**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **ý** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934.**                                                                                                                                                   |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | **For the quarterly period ended  June 30, 2004.**                                                                                                                                                                                               |
|       |                                                                                                                                                                                                                                                  |
| **o**      | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934.**                                                                                                                                                  |
| ** ** | **For the transition period from                   to                   .** |

 

**Commission File Number**

**000-29815**

 

**Allos Therapeutics, Inc.**

(Exact name of Registrant as specified in itscharter)

 

| **Delaware**                                                                                               | ** ** | **54-1655029**                        |
|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                                            |       | (I.R.S. Employer  Identification No.) |
|                                                                                                       |       |                                  |
| **11080 CirclePoint Road, Suite 200****Westminster, Colorado  80020  (303) 426-6262**                 |
| (Address, including zip code, and telephone  number,  including area code, of principal executive offices) |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 

Yes     ý                    No     o

 

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

 

Yes     ý                    No     o

 

As of August 3, 2004, there were 31,153,489 shares of theregistrant’s Common Stock, par value $0.001 per share, outstanding.

 

This quarterly report on Form 10-Q consistsof 21 pages.

 

 

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**ALLOS THERAPEUTICS, INC.**

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| PART I.  Financial Information       |                                                                                                                                                                                                                      |
|-------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 1.                                   | Financial  Statements                                                                                                                                                                                                     |   |
|                                      |                                                                                                                                                                                                                      |   |
|                                      | Balance  Sheets (unaudited) — as of December 31, 2003 and June 30, 2004                                                                                                                                    |   |
|                                      |                                                                                                                                                                                                                      |   |
|                                      | Statements of Operations (unaudited) — for the three- and six-month  periods ended June 30, 2003 and 2004 and the cumulative period from  September 1, 1992 (date of inception) through June 30, 2004 |   |
|                                      |                                                                                                                                                                                                                      |   |
|                                      | Statements of Cash Flows (unaudited) — for the six-month periods  ended June 30, 2003 and 2004 and the cumulative period from  September 1, 1992 (date of inception) through June 30, 2004            |   |
|                                      |                                                                                                                                                                                                                      |   |
| Notes to Financial Statements (unaudited) |                                                                                                                                                                                                                      |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 2.                                   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                                                                               |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 3.                                   | Quantitative and Qualitative Disclosures  About Market Risk                                                                                                                                                               |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 4.                                   | Controls and Procedures                                                                                                                                                                                                   |   |
|                                      |                                                                                                                                                                                                                      |   |
| PART II.  Other Information          |                                                                                                                                                                                                                      |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 1.                                   | Legal Proceedings                                                                                                                                                                                                         |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 2.                                   | Changes in Securities and Use of Proceeds                                                                                                                                                                                 |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 3.                                   | Defaults Upon Senior Securities                                                                                                                                                                                           |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 4.                                   | Submission of Matters to a Vote of Security  Holders                                                                                                                                                                      |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 5.                                   | Other Information                                                                                                                                                                                                         |   |
|                                      |                                                                                                                                                                                                                      |   |
| ITEM 6.                                   | Exhibits and Reports on Form 8-K                                                                                                                                                                                          |   |
|                                      |                                                                                                                                                                                                                      |   |
| SIGNATURES                                |                                                                                                                                                                                                                      |

 

NOTE:

 

*“Allos”, the Allos logo, EFAPROXYNTM(efaproxiral), formerly known as RSR13, and all other Allos names aretrademarks 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.*

 

2

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# **PART I. FINANCIAL INFORMATION**

 

## **ITEM 1.**     FINANCIAL STATEMENTS

 

**ALLOS THERAPEUTICS, INC.**

### **BALANCE SHEETS**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                     | ** ** | **December 31,  2003** | ** ** | **June 30,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| **ASSETS**                                                                                                                                                                                                                                     |       |                        |       |                    |       |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Current  assets:                                                                                                                                                                                                                               |       |                        |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                                                                                     |       | $                           | 4,642,305  |                    | $          | 2,086,148 |   |
| Restricted  cash                                                                                                                                                                                                                               |       | 550,000                     |       | 550,000                 |       |
| Investments in  marketable securities                                                                                                                                                                                                          |       | 40,254,935                  |       | 31,367,948              |       |
| Prepaid  research and development expenses                                                                                                                                                                                                     |       | 286,573                     |       | 511,757                 |       |
| Prepaid  expenses and other assets                                                                                                                                                                                                             |       | 834,249                     |       | 829,506                 |       |
| Total current  assets                                                                                                                                                                                                                          |       | 46,568,062                  |       | 35,345,359              |       |
| Investments in  marketable securities                                                                                                                                                                                                          |       | 150,182                     |       | 144,063                 |       |
| Property and  equipment, net                                                                                                                                                                                                                   |       | 1,455,486                   |       | 1,206,560               |       |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Total assets                                                                                                                                                                                                                                   |       | $                           | 48,173,730 |                    | $          | 36,695,982 |   |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                                                 |       |                        |       |                    |       |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Current  liabilities:                                                                                                                                                                                                                          |       |                        |       |                    |       |
| Accounts  payable — related parties                                                                                                                                                                                                       |       | $                           | 114,483    |                    | $          | 33,224 |   |
| Trade accounts  payable and accrued expenses                                                                                                                                                                                                   |       | 462,774                     |       | 658,108                 |       |
| Accrued  research and development expenses                                                                                                                                                                                                     |       | 1,173,856                   |       | 1,687,421               |       |
| Accrued bonus  and employee benefits                                                                                                                                                                                                           |       | 1,011,340                   |       | 946,718                 |       |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Total current  liabilities                                                                                                                                                                                                                     |       | $                           | 2,762,453  |                    | $          | 3,325,471 |   |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |   |   |
| Commitments  and contingencies (Note 7)                                                                                                                                                                                                        |       |                        |       |                    |       |
| Stockholders’  equity:                                                                                                                                                                                                                    |       |                        |       |                    |       |
| Preferred stock, $0.001 par value;  10,000,000 shares authorized at December 31, 2003 and June 30,  2004; 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, 2003 and June 30, 2004; no shares  issued or outstanding                              |       | —                      |       | —                  |       |
| Common stock, $0.001 par value; 75,000,000  shares authorized at December 31, 2003 and June 30, 2004;  31,103,455 and 31,153,489 shares issued and outstanding at  December 31, 2003 and June 30,  2004, respectively |       | 31,104                      |       | 31,154                  |       |
| Additional  paid-in capital                                                                                                                                                                                                                    |       | 181,415,293                 |       | 181,418,851             |       |
| Deferred  compensation related to stock-based compensation                                                                                                                                                                                     |       | (285,576                    | )          | (32,838                 | )          |
| Deficit  accumulated during the development stage                                                                                                                                                                                              |       | (135,749,544                | )          | (148,046,656            | )          |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Total  stockholders’ equity                                                                                                                                                                                                               |       | 45,411,277                  |       | 33,370,511              |       |
|                                                                                                                                                                                                                                           |       |                        |       |                    |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                               |       | $                           | 48,173,730 |                    | $          | 36,695,982 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

3

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**ALLOS THERAPEUTICS, INC.**

### **STATEMENTS OF OPERATIONS**

**(unaudited)**

 
| ** **                                                            | ** ** | ** **                          | ** **  | ** ** | ** ** | ** **                                                                                            | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------|-------------|------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | ** **                          | ** **  | ** ** | ** ** | **Cumulative  Period from  September 1, 1992  (date of inception)  through June 30,  2004** | ** ** |
| ** **                                                            | ** ** | ** **                          | ** **  | ** ** | ** ** | ** **                                                                                            |
| **Three Months Ended  June 30,**                                 | ** ** | **Six Months Ended  June 30,** |
| **2003**                                                              | ** ** | **2004**                            | ** **  | **2003**   | ** ** | **2004**                                                                                              |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Operating expenses:                                                   |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Research and development                                              |       | $                                   | 5,081,232   |       | $          | 3,446,545                                                                                             |       | $ | 8,486,804 |   | $ | 5,435,112 |   | $ | 77,594,378 |   |
| Clinical manufacturing                                                |       | 3,865,872                           |        | 1,373,815  |       | 5,946,079                                                                                             |       | 2,156,385 |   | 24,692,827 |   |
| Marketing, general and administrative                                 |       | 2,522,994                           |        | 2,441,511  |       | 4,542,248                                                                                             |       | 4,954,513 |   | 54,999,280 |   |
| Restructuring costs                                                   |       | 577,665                             |        | —     |       | 577,665                                                                                               |       | — |   | 638,070 |   |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Total operating expenses                                              |       | 12,047,763                          |        | 7,261,871  |       | 19,552,796                                                                                            |       | 12,546,010 |   | 157,924,555 |   |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Loss from operations                                                  |       | (12,047,763                         | )           | (7,261,871 | )          | (19,552,796                                                                                           | )          | (12,546,010 | ) | (157,924,555 | ) |
| Gain on settlement claims                                             |       | —                              |        | —     |       | —                                                                                                |       | — |   | 5,110,083 |   |
| Interest and other income, net                                        |       | 276,983                             |        | 111,284    |       | 648,667                                                                                               |       | 248,898 |   | 14,380,791 |   |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Net loss                                                              |       | (11,770,780                         | )           | (7,150,587 | )          | (18,904,129                                                                                           | )          | (12,297,112 | ) | (138,433,681 | ) |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Dividend related to beneficial conversion  feature of preferred stock |       | —                              |        | —     |       | —                                                                                                |       | — |   | (9,612,975 | ) |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Net loss attributable to common  stockholders                         |       | $                                   | (11,770,780 | )          | $          | (7,150,587                                                                                            | )          | $ | (18,904,129 | ) | $ | (12,297,112 | ) | $ | (148,046,656 | ) |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Basic and diluted net loss per share                                  |       | $                                   | (0.45       | )          | $          | (0.23                                                                                                 | )          | $ | (0.73 | ) | $ | (0.40 | ) |   |   |
|                                                                  |       |                                |        |       |       |                                                                                                  |       |   |   |   |   |
| Weighted average shares outstanding:  basic and diluted          |       | 25,888,500                          |        | 31,139,289 |       | 25,884,381                                                                                            |       | 31,124,616 |   |   |   |

 

The accompanying notes are an integral partof these financial statements.

 

4

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**ALLOS THERAPEUTICS, INC.**

### **STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                                              | ** ** | **Six Months Ended  June 30,** | ** **  | **Cumulative Period from  September 1, 1992  (date of inception)  through  June 30, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------|-------------|------------------------------------------------------------------------------------------------------|------------|
| **2003**                                                                                                | ** ** | **2004**                            |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Cash Flows  From Operating Activities:                                                                  |       |                                |        |                                                                                                 |       |   |   |
| Net loss                                                                                                |       | $                                   | (18,904,129 | )                                                                                                    | $          | (12,297,112 | ) | $ | (138,433,681 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                            |       |                                |        |                                                                                                 |       |   |   |
| Depreciation and amortization                                                                           |       | 304,594                             |        | 282,172                                                                                              |       | 2,125,693 |   |
| Stock-based compensation                                                                                |       | (264,172                            | )           | 139,867                                                                                              |       | 21,574,879 |   |
| Write-off of long-term investment                                                                       |       | —                              |        | —                                                                                               |       | 1,000,000 |   |
| Other                                                                                                   |       | —                              |        | —                                                                                               |       | 98,384 |   |
| Changes in operating assets and  liabilities:                                                           |       |                                |        |                                                                                                 |       |   |   |
| Prepaids and other assets                                                                               |       | (458,217                            | )           | (220,441                                                                                             | )          | (1,331,264 | ) |
| Interest receivable on investments                                                                      |       | 314,845                             |        | 21,195                                                                                               |       | (602,711 | ) |
| Accounts payable – related parties                                                                 |       | 26,054                              |        | (81,259                                                                                              | )          | 3,391,489 |   |
| Trade accounts payable and accrued expenses                                                             |       | 24,928                              |        | 195,334                                                                                              |       | 658,108 |   |
| Accrued research and development expenses                                                               |       | 2,201,545                           |        | 513,565                                                                                              |       | (1,670,843 | ) |
| Accrued bonus and employee benefits                                                                     |       | (110,817                            | )           | (64,622                                                                                              | )          | 946,718 |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Net cash used in operating activities                                                                   |       | (16,865,369                         | )           | (11,511,301                                                                                          | )          | (112,243,228 | ) |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Cash Flows From Investing Activities:                                                                   |       |                                |        |                                                                                                 |       |   |   |
| Acquisition of property and equipment                                                                   |       | (212,592                            | )           | (33,246                                                                                              | )          | (3,077,510 | ) |
| Purchases of marketable securities                                                                      |       | (11,504,796                         | )           | (20,837,089                                                                                          | )          | (303,996,152 | ) |
| Proceeds from sales of marketable  securities                                                           |       | 35,241,360                          |        | 29,709,000                                                                                           |       | 273,086,852 |   |
| Purchase of long-term investment                                                                        |       | —                              |        | —                                                                                               |       | (1,000,000 | ) |
| Payments received on notes receivable                                                                   |       | —                              |        | —                                                                                               |       | 49,687 |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Net cash provided by (used in) investing  activities                                                    |       | 23,523,972                          |        | 8,838,665                                                                                            |       | (34,937,123 | ) |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| 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                           |       | —                              |        | —                                                                                               |       | 40,285,809 |   |
| Proceeds from issuance of common stock,  associated with stock options and employee stock purchase plan |       | 106,543                             |        | 124,758                                                                                              |       | 937,674 |   |
| Proceeds from issuance of common stock, net  of issuance costs                                          |       | —                              |        | (8,279                                                                                               | )          | 108,894,612 |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Net cash provided by financing activities                                                               |       | 106,543                             |        | 116,479                                                                                              |       | 149,266,499 |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                                   |       | 6,765,146                           |        | (2,556,157                                                                                           | )          | 2,086,148 |   |
| Cash and cash equivalents, beginning of  period                                                         |       | 3,756,951                           |        | 4,642,305                                                                                            |       | — |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Cash and cash equivalents, end of period                                                                |       | $                                   | 10,522,097  |                                                                                                 | $          | 2,086,148 |   | $ | 2,086,148 |   |
|                                                                                                    |       |                                |        |                                                                                                 |       |   |   |
| Supplemental Schedule of Non-cash  Investing 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 |   |

 

The accompanying notes are an integral partof these financial statements.

 

5

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**ALLOS THERAPEUTICS, INC.**

### **NOTES TO FINANCIALSTATEMENTS**

**(unaudited)**

 

**1.****                                      Basisof Presentation**

 

The unaudited financial statements of Allos Therapeutics, Inc., acompany in the development stage (referred to herein as the “Company,” “we,”“us” or “our”), included herein reflect all adjustments, consisting only ofnormal recurring adjustments, which in the opinion of management are necessaryto fairly present the financial position, results of operations and cash flowsof the Company for the periods presented. Certain information and footnotedisclosures normally included in audited financial information prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted pursuant to the Securities andExchange Commission’s rules and regulations. The results of operations for theperiod ended June 30, 2004 are not necessarily indicative of the resultsto be expected for any subsequent quarter or for the entire fiscal year endingDecember 31, 2004. These financial statements should be read inconjunction with the audited financial statements and notes thereto which areincluded in our Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2003 for a broader discussion of our business and theopportunities and risks inherent in such business.

 

Based upon the current status of our product development andcommercialization plans, we currently estimate that our existing cash, cashequivalents and investments in marketable securities will be adequate tosatisfy our capital needs through at least the first half of fiscal 2005. Weanticipate continuing our current development programs and/or beginning other long-termdevelopment projects on new products or technologies. These projects willrequire many years and substantial expenditures to complete and may ultimatelybe unsuccessful. We will require significant amounts of additional capitalbeyond the first half of fiscal 2005 from outside sources to continue researchand development activities, fund operating expenses, pursue regulatoryapprovals and build sales and marketing capabilities, as necessary. Our actualcapital requirements will depend on many factors, including the status ofproduct development; the time and cost involved in conducting clinical trialsand obtaining regulatory approvals; the time and cost involved in filing,prosecuting and enforcing patent claims; competing technological and market developments;and our ability to market and distribute our future products and establish newcollaborative and licensing arrangements.

 

We intend to raise additional capital in the future through either equity or debt financings, collaborative arrangementswith corporate partners or from other sources. Such arrangements may bedilutive to our existing stockholders. In addition, if additional funds areobtained through arrangements with collaborative partners or other sources,such arrangements may require us to relinquish rights to some of ourtechnologies, product candidates or products under development that we wouldotherwise seek to develop or commercialize ourselves. There is no assurancethat we will be successful in consummating any such arrangements. In the eventwe are not able to raise sufficient additional funds, we may be required todelay, scale back, or eliminate one or more of our product development programsand our business and future prospects for revenue and profitability may beadversely impacted.

 

6

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**2.****                                      RegulatoryDevelopments**

 

In December 2003, we submitted a New Drug Application (“NDA”) tothe United States Food and Drug Administration (“FDA”) for approval to marketEFAPROXYNTM (efaproxiral), formerly known as RSR13, for the treatment ofpatients with brain metastases originating from breast cancer. On May 3, 2004,the FDA’s Oncologic Drug Advisory Committee reviewed the NDA and voted not torecommend approval of EFAPROXYNTM for this indication. In June 2004, wereceived an “approvable” letter from the FDA relating to our NDA. In theletter, the FDA indicated that before the NDA may be approved, it will benecessary for us to complete our ongoing Phase 3 clinical trial ofEFAPROXYNTM in patients with brain metastases originating from breast cancer andsubmit the results as an NDA amendment for the FDA’s review. The ongoingPhase 3 trial, called ENRICH (ENhancing Whole Brain Radiation Therapy InPatients with Breast Cancer and Hypoxic Brain Metastases), will seek to enrollapproximately 360 patients at up to 100 cancer centers across NorthAmerica, Europe and South America. In the letter, the FDA stated, “if the studyshows effectiveness in this population (increased survival) using the prespecified analysis, and the study is otherwise satisfactory, we believe itwould, together with the subset result in the (previously completed) RT-009(trial), support approval.”

 

**3.****                                      Cashand Cash Equivalents and Investments in Marketable Securities**

 

All highly liquidinvestments with a maturity of three months or less are considered to be cashequivalents. The carrying values of our cash equivalents and investments inmarketable securities approximate their market values based on quoted marketprices. We account for investments in marketable securities in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*(“SFAS 115”). Investments in marketable securitiesare classified as held to maturity and are carried at cost plus accruedinterest. Substantially all of our marketable securities are held in corporatenotes with maturities ranging from three to thirty-nine months. Certainreclassifications have been recorded to the December 31, 2003 balancesheet.

 

**4.****                                      AccruedResearch and Development Expenses**

 

We record accruals for contracted third-party development activity,including estimated clinical study costs, which will be invoiced to us in asubsequent accounting period. Clinical study costs represent costs incurred byclinical research organizations and clinical sites. These costs are recorded asa component of research and development expenses. Management accrues costs forthese clinical studies based on the progress of the clinical trials, includingpatient enrollment, dosing levels of patients enrolled, estimated costs to dosepatients, invoices received and contracted costs when evaluating the adequacyof the accrued liabilities. Significant judgments and estimates are made and usedin determining the accrued balance in any accounting period. Actual resultscould differ from these estimates.

 

7

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**5.****                                      Stock-BasedCompensation**

 

We account for grants of stock options according to AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees* (“APB 25”) and relatedInterpretations. Pro forma net loss information, as required bySFAS No. 123, *Accounting forStock-Based Compensation* (“SFAS 123”), is presented below in accordancewith SFAS No. 148, *Accounting forStock-Based Compensation—Transition and Disclosure*(“SFAS 148”).Any deferred stock-based compensation calculated according to APB 25 isamortized over the vesting period of the individual options, generally four years,in accordance with Financial Accounting Standards Board (“FASB”) InterpretationNo. 28, *Accounting for StockAppreciation Rights and Other Variable Stock Option and Award Plans*(“FIN 28”).

 

We have elected to continue to follow the intrinsic value method ofaccounting as prescribed by APB 25 to account for employee stock options.

 

The following table illustrates the effect on net loss and net loss pershare if we had applied the fair value recognition provisions of SFAS 123to stock-based compensation for the three- and six-month periods endedJune 30, 2003 and 2004. Such pro forma disclosures may not berepresentative of the pro forma effect in future years because options vestover several years and additional grants may be made each year.

 
| ** **                                                                                | ** ** | **Three Months Ended  June 30,** | ** **  | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|-------------|-------------------------------------|------------|
| ** **                                                                                | ** ** | **2003**                              | ** **  | **2004**                            | ** ** | **2003** | ** ** | **2004** | ** ** |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Net loss – as reported                                                               |       | $                                     | (11,770,780 | )                                   | $          | (7,150,587 | ) | $ | (18,904,129 | ) | $ | (12,297,112 | ) |
| Add: Stock-based compensation expense  included in reported net loss                      |       | 101,207                               |        | 49,065                              |       | 498,023 |   | 139,867 |   |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Deduct: Recovery of stock-based  compensation expense included in reported net loss       |       | —                                |        | —                              |       | (762,195 | ) | — |   |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Deduct: Stock-based compensation expense as  determined under the fair value based method |       | (1,544,294                            | )           | (529,048                            | )          | (2,241,932 | ) | (1,073,136 | ) |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Pro forma net loss                                                                        |       | $                                     | (13,213,867 | )                                   | $          | (7,630,570 | ) | $ | (21,410,233 | ) | $ | (13,230,381 | ) |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Basic and diluted net loss per share – as  reported                                  |       | $                                     | (0.45       | )                                   | $          | (0.23 | ) | $ | (0.73 | ) | $ | (0.40 | ) |
|                                                                                      |       |                                  |        |                                |       |   |   |   |   |
| Basic and diluted net loss per share – pro  forma                                    |       | $                                     | (0.51       | )                                   | $          | (0.25 | ) | $ | (0.83 | ) | $ | (0.43 | ) |

 

The followingassumptions were used in estimating the stock-based compensation expense asdetermined under the fair value based method.

 
| ** **                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **2003**                              | ** ** | **2004**                            | ** ** | **2003** | ** ** | **2004** | ** ** |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Stock option plans:             |       |                                  |       |                                |       |   |   |   |   |
| Expected dividend yield         |       | 0                                     | %          | 0                                   | %          | 0 | % | 0 | % |
| Expected stock price volatility |       | 175                                   | %          | 126                                 | %          | 62% - 175 | % | 65% - 126 | % |
| Risk free interest rate         |       | 5.3% - 7.0                            | %          | 2.6% - 5.5                          | %          | 3.6% - 7.0 | % | 2.6% - 5.5 | % |
| Expected life (years)           |       | 2.0 - 3.0                             |       | 5.0                                 |       | 2.0 – 5.0 |   | 5.0 |   |
|                            |       |                                  |       |                                |       |   |   |   |   |
| Stock purchase plan:            |       |                                  |       |                                |       |   |   |   |   |
| Expected dividend yield         |       | 0                                     | %          | 0                                   | %          | 0 | % | 0 | % |
| Expected stock price volatility |       | 131                                   | %          | 64% - 119                           | %          | 131 | % | 64% - 119 | % |
| Risk free interest rate         |       | 3.49                                  | %          | 0.94                                | %          | 3.49 | % | 0.94 | % |
| Expected life (years)           |       | 2.0                                   |       | 1.5 – 2.0                      |       | 2.0 |   | 1.5 – 2.0 |   |

 

8

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**6.****                                      NetLoss Per Share**

 

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

 

**7.****                                      Commitmentsand Contingencies**

 

The Company and one of our officers have been named as defendants in a purported securities class action lawsuit filed in May2004 in the United States District Court for the District of Colorado. Thelawsuit is brought on behalf of a purported class of purchasers of oursecurities during the period from April 23, 2003 to April 29, 2004, and isseeking unspecified damages relating to the issuance of allegedly false andmisleading statements regarding EFAPROXYNTM during this period and subsequentdeclines in the Company’s stock price. As is typical in this type oflitigation, several other purported securities class action lawsuits containingsubstantially similar allegations were filed against the defendants, but theplaintiffs in all of those cases have subsequently dismissed theiractions.  Additional lawsuits containingsubstantially similar allegations may be filed in the future. These lawsuitshave been tendered to the Company’s insurance carriers.

 

The Company believes that the claims set forth in the pending lawsuitare without merit, and it intends to vigorously defend against them.  On August 5, 2004, the Company filed a motionto dismiss the case with prejudice.  Aswith any litigation proceeding, we cannot predict with certainty the eventualoutcome of pending litigation. If the Company is not successful in its defense,the Company could be forced to make significant payments to the plaintiffs, andsuch payments could have a material adverse effect on the Company’s business,financial condition and results of operations to the extent they are notcovered by the Company’s insurance carriers. Even if the Company’s defenseagainst such claims is successful, the litigation could result in substantialcosts and divert management’s attention and resources, which could adverselyaffect the company’s business.

 

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. Theseindemnification provisions generally survive termination of the underlyingagreement. The maximum potential amount of future payments we could be requiredto make under these indemnification provisions is unlimited. We have notincurred material costs to defend lawsuits or settle claims related to theseindemnification agreements. As a result, the estimated fair value of theseagreements is minimal. Accordingly, we have no liabilities recorded for theseagreements as of June 30, 2004.

 

**8.****                                      RecentlyIssued Accounting Pronouncement**

 

In March 2004, the Securities and Exchange Commission (“SEC”)issued Staff Accounting Bulletin (“SAB”) No. 105, *Loan Commitments Accounted For AsDerivative Instruments*(“SAB 105”)*.*SAB 105 summarizes the views of the SEC regarding theapplication of generally accepted accounting principles to loan commitmentsaccounted for as derivative instruments. The adoption of SAB 105 has nothad, nor do we believe it will have, a material impact on our current orprospective financial statements.

 

9

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**ITEM2.****                                                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following Management’s Discussion and Analysisof Financial Condition and Results of Operations, as well as informationcontained elsewhere in this report, contains statements that constitute“forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. You can identify these statements byforward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,”“believe,” “estimate,” “plan,” “could,” “should” and “continue” or similarwords. Actual results could differ materially from those anticipated in theseforward- looking statements. Factors that could cause or contribute to suchdifferences include, but are not limited to, those mentioned in the discussionbelow and those described in the “Risk Factors” discussion of our AnnualReport on Form 10-K, as amended, for the year ended December 31, 2003filed with the Securities and Exchange Commission. As a result, you should notplace undue reliance on these forward-looking statements. We do not intend toupdate or revise these forward-looking statements to reflect future events ordevelopments.*

 

**Overview**

 

Allos Therapeutics, Inc. is a biopharmaceutical company that is focusedon developing and commercializing innovative small molecule drugs for improvingcancer treatments. We strive to develop drugs that improve the treatment ofcancer and enhance the power of current therapies. Our goal is to build aprofitable company by generating income from products we develop and commercialize,either alone or together with one or more potential strategic partners. Ourfocus is on product opportunities that leverage our internal clinicaldevelopment and regulatory expertise and address important medical markets. Weendeavor to grow our existing portfolio of product candidates through ongoingproduct acquisition and in-licensing efforts.

 

We have two product candidates that are currently underdevelopment, EFAPROXYNTM (efaproxiral), formerly known as RSR13, and PDX(pralatrexate).

 

•                                          **EFAPROXYNTM** is the first synthetic smallmolecule designed to sensitize hypoxic, or oxygen-deprived, areas of tumorsprior to radiation therapy by facilitating the release of oxygen fromhemoglobin, the oxygen-carrying protein contained within red blood cells, andincreasing the level of oxygen in tumors. The presence of oxygen in tumors isan essential element for the effectiveness of radiation therapy. By increasingtumor oxygenation, we believe EFAPROXYNTM has the potential to enhance theefficacy of standard radiation therapy.

 

In December 2003, we submitted a NDA to the FDA for approval tomarket EFAPROXYNTM for the treatment of patients with brain metastasesoriginating from breast cancer. On May 3, 2004, the FDA’s Oncologic DrugAdvisory Committee reviewed the NDA and voted not to recommend approval ofEFAPROXYNTM for this indication. In June 2004, we received an “approvable”letter from the FDA relating to our NDA. In the letter, the FDA indicated thatbefore the NDA may be approved, it will be necessary for us to complete ourongoing Phase 3 clinical trial of EFAPROXYNTM in patients with brainmetastases originating from breast cancer and submit the results as an NDAamendment for the FDA’s review. The ongoing Phase 3 trial, called ENRICH(ENhancing Whole Brain Radiation Therapy In Patients with Breast Cancer andHypoxic Brain Metastases), will seek to enroll approximately 360 patientsat up to 100 cancer centers across North America, Europe and SouthAmerica. In the letter, the FDA stated, “if the study shows effectiveness inthis population (increased survival) using the pre specified analysis, and thestudy is otherwise satisfactory, we believe it would, together with the subsetresult in the (previously completed) RT-009 (trial), support approval.”

 

10

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In June 2004, we filed a Marketing Authorization Application(“MAA”) with the European Medicines Agency (“EMEA”) to market EFAPROXYNTM as anadjunct to whole brain radiation therapy for the treatment of patients withbrain metastases originating from breast cancer. The MAA for EFAPROXYNTM wasfiled under the EMEA’s centralized procedure, which is used when marketingauthorization is applied for in all EMEA member states simultaneously.

 

In August 2004, the FDA awarded orphan drug status to EFAPROXYNTM foruse as an adjunct to whole brain radiation therapy for the treatment of brainmetastases in patients with breast cancer. The FDA may award orphan drug designation to drugs that targetconditions affecting 200,000 or fewer U.S. patients per year and provide asignificant therapeutic advantage over existing treatments.  The orphan drug designation provides for U.S.marketing exclusivity for seven years following marketing approval by theFDA.  Additionally, the designationqualifies a product for possible funding to support clinical trials, and studydesign assistance from the FDA during development.

 

In addition to the Phase 3 ENRICH trial, other current clinicaltrials involving EFAPROXYNTM include (i) a Phase 1b/2 clinical trial in patientswith locally advanced non-small cell lung cancer (“NSCLC”) receiving concurrentradiotherapy (chemotherapy and radiation therapy administered at the same time)in combination with EFAPROXYNTM, (ii) a Phase 1b/2 clinical trial of EFAPROXYNTMfor patients with locally advanced cancer of the cervix receiving concurrentchemotherapy, and (iii) a Phase 1b/2 study evaluating the safety and efficacyof EFAPROXYNTM administered with BCNU (carmustine) chemotherapy for thetreatment of recurrent malignant glioma, a type of primary brain cancer.

 

•                                          **PDX** is an injectable small moleculechemotherapeutic agent that has an enhanced potency and toxicity profilerelative to methotrexate and other related dihydrofolate reductase, or DHFR,inhibitors. Drugs that inhibit DHFR, such as methotrexate, were among the firstchemotherapeutic agents discovered. Methotrexate remains one of the most widelyapplied chemotherapy drugs and is used to treat breast, bladder and head andneck cancers, leukemias and other cancers. Current clinical trials include asingle-agent study in non-Hodgkin’s lymphoma (Phase 1/2) and a combinationstudy with docetaxel in NSCLC patients (Phase 1).

 

We have never generated any revenue from product sales and haveexperienced significant net losses since our inception in 1992. We haveincurred these losses principally from costs incurred in our research anddevelopment programs and from our general and administrative expenses.We expect to continue incurring net losses for the foreseeable future. Thepresence and size of these potential net losses will depend, in large part, onif and when we receive regulatory approval in the United States or Europe tomarket EFAPROXYNTM as an adjunct to radiation therapy for the treatment of brainmetastases originating from breast cancer. Our ability to generate revenue andachieve profitability is dependent on our ability, alone or with partners, tosuccessfully complete the development of our product candidates, conductclinical trials, obtain the necessary regulatory approvals, and manufacture andmarket our product candidates.

 

**Resultsof Operations**

 

*Research andDevelopment.* Research and development expenses include the costs of basic research,non-clinical studies, clinical trials, regulatory affairs, biostatistical dataanalysis, patents, trademarks and licensing fees for new products.

 

Research and development expenses decreased to $3.4 million for thequarter ended June 30, 2004, compared to $5.1 million for the quarterended June 30, 2003. Research and development expenses decreased to $5.4million for the six-month period ended June 30, 2004, compared to $8.5million for the six-month period ended June 30, 2003. The decreases forthe quarterly and six-month periods ended June 30, 2004, compared to thesame periods in 2003, were primarily due to (i) lower clinical trial costs ofapproximately $2.6 million and $3.2 million, respectively, as closeout costs for terminating the Phase 3 trial of EFAPROXYNTM in NSCLC wereincurred in the second quarter of 2003, and (ii) reduced personnel expenses of$262,000 and $654,000, respectively, resulting from the May 2003 reduction inworkforce. These decreases were partially offset by an increase in expensesassociated with a milestone payment of $1,000,000 for PDX made in the secondquarter of 2004.

 

11

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We expect research and development expenses to increase moderatelyduring the six-month period ended December 31, 2004 as compared to thesix-month period ended June 30, 2004, due primarily to costs associatedwith our Phase 3 ENRICH trial, the Phase 1b/2 study of EFAPROXYNTM inpatients with NSCLC and the commencement of a multi-site study of PDX forNSCLC. The amount and timing of future costs related to our clinical trials isdifficult to predict due to the uncertainty inherent in the timing of clinicaltrial initiations, the rate of patient enrollment and the detailed design offuture trials.

 

*ClinicalManufacturing.* Clinical manufacturing expenses include third party manufacturing costsfor EFAPROXYNTM for use in clinical trials, costs associated with pre-commercialscale-up of manufacturing to support potential commercial requirements, anddevelopment activities for clinical trial material for PDX.

 

Clinical manufacturing expenses decreased to $1.4 million for thequarter ended June 30, 2004, compared to $3.9 million for the quarterended June 30, 2003. The $2.5 million decrease from thecomparative period in the prior year was primarily due to a $3.0 milliontermination fee that was recorded in the quarter ended June 30, 2003 relatingto the cancellation of outstanding purchase orders for commercial grade bulkmaterial of EFAPROXYNTM, partially offset by a $450,000 increase in third-partymanufacturing costs for our product candidates. Clinical manufacturing expensesdecreased to $2.2 million for the six-month period ended June 30,2004, compared to $5.9 million for the six-month period endedJune 30, 2003. The $3.7 million decrease from the comparative periodin the prior year was primarily due to (i) the $3.0 million terminationfee that was recorded in the quarter ended June 30, 2003, and (ii) reducedthird-party manufacturing costs for our product candidates ofapproximately $728,000.

 

We expect clinical manufacturing expenses for the six-month periodended December 31, 2004 to remain stable relative to the six-month periodended June 30, 2004.

 

*Marketing, Generaland Administrative.***Marketing, general and administrative expenses includecosts for pre-marketing activities, executive administration, corporate officesand related infrastructure and corporate development.

 

Marketing, general and administrative expenses for the quarter endedJune 30, 2004 of $2.4 million remained stable relative to the$2.5 million of expenses recorded for the quarter ended June 30,2003. Marketing, general and administrative expenses for the six-month periodsended June 30, 2004 and 2003 were $5.0 million and $4.5 million,respectively. The $412,000 increase from the comparative period in the prioryear is primarily due to the net recovery of $318,000 of non-cash stock-basedcompensation expense recorded in the six-month period ended June 30, 2003.This recovery of stock-based compensation expense resulted from the change inemployment status of our Chairman from an employee to a consultant.

 

We expect marketing, general and administrative expenses for thesix-month period ended December 31, 2004 to remain stable relative to thesix-month period ended June 30, 2004.

 

*Restructuring Costs*.  We recorded $578,000 in restructuring costsduring the quarter ended June 30, 2003, consisting primarily ofseverance and other employee termination costs. These costs resulted fromexpense reduction measures taken in May 2003, including a reduction inworkforce. There were no such costs for the quarter and six-month periods endedJune 30, 2004.

 

12

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*Interest and OtherIncome, Net*. Interest income, net of interest expense, for the quarters endedJune 30, 2004 and 2003, was $111,000 and $277,000, respectively. For thesix-month periods ended June 30, 2004 and 2003, net interest income was$249,000 and $649,000, respectively. The decreases for the quarterly andsix-month periods ended June 30, 2004, compared to the same periods in2003, were primarily due to lower average investment balances and lower yieldson United States government securities, high-grade commercial paper andcorporate notes, and money market funds held by the Company.

 

**Liquidityand Capital Resources**

 

Since inception, we have financed our operations primarily throughpublic and private placements of common and preferred stock, resulting in netproceeds to us of $150.1 million through June 30, 2004, andapproximately $14.4 million of interest income generated through theinvestment of such proceeds. We have used $112.2 million of cash foroperating activities through June 30, 2004. Cash, cash equivalents, andinvestments in marketable securities were $34.1 million, including$550,000 of restricted cash, as of June 30, 2004. Net cash used inoperating activities for the six-month periods ended June 30, 2004 and2003 was $11.5 million and $16.9 million, respectively, and was usedprimarily to fund net losses. We expect the net cash used in operatingactivities for the six-month period ended December 31, 2004 to increase ascompared to the six-month period ended June 30, 2004, as we executeour clinical development plans.

 

Net cash provided by investing activities for the six-month periodsended June 30, 2004 and 2003 was $8.8 million and $23.5 million,respectively, and consisted primarily of proceeds from maturities ofinvestments, net of purchases and capital expenditures.

 

Net cash provided by financing activities during the six-month periodsended June 30, 2004 and 2003 was $116,000 and $107,000, respectively, andresulted primarily from proceeds from the exercise of common stock options andthe sale of stock under our employee stock purchase plan.

 

On March 5, 2004, we filed a “shelf registration statement” onForm S-3 with the SEC to sell up to $75 million of any combination ofcommon stock, preferred stock, depository shares, debt securities and warrants.This registration statement, which the SEC declared effective on April 21,2004, is intended to give us the flexibility to take advantage of financing opportunitiesfrom time to time when market conditions are favorable. Under this registrationstatement, we may sell our securities:

 

•                  directly to purchasers;

•                  to or through underwriters or dealers;

•                  through agents; or

•                  through a combination of such methods.

 

In the event that we offer our securities directly to purchasers or topurchasers through agents, the shares may be sold at a single closing and asingle price, or at multiple closings and at multiple prices. We expect thatthe price or prices for any such securities sold in such circumstances willreflect our negotiations with prospective investors, the market price of ourcommon stock, recent trends in the market price of our common stock, otherfactors considered material by the prospective investors and, if applicable,consultation with any agent involved with the sale or sales. To date, we havenot sold any securities under this shelf registration statement.

 

Based upon the current status of our product development andcommercialization plans, we currently estimate that our existing cash, cashequivalents and investments in marketable securities will be adequate tosatisfy our capital needs through at least the first half of fiscal 2005.

 

13

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We anticipate continuing our current development programs and/orbeginning other long-term development projects on new products or technologies.These projects will require many years and substantial expenditures to completeand may ultimately be unsuccessful. We will require significant amounts ofadditional capital beyond the first half of fiscal 2005 from outside sources tocontinue research and development activities, fund operating expenses, pursueregulatory approvals and build sales and marketing capabilities, as necessary.Our actual capital requirements will depend on many factors, including thestatus of product development; the time and cost involved in conductingclinical trials and seeking regulatory approvals; the time and cost involved infiling, prosecuting and enforcing patent claims; competing technological andmarket developments; and our ability to market and distribute our futureproducts and establish new collaborative and licensing arrangements. 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. The factorsdescribed above will impact our future capital requirements and the adequacy ofour available funds.

 

We intend to raise additional capital in the future through either equity or debt financings, collaborative arrangementswith corporate partners, or from other sources. Such arrangements may bedilutive to our existing stockholders. In addition, if additional funds areobtained through arrangements with collaborative partners or other sources,such arrangements may require us to relinquish rights to some of ourtechnologies, product candidates or products under development that we wouldotherwise seek to develop or commercialize ourselves. There is no assurancethat we will be successful in consummating any such arrangements. In the eventwe are not able to raise sufficient additional funds, we may be required todelay, scale back, or eliminate one or more of our product development programsand our business and future prospects for revenue and profitability may beadversely impacted.

 

**CriticalAccounting Policies**

 

Our discussion and analysis of our financial condition and results ofoperations are based upon our financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America. The preparation of these financial statements requires us to makeestimates and assumptions that affect the reported amounts of assets,liabilities, and expenses. We base our estimates on historical experience,available information and assumptions that we believe to be reasonable underthe circumstances. We apply estimation methodologies consistently from periodto period. The actual results may differ from these estimates under differentassumptions or conditions. The critical accounting policies are discussed inItem 7, Management’s Discussion and Analysis of Financial Condition andResults of Operations, included in our Annual Report on Form 10-K, as amended,for the fiscal year ended December 31, 2003. These critical accountingpolicies are subject to judgments and uncertainties, which affect theapplication of these policies. We have not made any changes in any of thesecritical accounting polices during the quarter ended June 30, 2004.

 

**Risk Factors**

 

In addition to the other informationcontained in this report, we caution stockholders and potential investors thatthe following important risk factors, among others, in some cases haveaffected, and in the future could affect, our actual results of operations andcould cause our actual results to differ materially from those expressed in anyforward-looking statements made by or on behalf of us. The followinginformation is not intended to limit in any way the characterization of otherstatements or information under other captions as cautionary statements forsuch purpose. These factors include:

 

14

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•                  Delay, difficulty, or failure to obtain adequatefinancing on acceptable terms to fund future operations, including research,development and commercialization of product candidates.

 

•                  Delay, difficulty, or failure to obtain regulatoryapproval or clearance to market our product candidates, including delays ordifficulties in development because of insufficient proof of safety orefficacy.

 

•                  Failure to complete clinical trials on schedule,in compliance with applicable regulations and at an acceptable cost; failure todemonstrate the safety and efficacy of our product candidates in their targetindications.

 

•                  An adverseoutcome in the pending securities class action litigation that has been filedagainst us.

 

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

 

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

 

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

 

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

 

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

 

•                  Competitive or market factors that may limit theuse or broad acceptance of our product candidates.

 

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

 

•                  Changes in accounting rules and regulations, suchas accounting for guarantees, restructuring charges and stock options, thatcould have a significant adverse impact on our results of operations, causingour stock price to decline and negatively impacting our efforts to obtainadequate financing.

 

•                  Failure tocomply with the requirements of Section 404 of the Sarbanes Oxley Act of2002.

 

15

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## **ITEM 3.**     QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

## ** **

The primary objective of our investment activities is to preserveprincipal while at the same time maximizing the income we receive from ourinvestments without significantly increasing risk. Some of the securities thatwe invest in may have market risk and all are classified as held-to-maturity.We do not own derivative financial instruments in our investment portfolio.This means that a change in prevailing interest rates may cause the fair valueof the principal amount of the investment to fluctuate. For example, if we holda security that was issued with a fixed interest rate at the then-prevailingrate and the prevailing interest rate later rises, the fair value of theprincipal amount of our investment will probably decline. To minimize this riskin the future, we maintain a non-trading investment portfolio of investmentgrade, liquid debt securities that limits the amountof credit exposure to any one issue, issuer, or type of instrument. The averageduration of all of our investments is less than one year. Due to the short-termnature of these investments, we believe we have no material exposure tointerest rate risk arising from our investments. Therefore, no quantitativetabular disclosure is provided.

 

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

## ** **

As of the end of the period covering this report, an evaluation wascarried out under the supervision and with the participation of our management,including our principal executive and financial officer (the “EvaluatingOfficer”), of the effectiveness of our disclosure controls and procedures, asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended(“Exchange Act”). Based on that evaluation, our management, including theEvaluating Officer, concluded that our disclosure controls and procedures wereeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission’s rules and forms, and that such information is accumulatedand communicated to our management, including the Evaluating Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

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**PART II.****  OTHER INFORMATION**

 
| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

The Company and one of our officers have been named as defendants in a purported securities class action lawsuit filed in May2004 in the United States District Court for the District of Colorado. Thelawsuit is brought on behalf of a purported class of purchasers of oursecurities during the period from April 23, 2003 to April 29, 2004, and isseeking unspecified damages relating to the issuance of allegedly false andmisleading statements regarding EFAPROXYNTM during this period and subsequentdeclines in the Company’s stock price. As is typical in this type oflitigation, several other purported securities class action lawsuits containingsubstantially similar allegations were filed against the defendants, but theplaintiffs in all of those cases have subsequently dismissed theiractions.  Additional lawsuits containingsubstantially similar allegations may be filed in the future. These lawsuitshave been tendered to the Company’s insurance carriers.

 

The Company believes that the claims set forth in the pending lawsuitare without merit, and it intends to vigorously defend against them.  On August 5, 2004, the Company filed a motionto dismiss the case with prejudice.  Aswith any litigation proceeding, we cannot predict with certainty the eventualoutcome of pending litigation. If the Company is not successful in its defense,the Company could be forced to make significant payments to the plaintiffs, andsuch payments could have a material adverse effect on the Company’s business,financial condition and results of operations to the extent they are notcovered by the Company’s insurance carriers. Even if the Company’s defenseagainst such claims is successful, the litigation could result in substantialcosts and divert management’s attention and resources, which could adverselyaffect the company’s business.

 
| **ITEM 2.** | **CHANGES IN SECURITIES AND USE OF PROCEEDS**           | **None**   |
|-------------|---------------------------------------------------------|------------|
|        |                                                    |       |
| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES**                     | **None**   |
|        |                                                    |       |
| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** | ** ** |

 

We held our annual meeting of stockholders on May 11, 2004. At suchmeeting, the following actions were voted upon:

 

a.                                       Electionof Directors

 
| ** **                      | ** ** | **For**    | ** ** | **Against** |
|---------------------------------|------------|------------|------------|-------------|
| Stephen J. Hoffman, Ph.D., M.D. |       | 26,389,080 |       | 219,784     |
| Michael E. Hart                 |       | 26,355,725 |       | 253,139     |
| Michael D. Casey                |       | 26,353,456 |       | 255,408     |
| Mark G. Edwards                 |       | 26,352,621 |       | 256,243     |
| Marvin E. Jaffe, M.D.           |       | 26,341,342 |       | 267,522     |

 

b.                                      Ratificationof PricewaterhouseCoopers LLP as our independent accountants for the fiscalyear ending December 31, 2004.

 

| **For**    | ** ** | **Against** | ** ** | **Abstentions** |
|------------|------------|-------------|------------|-----------------|
| 26,533,656 |       | 42,317      |       | 32,891          |

 

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| **ITEM 5.** | **OTHER INFORMATION**                | **None**   |
|-------------|--------------------------------------|------------|
|        |                                 |       |
| **ITEM 6.** | **EXHIBITS AND REPORTS ON FORM 8-K** | ** ** |

 

(a)                                  Exhibits:

 

31.01                     Rule 13a-14(a) Certification

 

32.01                     Section 1350Certification

 

(b)                                 Reportson Form 8-K

 

On June 2,2004, we filed a report on Form 8-K reporting under Items 5 and 7 that theCompany received an “approvable” letter from the FDA for our NDA for EFAPROXYNTMfor the treatment of patients with brain metastases originating from breastcancer.

 

On June 8,2004, we filed a report on Form 8-K reporting under Items 5 and 7 that theCompany filed a Marketing Authorization Application with the European MedicinesAgency to market EFAPROXYNTM as an adjunct to whole brain radiation therapy forthe treatment of patients with brain metastases originating from breast cancer.

 

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# **SIGNATURES**

# ** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| Date:  August 6, 2004 |       | **ALLOS THERAPEUTICS, INC.**                                                                                                    |
|---------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
| ** **                      | ** ** | ** **                                                                                                                      |
| ** **                      | ** ** | ** **                                                                                                                      |
|                            |       | /s/ Michael E. Hart                                                                                                             |   |
|                            |       | Michael E. Hart                                                                                                                 |
|                            |       | President, Chief Executive Officer and  Chief Financial Officer  (Principal Executive Officer and  Principal Financial Officer) |

 

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