**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  March 31, 2006.**                                                                                                                                                                                                                                                   |
| ** ** | ** **                                                                                                                                                                                                                                                                                            |
| **o**      | **Transition report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934.**                                                                                                                                                                                                   |
| ** ** | ** **                                                                                                                                                                                                                                                                                            |
| ** ** | **For the transition period from                        to                      .** |

 

**CommissionFile Number**

**000-29815**

 

**AllosTherapeutics, Inc.**

(Exact name of Registrantas specified in its charter)

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

 

**11080CirclePoint Road, Suite 200**

**Westminster,Colorado 80020**

**(303)426-6262**

(Address, including zipcode, and telephone number,

including area code, ofprincipal executive offices)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes ý  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
| Large Accelerated Filer  o | Accelerated Filer ý | Non-Accelerated Filer o |
|----------------------------|-------------------------------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No ý

 

As of May 4, 2006, there were 55,379,969 shares of the registrant’sCommon Stock, par value $0.001 per share, outstanding.

 

This quarterly report onForm 10-Q consists of 33 pages.

 

 

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**ALLOSTHERAPEUTICS, INC.**

 

**FORM10-Q**

 

**TABLE OFCONTENTS**

 
| PART  I.  Financial Information |                                                                                                                                                                                          |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM 1.                              | Financial  Statements (unaudited)                                                                                                                                                             |   |
|                                 | Balance Sheets — as  of December 31, 2005 and March 31, 2006                                                                                                                        |   |
|                                 | Statements  of Operations — for the three-month periods ended March 31, 2005 and 2006 and  the cumulative period from September 1, 1992 (date of inception) through  March 31, 2006 |   |
|                                 | Statements  of Cash Flows — for the three-month periods ended March 31, 2005 and 2006 and  the cumulative period from September 1, 1992 (date of inception) through  March 31, 2006 |   |
|                                 | Notes  to Financial Statements                                                                                                                                                                |   |
| 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 1A.                             | Risk  Factors                                                                                                                                                                                 |   |
| ITEM 6.                              | Exhibits                                                                                                                                                                                      |   |
| SIGNATURES                           |                                                                                                                                                                                          |   |

 

NOTE:

 

*Allos Therapeutics, Inc., the AllosTherapeutics, Inc. logo, EFAPROXYNTM (efaproxiral), and all other Allos namesare trademarks of Allos Therapeutics, Inc. in the United States and in otherselected countries. All other brand names or trademarks appearing in thisreport are the property of their respective holders. Unless the contextrequires otherwise, references in this report to “Allos,” the “Company,” “we,” “us,”and “our” refer to Allos Therapeutics, Inc.*

 

2

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.          FINANCIALSTATEMENTS**

 

**ALLOSTHERAPEUTICS, INC.**

**BALANCE SHEETS**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                       | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                                                       | ** ** | **2005**              | ** ** | **2006**           | ** ** |
| **ASSETS**                                                                                                                                                                                                                       |       |                  |       |               |       |
| Current assets:                                                                                                                                                                                                                  |       |                  |       |               |       |
| Cash and cash  equivalents                                                                                                                                                                                                       |       | $                     | 4,224,634  |               | $          | 8,241,497 |   |
| Restricted cash                                                                                                                                                                                                                  |       | 550,000               |       | 550,000            |       |
| Short-term  investments in marketable securities                                                                                                                                                                                 |       | 50,931,466            |       | 42,020,447         |       |
| Prepaid research  and development expenses                                                                                                                                                                                       |       | 222,473               |       | 387,761            |       |
| Prepaid expenses  and other assets                                                                                                                                                                                               |       | 338,393               |       | 225,845            |       |
| Total current  assets                                                                                                                                                                                                            |       | 56,266,966            |       | 51,425,550         |       |
| Long-term  investments in marketable securities                                                                                                                                                                                  |       | 125,872               |       | —             |       |
| Property and  equipment, net                                                                                                                                                                                                     |       | 687,728               |       | 679,116            |       |
| Total assets                                                                                                                                                                                                                     |       | $                     | 57,080,566 |               | $          | 52,104,666 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                    |       |                  |       |               |       |
| Current  liabilities:                                                                                                                                                                                                            |       |                  |       |               |       |
| Accounts payable                                                                                                                                                                                                                 |       | $                     | 365,212    |               | $          | 877,269 |   |
| Accrued  liabilities                                                                                                                                                                                                             |       | 3,424,904             |       | 4,522,240          |       |
| Total current  liabilities                                                                                                                                                                                                       |       | 3,790,116             |       | 5,399,509          |       |
| Commitments and  contingencies (See Note 6)                                                                                                                                                                                      |       |                  |       |               |       |
|                                                                                                                                                                                                                             |       |                  |       |               |       |
| Stockholders’  equity:                                                                                                                                                                                                      |       |                  |       |               |       |
| Preferred stock,  $0.001 par value; 10,000,000 shares authorized at December 31, 2005 and  March 31, 2006; 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, 2005 and March 31, 2006;  no shares issued or outstanding                    |       | —                |       | —             |       |
| Common stock,  $0.001 par value; 75,000,000 shares authorized at December 31, 2005 and  March 31, 2006; 55,078,969 and 55,379,969 shares issued and outstanding at  December 31, 2005 and March 31, 2006, respectively |       | 55,079                |       | 55,380             |       |
| Additional  paid-in capital                                                                                                                                                                                                      |       | 231,582,277           |       | 232,065,598        |       |
| Deficit  accumulated during the development stage                                                                                                                                                                                |       | (178,346,906          | )          | (185,415,821       | )          |
| Total  stockholders’ equity                                                                                                                                                                                                 |       | 53,290,450            |       | 46,705,157         |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                 |       | $                     | 57,080,566 |               | $          | 52,104,666 |   |

 

***The accompanying notes are an integral part of thesefinancial statements.***

 

3

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**ALLOSTHERAPEUTICS, INC.**

**STATEMENTS OF OPERATIONS**

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative  Period from  September 1, 1992  (date of inception)  through March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2005**                                         | ** ** | **2006**                                                                                                                  | ** ** | **2006** | ** ** |
|                                                                  |       |                                             |       |                                                                                                                      |       |   |   |
| Operating  expenses:                                                  |       |                                             |       |                                                                                                                      |       |   |   |
| Research and  development                                             |       | $                                                | 2,348,147  |                                                                                                                      | $          | 3,439,830 |   | $ | 96,972,781 |   |
| Clinical  manufacturing                                               |       | 359,746                                          |       | 561,573                                                                                                                   |       | 27,342,361 |   |
| Marketing,  general and administrative                                |       | 2,192,707                                        |       | 2,925,798                                                                                                                 |       | 71,208,052 |   |
| Restructuring  and separation costs                                   |       | 380,086                                          |       | 645,666                                                                                                                   |       | 1,663,821 |   |
| Total operating  expenses                                             |       | 5,280,686                                        |       | 7,572,867                                                                                                                 |       | 197,187,015 |   |
| Loss from operations                                                  |       | (5,280,686                                       | )          | (7,572,867                                                                                                                | )          | (197,187,015 | ) |
| Gain on settlement  claims                                            |       | —                                           |       | —                                                                                                                    |       | 5,110,083 |   |
| Interest and other  income, net                                       |       | 209,116                                          |       | 503,952                                                                                                                   |       | 16,897,575 |   |
| Net loss                                                              |       | (5,071,570                                       | )          | (7,068,915                                                                                                                | )          | (175,179,357 | ) |
| Dividend related  to beneficial conversion feature of preferred stock |       | —                                           |       | —                                                                                                                    |       | (10,236,464 | ) |
| Net loss  attributable to common stockholders                         |       | $                                                | (5,071,570 | )                                                                                                                         | $          | (7,068,915 | ) | $ | (185,415,821 | ) |
| Net loss per  share: basic and diluted                                |       | $                                                | (0.16      | )                                                                                                                         | $          | (0.13 | ) |   |   |
| Weighted average  shares outstanding: basic and diluted               |       | 31,175,783                                       |       | 55,079,180                                                                                                                |       |   |   |

 

***The accompanying notes are an integral part of thesefinancial statements.***

 

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**ALLOSTHERAPEUTICS, INC.**

**STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative Period  From September 1,  1992  (date of inception)  through** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2005**                                         | ** ** | **2006**                                                                                              | ** ** | **March 31, 2006** | ** ** |
| Cash Flows From  Operating Activities:                                                                  |       |                                             |       |                                                                                                  |       |   |   |
| Net loss                                                                                                |       | $                                                | (5,071,570 | )                                                                                                     | $          | (7,068,915 | ) | $ | (175,179,357 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:                            |       |                                             |       |                                                                                                  |       |   |   |
| Depreciation and  amortization                                                                          |       | 115,016                                          |       | 76,242                                                                                                |       | 2,851,255 |   |
| Stock-based  compensation expense (recovery)                                                            |       | (15,494                                          | )          | 481,342                                                                                               |       | 22,525,435 |   |
| Write-off of  long-term investment                                                                      |       | —                                           |       | —                                                                                                |       | 1,000,000 |   |
| Other                                                                                                   |       | —                                           |       | —                                                                                                |       | 99,121 |   |
| Changes in operating  assets and liabilities:                                                           |       |                                             |       |                                                                                                  |       |   |   |
| Prepaid expenses  and other assets                                                                      |       | (1,319,328                                       | )          | (52,740                                                                                               | )          | (603,606 | ) |
| Interest  receivable on investments                                                                     |       | (478,551                                         | )          | (127,087                                                                                              | )          | (740,521 | ) |
| Accounts payable                                                                                        |       | 707,423                                          |       | 512,057                                                                                               |       | 877,269 |   |
| Accrued  liabilities                                                                                    |       | 694,733                                          |       | 1,097,336                                                                                             |       | 4,522,240 |   |
| Net cash used in  operating activities                                                                  |       | (5,367,771                                       | )          | (5,081,765                                                                                            | )          | (144,648,164 | ) |
| Cash Flows From  Investing Activities:                                                                  |       |                                             |       |                                                                                                  |       |   |   |
| Acquisition of  property and equipment                                                                  |       | (39,865                                          | )          | (67,630                                                                                               | )          | (3,276,365 | ) |
| Purchases of  marketable securities                                                                     |       | (44,483,974                                      | )          | (2,836,022                                                                                            | )          | (395,632,703 | ) |
| Proceeds from  sales of marketable securities                                                           |       | 8,915,000                                        |       | 12,000,000                                                                                            |       | 354,352,777 |   |
| Purchase of  long-term investment                                                                       |       | —                                           |       | —                                                                                                |       | (1,000,000 | ) |
| Payments  received on notes receivable                                                                  |       | —                                           |       | —                                                                                                |       | 49,687 |   |
| Net cash  provided by (used in) investing activities                                                    |       | (35,608,839                                      | )          | 9,096,348                                                                                             |       | (45,506,604 | ) |
| 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 convertible preferred stock, net of issuance costs                           |       | 48,913,945                                       |       | —                                                                                                |       | 89,125,640 |   |
| Proceeds from  issuance of common stock associated with stock options and employee stock  purchase plan |       | —                                           |       | 2,280                                                                                                 |       | 1,227,609 |   |
| Proceeds from  issuance of common stock, net of issuance costs                                          |       | —                                           |       | —                                                                                                |       | 108,894,612 |   |
| Net cash  provided by financing activities                                                              |       | 48,913,945                                       |       | 2,280                                                                                                 |       | 198,396,265 |   |
| Net increase in  cash and cash equivalents                                                              |       | 7,937,335                                        |       | 4,016,863                                                                                             |       | 8,241,497 |   |
| Cash and cash  equivalents, beginning of period                                                         |       | 1,108,726                                        |       | 4,224,634                                                                                             |       | — |   |
| Cash and cash  equivalents, end of period                                                               |       | $                                                | 9,046,061  |                                                                                                  | $          | 8,241,497 |   | $ | 8,241,497 |   |
| Supplemental  Schedule of Cash and 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 |   |
| Conversion of  preferred stock to common stock                                                          |       | —                                           |       | —                                                                                                |       | 89,125,640 |   |

 

***The accompanying notes are an integral part of thesefinancial statements.***

 

5

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**ALLOSTHERAPEUTICS, INC.**

** NOTES TO FINANCIALSTATEMENTS**

**(unaudited)**

 

**1.             Basisof Presentation**

 

The unaudited financial statements of Allos Therapeutics, Inc.(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 our financialposition, results of operations and cash flows for the periods presented. Certaininformation and footnote disclosures normally included in audited financialinformation prepared in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omittedpursuant to the Securities and Exchange Commission’s rules and regulations. Operatingresults for the three-month period ended March 31, 2006 are not necessarilyindicative of the results that may be expected for the year ending December 31,2006. These financial statements should be read in conjunction with the auditedfinancial statements and notes thereto which are included in our Annual Reporton Form 10-K for the year ended December 31, 2005 for a broader discussionof our business and the opportunities and risks inherent in such business.

 

Since our inception in 1992, we have not generated anyrevenue and our activities have consisted primarily of developing products,licensing products, raising capital and recruiting personnel. Accordingly, weare considered to be in the development stage as of March 31, 2006 asdefined in Statement of Financial Accounting Standards (“SFAS”) No. 7, *Accounting and Reporting by Development StageEnterprises.*

 

We have experienced significant net losses and negative cash flowssince our inception. We have incurred these net losses principally from costsincurred in our research and development programs and from our general andadministrative expenses. We expect to continue incurring net losses andnegative cash flows for the foreseeable future. The presence and size of thesepotential net losses will depend, in large part, on if and when we obtainregulatory approval in the United States or Europe to market our lead productcandidate, EFAPROXYN, as an adjunct to radiation therapy for the treatment ofpatients with brain metastases originating from breast cancer. Our ability togenerate revenue and achieve profitability is dependent on our ability, aloneor with partners, to successfully complete the development of our productcandidates, conduct clinical trials, obtain the necessary regulatory approvals,and manufacture and market our product candidates.

 

Based upon the current status of our product development plans and ourplans for anticipated commercialization of EFAPROXYN, we believe that ourexisting cash, cash equivalents, and investments in marketable securities willbe adequate to satisfy our capital needs through at least 12 months from thedate of this filing, and potentially through the end of 2007. However, ourforecast of the period of time through which our financial resources will beadequate to support our operations is a forward-looking statement that involvesrisks and uncertainties, and actual results could vary materially. Weanticipate continuing our current development programs and/or beginning otherlong-term development projects involving our product candidates. These projectsmay require many years and substantial expenditures to complete and mayultimately be unsuccessful. Therefore, we may need to obtain additional fundsfrom outside sources to continue research and development activities, fund operatingexpenses, pursue regulatory approvals and build sales and marketingcapabilities, as necessary. However, our actual capital requirements willdepend on many factors, including:

 

•                  the status ofour product development programs;

•                  the time andcost involved in conducting clinical trials and obtaining regulatory approvals;

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

•                  competingtechnological and market developments; and

•                  our ability tomarket and distribute our future products and establish new collaborative andlicensing arrangements.

 

We will berequired to raise additional capital to support our future operations,including commercialization of EFAPROXYN in the event we obtain regulatoryapproval to market EFAPROXYN for the treatment of patients with brainmetastases originating from breast cancer. We may seek to obtain thisadditional capital through arrangements with corporate partners, equity or debtfinancings, or from other sources. Such arrangements, if successfullyconsummated, may be dilutive to our existing stockholders. However, there is noassurance that we will be successful in consummating any such arrangements. Inaddition, in the event that additional funds are obtained through arrangementswith collaborative partners or other sources, such arrangements may require usto relinquish rights to some of our technologies, product candidates orproducts under development that we would otherwise seek to develop orcommercialize ourselves. If we are unable to generate meaningful amounts ofrevenue from future product sales, if any, or cannot otherwise raise sufficientadditional funds to support our

 

6

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operations, we maybe required to delay, reduce the scope of or eliminate one or more of ourdevelopment programs and our business and future prospects for revenue andprofitability may be harmed.

 

**2.             AccountsPayable and Accrued Liabilities**

 

Accounts payable are comprised of the following:

 
| ** **              | ** ** | **December 31,  2005** | ** ** | **March 31,  2006** | ** ** |
|-------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Trade accounts  payable |       | $                           | 352,266    |                     | $          | 722,519 |   |
| Related parties         |       | 12,946                      |       | 154,750                  |       |
|                    |       | $                           | 365,212    |                     | $          | 877,269 |   |

 

Accrued liabilities are comprised of the following:

 
| ** **                                  | ** ** | **December 31,  2005** | ** ** | **March 31,  2006** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Accrued research  and development expenses  |       | $                           | 1,570,534  |                     | $          | 2,361,181 |   |
| Accrued  restructuring and separation costs |       | 208,786                     |       | 804,827                  |       |
| Accrued  personnel costs                    |       | 1,201,821                   |       | 643,138                  |       |
| Accrued clinical  manufacturing expenses    |       | 165,479                     |       | 411,318                  |       |
| Accrued expenses  – other              |       | 278,284                     |       | 301,776                  |       |
|                                        |       | $                           | 3,424,904  |                     | $          | 4,522,240 |   |

 

**3.             Stock-BasedCompensation**

 

We adopted SFAS No. 123(Revised 2004), *Share-Based Payment* (“SFAS 123R”)effective January 1, 2006. Under the provisions of SFAS 123R, stock-basedcompensation is measured at the grant date based on the fair value of the awardand is recognized as expense over the required service period of the award. Priorto the adoption of SFAS 123R, we accounted for grants of stock-based awardsaccording to Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB 25”) and related Interpretations.

 

In March 2005, theSecurities and Exchange Commission issued Staff Accounting BulletinNo. 107 (“SAB 107”) relating to SFAS 123R. We applied the provisions ofSAB 107 in connection with our adoption of SFAS 123R. We adopted SFAS123R using the modified prospective transition method, which requires theapplication of the accounting standard as of January 1, 2006, the first day of ourfiscal year 2006. Our financial statements as of and for the three months endedMarch 31, 2006 reflect the impact of SFAS 123R. Had equity-based compensation been recognized in accordance with theprovisions of APB 25 and related Interpretations instead of SFAS 123R for thethree months ended March 31, 2006, compensation expense would have been$102,000, and our net loss per share would have been $0.12 on a basic andfully-diluted basis. In accordance with the modified prospective method,our financial statements for prior periods have not been restated to reflect,and do not include, the impact of SFAS 123R.

 

**Prior to the Adoption of SFAS 123R**

 

Prior to the adoption ofSFAS 123R, we provided the disclosures required under SFAS No. 123, *Accounting for Stock-Based Compensation* (“SFAS 123”) asamended by SFAS No. 148, *Accounting for Stock-BasedCompensation – Transition and Disclosures*. The following tableillustrates the effect on net loss and net loss per share if we had applied thefair value recognition provisions of SFAS 123 to stock-based compensation forthe three months ended March 31, 2005:

 
| ** **                                                                                                         | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                         | ** ** | **March 31, 2005**     | ** ** |
|                                                                                                               |       |                             |       |
| Net loss  attributable to common stockholders, as reported                                                         |       | $                                | (5,071,570 | ) |
| Deduct:  Stock-based employee compensation recovery included in reported net loss                                  |       | (15,494                          | )          |
| Deduct:  Stock-based employee compensation expense as determined under the fair value  based method for all awards |       | (393,344                         | )          |
| Pro forma net  loss attributable to common stockholders                                                            |       | $                                | (5,480,408 | ) |
| Net loss per  share: basic and diluted – as reported                                                          |       | $                                | (0.16      | ) |
| Net loss per  share: basic and diluted – pro forma                                                            |       | $                                | (0.18      | ) |

 

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The followingassumptions were used in estimating the pro forma stock-based compensationexpense under SFAS 123 for the three months ended March 31, 2005: an expecteddividend yield of 0%, an expected stock price volatility of 85%, an expectedlife of 4.0 years, and a risk free interest rate of 3.7% to 4.0%.

 

**Impactof the adoption of SFAS 123R**

 

In accordance with themodified prospective method of SFAS 123R, we recognized total stock-basedcompensation expense of $481,342 during the quarter ended March 31, 2006, whichincreased basic and diluted net loss per share by $.01 per share. The followingtable summarizes the components of stock-based compensation expense for thethree months ended March 31, 2006, and our unrecognized compensation expense asof March 31, 2006, net of estimated forfeitures, including the weighted-averageyears over which the compensation expense will be recognized:

 
| ** **                                                         | ** ** | **Outstanding  and unvested**          | ** ** | **Stock-based awards for the three months ended  March 31, 2006:** | ** ** | ** **                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **awards at  December 31,  2005** | ** ** | **Stock Options**                                                                                     | ** ** | **Modification  of Stock  Options** | ** ** | **Restricted  Stock** | ** ** | **Employee  Stock  Purchase Plan** | ** ** | **Total** | ** ** |
| Total Fair Value  of Awards                                        |       | $                                           | 851,511    |                                                                                                       | $          | 3,597,830                                |       | $ | 75,859 |   | $ | 942,000 |   | $ | 56,137 |   | $ | 5,523,337 |   |
| Less: Estimated  Forfeitures over Expected Life of Award           |       | (137,093                                    | )          | (342,692                                                                                                   | )          | —                                   |       | — |   | — |   | (479,785 | ) |
| Compensation  Cost of Awards, net of estimated forfeitures         |       | 714,418                                     |       | 3,255,138                                                                                                  |       | 75,859                                   |       | 942,000 |   | 56,137 |   | 5,043,552 |   |
| Less:  Compensation Cost for the three months ended March 31, 2006 |       | (146,926                                    | )          | (220,699                                                                                                   | )          | (75,859                                  | )          | (30,841 | ) | (7,017 | ) | (481,342 | ) |
| Unrecognized  Compensation Cost as of March 31, 2006               |       | $                                           | 567,492    |                                                                                                       | $          | 3,034,439                                |       | $ | — |   | $ | 911,159 |   | $ | 49,120 |   | $ | 4,562,210 |   |
| Weighted-Average  Remaining Amortization Period (Years)            |       | 1.3                                         |       | 1.6                                                                                                        |       | —                                   |       | 1.6 |   | 1.5 |   | 1.6 |   |

 

*Outstandingand Unvested Stock-Based Awards as of December 31, 2005*

 

For stock-based awardsthat were outstanding and unvested as of December 31, 2005, we had anunrecorded deferred stock-based compensation balance of $851,511, as calculatedunder the provisions of SFAS 123 for purposes of pro forma disclosures. In ourpro forma disclosures prior to the adoption of SFAS 123R, we accounted forforfeitures upon occurrence. SFAS 123R requires forfeitures to be estimated atthe time of grant and revised if necessary in subsequent periods if actualforfeitures differ from those estimates.  Accordingly, as of January 1,2006, we estimated that the stock-based compensation for the awards notexpected to vest was $137,093, and therefore, the unrecorded deferredstock-based compensation balance related to stock options outstanding andunvested as of December 31, 2005 was adjusted to $714,418 after estimatedforfeitures. During the three months ended March 31, 2006, we recordedstock-based compensation related to these awards of $146,926.  As of March31, 2006, the unrecorded deferred stock-based compensation balance related tooutstanding and unvested stock options as of December 31, 2005 was $567,492 andwill be recognized over an estimated weighted-average amortization period of1.3 years.

 

*Stock-BasedAwards granted and modified during the three months ended March 31, 2006*

 

During the three months endedMarch 31, 2006, we granted approximately 2.1 million stock options with anestimated total grant-date fair value of $3,597,830.  Of this amount, weestimated that the stock-based compensation for the awards not expected to vestwas $342,692.   During the three months ended March 31, 2006, werecorded stock-based compensation related to these awards of $220,699. As of March31, 2006, the unrecorded deferred stock-based compensation balance related tostock options was $3,034,439 and will be recognized over an estimated weighted-averageamortization period of 1.6 years.

 

During the three monthsended March 31, 2006, we entered into a Separation Agreement with our formerPresident and Chief Executive Officer, Michael E. Hart, as described in Note 5below, pursuant to which we modified the terms of certain stock options held byMr. Hart to extend the exercise period of the options beyond the original termsof the stock options. We have accounted for the modifications to these optionsin accordance with SFAS 123R and Financial Accounting Standards Board (“FASB”)Interpretation No. 44,*Accounting forCertain Transactions Involving Stock Compensation*, and recorded$75,859 of stock-based compensation expense during the three months ended March31, 2006.

 

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*Valuation Assumptions*

 

For stock options granted in the three months ended March 31, 2006, themajority vest according to the following schedule: one fourth of the totalnumber of shares subject to the award vest 12 months after the date of grantand an additional one forty-eighths of the total number of shares subject tothe award vest each one month period thereafter, until all such shares arevested and exercisable. Any deferred stock-based compensation calculatedaccording to SFAS 123R is amortized over the vesting period of the individualoptions in accordance with FASB Interpretation No. 28,*Accounting for Stock Appreciation Rights and OtherVariable Stock Option and Award Plans* (“FIN 28”). Theweighted-average grant-date fair value of stock options, as determined underSFAS 123R, granted during the three months ended March 31, 2006 was $1.75 pershare. The fair value of stock options granted to our employees during thethree months ended March 31, 2006 was estimated on the date of each grant usingthe Black-Scholes option pricing model using the following weighted-average assumptions:

 

•                  An expected dividend yield of 0% as we do not expectto pay dividends during the expected life of these awards;

•                  An expected stock price volatility of 81% determinedusing our historical stock volatility over the period equal to the expectedlife of each award;

•                  An expected life of 3.9 years determined by factoringthe different vesting periods of each award in combination with our employees’expected exercise behavior; and

•                  A risk-free interest rate of 4.6% based on U.S.Treasury zero-coupon issues with a remaining term equal to the expected life ofeach award.

 

**StockOptions**

 

During 1995, our Board ofDirectors terminated the 1992 Stock Plan (the “1992 Plan”) and adopted the 1995Stock Option Plan (the “1995 Plan”). The 1995 Plan was amended and restated in1997. Termination of the 1992 Plan had no effect on the options outstandingunder that plan, as they were assumed under the 1995 Plan. Under the 1995 Plan,we could grant fixed and performance-based stock options, and stockappreciation rights to officers, employees, consultants and directors. Thestock options were intended to qualify as “incentive stock options” underSection 422 of the Internal Revenue Code, unless specifically designatedas non-qualifying stock options or unless exceeding the applicable statutorylimit.

 

During 2000, concurrentwith our initial public offering, the Board of Directors suspended the 1995Plan and adopted the Allos Therapeutics, Inc. 2000 Stock IncentiveCompensation Plan (the “2000 Plan”). The 2000 Plan provides for the granting ofstock options similar to the terms of the 1995 Plan as described above. Anyshares remaining for future option grants and any future cancellations ofoptions from our 1995 Plan will be available for future grant under the 2000Plan. Suspension of the 1995 Plan had no effect on the options outstandingunder the 1995 Plan. Under the 2000 Plan, we are authorized to increase thenumber of shares of common stock that shall be available annually on the firstday of each fiscal year beginning in 2001 in an amount equal to the lesser of440,000 shares or 2% of the adjusted average common shares outstanding used tocalculate fully diluted earning per share as reported in our Annual Report toStockholders for the preceding year, or alternatively, by any lesser amountdetermined by our Board of Directors. On December 21, 2005, ourstockholders approved an amendment and restatement of the 2000 Plan to:(i) increase the aggregate number of shares of common stock authorized forissuance under the 2000 Plan by 3,500,000 shares and (ii) provide that thenumber of shares of common stock that may be granted under the 2000 Plan to anyone employee during any calendar year cannot exceed 2,000,000 shares.

 

In January 2002, ourBoard of Directors approved the Allos Therapeutics, Inc. 2002 Broad BasedEquity Incentive Plan (the “2002 Plan”). Under the 2002 Plan, we are authorizedto issue up to 1,000,000 shares of common stock to employees, consultants andmembers of the Board of Directors. Under the terms of the 2002 Plan, theaggregate number of shares underlying stock awards to officers and directorsonce employed by us cannot exceed 49 percent of the number of sharesunderlying all stock awards granted, as determined on certain specific dates. The2002 Plan will terminate on January 7, 2012.

 

As of March 31, 2006, wehad a total of 2,753,277 shares of common stock available for grant under the2000 and 2002 Plans. The 1995, 2000 and 2002 Plans provide for appropriateadjustments in the number of shares reserved and outstanding options in theevent of certain changes to our outstanding common stock by reason of merger,recapitalization, stock split or other similar events. Options granted underthe Plans may be exercised for a period of not more than 10 years from thedate of grant or any shorter period as determined by our Board of Directors.Options vest as determined by the Board of Directors, generally over a periodof two to four years, subject to acceleration under certain events. Theexercise price of any incentive stock option shall equal or exceed the fairmarket value per share on the date of grant, or 110% of the fair market valueper share in the case of a 10% or greater stockholder.

 

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The followingtable summarizes our stock option activity and related information for the1995, 2000 and 2002 Plans as of and for the three months ended March 31, 2006:

 
| ** **                            | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**               | ** ** |
|---------------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| **Outstanding  at December 31, 2005** |       | 3,944,375                    |       | $                                          | 3.87       |   | 2,809,991 |   | $ | 4.20 |   |
| Granted                               |       | 2,051,843                    |       | 2.87                                       |       |   |   |   |   |
| Exercised                             |       | (1,000                       | )          | 2.28                                       |       |   |   |   |   |
| Canceled                              |       | (6,996                       | )          | 5.79                                       |       |   |   |   |   |
| **Outstanding  at March 31, 2006**    |       | 5,988,222                    |       | $                                          | 3.53       |   | 3,057,500 |   | $ | 4.12 |   |

 

The following tablesummarizes information about options outstanding and exercisable as of March31, 2006:

 
| ** **                                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                        | ** ** |
|----------------------------------------------|------------|------------------------------|------------|-----------------------------------------------------|------------|
| **Range of Exercise  Prices**      | ** ** | **Outstanding**              | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| $  0.00  - $  1.38       |       | 271,286                      |       | 3.4                                                 |       | $ | 0.55 |   | $ | 803,603 |   | 271,286 |   | $ | 0.55 |   | $ | 803,603 |   |
| $  1.39  - $   2.75 |       | 2,791,033                    |       | 8.0                                                 |       | 2.50 |   | 2,822,851 |   | 848,435 |   | 2.36 |   | 973,834 |   |
| $  2.76  - $   4.13 |       | 1,328,300                    |       | 8.7                                                 |       | 3.18 |   | 444,848 |   | 518,901 |   | 3.23 |   | 145,344 |   |
| $  4.14  - $   5.50 |       | 819,958                      |       | 6.1                                                 |       | 4.99 |   | — |   | 668,847 |   | 4.96 |   |   |   |
| $  5.51  - $   6.88 |       | 439,140                      |       | 4.9                                                 |       | 6.17 |   | — |   | 439,140 |   | 6.17 |   |   |   |
| $  6.89  - $   8.25 |       | 95,000                       |       | 6.5                                                 |       | 7.31 |   | — |   | 83,540 |   | 7.34 |   |   |   |
| $  8.26  - $   9.63 |       | 200,205                      |       | 5.3                                                 |       | 8.83 |   | — |   | 184,051 |   | 8.84 |   |   |   |
| $  9.64  - $12.38                  |       | 28,500                       |       | 4.2                                                 |       | 10.95 |   | — |   | 28,500 |   | 10.95 |   |   |   |
| $12.39 - $13.75                              |       | 14,800                       |       | 4.3                                                 |       | 13.75 |   | — |   | 14,800 |   | 13.75 |   |   |   |
|                                         |       | 5,988,222                    |       | 7.3                                                 |       | $ | 3.53 |   | $ | 4,071,302 |   | 3,057,500 |   | $ | 4.12 |   | $ | 1,922,781 |   |

 

The followingtable summarizes information about outstanding stock options that are fullyvested and currently exercisable, and outstanding stock options that areexpected to vest in the future:

 
| ** **                                                           | ** ** | **Number  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|
| **As of  March 31, 2006:**                                           |       |                    |       |                                                        |       |                                       |       |                                |       |
| Options fully  vested and exercisable                                |       | 3,057,500               |       | 5.6                                                         |       | $                                          | 4.12       |                                | $          | 1,922,781 |   |
| Options expected  to vest, including effects of expected forfeitures |       | 2,571,576               |       | 9.1                                                         |       | $                                          | 2.91       |                                | 1,931,756  |   |
| Options fully  vested and expected to vest                           |       | 5,629,076               |       | 7.2                                                         |       | $                                          | 3.57       |                                | $          | 3,854,537 |   |

 

The aggregateintrinsic value in the tables above represents the total pretax intrinsicvalue, based on our closing stock price of $3.51 as of March 31, 2006, whichwould have been received by the option holders had all option holders exercisedtheir options as of that date. The total number of in-the-money optionsexercisable as of March 31, 2006 was 1,566,144. The total fair value of sharesvested during the three months ended March 31, 2006 was approximately $378,000.

 

The totalintrinsic value of options exercised during the three months ended March 31,2006 was $1,100. The total cash received from employees as a result of employeestock option exercises during the three months ended March 31, 2006 was $2,280.We settle employee stock option exercises with newly issued common shares. Notax benefits were realized by us in connection with these exercises during thethree months ended March 31, 2006 as we maintain net operating losscarryforwards and we have established a valuation allowance against the entiretax benefit as of March 31, 2006. No stock compensation expense was capitalizedon the Balance Sheet as of March 31, 2006.

 

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**RestrictedStock**

 

InMarch 2006, we granted 300,000 shares of restricted stock to an employee. Theshares of restricted stock will vest in four equal annual installments. As ofMarch 31, 2006, 300,000 shares of restricted stock were outstanding and noshares were vested. The grant date fair value of $3.14 per share forthis restricted stock award was based on the closing market price of theCompany’s common stock on the date of the award.

 

**EmployeeStock Purchase Plan**

 

On February 28,2001, our Board of Directors approved the Allos Therapeutics, Inc. 2001Employee Stock Purchase Plan (“Purchase Plan”), which was also approved by ourstockholders on April 17, 2001. Under the Purchase Plan, we are authorizedto issue up to 2,500,000 shares of common stock to qualified employees.Qualified employees can choose to have up to 10 percent of their annualbase earnings withheld to purchase shares of our common stock during eachoffering period. The purchase price of the common stock is 85 percent ofthe lower of the fair market value of a share of common stock on the first dayof the offering or the fair market value of a share of common stock on the lastday of the purchase period. We sold 32,189, 36,393, 26,675 and no shares toemployees in 2003, 2004, 2005, and during the three months ended March 31,2006, respectively. There were 2,368,072 shares available for sale under the PurchasePlan at March 31, 2006. The Purchase Plan will terminate on February 27,2011. The stock-based compensation expense in connection with the Purchase Planfor the three months ended March 31, 2006 was $7,017. The weighted-averageestimated grant date fair value of purchase awards under the Purchase Planduring the three months ended March 31, 2006 was $0.98 per share and was determinedusing the following weighted-average assumptions: an expected dividend yield of0%; an expected stock price volatility of 55%; an expected life of 1.2 years;and a risk-free interest rate of 4.7%.

 

**4.             NetLoss Per Share**

 

Basic net loss per shareis computed by dividing the net loss attributable to common stockholders forthe period by the weighted average number of common shares outstanding duringthe period and diluted net loss per share is computed by giving effect to alldilutive potential common stock, including options, restricted stock andwarrants.

 

Diluted net loss per sharefor all periods presented is the same as basic net loss per share because thepotential common shares were anti-dilutive due to our net loss. Anti-dilutivecommon shares not included in the calculation of diluted shares outstanding, areas follows:

 

| ** **             | ** ** | **March 31,** | ** ** |
|------------------------|------------|--------------------|------------|
| ** **             | ** ** | **2005**           | ** ** | **2006** | ** ** |
| Common stock  options  |       | 3,867,619          |       | 5,988,222 |   |
| Restricted stock       |       | —             |       | 300,000 |   |
| Common stock  warrants |       | 1,706,893          |       | 1,706,893 |   |
|                   |       | 5,574,512          |       | 7,995,115 |   |

 

**5.             Restructuringand Separation Costs**

 

In January 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. Becauseour obligations under our primary lease were in excess of the sum of the actualand expected sublease rental payments for this excess space, we recorded alease abandonment charge of approximately $380,000 in the three months endedMarch 31, 2005. As of March 31, 2006, the remaining liability of $184,086relating to this lease abandonment charge is recorded in accrued restructuringand separation costs.

 

In January 2006,Michael E. Hart notified our Board of Directors of his intent to resign fromhis positions as President, Chief Executive Officer and Chief Financial Officerof the Company once a successor Chief Executive Officer was appointed.  OnMarch 3, 2006, we entered into a separation agreement with Mr. Hartto provide certain incentives for his continued employment with the Companywhile we conducted our search for his successor. On March 9, 2006, we appointedPaul L. Berns as our President, Chief Executive Officer and a member of theBoard of Directors and Mr. Hart resigned from his positions in accordance withthe terms of the separation agreement. The separation agreement with Mr. Hart wasamended on March 9, 2006 and on May 10, 2006 (as so amended, the “SeparationAgreement”).

 

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Pursuant to the SeparationAgreement, Mr. Hart is entitled to certain payments and benefits from theCompany, including but not limited to the following:

 

•                  a lump sum payment equal to $181,229 on September 11,2006, minus applicable deductions and withholdings;

•                  an amount equal to $362,456 payable over the twelvemonth period from September 11, 2006 to September 11, 2007, minus applicabledeductions and withholdings;

•                  a pro rata portion of his fiscal 2006 bonus, asdetermined in the sole discretion of our Compensation Committee of the Board,payable at the same time 2006 bonuses are paid to the Company’s other executiveofficers;

•                  reimbursement on a grossed-up basis, for the after taxpayment of the premiums on his supplemental disability and term life insurancecoverage for a period of twenty-four months following his termination ofemployment, *provided that* no reimbursements will bemade until September 11, 2006, at which time we will reimburse Mr. Hart for allpast due amounts;

•                  reimbursement for the cost of his COBRA continuationcoverage until the earlier of (i) September 10, 2007, or (ii) thedate on which he becomes eligible to receive comparable health insurance coveragefrom a new employer;

•                  continued vesting of his stock options granted priorto March 3, 2006 for a period of one year following his termination ofemployment, which options will remain exercisable, subject to the terms of hisconsulting agreement with the Company (as described below), until ninety daysfollowing the termination of his consulting relationship with the Company; *provided that* in no event will Mr. Hart’s options issuedunder the Company’s 1995 Stock Option Plan remain exercisable beyond December31, 2006; and

•                  up to $20,000 of outplacement assistance during theperiod from March 10, 2006 to March 10, 2007.

 

We recorded separationcosts of $645,666 during the three months ended March 31, 2006 relating to ourestimate of our total obligations under the Separation Agreement with Mr. Hart.As of March 31, 2006, the remaining liability of $620,741 relating to the SeparationAgreement with Mr. Hart is recorded in accrued restructuring and separationcosts.

 

Pursuant to theSeparation Agreement and as a result of Mr. Hart’s resignation as a director,on May 10, 2006, we entered into a consulting agreement with Mr. Hart in orderto allow us to retain the benefit of Mr. Hart’s historical knowledge regardingthe Company’s operations and corporate development strategies (the “HartConsulting Agreement”). Pursuant to the Hart Consulting Agreement, Mr. Hart hasagreed to provide an average of at least 10 hours of consulting services permonth as and when requested from time to time by the Company. Mr. Hart is notentitled to any compensation or benefits in connection with the performance ofhis consulting services, except for those payments and benefits being providedto him under the Separation Agreement. The term of the Hart ConsultingAgreement is from May 10, 2006 to December 31, 2007; *providedthat*it will automatically terminate upon the occurrence of one ormore events constituting just cause (as defined in the agreement).

 

**6.             Commitmentsand Contingencies**

 

*Commitments*

 

In December 2003, we entered into an agreement with BaxterHealthcare Corporation (“Baxter”) for certain development and manufacturingservices for the clinical and commercial production of EFAPROXYN formulateddrug product. The agreement requires minimum purchase obligations by us,subject to FDA approval of EFAPROXYN. We currently have no commitments toBaxter under this agreement.

 

In August 2004, we entered into an agreement with a third party toprovide certain trial management services in Europe and South America inconnection with our pivotal Phase 3 trial of EFAPROXYN for the treatmentof brain metastases originating from breast cancer, which is called ENRICH (**EN**hancing whole brain **R**adiation therapy **I**n patients with breast **C**ancer and **H**ypoxic brain metastases). Under the terms of the agreement,as amended in March 2006, we are required to pay this third party $550,000 if acertain patient enrollment milestone is achieved in Europe and South America byJuly 2006. As of March 31, 2006, we recorded a portion of the $550,000milestone payment in accrued research and development expenses equal to thenumber of patients actually enrolled as of March 31, 2006 relative to thepatient enrollment milestone in the agreement.

 

In June 2005, we entered into a manufacturing agreement with HovioneInter Limited (“Hovione”) covering the supply of EFAPROXYN bulk drug substance,or efaproxiral sodium.  Under the terms of the agreement, we are requiredto purchase a negotiated percentage of our annual requirements for efaproxiralsodium 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 thereafterthrough the end of the term of the agreement.  In the event that we do notmeet these annual minimum purchase requirements, we have the option to payextension fees to move the annual requirements out by a total of threeyears.  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. The agreement has a term of seven years following our receipt ofapproval, if any, from the United States Food and Drug Administration to marketEFAPROXYN in the United States.  The Company and Hovione each havecustomary termination rights, including termination for material breach orother events relating to insolvency or bankruptcy.  In addition, we mayterminate the agreement at any time if we decide to discontinue development or,if approved, marketing of EFAPROXYN.

 

In December 2002, we entered into a license agreement withMemorial Sloan-Kettering Cancer Center, SRI International and Southern ResearchInstitute, under which we obtained exclusive worldwide rights to severalpatents and equivalent foreign patent applications to develop and market anyproduct derived from PDX in connection with all diagnostic and therapeutic

 

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uses, including human and veterinary diseases. Under the terms of theagreement, we made an up-front payment and will also make certain cash paymentsto the licensor upon the earlier of achievement of certain developmentmilestones or the passage of certain time periods after the effective date ofthe agreement. The next scheduled payment under this agreement of $500,000 isdue in December 2006. This and subsequent payments will be expensed asincurred. We will fund all development programs and will have soleresponsibility for all commercialization activities. In addition, we will paythe licensors a royalty based on a percentage of net revenues arising fromsales of the product or sublicense revenues arising from sublicensing theproduct, if and when such sales or sublicenses occur. As of March 31, 2006,no royalty payments have been made.

 

*Contingencies*

 

The Company and one ofits former officers were named as defendants in a purported securities classaction lawsuit filed in May 2004 in the United States District Court forthe District of Colorado (the “District Court”). An amended complaint was filedin August 2004. The lawsuit was brought on behalf of a purported class ofpurchasers of our securities during the period from May 29, 2003 toApril 29, 2004, and sought unspecified damages relating to the issuance ofallegedly false and misleading statements regarding EFAPROXYN during thisperiod and subsequent declines in our stock price. On October 20, 2005,the District Court granted the defendants’ motion to dismiss the lawsuit withprejudice. In an opinion dated October 20, 2005, the District Courtconcluded that the plaintiff’s complaint failed to meet the legal requirementsapplicable to its alleged claims.

 

On November 20,2005, the plaintiff appealed the District Court’s decision to the U.S. Court ofAppeals for the Tenth Circuit (the “Court of Appeals”). We believe theplaintiff’s claims are without merit, and intend to vigorously defend againstthe plaintiff’s appeal. However, as with any litigation proceeding, we cannotpredict with certainty the eventual outcome of the litigation. If the Court ofAppeals reverses the District Court’s decision and we are not successful in ourdefense of such claims, we could be forced to make significant payments to theplaintiffs, and such payments could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows to theextent such payments are not covered by our insurance carriers. Even if ourdefense against such claims is successful, the litigation could result insubstantial costs and divert management’s attention and resources, which couldadversely affect our business. This lawsuit has been tendered to our insurancecarriers.

 

We enter into indemnification provisions under our agreements withother companies in our ordinary course of business, typically with businesspartners, contractors, clinical sites and suppliers. Under these provisions wegenerally indemnify and hold harmless the indemnified party for losses sufferedor incurred by the indemnified party as a result of our activities or the useof our product candidates. These indemnification provisions generally survivetermination of the underlying agreement. The maximum potential amount of futurepayments we could be required to make under these indemnification provisions isunlimited. We have not incurred material costs to defend lawsuits or settleclaims related to these indemnification agreements. The estimated fair value ofthe indemnification provisions of these agreements is minimal as of March 31,2006, and accordingly, we have no corresponding liabilities recorded as of March31, 2006.

 

 

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**7.             Related Party Transaction**

* *

*Marvin E. Jaffe, M.D.*

 

Dr. Jaffe hasserved as a member of our Board of Directors since 1994. On March 11, 2006, Dr.Jaffe tendered his resignation as a director of the Company effectiveimmediately prior to our 2006 annual meeting of stockholders and notified theBoard that he did not intend to stand for reelection. As a result of Dr. Jaffe’sresignation as a director, on May 10, 2006, we entered into a consultingagreement with Dr. Jaffe in order to allow us to retain the benefit of Dr.Jaffe’s knowledge and expertise regarding the Company’s business and thepotential clinical development and commercialization strategies for ourproducts (the “Jaffe Consulting Agreement”). Pursuant to the Jaffe ConsultingAgreement, Dr. Jaffe has agreed to provide up to 10 hours of consulting serviceper month as and when requested from time to time by the Company. In connectionwith the performance of his consulting services, we will grant Dr. Jaffe anonqualified stock option under the Company’s 2000 Stock Incentive CompensationPlan to purchase 20,000 shares of common stock at an exercise price equal tothe closing sale price of a share of our common stock on the effective date ofthe Jaffe Consulting Agreement (as reported by the Nasdaq National Market). Thisoption will be subject to the terms and conditions of the 2000 Stock IncentiveCompensation Plan and will vest in eighteen (18) equal monthly installmentscommencing July 1, 2006. Dr. Jaffe is not entitled to any additionalcompensation or benefits in connection with the performance of his consultingservices. The term of the Jaffe Consulting Agreement is from

 

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May 10, 2006 toDecember 31, 2007; *provided that*itwill automatically terminate upon the occurrence of one or more eventsconstituting just cause (as defined in the agreement).

 

**8.             Subsequent Event**

 

On May 10, 2006, our stockholders approved an amendment to our RestatedCertificate of Incorporation to increase our authorized number of shares ofcommon stock from 75,000,000 shares to 150,000,000 shares.

 

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**ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations, as well as information contained elsewhere in thisreport, contains statements that constitute “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. These forward-lookingstatements include, but are not limited to, statements concerning our projectedtimelines for the performance of interim analyses, completion of enrollment andannouncement of results from our ongoing clinical trials, including ourPhase 3 ENRICH trial; the potential for the results of our Phase 3ENRICH trial to support marketing approval of EFAPROXYN; our intent andprojected timelines to initiate a Phase 2 clinical trial of PDX inpatients with relapsed or refractory peripheral T-cell lymphoma; otherstatements regarding our future product development and regulatory strategies,including our intent to develop or seek regulatory approval for our productcandidates in specific indications; the ability of our third-partymanufacturing parties to support our requirements for drug supply; anystatements regarding our future financial performance, results of operations orsufficiency of capital resources to fund our operating requirements; and anyother statements which are other than statements of historical fact. In somecases, these statements may be identified by terminology such as “may,” “will,”“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”“potential” or “continue,” or the negative of such terms and other comparableterminology. Although we believe that the expectations reflected in theforward-looking statements contained herein are reasonable, we cannot guaranteefuture results, levels of activity, performance or achievements. Thesestatements involve known and unknown risks and uncertainties that may causeour or our industry’s results, levels of activity, performance or achievementsto be materially different from those expressed or implied by theforward-looking statements. Factors that may cause or contribute to suchdifferences include, among other things, those discussed under the caption “RiskFactors”. 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.*

 

**Overview**

 

Allos Therapeutics, Inc.is a biopharmaceutical company that is focused on developing andcommercializing innovative small molecule drugs for improving cancertreatments. Small molecule drugs, in general, are non-protein products producedby chemical synthesis rather than biological methods. We strive to developdrugs that improve the treatment of cancer and enhance the power of currenttherapies. Our goal is to build a profitable company by generating income fromproducts we develop and commercialize, either alone or together with one ormore potential strategic partners. Our focus is on product opportunities thatleverage our internal clinical development and regulatory expertise and addressimportant medical markets. We may also endeavor from time to time to growour existing portfolio of product candidates through product acquisition andin-licensing efforts.

 

Since our inception in1992, we have not generated any revenue from product sales and we haveexperienced significant net losses and negative cash flows. We have incurredthese losses principally from costs incurred in our research and developmentprograms and from our general and administrative expenses. We expect tocontinue incurring net losses and negative cash flows for the foreseeablefuture. The presence and size of these potential net losses will depend, inlarge part, on if and when we obtain regulatory approval in the United Statesor Europe to market our lead product candidate, EFAPROXYN, as an adjunct toradiation therapy for the treatment of patients with brain metastasesoriginating from breast cancer. Our ability to generate revenue and achieveprofitability is dependent on our ability, alone or with partners, to successfullycomplete the development of our product candidates, conduct clinical trials,obtain the necessary regulatory approvals, and manufacture and market ourproduct candidates.

 

We have three productcandidates that are currently under development: EFAPROXYN (efaproxiral), PDX(pralatrexate) and RH1.

 

•                  EFAPROXYNis the first synthetic small molecule designed to sensitize hypoxic, oroxygen-deprived, areas of tumors during radiation therapy by facilitating therelease of oxygen from hemoglobin, the oxygen-carrying protein contained withinred blood cells, and increasing the level of oxygen in tumors. The presence ofoxygen in tumors is an essential element for the effectiveness of radiationtherapy. By increasing tumor oxygenation, we believe EFAPROXYN has thepotential to enhance the efficacy of standard radiation therapy.

 

In December 2003, wesubmitted a New Drug Application, or NDA, to the United States Food and DrugAdministration, or FDA, for approval to market EFAPROXYN in the United Statesas an adjunct to whole brain radiation therapy, or WBRT, for the treatment ofpatients with brain metastases originating from breast cancer. The

 

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NDA was based on thefindings from our randomized, open label Phase 3 clinical trial ofEFAPROXYN in patients with brain metastases, called REACH, which demonstrated astatistically significant survival benefit in patients with brain metastasesoriginating from breast cancer, a subgroup of patients that was not prospectivelydefined as an intent-to-treat subgroup. The results from the REACH trial wereannounced in April 2003. In May 2004, the FDA’s Oncologic DrugAdvisory Committee reviewed the NDA and voted not to recommend approval ofEFAPROXYN for this indication based on the data from the REACH trial. However,in June 2004, the FDA issued an “approvable letter” in which it indicatedthat the NDA may be approved if we successfully complete our ongoingPhase 3 clinical trial of EFAPROXYN in patients with brain metastasesoriginating from breast cancer and submit the results as a NDA amendment forthe FDA’s review. In the letter, the FDA stated, “if the study showseffectiveness in this population (increased survival) using the pre specifiedanalysis, and the study is otherwise satisfactory, we believe it would,together with the subset result in the [REACH trial], support approval.”

 

The ongoing Phase 3trial referenced in the FDA’s approvable letter was initiated in February 2004.This pivotal Phase 3 trial, which is called ENRICH (ENhancing whole brainRadiation therapy In patients with breast Cancer and Hypoxic brain metastases),will seek to enroll approximately 360 patients at up to 125 cancer centersacross North America, Europe and South America. The primary endpoint of thetrial will measure the difference in survival between patients receiving WBRTplus supplemental oxygen, with or without EFAPROXYN. An independent DataMonitoring Committee, or DMC, will provide an expert review of cumulative datafrom the trial to determine, at an upcoming interim analysis, if sufficientevidence exists to stop the trial early due to overwhelming evidence ofimproved survival in the EFAPROXYN arm. In March 2006, the DMC completedthe first planned interim analysis of data from ENRICH and has recommended thatthe trial continue per the protocol. This first interim review was triggered bythe occurrence of 94 patient deaths and was based upon an evaluation ofpatients randomized through February 14, 2006. In order to protect the integrityof the trial, the results of the efficacy analysis will not be made availableto the Company until the study is completed. No major patient safety concernswere identified by the DMC. The DMC will perform the second interimanalyses of the primary endpoint at its first scheduled meeting following theoccurrence 188 patient deaths, which we expect to occur in the second half of2006. We will perform the final analysis of both the primary and secondaryendpoints, if necessary, following the occurrence of 281 patient deaths. Anumber of factors will influence the actual timing of the interim and finalanalyses, including patient accrual rates and individual survival rates. Wecurrently expect to complete enrollment in the trial during the second half of2006, and announce preliminary results in the first half of 2007, if the trialis not stopped at the second interim analysis.

 

In June 2004, wefiled a Marketing Authorization Application, or MAA, with the EuropeanMedicines Agency, or EMEA, for approval to market EFAPROXYN in Europe as anadjunct to WBRT for the treatment of patients with brain metastases originatingfrom breast cancer. As with our NDA, the MAA was based on the findings from theREACH trial. On October 11, 2005, we withdrew the MAA as a result of theRapporteurs’ Day 180 Joint Assessment Report, which concluded that the existingdata package was not sufficient to support approval. Although we can provide noassurances, we believe that our ongoing ENRICH trial, if positive, togetherwith other supporting data, should allow us to address the EMEA’s concernsregarding EFAPROXYN and provide the additional data necessary to support thefiling of a new MAA and the future approval of EFAPROXYN in Europe for thetreatment of patients with brain metastases originating from breast cancer.

 

In August 2004, theFDA awarded orphan drug status to EFAPROXYN for use as an adjunct to WBRT forthe treatment of patients with brain metastases originating from breast cancer.The FDA may award orphan drug designation to drugs that target conditionsaffecting 200,000 or fewer patients per year in the United States and provide asignificant therapeutic advantage over existing treatments. The orphan drugdesignation provides for marketing exclusivity in the United States for sevenyears following marketing approval by the FDA.

 

In addition to thePhase 3 ENRICH trial, we are currently enrolling patients in the followingclinical trials involving EFAPROXYN:

 

•                  aPhase 1 clinical trial in patients with locally advanced non-small celllung cancer, or NSCLC, receiving concurrent chemoradiotherapy (chemotherapy andradiation therapy administered at the same time) in combination with EFAPROXYN;and

 

•                  aPhase 1b/2 clinical trial of EFAPROXYN in patients with locally advancedcancer of the cervix receiving concurrent chemoradiotherapy.

 

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•                  **PDX** is a small molecule chemotherapeutic agent that webelieve inhibits dihydrofolate reductase, or DHFR, a folic acid(folate)-dependent enzyme involved in the building of nucleic acid, or DNA, andother processes. Certain preclinical data suggests that PDX has an enhancedpotency and toxicity profile relative to methotrexate and other related DHFRinhibitors. Drugs that inhibit DHFR, such as methotrexate, were among the firstantifolate chemotherapeutic agents discovered. Methotrexate remains one of themost widely applied antifolate chemotherapeutics and has been used to treatleukemia, breast, bladder, gastric, esophageal, head, and neck cancers. Webelieve PDX has the potential to be delivered as a single agent or incombination therapy regimens.

 

In December 2005, weannounced the presentation of interim results from our ongoing Phase 1/2single-agent study of PDX in patients with relapsed or refractory non-Hodgkin’slymphoma and Hodgkin’s disease, which is currently being conducted at MemorialSloan Kettering Cancer Center. The interim results, which were presented at the2005 American Society of Hematology Annual Meeting, demonstrated preliminaryevidence of PDX activity in patients with various subtypes of T-cell lymphoma.Notably, four of seven evaluable patients with T-cell lymphoma achieved acomplete response following treatment with PDX, despite having failed multipleprior therapies. Moreover, the addition of vitamins to the treatment regimenalso appeared to successfully mitigate the previously established dose limitingtoxicity of stomatitis, or mouth ulcers.

 

Based on the interimresults from the Phase 1/2 study of PDX in patients with non-Hodgkin’slymphoma, we plan to initiate a Phase 2, open-label, multi-center study ofPDX in patients with relapsed or refractory peripheral T-cell lymphoma, or PTCL.Given the aggressive nature of PTCL, the absence of an approved agent in thissetting and the relative size of other Phase 2 studies that have supportedmarketing approval for other niche hematology drugs, such as nelarabine, webelieve this Phase 2 trial, if sufficiently positive, may provide thebasis to obtain marketing approval for PDX in this indication. However, wecannot assure you that the design of, or data collected from this Phase 2trial, will be adequate to demonstrate the safety and efficacy of PDX for thetreatment of PTCL or otherwise be sufficient to support FDA or any foreignregulatory approval. We currently plan to initiate this study during the thirdquarter of 2006.

 

We are also currentlyenrolling patients in a Phase 1 dose escalation study of PDX with vitamin B12and folic acid supplementation in patients with previously treated advancedNSCLC. The determination of the maximum tolerated dose of PDX in combinationwith vitamin supplementation will be essential for further development in thisindication.

 

•                  **RH1** is a small molecule chemotherapeutic agent that we believeis bioactivated by the enzyme DT-diaphorase, or DTD, which is over-expressed inmany tumors relative to normal tissue, including lung, colon, breast and livertumors. Because RH1 is bioactivated in the presence of DTD, we believe it hasthe 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.

 

RH1 is currently beingevaluated in patients with advanced solid tumors refractory to otherchemotherapy regimens in an open label, Phase 1 dose escalation study totest the safety, tolerability and pharmacokinetics of escalating doses of RH1.

 

**Resultsof Operations**

 

*Researchand Development.* Research and development expensesinclude the costs of certain personnel, basic research, nonclinical studies,clinical trials, regulatory affairs, biostatistical data analysis, patents andlicensing fees for new products. Research and development expenses for thethree months ended March 31, 2005 and 2006 were $2.3 million and $3.4million, respectively.

 

The $1.1 million increasein research and development expenses in the three months ended March 31,2006 as compared to the same period in 2005 was primarily due to the following:

 

•                  $898,000increase in clinical trial costs due to increased patient enrollment in ourPhase 3 ENRICH trial; and

 

•                  $151,000increase in non-cash stock-based compensation expense due to the adoption ofaccounting rules related to stock-based compensation on January 1,2006.

 

For the remainder of2006, we expect our average quarterly research and development expenses toincrease moderately relative

 

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to the amount recordedfor the three months ended March 31, 2006 due to increases in costs forPDX nonclinical studies and our planned Phase 2 study of PDX in patients withrelapsed or refractory PTCL. The amount and timing of the costs related to ourclinical trials is difficult to predict due to the uncertainty inherent in thetiming of clinical trial initiations, the rate of patient enrollment and thedetailed design of future trials.

 

*ClinicalManufacturing.* Clinical manufacturing expenses includethe costs of certain personnel, third party manufacturing costs for EFAPROXYNfor use in clinical trials, costs associated with pre-commercial scale-up ofmanufacturing to support anticipated commercial requirements, and developmentactivities for clinical trial and nonclinical studies material for PDX. Clinicalmanufacturing expenses for the three months ended March 31, 2005 and 2006were $360,000 and $562,000, respectively.

 

The $202,000 increase inclinical manufacturing expenses in the three months ended March 31, 2006as compared to the same period in 2005 was primarily due to increases inthird-party manufacturing costs for formulated drug product for EFAPROXYN andPDX of $101,000 and $85,000, respectively.

 

For the remainder of2006, we expect our average quarterly clinical manufacturing expenses to remainrelatively stable to the amount recorded for the three months ended March 31,2006.

 

*Marketing,General and Administrative.* Marketing, general andadministrative expenses include costs for pre-marketing activities, corporatedevelopment, executive administration, and corporate offices and relatedinfrastructure. Marketing, general and administrative expenses for the threemonths ended March 31, 2005 and 2006 were $2.2 million and $2.9 million,respectively.

 

The $733,000 increase inmarketing, general and administrative expenses in the three months ended March 31,2006 as compared to the same period in 2005 was primarily due to the following:

 

•                  $421,000increase in personnel costs, mainly attributable to recruiting costs of$236,000 for our new President and Chief Executive Officer, in addition toincreases in compensation costs year over year; and

 

•                  $323,000increase in non-cash stock-based compensation expense due to the adoption ofaccounting rules related to stock-based compensation on January 1,2006.

 

For the remainder of2006, we expect our average quarterly marketing, general and administrativeexpenses to remain relatively stable to the amount recorded for the threemonths ended March 31, 2006.

 

*Restructuringand Separation Costs.*Restructuring and separation costs forthe three months ended March 31, 2005 and 2006 were $380,000 and $646,000,respectively.

 

In January 2005, weexecuted agreements to sublease approximately three-quarters of the 12,708square feet of excess space in our corporate offices located in Westminster,Colorado. The term of each sublease agreement is through the term of our officelease, or October 31, 2008. As the Company’s obligations under our primarylease were in excess of the sum of the actual and expected sublease rentalpayments for this excess space, we recorded a lease abandonment charge ofapproximately $380,000 in restructuring and separation costs during the threemonths ended March 31, 2005. As of March 31, 2006, the amountremaining in accrued restructuring and separation costs relating to this leaseabandonment charge is $184,086.

 

In January 2006,Michael E. Hart notified our Board of Directors of his intent to resign fromhis positions as President, Chief Executive Officer and Chief Financial Officerof the Company once a successor Chief Executive Officer was appointed. On March 3,2006, we entered into a separation agreement with Mr. Hart to provide certainincentives for his continued employment with the Company while we conducted oursearch for his successor. On March 9, 2006, we appointed Paul L. Berns asour President, Chief Executive Officer and a member of the Board of Directorsand Mr. Hart resigned from his positions in accordance with the terms of theseparation agreement. The separation agreement with Mr. Hart was amendedon March 9, 2006, and on May 10, 2006 (as so amended, the “SeparationAgreement”). Pursuant to the Separation Agreement, Mr. Hart is entitled tocertain payments and benefits from the Company, as further described inNote 5 to our Financial Statements included in Item 1 of thisquarterly report.

 

 

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Werecorded separation costs of $645,666 during the three months ended March 31,2006 relating to our estimate of our total obligations under the Separation Agreementwith Mr. Hart. As of March 31, 2006, the remaining liability of$620,741 relating to the Separation Agreement with Mr. Hart is recorded inaccrued restructuring and separation costs.

 

*Interestand Other Income, Net*. Interest income, net of interestexpense, for the three months ended March 31, 2005 and 2006 was $209,000and $504,000, respectively. The $295,000 increase in net interest income in thethree months ended March 31, 2006 as compared to the same period in 2005was primarily due to higher average investment balances resulting from our March 2005Preferred Stock financing and higher yields on United States governmentsecurities, high-grade commercial paper and corporate notes, and money marketfunds.

 

**Liquidityand Capital Resources**

 

Our cash, cashequivalents, and short-term investments in marketable securities amounted to$50.3 million at March 31, 2006. Since our inception, we have financedour operations primarily through the private sale of securities and our initialpublic offering of common stock in March 2000, which have resulted in netproceeds to us of $199.2 million through March 31, 2006. We have also generatedapproximately $16.9 million of net interest income since our inceptionfrom investing the net proceeds of these financings.

 

We have used $144.6million of cash for operating activities from our inception through March 31,2006. Net cash used to fund our operating activities for the three months endedMarch 31, 2005 and 2006 was $5.4 million and $5.1 million,respectively.

 

Net cash used in investingactivities for the three months ended March 31, 2005 was $35.6 millionand consisted primarily of purchases of investments in marketable securities, partiallyoffset by the proceeds from maturities of investments in marketable securities.Net cash provided by investing activities for the three months ended March 31,2006 was $9.1 million and consisted primarily of proceeds from maturities of investmentsin marketable securities, partially offset by the purchase of investments inmarketable securities.

 

Netcash provided by financing activities for the three months ended March 31,2005 was $48.9 million and consisted of the net proceeds of the March 2005sale of Preferred Stock, which was exchanged to common stock in May 2005. Netcash provided by financing activities for the three months ended March 31,2006 was $2,000 and consisted of proceeds from the issuance of common stock associatedwith stock options exercised by our employees.

 

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 12 months fromthe date of this filing, and potentially through the end of 2007. However, ourforecast of the period of time through which our financial resources will beadequate to support our operations is a forward-looking statement that involvesrisks and uncertainties, and actual results could vary materially. Weanticipate continuing our current development programs and/or beginning otherlong-term development projects involving our product candidates. These projectsmay require many years and substantial expenditures to complete and may ultimatelybe unsuccessful. Therefore, we may need to obtain additional funds fromoutside sources to continue research and development activities, fund operatingexpenses, pursue regulatory approvals

 

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and build sales andmarketing capabilities, as necessary. However, our actual capital requirementswill depend on many factors, including:

 

•                  thestatus of our product development programs;

•                  thetime and cost involved in conducting clinical trials and obtaining regulatoryapprovals;

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

•                  competingtechnological and market developments; and

•                  ourability to market and distribute our future products and establish newcollaborative and licensing arrangements.

 

We will be required toraise additional capital to support our future operations, includingcommercialization of EFAPROXYN in the event we obtain regulatory approval tomarket EFAPROXYN for the treatment of patients with brain metastasesoriginating from breast cancer. We may seek to obtain this additionalcapital through arrangements with corporate partners, equity or debt financings,or from other sources. Such arrangements, if successfully consummated, may bedilutive to our existing stockholders. However, there is no assurance that wewill be successful in consummating any such arrangements. In addition, in theevent that additional funds are obtained through arrangements withcollaborative partners or other sources, such arrangements may require usto relinquish rights to some of our technologies, product candidates orproducts under development that we would otherwise seek to develop orcommercialize ourselves. If we are unable to generate meaningful amounts ofrevenue from future product sales, if any, or cannot otherwise raise sufficientadditional funds to support our operations, we may be required to delay,reduce the scope of or eliminate one or more of our development programs andour business and future prospects for revenue and profitability may beharmed.

 

**Obligations and Commitments**

 

The following table showsour contractual obligations and commitments as of March 31, 2006.

 
| ** **                      | ** ** | **April 1, 2006 to  March 31, 2007** | ** ** | **April 1, 2007, to  March 31, 2009** | ** ** | **April 1, 2009 to  March 31, 2011** | ** ** | **After  April 1, 2011** | ** ** | **Total**  | ** ** |
|---------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| Operating  lease obligations    |       | $                                                             | 746,560    |                                                           | $          | 1,255,222                                                     |       | $                                  | 56,506     |       | $          | — |   | $ | 2,058,288 |   |
| Contingent  payment obligations |       | 550,000                                                       |       |                                                           |       |                                                          |       |                               |       | 550,000    |       |
| License  agreement obligations  |       | 500,000                                                       |       | 1,000,000                                                      |       | 500,000                                                       |       | —                             |       | 2,000,000  |       |
| Purchase  obligations           |       | 2,000,000                                                     |       | 8,500,000                                                      |       | 10,000,000                                                    |       | 20,000,000                         |       | 40,500,000 |       |
| Total  obligations              |       | $                                                             | 3,796,560  |                                                           | $          | 10,755,222                                                    |       | $                                  | 10,556,506 |       | $          | 20,000,000 |   | $ | 45,108,288 |   |

 

Operating leaseobligations represent future minimum rental commitments for non-cancelableoperating leases for our facilities and certain office equipment, net of $188,000of remaining sublease payments on excess space in our corporate offices.

 

Contingent paymentobligations represent a potential milestone payment that may be requiredunder the terms of an agreement, as amended in March 2006, with a thirdparty to provide certain trial management services in Europe and South Americain connection with the ENRICH trial. Under the terms of this amended agreement,we are required to pay this third party approximately $550,000 if a certainpatient enrollment milestone is achieved in Europe and South America by July 2006.As of March 31, 2006, we recorded a portion of the $550,000 milestonepayment in accrued research and development expenses equal to the number ofpatients actually enrolled as of March 31, 2006 relative to the patientenrollment milestone in the agreement.

 

License agreementobligations represent future milestone payments under our license agreement forPDX, due upon the passage of certain time periods after the effective date ofthe agreement, which could be paid earlier depending on the timing of achievinga development milestone.

 

Purchase obligationsrepresent annual minimum purchase requirements of efaproxiral sodium fromHovione Inter Limited under our June 2005 Manufacturing Agreement, equalto $2,000,000 in 2006, $3,500,000 in 2007, $5,000,000 in 2008, and $5,000,000in each year thereafter through the end of the term of the agreement (equal tothe 7thanniversary of the date we obtain approval from the FDA to market EFAPROXYN). 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 by atotal of three years. These extension fees are equal to $100,000 for a firstextension, $150,000 for a second extension, and $200,000 for a third and finalextension, if necessary. 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.

 

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**CriticalAccounting 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 ended December 31,2005. These critical accounting policies are subject to judgments anduncertainties, which affect the application of these policies. We have not madeany changes in any of these critical accounting polices during the three monthsended March 31, 2006.

 

We adopted Statement ofFinancial Accounting Standards (“SFAS”) No. 123 (Revised 2004), *Share-Based Payment* (“SFAS 123R”) effective January 1,2006. SFAS 123(R) establishes accounting for stock-based awards exchanged foremployee services. Accordingly, stock-based compensation is measured at grantdate, based on the fair value of the award computed using the Black-Scholesoption valuation model, and is recognized as expense over the employeerequisite service period. Prior to January 1, 2006, we applied AccountingPrinciples Board (APB) Opinion No. 25, *Accounting for StockIssued to Employees*, and related Interpretations and provided therequired pro forma disclosures of SFAS No. 123, *Accountingfor Stock-Based Compensation*.

 

Weelected to adopt the modified prospective application method as provided bySFAS 123R. Accordingly, during the three months ended March 31, 2006, werecorded stock-based compensation cost totaling the amount that would have beenrecognized had the fair value method been applied since January 1, 1996, theeffective date of SFAS 123. In accordance with the modified prospective method,our financial statements for prior periods have not been restated to reflect,and do not include, the impact of SFAS 123R.

 

During the three monthsended March 31, 2006, we recorded stock-based compensation expense of$481,342 related to stock options, restricted stock and our Employee StockPurchase Plan. As of March 31, 2006, the unrecorded deferred stock-basedcompensation expense balance related to these stock-based awards stock optionswas $4.6 million and will be recognized over an estimated weighted averageamortization period of 1.6 years.

 

Judgments and estimatesmust be made and used in determining the factors used in calculating the fairvalue of stock-based awards, including the expected forfeiture rate of our stock-basedawards, the expected life of our stock-based awards, and the expectedvolatility of our stock price.

 

The adoption ofSFAS 123R during the first quarter of fiscal year 2006 had a materialimpact on our net loss and net loss per share. For more information onstock-based compensation expense during the three months ended March 31,2006, refer to Note 3 “Stock-Based Compensation” of the Notes to our FinancialStatements included in Item 1 of this quarterly report. We expect that ouradoption of SFAS 123R will have a material impact on our future financialstatements and results of operations.

 

**ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We donot use derivative financial instruments in our investment portfolio and haveno foreign exchange contracts. Our financial instruments consist of cash, cashequivalents, short-term and long-term investments in marketable securities, andaccounts payable. All highly liquid investments with original maturities ofthree months or less are considered to be cash equivalents.

 

Weinvest in marketable securities in accordance with our investment policy. Theprimary objectives of our investment policy are to preserve principal, maintainproper liquidity to meet operating needs and maximize yields. Our investmentpolicy specifies credit quality standards for our investments and limits theamount of credit exposure to any single issue, issuer or type of investment.The average duration of the issues in our portfolio as of March 31, 2006is approximately four months. As of March 31, 2006, our investments inmarketable securities of $42.0 million are all classified asheld-to-maturity and were held in a variety of interest-bearing instruments,consisting mainly of high-grade corporate notes.

 

Investmentsin fixed-rate interest-earning instruments carry varying degrees of interestrate risk. The fair market value of our fixed-rate securities may be adverselyimpacted due to a rise in interest rates. In general, securities with longermaturities are subject to greater interest-rate risk than those with shortermaturities. Due in part to this factor, our interest income may fallshort of expectations or we may suffer losses in principal if securitiesare sold that have declined in market value due to

 

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changesin interest rates. Due to the short duration of our investment portfolio, webelieve an immediate 10% change in interest rates would not be material to ourfinancial condition or results of operations.

 

**ITEM 4. CONTROLSAND PROCEDURES**

 

As of the end of theperiod covered by this report, an evaluation was carried out under thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer (the “EvaluatingOfficers”), of the effectiveness of our disclosure controls and procedures, asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934, asamended (“Exchange Act”). Based on that evaluation, our management, includingthe Evaluating Officers, concluded that our disclosure controls and procedureswere effective as of March 31, 2006 to ensure that information required tobe disclosed by us in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission’s rules and forms, and that suchinformation is accumulated and communicated to our management, including theEvaluating Officers, as appropriate, to allow timely decisions regardingrequired disclosure.

 

**NoChanges in Internal Control over Financial Reporting**

 

There were no changes inour internal controls over financial reporting during the three months ended March 31,2006 that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**ITEM1.****                                                     LEGALPROCEEDINGS**

 

TheCompany and one of its former officers were named as defendants in a purportedsecurities class action lawsuit filed in May 2004 in the UnitedStates District Court for the District of Colorado (the “District Court”). Anamended complaint was filed in August 2004. The lawsuit was brought onbehalf of a purported class of purchasers of our securities during theperiod from May 29, 2003 to April 29, 2004, and sought unspecifieddamages relating to the issuance of allegedly false and misleading statementsregarding EFAPROXYN during this period and subsequent declines in our stockprice. On October 20, 2005, the District Court granted the defendants’motion to dismiss the lawsuit with prejudice. In an opinion dated October 20,2005, the District Court concluded that the plaintiff’s complaint failed tomeet the legal requirements applicable to its alleged claims.

 

On November 20,2005, the plaintiff appealed the District Court’s decision to the U.S. Court ofAppeals for the Tenth Circuit (the “Court of Appeals”). We believe theplaintiff’s claims are without merit, and intend to vigorously defend againstthe plaintiff’s appeal. However, as with any litigation proceeding, we cannotpredict with certainty the eventual outcome of the litigation. If the Court ofAppeals reverses the District Court’s decision and we are not successful in ourdefense of such claims, we could be forced to make significant payments to theplaintiffs, and such payments could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows to theextent such payments are not covered by our insurance carriers. Even if ourdefense against such claims is successful, the litigation could result insubstantial costs and divert management’s attention and resources, which couldadversely affect our business. This lawsuit has been tendered to our insurancecarriers.

 

**ITEM 1A.****                                            RISKFACTORS**

 

*Aninvestment in our common stock is risky. Stockholders and potential investorsin shares of our stock should carefully consider the following risk factors,which hereby update those risks contained in the “Risk Factors” section ofour Annual Report on Form 10-K for the year ended December 31, 2005,in addition to other information and risk factors in this Report. We areidentifying these risk factors as important factors that could cause our actualresults to differ materially from those contained in any written or oralforward-looking statements made by or on behalf of the Company. We are relyingupon the safe harbor for all forward-looking statements in this Report, and anysuch statements made by or on behalf of the Company are qualified by referenceto the following cautionary statements, as well as to those set forth elsewherein this Report.*

 

**We havea history of net losses and an accumulated deficit, and we may neverachieve or maintain revenue or profitability in the future.**

 

We have never generatedrevenue from product sales and have experienced significant net losses sinceour inception in 1992. To date, we have financed our operations primarilythrough the private sale of securities and our initial public offering ofcommon stock in March 2000. For the three months ended March 31,2006, we had a net loss of $7.1 million. As of March 31, 2006, wehave accumulated a deficit of $185.4 million during our development stage.We have incurred these net losses principally from costs incurred in ourresearch and development programs and from our general and administrativeexpenses. We expect to continue incurring net losses for the foreseeablefuture. The presence and size of these potential net losses will depend, inlarge part, on if and when we obtain regulatory approval in the United Statesor Europe to market EFAPROXYN as an adjunct to radiation therapy for thetreatment of brain metastases from breast cancer. Our ability to generaterevenue and achieve profitability is dependent on our ability, alone or withpartners, to successfully complete the development of our product candidates, conductclinical trials, obtain the necessary regulatory approvals, and manufacture andmarket our product candidates. We may never generate revenue from productsales or become profitable. We expect to continue to spend substantial amountson research and development, including amounts spent on conducting clinicaltrials for our product candidates. We may not be able to continue as agoing concern if we are unable to generate meaningful amounts of revenue tosupport our operations or cannot otherwise raise the necessary funds to supportour operations.

 

**Ourproduct candidates are in various stages of development and may never befully developed in a manner suitable for commercialization. If we do notdevelop commercially successful products, our ability to generate revenue willbe limited.**

 

We currently have noproducts that are approved for commercial sale. All of our product candidatesare in various stages of development, and significant research and development,financial resources and personnel will be required to develop commerciallyviable products and obtain regulatory approvals. A majority of our efforts andexpenditures over the next few years will be devoted to EFAPROXYN. Accordingly,our future prospects are substantially dependent on obtaining regulatory

 

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approval in the UnitedStates or Europe to market EFAPROXYN as an adjunct to radiation therapy for thetreatment of brain metastases originating from breast cancer. EFAPROXYN is notexpected to be commercially available for this or any other indication until atleast 2007. In addition, PDX and RH1 are in earlier stages of productdevelopment relative to EFAPROXYN, and as such, we expect that PDX and RH1 willnot be commercially available until after EFAPROXYN is commercially available.Further, certain of the indications that we are pursuing have relatively lowincidence rates, which may make it difficult for us to enroll a sufficientnumber of patients in our clinical trials on a timely basis, or at all, and may limitthe revenue potential of our product candidates. If we are unable to develop,receive approval for, or successfully commercialize any of our productcandidates, we may be unable to generate meaningful revenue from productsales and will incur continued net losses.

 

**Wecannot predict when or if we will obtain regulatory approval to commercializeour product candidates.**

 

A pharmaceutical productcannot be marketed in the United States or most other countries until it hascompleted a rigorous and extensive regulatory approval process. If we fail toobtain regulatory approval to market our product candidates, we will be unableto sell our products and generate revenue, which would jeopardize our abilityto continue operating our business. Satisfaction of regulatory requirementstypically takes many years, is dependent upon the type, complexity and noveltyof the product and requires the expenditure of substantial resources. Ofparticular significance are the requirements covering research and development,testing, manufacturing, quality control, labeling and promotion of drugs forhuman use. We may not obtain regulatory approval for any productcandidates we develop, including EFAPROXYN and PDX, or we may not obtainregulatory review of such product candidates in a timely manner. For a morecomplete description of the regulatory approval process and related risks,please refer to the “Government Regulation” section of Item 1 of ourAnnual Report on Form 10-K for the year ended December 31, 2005.

 

**If ourproduct candidates do not meet safety and efficacy endpoints in clinicaltrials, they will not receive regulatory approval, and we will be unable tomarket them.**

 

Our product candidates may notprove to be safe and efficacious in clinical trials and may not meet allof the applicable regulatory requirements needed to receive regulatoryapproval. The clinical development and regulatory approval process is extremelyexpensive and takes many years. Failure can occur at any stage of development,and the timing of any regulatory approval cannot be accurately predicted. If wefail to obtain regulatory approval for our current or future productcandidates, we will be unable to market and sell them and therefore may neverbe profitable.

 

As part of the regulatoryprocess, we must conduct clinical trials for each product candidate todemonstrate safety and efficacy to the satisfaction of the FDA and otherregulatory authorities abroad. The number and design of clinical trials thatwill be required varies depending on the product candidate, the condition beingevaluated, the trial results and regulations applicable to any particularproduct candidate. For example, based on the interim results from thePhase 1/2 study of PDX in patients with NHL that is currently ongoing atMemorial Sloan Kettering Cancer Center, we plan to initiate a Phase 2open-label, multi-center study of PDX in patients with relapsed or refractoryPTCL. Given the aggressive nature of PTCL, the absence of an approved agent inthis setting and the relative size of other Phase 2 studies that havesupported marketing approval for other niche hematology drugs, such asnelarabine, we believe this Phase 2 trial, if sufficiently positive, may providethe basis to obtain marketing approval for PDX in this indication. However, wecannot assure you that the design of, or data collected from this Phase 2trial, or any of our other current or future clinical trials, we be sufficientto support FDA or any foreign regulatory approval. This Phase 2 trial may notdemonstrate the safety and efficacy of PDX for the treatment of PTCL, or we may berequired to conduct additional trials to support regulatory approval of PDX inthis indication.

 

The design of ourclinical trials is based on many assumptions about the expected effect of ourproduct candidates, and if those assumptions prove incorrect, the clinicaltrials may not produce statistically significant results. Preliminaryresults may not be confirmed upon full analysis of the detailed results ofa trial, and prior clinical trial program designs and results may not bepredictive of future clinical trial designs or results. Product candidates inlater stage clinical trials may fail to show the desired safety andefficacy despite having progressed through initial clinical trials withacceptable endpoints. If our product candidates fail to show clinicallysignificant benefits, they will not be approved for marketing.

 

**We may experiencedelays in our clinical trials, including ENRICH, that could adversely affect ourfinancial position and our commercial prospects.**

 

We do not know when ourcurrent clinical trials, including ENRICH, will be completed, if at all. Wealso cannot accurately predict when other planned clinical trials, includingour planned Phase 2 trial of PDX in patients with relapsed or refractory PTCL,will begin or be completed. Many factors affect patient enrollment, includingthe size of the patient population, the proximity of patients to clinicalsites, the eligibility criteria for the trial, competing clinical trials andnew drugs approved for

 

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the conditions we areinvestigating. Other companies are conducting clinical trials and haveannounced plans for future trials that are seeking or likely to seek patientswith the same diseases as those we are studying. Competition for patients insome cancer trials is particularly intense because of the limited number ofleading specialist physicians and the geographic concentration of majorclinical centers.

 

As a result of thenumerous factors which can affect the pace of progress of clinical trials, ourtrials may take longer to enroll patients than we anticipate, if they canbe completed at all. Delays in patient enrollment in the trials may increaseour costs and slow our product development and approval process. Our productdevelopment costs will also increase if we need to perform more or largerclinical trials than planned. If other companies’ product candidates showfavorable results, we may be required to conduct additional clinicaltrials to address changes in treatment regimens or for our products to becommercially competitive. Any delays in completing our clinical trials willdelay our ability to generate revenue from product sales, and we may haveinsufficient capital resources to support our operations. Even if we do havesufficient capital resources, our ability to become profitable will be delayed.

 

**We may berequired to suspend, repeat or terminate our clinical trials, including ENRICH,if they are not conducted in accordance with regulatory requirements, theresults are negative or inconclusive or the trials are not well designed.**

 

Clinical trials must beconducted in accordance with the FDA’s Good Clinical Practices and are subjectto oversight by the FDA and Institutional Review Boards at the medicalinstitutions where the clinical trials are conducted. In addition, clinicaltrials must be conducted with product candidates produced under the FDA’s GoodManufacturing Practices, and may require large numbers of test subjects.Clinical trials may be suspended by the FDA or us at any time if it isbelieved that the subjects participating in these trials are being exposed tounacceptable health risks or if the FDA finds deficiencies in the conduct ofthese trials.

 

Even if we achievepositive interim results in clinical trials, these results do not necessarilypredict final results, and acceptable results in early trials may not berepeated in later trials. Data obtained from preclinical and clinicalactivities are susceptible to varying interpretations that could delay, limitor prevent regulatory clearances, and the FDA can request that we conductadditional clinical trials. A number of companies in the pharmaceuticalindustry have suffered significant setbacks in advanced clinical trials, evenafter promising results in earlier trials. As a result, there can be noassurance that our ENRICH trial or Phase2 trial of PDX in patients withrelapsed or refractory PTCL, will achieve their primary endpoints. In addition,negative or inconclusive results or adverse medical events during a clinicaltrial could cause a clinical trial to be repeated or terminated. Also, failureto construct clinical trial protocols to screen patients for risk profilefactors relevant to the trial for purposes of segregating patients into thepatient populations treated with the drug being tested and the control groupcould result in either group experiencing a disproportionate number of adverseevents and could cause a clinical trial to be repeated or terminated. If wehave to conduct additional clinical trials, whether for EFAPROXYN, PDX or anyother product candidate, it would significantly increase our expenses and delaymarketing of our products.

 

**Adverseevents in our clinical trials may force us to stop development of ourproduct candidates or prevent regulatory approval of our product candidates.**

 

Our product candidates may produceserious adverse events. These adverse events could interrupt, delay or haltclinical trials of our product candidates and could result in the FDA or otherregulatory authorities denying approval of our product candidates for any orall targeted indications. An independent data safety monitoring board, the FDA,other regulatory authorities or we may suspend or terminate clinicaltrials at any time. We cannot assure you that any of our product candidateswill be safe for human use.

 

**Due toour reliance on contract research organizations and other third parties toconduct clinical trials, we are unable to directly control the timing, conductand expense of our clinical trials.**

 

We rely primarily onthird parties to conduct our clinical trials, including the ENRICH trial. As aresult, we have had and will continue to have less control over the conduct ofour clinical trials, the timing and completion of the trials, the requiredreporting of adverse events and the management of data developed through thetrial than would be the case if we were relying entirely upon our own staff.Communicating with outside parties can also be challenging, potentially leadingto mistakes as well as difficulties in coordinating activities. Outside partiesmay have staffing difficulties, may undergo changes in priorities or may becomefinancially distressed, adversely affecting their willingness or ability toconduct our trials. We may experience unexpected cost increases that arebeyond our control. Problems with the timeliness or quality of the work of acontract research organization may lead us to seek to terminate the relationshipand use an alternative service provider. However, making this change may becostly and may delay our trials, and contractual restrictions may makesuch a change difficult or

 

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impossible. Additionally,it may be impossible to find a replacement organization that can conductour trials in an acceptable manner and at an acceptable cost.

 

**Even ifour product candidates meet safety and efficacy endpoints in clinical trials,regulatory authorities may not approve them, or we may facepost-approval problems that require withdrawal of our products from the market.**

 

Our product candidates may notbe approved even if they achieve their endpoints in clinical trials. Regulatoryagencies, including the FDA or their advisors may disagree with ourinterpretations of data from preclinical studies and clinical trials.Regulatory agencies also may approve a product candidate for fewerconditions than requested or may grant approval subject to the performanceof post-marketing studies for a product candidate. In addition, regulatoryagencies may not approve the labeling claims that are necessary ordesirable for the successful commercialization of our product candidates.

 

Even if we receiveregulatory approvals, our product candidates may later exhibit adverseeffects that limit or prevent their widespread use or that force us to withdrawthose product candidates from the market. In addition, a marketed productcontinues to be subject to strict regulation after approval and may berequired to undergo post-approval studies. Any unforeseen problems with anapproved product or any violation of regulations could result in restrictionson the product, including its withdrawal from the market. Any delay in, orfailure to receive or maintain regulatory approval for, any of our productscould prevent us from ever generating meaningful revenues or achievingprofitability.

 

**Even ifwe receive regulatory approval for our product candidates, we will be subjectto ongoing regulatory obligations and review.**

 

Following any regulatoryapproval of our product candidates, we will be subject to continuing regulatoryobligations such as safety reporting requirements and additional post-marketingobligations, including regulatory oversight of the promotion and marketing ofour products. In addition, we or our third-party manufacturers will be requiredto adhere to regulations setting forth current Good Manufacturing Practices.These regulations cover all aspects of the manufacturing, storage, testing,quality control and record keeping relating to our product candidates.Furthermore, we or our third-party manufacturers must pass a pre-approvalinspection of manufacturing facilities by the FDA and foreign authoritiesbefore obtaining marketing approval and will be subject to periodic inspectionby these regulatory authorities. Such inspections may result in complianceissues that could prevent or delay marketing approval, or require theexpenditure of financial or other resources to address. If we or ourthird-party manufacturers fail to comply with applicable regulatoryrequirements, we may be subject to fines, suspension or withdrawal ofregulatory approvals, product recalls, seizure of products, operatingrestrictions and criminal prosecution.

 

**Budgetconstraints may force us to delay our efforts to develop certain productcandidates in favor of developing others, which may prevent us fromcommercializing all product candidates as quickly as possible.**

 

Because we have limitedresources, and because research and development is an expensive process, wemust regularly assess the most efficient allocation of our research anddevelopment budget. As a result, we may have to prioritize developmentcandidates and may not be able to fully realize the value of some of ourproduct candidates in a timely manner, as they will be delayed in reaching themarket, if at all.

 

**If wefail to obtain the capital necessary to fund our operations, we will be unableto successfully develop or commercialize our product candidates.**

 

We expect thatsignificant additional capital will be required in the future to continue ourresearch and development efforts and to commercialize our product candidates,if approved for marketing. Our actual capital requirements will depend on manyfactors, including, among other factors:

 

•                  thetiming and outcome of our ongoing ENRICH trial;

•                  costsassociated with the commercialization of EFAPROXYN, if approved for marketing;

•                  ourevaluation of, and decisions with respect to, our strategic alternatives, and

•                  costsassociated with securing in-license opportunities, purchasing productcandidates and conducting preclinical research and clinical development for ourcurrent and future product candidates.

 

We intend to raiseadditional capital in the future through arrangements with corporate partners,equity or debt financings, or from other sources. We do not know whetheradditional financing will be available when needed, or that, if available, wewill obtain financing on terms favorable to our stockholders or us. If adequatefunds are not available to us, we will be required to delay, reduce the scopeof or eliminate one or more of our development programs and our business andfuture prospects for revenue and profitability may be harmed. To the extentwe raise additional capital by issuing equity securities, our stockholders may experiencesubstantial dilution. To the extent that we raise additional funds throughcollaboration and licensing

 

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arrangements, we may berequired to relinquish some rights to our technologies or product candidates,or grant licenses on terms that are not favorable to us.

 

**If weare unable to effectively protect our intellectual property, we will be unableto prevent third parties from using our technology, which would impair ourcompetitiveness and ability to commercialize our product candidates. Inaddition, enforcing our proprietary rights may be expensive and result inincreased losses.**

 

Our success will dependin part on our ability to obtain and maintain meaningful patent protectionfor our products, both in the United States and in other countries. We rely onpatents to protect a large part of our intellectual property and ourcompetitive position. Any patents issued to or licensed by us could bechallenged, invalidated, infringed, circumvented or held unenforceable. Inaddition, it is possible that no patents will issue on any of our licensedpatent applications. It is possible that the claims in patents that have beenissued or licensed to us or that may be issued or licensed to us in thefuture will not be sufficiently broad to protect our intellectual property orthat the patents will not provide protection against competitive products orotherwise be commercially valuable. Failure to obtain and maintain adequatepatent protection for our intellectual property would impair our ability to becommercially competitive.

 

Our commercial successwill also depend in part on our ability to commercialize our productcandidates without infringing patents or other proprietary rights of others orbreaching the licenses granted to us. We may not be able to obtain alicense to third-party technology that we may require to conduct ourbusiness or, if obtainable, we may not be able to license such technologyat a reasonable cost. If we fail to obtain a license to any technology that we may requireto commercialize our technologies or product candidates, or fail to obtain alicense at a reasonable cost, we will be unable to commercialize the affectedproduct or to commercialize it at a price that will allow us to becomeprofitable.

 

In addition to patentprotection, we also rely upon trade secrets, proprietary know-how andtechnological advances which we seek to protect through confidentialityagreements with our collaborators, employees and consultants. Our employees andconsultants are required to enter into confidentiality agreements with us. Wealso have entered into non-disclosure agreements, which are intended to protectour confidential information delivered to third parties for research and otherpurposes. However, these agreements could be breached and we may not haveadequate remedies for any breach, or our trade secrets and proprietary know-howcould otherwise become known or be independently discovered by others.

 

Furthermore, as with anypharmaceutical company, our patent and other proprietary rights are subject touncertainty. Our patent rights related to our product candidates might conflictwith current or future patents and other proprietary rights of others. For thesame reasons, the products of others could infringe our patents or otherproprietary rights. Litigation or patent interference proceedings, either ofwhich could result in substantial costs to us, may be necessary to enforceany of our patents or other proprietary rights, or to determine the scope andvalidity or enforceability of other parties’ proprietary rights. The defenseand prosecution of patent and intellectual property infringement claims areboth costly and time consuming, even if the outcome is favorable to us. Anyadverse outcome could subject us to significant liabilities to third parties,require disputed rights to be licensed from third parties, or require us tocease selling our future products. We are not currently a party to any patentor other intellectual property infringement claims.

 

**We donot have manufacturing facilities or capabilities and are dependent on thirdparties to fulfill our manufacturing needs, which could result in the delay ofclinical trials, regulatory approvals, product introductions and commercialsales.**

 

We are dependent on thirdparties for the manufacture and storage of our product candidates for clinicaltrials and, if approved, for commercial sale. If we are unable to contract fora sufficient supply of our product candidates on acceptable terms, or if weencounter delays or difficulties in the manufacturing process or ourrelationships with our manufacturers, we may not have sufficient productto conduct or complete our clinical trials or support commercial requirementsfor our product candidates, if approved.

 

We have a contract withHovione Inter Limited for the supply of EFAPROXYN bulk drug substance, and acontract with Baxter Healthcare for the supply of EFAPROXYN formulated drugproduct. These manufacturers are currently our only contracted sources for theproduction and formulation of EFAPROXYN.

 

Even if we obtainapproval to market EFAPROXYN in one or more indications, our current or futuremanufacturers may be unable to accurately and reliably manufacturecommercial quantities of EFAPROXYN at reasonable costs, on a timely basis andin compliance with the FDA’s current Good Manufacturing Practices. If ourcurrent or future contract manufacturers fail in any of these respects, ourability to timely complete our clinical trials, obtain required regulatoryapprovals and successfully commercialize EFAPROXYN will be materially andadversely affected.

 

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Our reliance on contractmanufacturers exposes us to additional risks, including:

 

•                  delaysor failure to manufacture sufficient quantities needed for clinical trials inaccordance with our specifications or to deliver such quantities on the dateswe require;

•                  ourcurrent and future manufacturers are subject to ongoing, periodic, unannouncedinspections by the FDA and corresponding state and international regulatoryauthorities for compliance with strictly enforced current Good ManufacturingPractice regulations and similar foreign standards, and we do not have controlover our contract manufacturers’ compliance with these regulations andstandards;

•                  ourcurrent and future manufacturers may not be able to comply with applicableregulatory requirements, which would prohibit them from manufacturing productsfor us;

•                  ifwe need to change to other commercial manufacturing contractors, the FDA andcomparable foreign regulators must approve these contractors prior to our use,which would require new testing and compliance inspections, and the newmanufacturers would have to be educated in, or themselves develop substantiallyequivalent processes necessary for, the production of our products;

•                  ourmanufacturers might not be able to fulfill our commercial needs, which wouldrequire us to seek new manufacturing arrangements and may result insubstantial delays in meeting market demands; and

•                  wemay not have intellectual property rights, or may have to shareintellectual property rights, to any improvements in the manufacturing processesor new manufacturing processes for our products.

 

Any of these factorscould result in the delay of clinical trials, regulatory submissions, requiredapprovals or commercialization of our products under development, entail highercosts and result in our being unable to effectively commercialize our products.

 

**Acceptanceof our products in the marketplace is uncertain, and failure to achieve marketacceptance will limit our ability to generate revenue and become profitable.**

 

Even if approved for marketing,our products may not achieve market acceptance. The degree of marketacceptance will depend upon a number of factors, including:

 

•                  thereceipt of timely regulatory approval for the uses that we are studying;

•                  theestablishment and demonstration in the medical community of the safety andefficacy of our products and their potential advantages over existing and newlydeveloped therapeutic products;

•                  easeof use of our products;

•                  reimbursementand coverage policies of government and private payors such as insurancecompanies, health maintenance organizations and other plan administrators; and

•                  thescope and effectiveness of our sales and marketing efforts.

 

Physicians, patients,payors or the medical community in general may be unwilling to accept, utilizeor recommend the use of any of our products.

 

**Thestatus of reimbursement from third-party payors for newly approved health caredrugs is uncertain and failure to obtain adequate reimbursement could limit ourability to generate revenue.**

 

Our ability tosuccessfully commercialize our products will depend, in part, on the extent towhich reimbursement for the products will be available from:

 

•      government and health administrationauthorities;

•      private health insurers;

•      managed care programs; and

•      other third-party payors.

 

Significantuncertainty exists as to the reimbursement status of newly approved health careproducts. Third-party payors, including Medicare, are challenging the pricescharged for medical products and services. Government and other third-partypayors increasingly are attempting to contain health care costs by limitingboth coverage and the level of reimbursement for new drugs and by refusing, insome cases, to provide coverage for uses of approved products for diseaseconditions for which the FDA has not granted labeling approval. Third-partyinsurance coverage may not be available to patients for our products. Ifgovernment and other third-party payors do not provide adequate coverage andreimbursement levels for our product candidates, their market acceptance may bereduced.

 

**Healthcare reform measures could adversely affect our business.**

 

The business andfinancial condition of pharmaceutical and biotechnology companies are affectedby the efforts of governmental and third-party payors to contain or reduce thecosts of health care. In the United States and in foreign jurisdictions therehave been, and we expect that there will continue to be, a number oflegislative and regulatory proposals aimed at changing the health care system.For example, in some countries other than the United States, pricing ofprescription drugs is subject to government control, and we expect proposals toimplement similar controls in the United States to continue. We are unable topredict what additional legislation or regulation, if any, relating to thehealth care industry or third-party coverage and reimbursement may be enactedin the future or what effect such legislation or regulation would have on ourbusiness. The pendency or approval of such proposals or reforms could result ina decrease in our stock price or limit our ability to raise capital or toobtain strategic partnerships or licenses.

 

The FDA hasdesignated EFAPROXYN for the treatment of brain metastases from breast canceras an orphan drug under the Orphan Drug Act. The Orphan Drug Act providesincentives to pharmaceutical companies to develop and market drugs for rarediseases, generally by entitling the first developer that receives FDAmarketing approval for an orphan drug to a seven-year exclusive marketingperiod in the United States for that product. In recent years, Congress hasconsidered legislation to change the Orphan Drug Act to shorten the period ofautomatic market exclusivity and to grant marketing rights to simultaneous developersof a drug. If the Orphan Drug Act is amended in this manner, any approved drugsfor which we have been granted exclusive marketing rights under the Orphan DrugAct will face increased competition, which may decrease the amount of revenuewe may receive from these products.

 

**If weare unable to develop adequate sales, marketing or distribution capabilities orenter into agreements with third parties to perform some of thesefunctions, we will not be able to commercialize our products effectively.**

 

We have limitedexperience in sales, marketing and distribution. To directly market anddistribute any products, we must build a sales and marketing organization withappropriate technical expertise and distribution capabilities. We may attemptto build such a sales and marketing organization on our own or with theassistance of a contract sales organization. For some market opportunities, we may needto enter into co-promotion or other licensing arrangements with largerpharmaceutical or biotechnology firms in order to increase the likelihood ofcommercial success for our products. We may not be able to establishsales, marketing and distribution capabilities of our own or enter into sucharrangements with third parties in a timely manner or on acceptable terms. Tothe extent that we enter into co-promotion or other licensing arrangements, ourproduct revenues are likely to be lower than if we directly marketed and soldour products, and some or all of the revenues we receive will depend upon theefforts of third parties, and these efforts may not be successful.Additionally, building marketing and distribution capabilities may be moreexpensive than we anticipate, requiring us to divert capital from otherintended purposes or preventing us from building our marketing and distributioncapabilities to the desired levels.

 

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**If ourcompetitors develop and market products that are more effective than ours, ourcommercial opportunity will be reduced or eliminated.**

 

Even if we obtain thenecessary regulatory approvals to market EFAPROXYN or any other productcandidates, our commercial opportunity will be reduced or eliminated if ourcompetitors develop and market products that are more effective, have fewerside effects or are less expensive than our product candidates. Our potentialcompetitors include large fully integrated pharmaceutical companies and moreestablished biotechnology companies, both of which have significant resourcesand expertise in research and development, manufacturing, testing, obtainingregulatory approvals and marketing. Academic institutions, government agencies,and other public and private research organizations conduct research, seekpatent protection and establish collaborative arrangements for research,development, manufacturing and marketing. It is possible that competitors willsucceed in developing technologies that are more effective than those beingdeveloped by us or that would render our technology obsolete or noncompetitive.

 

**If productliability lawsuits are successfully brought against us, we may incursubstantial liabilities and may be required to limit commercialization ofour product candidates.**

 

The testing and marketingof pharmaceutical products entail an inherent risk of product liability.Product liability claims might be brought against us by consumers, health careproviders or by pharmaceutical companies or others selling our future products.If we cannot successfully defend ourselves against such claims, we may incursubstantial liabilities or be required to limit the commercialization of ourproduct candidates. We have obtained limited product liability insurancecoverage for our human clinical trials. However, product liability insurancecoverage is becoming increasingly expensive, and we may be unable tomaintain product liability insurance coverage at a reasonable cost or insufficient amounts to protect us against losses due to product liability. Asuccessful product liability claim in excess of our insurance coverage couldhave a material adverse effect on our business, financial condition and resultsof operations. We may not be able to obtain commercially reasonableproduct liability insurance for any products approved for marketing.

 

**We arecurrently involved in a securities class action litigation, which couldharm our business if management attention is diverted or the claims are decidedagainst us.**

 

We have been named as adefendant in an alleged securities class action lawsuit seekingunspecified damages relating to the issuance of allegedly false and misleadingstatements regarding EFAPROXYN during the period from May 29, 2003 to April 29,2004 and subsequent declines in our stock price. On October 20, 2005, theDistrict Court granted our motion to dismiss the lawsuit with prejudice andentered judgment in our favor. On November 20, 2005, the plaintiffappealed the decision to the United States Court of Appeals for the TenthCircuit. We are currently engaged in defending against these claims, which, ifdecided against us, could have a material adverse effect on our business,financial condition and results of operations. The costs incurred in connectionwith this lawsuit could be significant and may not be covered by ourinsurance policies. This lawsuit could also result in continued diversion ofour time and attention away from business operations, which could harm ourbusiness.

 

**Failureto attract, retain and motivate skilled personnel and cultivate key academiccollaborations will delay our product development programs and our research anddevelopment efforts.**

 

We are a small companywith 56 full-time employees, and our success depends on our continued abilityto attract, retain and motivate highly qualified management and scientificpersonnel and on our ability to develop and maintain important relationshipswith leading academic institutions and scientists. Competition for personneland academic collaborations is intense. In particular, our product developmentprograms depend on our ability to attract and retain highly skilled clinicaldevelopment personnel. In addition, we will need to hire additional personneland develop additional academic collaborations as we continue to expand ourresearch and development activities. We do not know if we will be able to attract,retain or motivate personnel or maintain our relationships with academicinstitutions and scientists. If we fail to negotiate additional acceptablecollaborations with academic institutions and scientists, or if our existingacademic collaborations were to be unsuccessful, our product developmentprograms may be delayed.

 

**Wecannot guarantee that we will be in compliance with all potentially applicableregulations.**

 

The development,manufacturing, and, if approved, pricing, marketing, sales and reimbursement ofour products, together with our general obligations, are subject to extensiveregulation by federal, state and other authorities within the United States andnumerous entities outside of the United States. We also have significantlyfewer employees than many other companies that have the same or fewer productcandidates in late stage clinical development and we rely heavily on thirdparties to conduct many important functions.

 

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As a publicly-tradedcompany, we are subject to significant regulations, some of which have eitheronly recently been adopted, including the Sarbanes Oxley Act of 2002, or arecurrently proposals subject to change. We cannot assure that we are or will bein compliance with all potentially applicable regulations. If we fail to complywith the Sarbanes Oxley Act of 2002 or any other regulations we could besubject to a range of consequences, including restrictions on our ability tosell equity or otherwise raise capital funds, the de-listing of our commonstock from the Nasdaq National Market, suspension or termination of ourclinical trials, failure to obtain approval to market our product candidates,restrictions on future products or our manufacturing processes, significantfines, or other sanctions or litigation.

 

**If we donot progress in our programs as anticipated, our stock price could decrease.**

 

For planning purposes, weestimate the timing of a variety of clinical, regulatory and other milestones,such as when a certain product candidate will enter clinical development, whena clinical trial will be completed or when an application for regulatoryapproval will be filed. Some of our estimates are included in this report. Ourestimates are based on information available to us as of the date of thisreport and a variety of assumptions. Many of the underlying assumptions areoutside of our control. If milestones are not achieved when we estimated thatthey would be, investors could be disappointed, and our stock price may decrease.

 

**WarburgPincus Private Equity VIII, L.P. (“Warburg”) controls a substantial percentageof the voting power of our outstanding common stock.**

 

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 our Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) at a price per share of $22.10,for aggregate gross proceeds of approximately $52.0 million. On May 18,2005, at our Annual Meeting of Stockholders, our stockholders voted to approvethe issuance of shares of our common stock upon exchange of shares of theExchangeable Preferred. As a result of such approval, we issued a total of23,524,430 shares of common stock upon exchange of 2,352,443 shares ofExchangeable Preferred (the “Share Exchange”). As of March 31, 2006 wehave approximately 55.4 million shares of common stock outstanding. Warburgowns approximately 22.6 million shares of our common stock, or 41% of thevoting power of our outstanding common stock as of March 31, 2006. As aresult, Warburg is able to exercise substantial influence over any actionsrequiring stockholder approval. However, in connection with its purchase of theExchangeable Preferred, Warburg entered into a standstill agreement agreeingnot to pursue, for four years, certain activities the purpose or effect ofwhich may be to change or influence the control of Allos.

 

**Anti-takeoverprovisions in our charter documents and under Delaware law could discourage,delay or prevent an acquisition of us, even if an acquisition would bebeneficial to our stockholders, and may prevent attempts by our stockholders toreplace or remove our current management.**

 

Provisions of ouramended and restated certificate of incorporation and bylaws, as well asprovisions of Delaware law, could make it more difficult for a third party toacquire us, even if doing so would benefit our stockholders. In addition, theseprovisions may frustrate or prevent any attempts by our stockholders to replaceor remove our current management by making it more difficult for stockholdersto replace members of our board of directors. Because our board of directors isresponsible for appointing the members of our management team, these provisionscould in turn affect any attempt by our stockholders to replace current membersof our management team. These provisions include:

 

•      authorizing the issuance of “blank check”preferred stock that could be issued by our board of directors to increase thenumber of outstanding shares or change the balance of voting control and thwarta takeover attempt;

•      prohibiting cumulative voting in theelection of directors, which would otherwise allow for less than a majority ofstockholders to elect director candidates;

•      prohibiting stockholder action by writtenconsent, thereby requiring all stockholder actions to be taken at a meeting ofour stockholders;

•      eliminating the ability of stockholders tocall a special meeting of stockholders; and

•      establishing advance notice requirementsfor nominations for election to the board of directors or for proposing mattersthat can be acted upon at stockholder meetings.

 

In addition, weare subject to Section 203 of the Delaware General Corporation Law, whichgenerally prohibits a Delaware corporation from engaging in any of a broadrange of business combinations with an interested stockholder for a period ofthree years following the date on which the stockholder became an interestedstockholder. This provision could have the effect of delaying or preventing achange of control, whether or not it is desired by or beneficial to ourstockholders. Notwithstanding the foregoing, the three year moratorium imposedon business combinations by Section 203 will not apply to Warburg because,prior to the date on which Warburg became an interested stockholder, our boardof directors approved the transaction which resulted in Warburg becoming aninterested stockholder. However, in connection with its purchase ofExchangeable Preferred, Warburg entered into a standstill agreement agreeingnot to pursue, for four years, certain activities the purpose or effect ofwhich may be to change or influence the control of Allos.

 

**Wehave adopted a stockholder rights plan that may discourage, delay or prevent amerger or acquisition that is beneficial to our stockholders.**

 

In May 2003,our board of directors adopted a stockholder rights plan that may have theeffect of discouraging, delaying or preventing a merger or acquisition of usthat is beneficial to our stockholders by diluting the ability of a potentialacquirer to acquire us. Pursuant to the terms of our plan, when a person orgroup, except under certain circumstances, acquires 15% or more of ouroutstanding common stock or 10 business days after announcement of a tender orexchange offer for 15% or more of our outstanding common stock, the rights(except those rights held by the person or group who has acquired or announcedan offer to acquire 15% or more of our outstanding common stock) wouldgenerally become exercisable for shares of our common stock at a discount.Because the potential acquirer’s rights would not become exercisable for ourshares of common stock at a discount, the potential acquirer would suffersubstantial dilution and may lose its ability to acquire us. In addition, theexistence of the plan itself may deter a potential acquirer from acquiring us.As a result, either by operation of the plan or by its potential deterrenteffect, mergers and acquisitions of us that our stockholders may consider intheir best interests may not occur.

 

Because Warburgowns a substantial percentage of our outstanding common stock, we amended thestockholder rights plan in connection with Warburg’s purchase of theExchangeable Preferred to provide that Warburg and its affiliates will beexempt from the stockholder rights plan, unless Warburg and its affiliatesbecome, without our prior consent, the beneficial owner of more than 44% of ourcommon stock. Under the stockholder rights plan, our Board of Directors hasexpress authority to amend the rights plan without stockholder approval.

 

**Themarket price for our common stock has been and may continue to be highlyvolatile.**

 

We cannot be sure that anactive trading market for our common stock will exist at any time. Holders ofour common stock may not be able to sell shares quickly or at the marketprice if trading in our common stock is not active. The trading price of ourcommon stock has been and is likely to be highly volatile and could be subjectto wide fluctuations in price in response to various factors, many of which arebeyond our control, including:

 

•                  actualor anticipated results of our clinical trials;

•                  actualor anticipated regulatory approvals or non-approvals of our product candidates,including EFAPROXYN, or of competing product candidates;

•                  changesin laws or regulations applicable to our product candidates;

•                  changesin the expected or actual timing of our development programs;

•                  actualor anticipated variations in quarterly operating results;

•                  announcementsof technological innovations by us or our competitors;

•                  changesin financial estimates or recommendations by securities analysts;

•                  conditionsor trends in the biotechnology and pharmaceutical industries;

•                  changesin the market valuations of similar companies;

•                  announcementsby us of significant acquisitions, strategic partnerships, joint ventures orcapital commitments;

•                  additionsor departures of key personnel;

•                  disputesor other developments relating to proprietary rights, including patents,litigation matters and our ability to obtain patent protection for ourtechnologies;

•                  developmentsconcerning any research and development, manufacturing, and marketing collaborations;

•                  salesof large blocks of our common stock;

•                  salesof our common stock by our executive officers, directors and five percentstockholders; and

 

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•                  economicand other external factors, including disasters or crises.

 

In addition, the stockmarket in general, the Nasdaq National Market and the market for technologycompanies in particular have experienced extreme price and volume fluctuationsthat have often been unrelated or disproportionate to the operating performanceof those companies. Further, there has been particular volatility in the marketprices of securities of biotechnology and life sciences companies. These broadmarket and industry factors may seriously harm the market price of ourcommon stock, regardless of our operating performance. In the past, followingperiods of volatility in the market, securities class-action litigation hasoften been instituted against companies. Such litigation, if instituted againstus, could result in substantial costs and diversion of management’s attentionand resources.

 

**Weare required to recognize stock-based compensation expense relating to employeestock options and stock purchases under our Employee Stock Purchase Plan, andthe amount of expense we recognize may not accurately reflect the value of ourshare-based payment awards. Further, the recognition of stock-basedcompensation expense will cause our net losses to increase and may cause thetrading price of our common stock to fluctuate.**

 

On January 1,2006, we adopted Statement of Financial Accounting Standards (“SFAS”)No. 123 (Revised 2004), *Share-BasedPayment* (“SFAS 123R”), which requires the measurement andrecognition of compensation expense for all stock-based compensation based onestimated fair values. As a result, our operating results for the first quarterof 2006 and for future periods will contain a charge for stock-basedcompensation related to employee stock options and employee stock purchases.The application of SFAS 123R requires the use of an option-pricing modelto determine the fair value of share-based payment awards. This determinationof fair value is affected by our stock price as well as assumptions regarding anumber of highly complex and subjective variables. These variables include, butare not limited to, our expected stock price volatility over the term of theawards, and actual and projected employee stock option exercise behaviors.Option-pricing models were developed for use in estimating the value of tradedoptions that have no vesting or hedging restrictions and are fullytransferable. Because our employee stock options have certain characteristicsthat are significantly different from traded options, and because changes inthe subjective assumptions can materially affect the estimated value, inmanagement’s opinion the existing valuation models may not provide an accuratemeasure of the fair value of our employee stock options. Although the fairvalue of employee stock options is determined in accordance with SFAS 123Rand other relevant accounting pronouncements using an option-pricing model,that value may not be indicative of the fair value observed in a willingbuyer/willing seller market transaction.

 

We expect that ouradoption of SFAS 123R will have a material impact on our financialstatements and results of operations and this will continue to be the case forfuture periods. We cannot predict the effect that our stock-based compensationexpense will have on the trading price of our common stock.

 

**Substantialsales of shares may impact the market price of our common stock.**

 

If our stockholders sellsubstantial amounts of our common stock, the market price of our common stock may decline.These sales also might make it more difficult for us to sell equity or equity-relatedsecurities in the future at a time and price that we consider appropriate. Weare unable to predict the effect that sales may have on the thenprevailing market price of our common stock. Pursuant to a Registration RightsAgreement entered into between us and the purchasers of Exchangeable Preferred,beginning on March 4, 2007, the purchasers of Exchangeable Preferred willbe entitled to certain registration rights with respect to the shares of commonstock that were issued upon exchange of the Exchangeable Preferred.

 

**ITEM 6.****                  EXHIBITS**

 

31.1                           Certificationof principal executive officer required by Rule 13a-14(a) / 15d-14(a)

31.2                           Certificationof principal financial officer required by Rule 13a-14(a) / 15d-14(a)

32.1                           Section 1350Certification.

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
| Date: May 10,  2006 | **ALLOS  THERAPEUTICS, INC.**            |
|-------------------------------|-----------------------------------------------|
|                          | /s/ Paul L. Berns                             |   |
|                          | Paul L. Berns                                 |
|                          | President and Chief  Executive Officer        |
|                          | (Principal Executive  Officer)                |
|                          |                                          |
|                          | /s/ David C. Clark                            |
|                          | David C. Clark                                |
|                          | Corporate Controller  and Treasurer           |
|                          | (Principal Financial and  Accounting Officer) |

 

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