.

 

*Restructuring Costs.*In January 2005, we executed agreementsto sublease approximately three-quarters of the 12,708 square feet of excessspace in our corporate offices located in Westminster, Colorado. The term ofeach sublease agreement is through the term of our office lease, or October 31,2008. The actual rental payments to us under the sublease agreementsapproximate $230,000. As the Company’s obligations under our primary lease arein excess of the sum of the actual and expected sublease rental payments forthis excess space, we recorded a loss of approximately $380,000 inrestructuring costs during the six-month period ended June 30, 2005. There wereno such restructuring costs for the six-month period ended June 30, 2004.

 

*Interest and Other Income, Net*. Interest income, net of interestexpense, for the three months ended June 30, 2004 and 2005, was $111,000and $507,000, respectively.  For thesix-month periods ended June 30, 2004 and 2005, net interest income was$249,000 and $717,000, respectively.  Theincreases for the three- and six-month periods ended June 30, 2005, compared tothe same periods in 2004, were primarily due to higher average investmentbalances and higher yields on United States government securities, high-gradecommercial paper and corporate notes, and money market funds held by theCompany.

 

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**Liquidity and Capital Resources**

 

Sinceinception, we have financed our operations primarily through private placementsof common and preferred stock, a public equity financing, and interest income,which have resulted in net proceeds to us of $214.5 million through June 30,2005. We have used $132.4 million of cash for operating activities frominception through June 30, 2005. Cash, cash equivalents, and short-terminvestments in marketable securities were $52.0 million at June 30,2005.  Working capital was$51.9 million at June 30, 2005.  Netcash used in operating activities for the six-month periods ended June 30, 2004and 2005 was $11.5 million and $10.6 million, respectively. Cash used inoperating activities was primarily to fund net losses.

 

Netcash provided by investing activities for the six-month period ended June 30,2004 was $8.8 million and consisted primarily of proceeds from maturitiesof investments in marketable securities, net of purchases of investments inmarketable securities.  Net cash used ininvesting activities for the six-month period ended June 30, 2005 was $36.6million and consisted primarily of purchases of investments in marketablesecurities, net of proceeds from maturities of investments in marketablesecurities.

 

Netcash provided by financing activities during the six-month period ended June30, 2004 was $116,000 and resulted primarily from the exercise of common stockoptions.  Net cash provided by financingactivities during the six-month period ended June 30, 2005 was $49.0 millionand resulted primarily from the sale of shares of our Series AExchangeable Preferred Stock to Warburg and certain other investors pursuant tothe Securities Purchase Agreement dated March 2, 2005.

 

The following table showsour contractual obligations and commitments as of June 30, 2005. 

 
| ** **                     | ** ** | **Less than  1 year** | ** ** | **1 to 3 years** | ** ** | **4 to 5 years** | ** ** | **After  5 years** | ** ** | **Total**  | ** ** |
|--------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|--------------------|------------|------------|------------|
| Operating  lease obligations   |       | $                     | 718,678    |             | $          | 1,478,138        |       | $                  | 356,239    |       | $          | — |   | $ | 2,553,055 |   |
| License  agreement obligations |       | —                |       | 1,500,000        |       | 500,000          |       | —             |       | 2,000,000  |       |
| Purchase  obligations          |       | —                |       | 10,500,000       |       | 10,000,000       |       | 20,000,000         |       | 40,500,000 |       |
| Total  obligations             |       | $                     | 718,678    |             | $          | 13,478,138       |       | $                  | 10,856,239 |       | $          | 20,000,000 |   | $ | 45,053,055 |   |

 

Operatinglease obligations represent future minimum rental commitments for noncancelableoperating leases for our facilities and certain office equipment, net of$230,000 of sublease payments on excess space in our corporate offices.

 

Licenseagreement obligations represent future milestone payments under our licenseagreement for PDX, due upon the passage of certain time periods after theeffective date of the agreement, which could be paid earlier depending on thetiming of achieving a development milestone.

 

Purchase obligationsrepresent annual minimum purchase requirements of efaproxiral sodium fromHovione Inter Limited under our June 2005 Manufacturing Agreement, equal to$2,000,000 in calendar 2006, $3,500,000 in calendar 2007, $5,000,000 incalendar 2008, and $5,000,000 in each year thereafter through the end of theterm of the agreement (equal to the 7th anniversary of the date weobtain approval from the FDA to market EFAPROXYN).  In the event that we do not meet these annualminimum purchase requirements, we have the option to pay extension fees to movethe annual requirements out by one year. These extension fees are equal to $100,000 for a first extension,$150,000 for a second extension, and $200,000 for a third and final extension,if necessary.

 

Basedupon the current status of our product development and commercialization plans,we believe that our existing cash, cash equivalents, and investments inmarketable securities will be adequate to satisfy our capital needs through atleast the first quarter of 2007.  Weanticipate continuing our current development programs and/or beginning otherlong-term development projects on new products or technologies.  These projects may require many years andsubstantial expenditures to complete and may ultimately be unsuccessful.  Therefore, we may need to obtain additionalfunds from outside sources to continue research and development activities,fund operating expenses, pursue regulatory approvals and build sales andmarketing capabilities, as necessary. However, our actual capital requirementswill depend on many factors, including:

•                  the status of our product developmentprograms;

•                  the time and cost involved in conductingclinical trials and obtaining regulatory approvals;

•                  the time and cost involved in filing,prosecuting and enforcing patent claims;

•                  competing technological and marketdevelopments; and

•                  our ability to market and distribute ourfuture products and establish new collaborative and licensing arrangements.

 

Wemay raise additional capital in the future through arrangements with corporatepartners, equity or debt financings, or from other sources. Such arrangements,if successfully consummated, may be dilutive to our existing stockholders.However, there is no assurance that we will be successful in consummating anysuch arrangements. In addition, in the event that additional funds are obtainedthrough arrangements with collaborative partners or other sources, sucharrangements may require us to relinquish rights to some of our technologies,product candidates or products under development that we would otherwise seekto develop or commercialize ourselves. If we are unable to generate meaningfulamounts of revenue from future product sales, if any, or cannot otherwise raisesufficient additional funds to support our operations, we may be required todelay, reduce the scope of or eliminate one or more of our development programsand our business and future prospects for revenue and profitability may beharmed.

 

**Critical Accounting Policies**

 

Ourdiscussion and analysis of our financial condition and results of operationsare based upon our financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States of America.The preparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets, liabilities, andexpenses. We base our estimates on historical experience, available informationand assumptions that we believe to be reasonable under the circumstances. Weapply estimation methodologies consistently from period to period. The actualresults may differ from these estimates under different assumptions orconditions. The critical accounting policies are discussed in Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations included in our Annual Report on Form 10-K for the year endedDecember 31, 2004. In addition, we consider our accounting policy relatedto cash, cash equivalents, and investments in marketable securities to be acritical accounting policy.  All highlyliquid investments with an original maturity of three months or less areconsidered to be cash equivalents. The carrying values of our cash equivalentsand investments in marketable securities approximate their market values basedon quoted market prices. We account for investments in marketable securities inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 115,*Accounting for Certain Investments in Debt andEquity Securities*. Investments in marketable securities areclassified as held to maturity and are carried at cost plus accruedinterest.  Substantially all of ourmarketable securities are held in corporate notes with remaining maturitiesranging from one to twenty months.

 

Thesecritical accounting policies are subject to judgments and uncertainties, whichaffect the application of these policies. We have not made any changes in anyof these critical accounting polices during the three months ended June 30,2005.

 

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**Risk Factors**

 

Inaddition to the other information contained in this report, we cautionstockholders and potential investors that the following important risk factors,among others, in some cases have affected, and in the future could affect, ouractual results of operations and could cause our actual results to differmaterially from those expressed in any forward-looking statements made by or onbehalf of us. The following risk factors should be read in conjunction with theinformation contained in the “Risk Factors” section of our Annual Report onForm 10-K for the year ended December 31, 2004 for a broader discussion of therisks and uncertainties inherent in our business. The following information isnot intended to limit in any way the characterization of other statements orinformation under other captions as cautionary statements for such purpose.These factors include:

 

•                  Failure to complete clinical trials onschedule, in compliance with applicable regulations and at an acceptable cost;failure to demonstrate the safety and efficacy of our product candidates intheir target indications.

•                  Delay, difficulty, or failure to obtainregulatory approval or clearance to market our product candidates, includingdelays or difficulties in development because of insufficient proof of safetyor efficacy.

•                  Delay, difficulty, or failure to obtainadequate financing on acceptable terms to fund future operations, includingresearch, development and commercialization of product candidates.

•                  An adverse outcome in the pending securitiesclass action litigation that has been filed against us.

•                  The ability to obtain, maintain and enforceintellectual property rights; the cost of acquiring in-process technology andother intellectual property rights, either by license, collaboration orpurchase of another entity; the cost of enforcing or defending our intellectualproperty rights.

•                  Failure of third-party collaborators toeffectively conduct research and development activities, including drugdiscovery and clinical testing; conflicts of interest or priorities or disputesthat may arise between us and such third-party collaborators.

•                  Dependence upon third parties to manufactureour product candidates; failure of third parties to manufacture our productcandidates in compliance with regulatory requirements and at an acceptablecost; failure of third parties to supply sufficient quantities of our productcandidates for preclinical, clinical or commercial purposes; failure toestablish alternative sources of supply of our product candidates.

•                  The ability to create sales, marketing anddistribution capabilities for our product candidates, or enter into agreementswith third parties to perform these functions.

•                  The ability to obtain acceptable prices oradequate levels of reimbursement for our products from third-party payors,including government and health administration authorities and private healthinsurers.

•                  Competitive or market factors that may limitthe use or broad acceptance of our product candidates.

•                  The ability to attract and retain highlyqualified management and scientific personnel.

•                  Changes in accounting rules and regulations,such as accounting for stock-based compensation, that could have a significantadverse impact on our results of operations, causing our stock price to declineand negatively impacting our efforts to obtain adequate financing.

 

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**ITEM 3.****                                                    ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The primary objective of ourinvestment activities is to preserve principal while at the same timemaximizing the income we receive from our investments without significantlyincreasing risk. Some of the securities that we invest in may have market riskand all are classified as held-to-maturity. We do not own derivative financialinstruments in our investment portfolio. This means that a change in prevailinginterest rates may cause the fair value of the principal amount of theinvestment to fluctuate. For example, if we hold a security that was issuedwith a fixed interest rate at the then-prevailing rate and the prevailinginterest rate later rises, the fair value of the principal amount of ourinvestment will probably decline. To minimize this risk in the future, wemaintain a non-trading investment portfolio of investment grade, liquid debtsecurities that limits the amount of credit exposure to any one issue, issuer,or type of instrument. The weighted average duration of all of our investmentsis less than one year.  Due to theshort-term nature of these investments, we believe we have no material exposureto interest rate risk arising from our investments. Therefore, no quantitativetabular disclosure is provided.

 

**ITEM 4.****                                                    ****CONTROLS AND PROCEDURES**

 

Asof the end of the period covered by this report, an evaluation was carried outunder the supervision and with the participation of our management, includingour principal executive and financial officer (the “Evaluating Officer”), ofthe effectiveness of our disclosure controls and procedures, as defined in Rule13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”).Based on that evaluation, our management, including the Evaluating Officer,concluded that our disclosure controls and procedures were effective to ensurethat information required to be disclosed by us in reports that we file orsubmit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in Securities and Exchange Commission’s rulesand forms, and that such information is accumulated and communicated to ourmanagement, including the Evaluating Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

**No Changes in Internal Control over Financial Reporting**

 

Therewere no changes in our internal controls over financial reporting during thethree-month period ended June 30, 2005 that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

**PART II.  OTHER INFORMATION**

 

**ITEM 1.****                                                    ****LEGAL PROCEEDINGS**

 

TheCompany and one of our officers have been named as defendants in a purportedsecurities class action lawsuit filed in May 2004 in the United StatesDistrict Court for the District of Colorado. An amended complaint was filed inAugust 2004. The lawsuit is brought on behalf of a purported class ofpurchasers of our securities during the period from April 23, 2003 toApril 29, 2004, and is seeking unspecified damages relating to theissuance of allegedly false and misleading statements regarding EFAPROXYNduring this period and subsequent declines in our stock price.  On October 12, 2004, we filed a motionto dismiss the case with prejudice. That motion remains pending.

 

Webelieve the claims set forth in the pending lawsuit are without merit, and weintend to vigorously defend against them. This lawsuit has been tendered to ourinsurance carriers.  As with anylitigation proceeding, we cannot predict with certainty the eventual outcome ofpending litigation.  If we are notsuccessful in our defense against such claims, we could be forced to makesignificant payments to the plaintiffs, and such payments could have a materialadverse effect on our business, financial condition, results of operations andcash flows to the extent such payments are not covered by our insurancecarriers. Even if our defense against such claims is successful, the litigationcould result in substantial costs and divert management’s attention andresources, which could adversely affect our business.

 

InJuly 2005, a shareholder of the Company commenced a stockholder’s derivativeaction in the United States District Court for the District of Colorado againstseveral current and former directors of the Company, naming the Company as anominal defendant.  The factual allegations in the derivative action aresubstantially the same as the factual allegations in the purported securitiesclass action lawsuit filed in May 2004.  Plaintiff contends that theindividual defendants breached fiduciary duties owed to the Company, committedan “abuse of control,” gross mismanagement, waste of corporate assets, andunjust enrichment, and that one of the defendants is liable under theSarbanes-Oxley Act.  As with thesecurities lawsuit, the litigation could result in substantial costs anddiversion of management’s attention and resources, which could adversely affectour business.

 

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| **ITEM 2.** | ** ** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**                                                            | ** ** | **None**   |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **  | ** ** | ** **                                                                                                                 | ** ** | ** ** |
| **ITEM 3.** | ** ** | **DEFAULTS UPON SENIOR SECURITIES**                                                                                        | ** ** | **None**   |
| ** **  | ** ** | ** **                                                                                                                 | ** ** | ** ** |
| **ITEM 4.** | ** ** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                                                    | ** ** | ** ** |
| ** **  | ** ** | ** **                                                                                                                 | ** ** | ** ** |
|        |       | We  held our 2005 Annual Meeting of Stockholders on May 18, 2005. At such  meeting, the following actions were voted upon: | ** ** | ** ** |
|        |       |                                                                                                                       | ** ** | ** ** |
|        |       | a.    Election  of Directors                                                                           |       |       |

 
| ** **                      | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|---------------------------------|------------|------------|------------|--------------|------------|
| Stephen J. Hoffman, Ph.D., M.D. |       | 26,711,536 |       | 627,429      |       |
| Michael E. Hart                 |       | 26,938,298 |       | 400,467      |       |
| Michael D. Casey                |       | 26,259,713 |       | 1,079,252    |       |
| Mark G. Edwards                 |       | 26,722,357 |       | 616,608      |       |
| Stewart Hen                     |       | 26,942,345 |       | 396,620      |       |
| Marvin E. Jaffe, M.D.           |       | 26,250,134 |       | 1,088,831    |       |
| Jonathan S. Leff                |       | 26,929,605 |       | 409,360      |       |

 
|   |   | b.   Approval  of issuance of shares of the Company’s common stock upon exchange of shares  of the Company’s Series A Exchangeable Preferred Stock sold in the Preferred  Stock Financing in March 2005. |   |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|

 
| **For**    | ** ** | **Against** | ** ** | **Abstentions** | ** ** |
|------------|------------|-------------|------------|-----------------|------------|
| 10,292,045 |       | 391,277     |       | 27,322          |       |

 
|   |   | c.   Ratification  of PricewaterhouseCoopers LLP as our independent registered public accounting  firm for the fiscal year ending December 31, 2005. |   |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|

 
| **For**    | ** ** | **Against** | ** ** | **Abstentions** | ** ** |
|------------|------------|-------------|------------|-----------------|------------|
| 27,218,446 |       | 93,934      |       | 26,585          |       |

 
| **ITEM 5.** |   | **OTHER INFORMATION**                                                                                                                                                                                                                                   |   | **None** |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
|        |   |                                                                                                                                                                                                                                                    |   |     |
| **ITEM 6.** |   | **EXHIBITS**                                                                                                                                                                                                                                            |   |     |
|        |   | 10.01*     Manufacturing  Agreement, effective May 30, 2005, between Allos and Hovione Inter Limited                                                                                                                                |   |     |
|        |   | 31.01       Rule  13a-14(a) / 15d-14(a) Certification                                                                                                                                                                     |   |     |
|        |   | 32.01       Section 1350  Certification                                                                                                                                                                              |   |     |
|        |   |                                                                                                                                                                                                                                                    |   |     |
|        |   | *  Confidential treatment has been requested with respect to portions of this  exhibit.  Omitted portions have been  filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of  the Securities Exchange Act of 1934, as amended. |   |     |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
| Date: August  9, 2005 | **ALLOS THERAPEUTICS, INC.**            |
|----------------------------|-----------------------------------------|
|                       | /s/  Michael E. Hart                    |   |
|                       | Michael  E. Hart                        |
|                       | President,  Chief Executive Officer and |
|                       | Chief  Financial Officer                |
|                       | (Principal  Executive Officer and       |
|                       | Principal  Financial Officer)           |

 

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