**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  September 30, 2003**                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                  |
| **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 bycheck mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes   ý          No   o

 

Check whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes   ý          No   o

 

As ofNovember 4, 2003, there were 25,913,592 shares of the Registrant’s CommonStock par value $0.001 per share outstanding.

 

This quarterly report on Form 10-Q consistsof 19 pages.

 

 

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**ALLOSTHERAPEUTICS, INC.FORM 10-Q**

 

**INDEX**

 
| PART I. Financial Information |
|-------------------------------|
|                          |   |
| ITEM 1.                       | Financial Statements |
|                          |   |
|                          | Balance  Sheets (unaudited) — as of December 31, 2002 and September 30, 2003 |
|                          |   |
|                          | Statements of Operations (unaudited) — for  the three and nine months ended September 30, 2002 and 2003 and the  cumulative period from September 1, 1992 (date of inception) through  September 30, 2003 |
|                          |   |
|                          | Statements of Cash Flows (unaudited) — for  the nine months ended September 30, 2002 and 2003 and the cumulative  period from September 1, 1992 (date of inception) through  September 30, 2003 |
|                          |   |
|                          | 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                    |

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIALSTATEMENTS**

 

**ALLOS THERAPEUTICS, INC.BALANCE SHEETS(unaudited)**

** **
|                                                                                                                                                                                                                                               |   | **December 31,  2002** |       | **September 30,  2003** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|------------------------------|------------|
|                                                                                                                                                                                                                                               |   |                        | ** ** |                         | ** ** |
| **ASSETS**                                                                                                                                                                                                                                         |   |                        | ** ** |                         | ** ** |
|                                                                                                                                                                                                                                               |   |                        |       |                         |       |
| Current  assets:                                                                                                                                                                                                                                   |   |                        |       |                         |       |
| Cash and cash  equivalents                                                                                                                                                                                                                         |   | $                           | 3,756,951  |                         | $          | 6,512,661 |   |
| Restricted  cash                                                                                                                                                                                                                                   |   | 550,000                     |       | 550,000                      |       |
| Short-term  investments                                                                                                                                                                                                                            |   | 50,676,010                  |       | 16,990,258                   |       |
| Prepaid  research and development expenses                                                                                                                                                                                                         |   | 534,287                     |       | 170,634                      |       |
| Prepaids and  other assets                                                                                                                                                                                                                         |   | 240,789                     |       | 1,126,060                    |       |
| Total current  assets                                                                                                                                                                                                                              |   | 55,758,037                  |       | 25,349,613                   |       |
| Long-term  marketable securities                                                                                                                                                                                                                   |   | 5,816,529                   |       | 12,319,566                   |       |
| Property and  equipment, net                                                                                                                                                                                                                       |   | 1,826,277                   |       | 1,592,351                    |       |
| Long-term  investment                                                                                                                                                                                                                              |   | 1,000,000                   |       | —                       |       |
| Total assets                                                                                                                                                                                                                                       |   | $                           | 64,400,843 |                         | $          | 39,261,530 |   |
|                                                                                                                                                                                                                                               |   |                        |       |                         |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                      |   |                        | ** ** |                         | ** ** |
|                                                                                                                                                                                                                                               |   |                        | ** ** |                         | ** ** |
| Current  liabilities:                                                                                                                                                                                                                              |   |                        |       |                         |       |
| Accounts  payable — related parties                                                                                                                                                                                                           |   | $                           | 111,656    |                         | $          | 35,840 |   |
| Trade accounts  payable and accrued expenses                                                                                                                                                                                                       |   | 408,879                     |       | 981,732                      |       |
| Accrued  research and development expenses                                                                                                                                                                                                         |   | 5,117,400                   |       | 3,861,338                    |       |
| Accrued bonus  and employee benefits                                                                                                                                                                                                               |   | 1,440,725                   |       | 1,034,864                    |       |
| Restructuring  costs                                                                                                                                                                                                                               |   | —                      |       | 36,117                       |       |
| Total current  liabilities                                                                                                                                                                                                                         |   | 7,078,660                   |       | 5,949,891                    |       |
|                                                                                                                                                                                                                                               |   |                        |       |                         |       |
| Commitments  and contingencies                                                                                                                                                                                                                     |   |                        |       |                         |       |
|                                                                                                                                                                                                                                               |   |                        |       |                         |       |
| Stockholders’  equity:                                                                                                                                                                                                                        |   |                        |       |                         |       |
| Preferred stock, $0.001 par value;  10,000,000 shares authorized at December 31, 2002 and September 30,  2003; no shares issued or outstanding                                                                                           |   | —                      |       | —                       |       |
| Series A Junior Participating Preferred  Stock, $.001 par value; 1,000,000 shares authorized at September 30,  2003; no shares issued or outstanding                                                                                          |   | —                      |       | —                       |       |
| Common stock, $0.001 par value; 75,000,000  shares authorized at December 31, 2002 and September 30, 2003;  25,863,454 and 25,913,092 shares issued and outstanding at December 31,  2002 and September 30, 2003, respectively |   | 25,863                      |       | 25,913                       |       |
| Additional  paid-in capital                                                                                                                                                                                                                        |   | 171,020,705                 |       | 170,194,767                  |       |
| Deferred  compensation related to grant of options                                                                                                                                                                                                 |   | (1,101,466                  | )          | (368,346                     | )          |
| Accumulated  deficit                                                                                                                                                                                                                               |   | (112,622,919                | )          | (136,540,695                 | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                   |   | 57,322,183                  |       | 33,311,639                   |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                   |   | $                           | 64,400,843 |                         | $          | 39,261,530 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

3

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**ALLOSTHERAPEUTICS, INC.STATEMENTS OF OPERATIONS(unaudited)**

** **
|                                                                  |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |   | **Cumulative  Period from  September 1, 1992  (date of inception)  through September 30,** |   |
|-----------------------------------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|
|                                                                  |   | **2002**                                    |       | **2003**                                   |   | **2002**                                                                                             |   | **2003** |   | **2003** |   |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Operating expenses:                                                   |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Research and development                                              |   | $                                           | 1,937,299  |                                       | $      | 1,629,139                                                                                            |   | $ | 10,165,973 |   | $ | 10,115,943 |   | $ | 70,317,960 |   |
| Clinical manufacturing                                                |   | 1,242,430                                   |       | 707,431                                    |   | 2,413,709                                                                                            |   | 6,653,510 |   | 21,938,144 |   |
| Marketing, general and administrative                                 |   | 2,657,133                                   |       | 2,796,971                                  |   | 7,882,198                                                                                            |   | 7,339,219 |   | 48,005,893 |   |
| Restructuring costs                                                   |   | —                                      |       | 59,934                                     |   | —                                                                                               |   | 637,599 |   | 637,599 |   |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Total operating expenses                                              |   | 5,836,862                                   |       | 5,193,475                                  |   | 20,461,880                                                                                           |   | 24,746,271 |   | 140,899,596 |   |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Loss from operations                                                  |   | (5,836,862                                  | )          | (5,193,475                                 | )      | (20,461,880                                                                                          | )      | (24,746,271 | ) | (140,899,596 | ) |
| Interest and other income, net                                        |   | 548,545                                     |       | 179,828                                    |   | 1,835,377                                                                                            |   | 828,495 |   | 13,971,876 |   |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Net loss                                                              |   | (5,288,317                                  | )          | (5,013,647                                 | )      | (18,626,503                                                                                          | )      | (23,917,776 | ) | (126,927,720 | ) |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Dividend related to beneficial conversion  feature of preferred stock |   | —                                      |       | —                                     |   | —                                                                                               |   | — |   | (9,612,975 | ) |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Net loss attributable to common  stockholders                         |   | $                                           | (5,288,317 | )                                          | $      | (5,013,647                                                                                           | )      | $ | (18,626,503 | ) | $ | (23,917,776 | ) | $ | (136,540,695 | ) |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Net loss per common share:                                            |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Basic and diluted                                                     |   | $                                           | (0.21      | )                                          | $      | (0.19                                                                                                | )      | $ | (0.76 | ) | $ | (0.92 | ) |   |   |
|                                                                  |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Weighted average common shares:                                       |   |                                        |       |                                       |   |                                                                                                 |   |   |   |   |   |
| Basic and diluted                                                     |   | 25,724,192                                  |       | 25,911,309                                 |   | 24,641,088                                                                                           |   | 25,893,456 |   |   |   |

 

The accompanying notes are an integral partof these financial statements.

 

4

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

 
|                                                                                                    |   | **Nine  Months Ended  September 30,** |        | **Cumulative  Period  From September 1,  1992 (date of  inception) through  September 30,** |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-------------|-------------------------------------------------------------------------------------------------------|--------|
|                                                                                                    |   | **2002**                                   |        | **2003**                                                                                              |   | **2003** |   |
| **Cash Flows From Operating Activities:**                                                               |   |                                       |        |                                                                                                  |   |   |   |
| Net loss                                                                                                |   | $                                          | (18,626,503 | )                                                                                                     | $      | (23,917,776 | ) | $ | (126,927,720 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                            |   |                                       |        |                                                                                                  |   |   |   |
| Depreciation and amortization                                                                           |   | 347,952                                    |        | 456,529                                                                                               |   | 1,697,696 |   |
| Stock-based compensation                                                                                |   | 500,947                                    |        | (230,851                                                                                              | )      | 21,347,349 |   |
| Write-off of long-term investment                                                                       |   | —                                     |        | 1,000,000                                                                                             |   | 1,000,000 |   |
| Other                                                                                                   |   | 21,531                                     |        | —                                                                                                |   | 104,655 |   |
| Changes in operating assets and  liabilities:                                                           |   |                                       |        |                                                                                                  |   |   |   |
| Prepaids and other assets                                                                               |   | (451,355                                   | )           | (521,618                                                                                              | )      | (1,296,695 | ) |
| Interest receivable on investments                                                                      |   | 357,731                                    |        | 334,454                                                                                               |   | (464,710 | ) |
| Accounts payable – related parties                                                                 |   | 57,476                                     |        | (75,816                                                                                               | )      | 3,394,105 |   |
| Trade accounts payable and accrued expenses                                                             |   | (78,381                                    | )           | 572,853                                                                                               |   | 981,732 |   |
| Accrued research and development expenses                                                               |   | 2,704,242                                  |        | (1,256,062                                                                                            | )      | 503,074 |   |
| Accrued compensation and restructuring  costs                                                           |   | (161,122                                   | )           | (369,744                                                                                              | )      | 1,070,981 |   |
| Net cash used in operating activities                                                                   |   | (15,327,482                                | )           | (24,008,031                                                                                           | )      | (98,589,533 | ) |
|                                                                                                    |   |                                       |        |                                                                                                  |   |   |   |
| **Cash Flows From  Investing Activities:**                                                              |   |                                       |        |                                                                                                  |   |   |   |
| Acquisition of property and equipment                                                                   |   | (535,358                                   | )           | (222,603                                                                                              | )      | (3,031,575 | ) |
| Purchases of marketable securities                                                                      |   | (38,073,250                                | )           | (20,393,099                                                                                           | )      | (258,347,966 | ) |
| Proceeds from sales of marketable  securities                                                           |   | 40,307,500                                 |        | 47,241,360                                                                                            |   | 229,502,852 |   |
| Purchase of long-term investment                                                                        |   | (1,000,000                                 | )           | —                                                                                                |   | (1,000,000 | ) |
| Payments received on notes receivable                                                                   |   | —                                     |        | —                                                                                                |   | 49,687 |   |
| Net cash provided by (used in) investing  activities                                                    |   | 698,892                                    |        | 26,625,658                                                                                            |   | (32,827,002 | ) |
|                                                                                                    |   |                                       |        |                                                                                                  |   |   |   |
| **Cash Flows From  Financing Activities:**                                                              |   |                                       |        |                                                                                                  |   |   |   |
| Principal payments under capital leases                                                                 |   | —                                     |        | —                                                                                                |   | (422,088 | ) |
| Proceeds from sale 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 |   | 187,123                                    |        | 138,083                                                                                               |   | 793,814 |   |
| Proceeds from issuance of common stock, net  of issuance costs                                          |   | 14,931,773                                 |        | —                                                                                                |   | 97,701,169 |   |
| Net cash provided by financing activities                                                               |   | 15,118,896                                 |        | 138,083                                                                                               |   | 137,929,196 |   |
|                                                                                                    |   |                                       |        |                                                                                                  |   |   |   |
| Net increase (decrease) in cash and cash  equivalents                                                   |   | 490,306                                    |        | 2,755,710                                                                                             |   | 6,512,661 |   |
| Cash and cash equivalents, beginning of  period                                                         |   | 2,745,151                                  |        | 3,756,951                                                                                             |   | — |   |
|                                                                                                    |   |                                       |        |                                                                                                  |   |   |   |
| Cash and cash equivalents, end of period                                                                |   | $                                          | 3,235,457   |                                                                                                  | $      | 6,512,661 |   | $ | 6,512,661 |   |
|                                                                                                    |   |                                       |        |                                                                                                  |   |   |   |
| **Supplemental Schedule of Noncash  Operating****and Financing Activities:**                       |   |                                       |        |                                                                                                  |   |   |   |
| Cash paid for interest                                                                                  |   | $                                          | 203,250     |                                                                                                  | $      | — |   | $ | 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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**ALLOSTHERAPEUTICS, INC.NOTES TO FINANCIAL STATEMENTS(unaudited)**

 

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

 

The unauditedfinancial statements of Allos Therapeutics, Inc., a company in the developmentstage (referred to herein as the “Company,” “we,” “us” or “our”), includedherein reflect all adjustments, consisting only of normal recurringadjustments, which in the opinion of management are necessary to fairly presentthe financial position, results of operations and cash flows of the Company forthe periods presented.  Certaininformation and footnote disclosures normally included in audited financialinformation prepared in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omittedpursuant to the Securities and Exchange Commission’s rules andregulations.  The results of operationsfor the period ended September 30, 2003 are not necessarily indicative ofthe results to be expected for any subsequent quarter or for the entire fiscalyear ending December 31, 2003. These financial statements should be read in conjunction with theaudited financial statements and notes thereto which are included in our AnnualReport on Form 10-K for the year ended December 31, 2002 for a broaderdiscussion of our business and the opportunities and risks inherent in suchbusiness.

 

OnApril 23, 2003, we announced the preliminary results of our pivotal Phase3 trial of efaproxiral (“RSR13”) in patients with brain metastases.   The results did not meet the primarystatistical endpoint of the study in either of the pre-specifiedintent-to-treat groups using a primary unadjusted log-rank analysis of patientswho received RSR13 plus whole brain radiation therapy (WBRT) versus patientswho received WBRT alone.  However, theresults demonstrated a survival benefit from RSR13 treatment for patients withmetastatic breast cancer.  For patientswith metastatic breast cancer who received RSR13, median survival was nearlydoubled compared with patients who did not receive RSR13.  While patients with metastatic breast cancerrepresent a subset that was not prospectively defined as an intent-to-treatsubgroup, breast cancer was a pre-specified stratification factor and theresults were statistically significant. Overall, these patients with metastatic breast cancer experienced a 55percent reduction in risk of death in the RSR13 arm versus control.

 

InAugust 2003, we announced the submission to the U.S. Food and DrugAdministration (FDA) of the first of three components of a rolling New DrugApplication (NDA) to market RSR13 as an adjunct to radiation therapy for thetreatment of brain metastases from breast cancer.  Our decision to submit the NDA followed a pre-NDA meeting withthe FDA in which we reviewed the preliminary safety and efficacy data from thecompleted Phase 3 clinical trial and, specifically, the results in patientswith metastatic breast cancer.  Thefirst component contained the non-clinical section of the NDA.  The second component of the NDA wassubmitted to the FDA in September 2003 and contained information about thedrug’s chemistry, manufacture and controls (CMC).  We plan to submit the final component, the clinical section, inthe fourth quarter of 2003.

 

We believe that our existing cash, cash equivalents and investmentswill be adequate to satisfy our capital needs through the end of 2004.  However, our ability to continue developingRSR13 and PDX will require substantial additional capital beyond 2004.  We intend to raise additionalcapital in the future through arrangements with corporate partners, or throughequity or debt financings.  Sucharrangements may be dilutive to 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 assurance that we will be successful in consummatingany such arrangements.  In the event weare not able to raise sufficient additional funds, we may be required to delay,scale back, or eliminate one or more of our product development programs.

 

**2.****                                      Impairmentof Long-term Investment**

 

We identify and record impairment losses on long-lived assets whenevents and circumstances indicate that the assets might be impaired.  As part of our settlement with N-GeneResearch Laboratories, Inc., as described more fully in Note 10 below, werelinquished our equity investment in N-Gene, which had a book value of $1.0million.  As a result, we deemed thisinvestment to be impaired as of September 30, 2003 and recorded a $1.0million write off to research and development expense in the third quarter.

 

**3.****                                      AccruedResearch and Development Expenses**

 

We recordaccruals for contracted third-party development activity, including estimatedclinical study costs, which will be invoiced to us in a subsequent accountingperiod. Clinical study costs represent costs incurred by clinical research organizationsand clinical sites. These costs are recorded as a component of research anddevelopment expenses. Management accrues costs for these clinical studies basedon the progress of the clinical trials, including patient enrollment, dosinglevels of patients enrolled, estimated 

 

6

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costs to dose patients,invoices received and contracted costs when evaluating the adequacy of theaccrued liabilities. Significant judgments and estimates are made and used indetermining the accrued balance in any accounting period. Actual results coulddiffer from those estimates.

 

**4.****                                      Stock-BasedCompensation**

 

We haverecorded stock-based compensation expense resulting primarily from certainoptions granted prior to our initial public offering with exercise prices belowthe fair market value of our common stock on their respective grant dates.

 

 In December 2002, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 148 (“SFAS 148”), *Accounting for Stock-Based Compensation — Transition and Disclosure, anamendment of FASB Statement No. 123*. SFAS 148 amends SFAS 123 (“SFAS123”), *Accounting for Stock-BasedCompensation*, to provide alternative methods of transition for avoluntary change to the fair value based method of accounting for stock-basedemployee compensation. In addition, SFAS 148 amends the disclosure requirementsof SFAS 123 to require more prominent disclosures in both annual and interimfinancial statements about the method of accounting for stock-based employeecompensation and the effect of the method used on reported results. Theadditional disclosure requirements of SFAS 148 are effective for fiscal yearsending after December 15, 2002. We have elected to continue to follow theintrinsic value method of accounting as prescribed by Accounting PrinciplesBoard Opinion No. 25 (“APB 25”), *Accountingfor Stock Issued to Employees*, to account for employee stockoptions.

 

The followingtable illustrates the effect on net loss and loss per share if we had appliedthe fair value recognition provisions of SFAS 123 to stock-based compensationfor the three and nine month periods ended September 30, 2002 and2003.  Such pro forma disclosures maynot be representative of the pro forma effect in future periods because optionsvest over several years and additional grants may be made each year.

 
|                                                                                                       |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |   |
|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------------|--------|
|                                                                                                       |   | **2002**                                    |       | **2003**                                   |   | **2002** |   | **2003** |   |
|                                                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Net loss – as reported                                                                                |   | $                                           | (5,288,317 | )                                          | $      | (5,013,647 | ) | $ | (18,626,503 | ) | $ | (23,917,776 | ) |
| Add: Stock-based compensation expense  included in reported net loss                                       |   | 554,059                                     |       | 33,321                                     |   | 1,663,101 |   | 531,344 |   |
|                                                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Deduct: Recovery of stock-based  compensation expense included in reported net loss                        |   | (1,162,154                                  | )          | —                                     |   | (1,162,154 | ) | (762,195 | ) |
|                                                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Add (deduct): Stock-based compensation  recovery (expense) as determined under the fair value based method |   | 343,878                                     |       | (748,382                                   | )      | (1,548,461 | ) | (2,990,315 | ) |
| Pro forma net loss                                                                                         |   | $                                           | (5,552,534 | )                                          | $      | (5,728,708 | ) | $ | (19,674,017 | ) | $ | (27,138,942 | ) |
|                                                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Loss per share:                                                                                            |   |                                        |       |                                       |   |   |   |   |   |
| Basic and diluted – as reported                                                                       |   | $                                           | (0.21      | )                                          | $      | (0.19 | ) | $ | (0.76 | ) | $ | (0.92 | ) |
| Basic and diluted – pro forma                                                                         |   | $                                           | (0.22      | )                                          | $      | (0.22 | ) | $ | (0.80 | ) | $ | (1.05 | ) |

 

EffectiveFebruary 28, 2003 (“new measurement date”), the employment status of ourChairman changed from employee to consultant. As a result of the change in status, unvested options held by theChairman on the new measurement date are prospectively accounted for undervariable accounting as prescribed by SFAS 123. Effective on the new measurement date, we reversed approximately$762,000 in stock-based compensation expense recorded in prior periods relatedto such unvested options.  For the threeand nine months ended September 30, 2003, we recorded a recovery of$54,000 and an expense of $169,000, respectively, in stock-based compensationexpense related to variable accounting treatment for the stock optionspreviously granted to the Chairman while he was an employee of the Company.

 

The recoveryfor the three and nine months ended September 30, 2002, is due toterminating a consulting agreement with a former employee resulting in theforfeiture of unvested options that were expensed in prior periods.

 

**5.****                                      NetLoss Per Common Share**

 

Basic net lossper common share is computed using the weighted average number of common sharesoutstanding during the period.  Dilutednet loss per common share is computed using the weighted average number ofcommon and potential common shares outstanding during the period.  Potential common shares consist of stockoptions and warrants and have been excluded from the computation of diluted netloss per common share because their effect was anti-dilutive.

 

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**6.****                                      Contingencies**

 

In 2002, we signed two purchase orders to purchaseapproximately $8.0 million of commercial grade bulk drug material to bedelivered in 2004.  In April 2003,we elected to cancel these purchase orders and recorded a termination fee of$3.0 million included in clinical manufacturing expense in the Statements ofOperations, which was paid in June 2003.

 

**7.****                                      Stockholders’Equity**

 

InMay 2003, we designated 1,000,000 shares of our authorized preferred stockas Series A Junior Participating Preferred Stock, par value $0.001 per share,pursuant to a Stockholder Rights Plan approved by the Board of Directors underwhich all stockholders of record as of May 28, 2003 received a dividenddistribution of one preferred share purchase right (a “Right”) for eachoutstanding share of our common stock. The Rights trade with the common stockand no separate Right certificates will be distributed until such time as theRights become exercisable in accordance with the Stockholder Rights Plan. TheStockholder Rights Plan is intended as a means to guard against abusivetakeover tactics and to provide for fair and equal treatment for allstockholders in the event that an unsolicited attempt is made to acquire theCompany.

 

Until the Rightsbecome exercisable, the Rights will have no dilutive impact on our earnings pershare data. The Rights are protected by customary anti-dilutionprovisions.  As of September 30,2003, no shares of Series A Junior Participating Preferred Stock were issued oroutstanding.

 

**8.****                                      RestructuringCosts**

 

OnMay 28, 2003, we implemented expense reduction measures, including areduction in workforce by approximately 30 percent, in an effort to conservesufficient resources to operate our business under a revised operating planthrough 2004.  During the three and ninemonths ended September 30, 2003, we recorded $59,934 and $637,599 inrestructuring costs which consist primarily of severance, payroll taxes andemployee benefits which were recorded to expense as follows:

 
|                                  |   | **Three months  ended  September 30,  2003** |   | **Nine months  ended  September 30,  2003** |   |
|---------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------|--------|
|                                  |   |                                              |   |                                             |   |
| Research and development              |   | $                                                 | 30,601 |                                             | $      | 246,665 |   |
| Clinical manufacturing                |   | 3,558                                             |   | 50,020                                           |   |
| Marketing, general and administrative |   | 25,775                                            |   | 340,914                                          |   |
| Total                                 |   | $                                                 | 59,934 |                                             | $      | 637,599 |   |

 

We expect torealize cost savings going forward as a result of these expense reductionmeasures and other cost saving initiatives that have been implemented.  We believe our restructuring plan issubstantially complete with these actions. The nature of the restructuring charges and the amounts paid as ofSeptember 30, 2003 are summarized as follows:

 
|                                                       |   | **Total  expense** |       | **Paid** |       | **Accrued at  September 30,  2003** |       |
|------------------------------------------------------------|--------|--------------------|------------|----------|------------|------------------------------------------|------------|
|                                                       |   |               | ** ** |     | ** ** |                                     | ** ** |
| Severance, payroll taxes and other  employee benefits |   | $                  | 633,328    |     | $          | 597,211                                  |       | $ | 36,117 |   |
| Legal                                                      |   | 4,271              |       | 4,271    |       | —                                   |       |
| Total                                                      |   | $                  | 637,599    |     | $          | 601,482                                  |       | $ | 36,117 |   |

 

**9.****                                      RecentlyIssued Accounting Pronouncements**

 

In January 2003, the FASB issued FASB Interpretation No. 46(“FIN 46”), *Consolidation of VariableInterest Entities*.  FIN 46addresses consolidation by business enterprises of variable interest entities,which have certain characteristics.  Theadoption of FIN 46 has not had, nor do we believe it will have, a materialimpact on our current or prospective financial statements.

 

In the May 2003, theFASB issued Statement No. 150 (“SFAS 150”), *Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity*.  The Statementaddresses the classification of certain financial instruments embodying 

 

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obligations that could be settled by theissuance of an entity’s own shares. SFAS 150 improves the accounting for certain financial instruments that,under previous guidance, issuers could account for as equity and requires thatthose instruments be classified as liabilities (or assets in certaincircumstances) in statements of financial position.   SFAS 150 is generally effective for allfinancial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003.  The adoptionof SFAS No. 150 has not had, nor do we believe it will have, a material impacton our current or prospective financial statements.

 

**10.****                               SubsequentEvent**

 

On October 9, 2003, we entered into a Settlement and TerminationAgreement and Mutual Release of Claims with N-Gene Research Laboratories, Inc.,which terminated the business relationship and settled certain disputes betweenthe parties.  Under the terms of thissettlement agreement, we surrendered all rights and licenses to theintellectual property surrounding BGP-15, an investigational compound that wein-licensed from N-Gene in March 2002, and paid N-Gene an aggregate of$591,000 in settlement fees and expenses. Although this amount was paid in October 2003, it was reserved inthe third quarter Statements of Operations in Marketing, General andAdministration.  We also relinquishedour equity investment in N-Gene, which had a book value of $1.0 million.  In addition, each party released the otherparty from all further claims, damages and obligations of any kind arisingunder the initial license agreement and related stock purchase agreement betweenthe parties.

 

OnOctober 23, 2003, we entered into a Settlement Agreement and MutualRelease with Durus Life Sciences Master Fund, Ltd. (the “Fund”), pursuant towhich we settled certain claims against the Fund and certain of its affiliatesunder Section 16(b) of the Securities and Exchange Act of 1934 (the“Exchange Act”).  Such claims arose outof transactions by the Fund in our common stock during the period fromJune 4, 2002 through July 29, 2003, during which time it was abeneficial owner of 10% or more of our outstanding common stock.  Under the terms of this settlementagreement, the Fund paid us approximately $5.1 million, and we released anddischarged the Fund and certain of its affiliates from any and all furtherclaims by us and/or our shareholders arising under Section 16(b) of theExchange Act with respect to these transactions.** **This amount will berecognized in the fourth quarter of 2003.

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations, as well as information containedelsewhere in this report, contains statements that constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended.  You can identify thesestatements by forward-looking words such as “may,” “will,” “expect,” “intend,”“anticipate,” “believe,” “estimate,” “plan,” “could,” “should” and “continue”or similar words.  Actual results coulddiffer materially from those anticipated in these forward-lookingstatements.  Factors that could cause orcontribute to such differences include, but are not limited to, those mentionedin the discussion below and those described in the “Risk Factors” discussion ofour Annual Report on Form 10-K for the year ended December 31, 2002 filedwith the Securities and Exchange Commission. As a result, you should not place unduereliance on these forward-looking statements. We do not intend to update or revise these forward-looking statements toreflect future events or developments.*

 

#### **Recent Developments**

 

On October 9, 2003, we entered into a Settlement and TerminationAgreement and Mutual Release of Claims with N-Gene Research Laboratories, Inc.,which terminated the business relationship and settled certain disputes betweenthe parties.  Under the terms of thissettlement agreement, we surrendered all rights and licenses to the intellectualproperty surrounding BGP-15, an investigational compound that we in-licensedfrom N-Gene in March 2002, and paid N-Gene an aggregate of $591,000 insettlement fees and expenses.  Althoughthis amount was paid in October 2003, it was reserved in the third quarterStatements of Operations in Marketing, General and Administrative.  We also relinquished our equity investmentin N-Gene, which had a book value of $1.0 million.  In addition, each party released the other party from all furtherclaims, damages and obligations of any kind arising under the initial licenseagreement and related stock purchase agreement between the parties.

 

OnOctober 23, 2003, we entered into a Settlement Agreement and MutualRelease with Durus Life Sciences Master Fund, Ltd. (the “Fund”), pursuant towhich we settled certain claims against the Fund and certain of its affiliatesunder Section 16(b) of the Securities and Exchange Act of 1934 (the“Exchange Act”).  Such claims arose outof the Funds’ transactions in our common stock during the period fromJune 4, 2002 through July 29, 2003, during which time it was abeneficial owner of 10% or more of our outstanding common stock.  Under the terms of the settlement agreement,the Fund paid us approximately $5.1 million, and we released and discharged theFund and certain of its affiliates from any and all further claims by us and/orour shareholders arising under Section 16(b) with respect to thesetransactions.  This amount will berecognized in the fourth quarter of 2003.

 

**Overview**

 

AllosTherapeutics, Inc. is a biopharmaceutical company that is focused on developingand commercializing innovative drugs for improving cancer treatments.  Our product pipeline includes small moleculeproduct candidates.  RSR13, our leadproduct candidate, is a synthetic small molecule that has the potential tosensitize hypoxic (oxygen deprived) tumor tissues and enhance the efficacy ofstandard radiation therapy. We have completed a Phase 3 clinical trial of RSR13plus radiation therapy in patients with brain metastases.   In addition, we are developing PDX, a novelsmall molecule cytotoxic injectable antifolate (DHFR inhibitor) being developedfor the treatment of non-small cell lung cancer (NSCLC), mesothelioma andnon-Hodgkin’s lymphoma.

 

The preliminary resultsof our Phase 3 trial of RSR13 in patients with brain metastases did not meetthe primary statistical endpoint of the study in either of the pre-specifiedintent-to-treat groups using a primary unadjusted log-rank analysis of patientswho received RSR13 plus whole brain radiation therapy (WBRT) versus patientswho received WBRT alone.   However, theresults demonstrated a survival benefit from RSR13 treatment for patients withmetastatic breast cancer.  For patientswith metastatic breast cancer who received RSR13, median survival was nearlydoubled compared with patients who did not receive RSR13.  While patients with metastatic breast cancerrepresent a subset that was not prospectively defined as an intent-to-treatsubgroup, breast cancer was a pre-specified stratification factor and theresults were statistically significant. Overall, these patients with metastatic breast cancer experienced a 55percent reduction in risk of death in the RSR13 arm versus control.

 

In August 2003, weannounced the submission to the U.S. Food and Drug Administration (FDA) of thefirst of three components of a rolling New Drug Application (NDA) to marketRSR13 as an adjunct to radiation therapy for the treatment of brain metastasesfrom breast cancer.  Our decision tosubmit the NDA followed a pre-NDA meeting with the FDA in which we reviewed thepreliminary safety and efficacy data from the completed Phase 3 clinical trialand, specifically, the results in patients with metastatic breast cancer.  The first component contained thenon-clinical section of the NDA. The second component of the NDA was submitted to the FDA inSeptember 2003 and contained information about the drug’s chemistry,manufacture and controls (CMC).  We planto submit the final component, the clinical section, in the fourth quarter of2003.

 

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Also in August 2003,we announced the presentation of a retrospective case-match analysis ofsurvival results of a Phase 2 study of RSR13 in patients with locally advancednon-small cell lung cancer (NSCLC) compared to survival results of a Phase 3randomized study, RTOG 94-10, in the same patient population.  Median survival of patients treated in theRSR13 study was 20.6 months as compared to a median survival of 14.6 months forpatients in the sequential chemoradiotherapy arm and 17.0 months for patientsin the concurrent chemoradiotherapy arm of study RTOG 94-10.  These results were presented at the 10thWorld Conference on Lung Cancer.  Weintend to initiate a Phase 1 NSCLC study of RSR13 and chemotherapy givenconcurrently with radiation therapy in the fourth quarter of 2003.

 

We are conducting Phase 1dose-escalation studies of PDX at Memorial Sloan-Kettering Cancer Center inpatients with non-Hodgkin’s lymphoma and in patients with NSCLC in combinationwith docetaxel.  We plan to initiate amulti-center Phase 2 study of PDX in patients with NSCLC in early 2004.

 

We haveincurred significant operating losses since our inception.  As of September 30, 2003, ouraccumulated deficit was $136.5 million. We have devoted substantially all ofour resources to date to the clinical development of RSR13.  We anticipate incurring net losses over atleast the next several years, as we continue our clinical trials, apply forregulatory approvals, develop our technology and develop systems that supportcommercialization of our product candidates.

 

**CriticalAccounting Policies**

 

Our discussion andanalysis of our financial condition and results of operations are based uponour financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets, liabilities, and expenses.  The critical accounting policies arediscussed in Item 7 Management’s Discussion and Analysis of Financial Conditionand Results of Operations included in our Annual Report on Form 10-K for thefiscal year ended December 31, 2002. These critical accounting policies are subject to judgments anduncertainties, which affect the application of these policies.  We base our estimates on historicalexperience, available information and assumptions that we believe to bereasonable under the circumstances.  Weapply estimation methodologies consistently from period to period.  The actual results may differ from theseestimates under different assumptions or conditions.  We have not made any changes in any of these critical accountingpolices during the nine months ended September 30, 2003.

 

**Results of Operations**

 

*Research and Development.*  Research and development expenses includethe costs of clinical trials, clinical development, data analysis, non-clinicalstudies, basic research and licensing fees. Research and development expenses were $1.6 million for the three monthsended September 30, 2003 compared to $1.9 million for the three monthsended September 30, 2002. Excluding the impact of non-cash stock-based charges (see “Non-cashCharges” below for discussion of deferred stock compensation expense and stockcompensation expense allocated to research and development) and the $1.0million charge resulting from the impairment of our investment in N-GeneResearch Laboratories, Inc., (see “Investment Risk” below), research anddevelopment expenses decreased $2.3 million. For the nine months ended September 30, 2003 and 2002, research anddevelopment expenses were $10.1 million and $10.2 million, respectively.  Excluding the impact of non-cash charges forstock-based compensation and the $1.0 million impairment charge, research anddevelopment expenses decreased $1.8 million. The decrease in both periods was primarily due to finalizing the coststo terminate our Phase 3 trial of RSR13 in NSCLC, lowering the accrual forclose out costs related to our Phase 3 trial of RSR13 in brain metastases andless clinical trial activity.  We expectresearch and development expenses to slightly increase in the fourth quarter.

 

*Clinical Manufacturing.*  Clinical manufacturing expenses includethird-party manufacturing costs for RSR13 for use in clinical trials, costsassociated with pre-commercial scale-up of manufacturing to support anticipatedcommercial requirements and development activities for clinical trial materialfor PDX.  Clinical manufacturingexpenses were $707,000 for the three months ended September 30, 2003compared to $1.2 million for the three months ended September 30,2002.  The decrease of approximately$500,000 resulted from less development work required for process validationand manufacturing scale-up efforts with our second supplier of bulk drug.  For the nine months ended September 30,2003 and 2002, clinical manufacturing expenses were $6.7 million and $2.4million, respectively. The $4.3 million increase was primarily due to thecancellation of our RSR13 purchase orders, in accordance with our updatedoperating plan increased personnel and consulting costs to support our NDAsubmission, and increased development work to produce clinical trial drugmaterial for PDX.  We expect clinicalmanufacturing expenses to decrease during the remainder of 2003 until we beginto scale-up manufacturing efforts for commercialization of RSR13 as necessarydepending on the progress of our NDA submission.

 

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*Marketing, General and Administrative.*  Marketing, general and administrativeexpenses include the costs for pre-marketing activities, executiveadministration, corporate offices and related infrastructure and corporatedevelopment.  Marketing, general andadministrative expenses were $2.8 million and $2.7 for the three months endedSeptember 30, 2003 and 2002, respectively.  Excluding the impact of non-cash charges (see “Non-cash Charges”below for discussion of deferred stock compensation expense and stockcompensation expense allocated to general and administrative), marketing,general and administrative expenses increased approximately $500,000. Theincrease is due primarily to reserving for the fees and expenses incurred inconnection with the N-Gene settlement. For the nine months ended September 30, 2003 and 2002, marketing,general and administrative expenses were $7.3 million and $7.9 million,respectively.  Excluding the impact ofnon-cash charges, marketing, general and administrative expenses increasedapproximately $900,000.  The increase isprimarily due to reserving for the fees and expenses incurred in connectionwith the N-Gene settlement, additional costs associated with increasing ourvisibility and general liability insurance. We expect marketing, general and administrative costs to decrease forthe remainder of the year.

 

*Restructuring Costs.*Werecorded an additional $60,000 in restructuring costs during the three monthsended September 30, 2003 for severance and other employee terminationcosts.   For the nine months endedSeptember 30, 2003, we recorded $638,000, which includes $634,000 of severanceand other employee termination costs and legal fees of $4,000.  As of September 30, 2003, the remainingliability related to the restructuring totaled approximately $36,000.

 

*Non-cash Charges.*  We recorded stock-based compensation expenseresulting primarily from certain options granted prior to our initial publicoffering with exercise prices below the fair market value of our common stockon their respective grant dates and from variable accounting for vesting ofnon-employee stock options.  For thethree months ended September 30, 2003, we recorded $25,000 in marketing,general and administrative, a negative $4,000 in research and development and$12,000 in clinical manufacturing.  Thenegative balance recorded in research and development is a result of optionforfeitures, resulting in the recovery of expense totaling $22,000 related tostock-based compensation expense on unvested stock options recorded in priorperiods.  For the three months endedSeptember 30, 2002, we recorded $400,000 in marketing, general andadministrative, a negative $1,030,000 in research and development and $22,000in clinical manufacturing.  The negativebalance recorded in research and development is a result of recovery of anexpense of $1,162,000 that was recorded in prior periods due the forfeiture ofan employee’s unvested options.

 

For the ninemonths ended September 30, 2003, we recorded negative $293,000 inmarketing, general and administrative, $25,000 in research and development and$37,000 in clinical manufacturing.  Thenegative balance recorded in marketing, general and administrative is due tothe change in employment status of our Chairman from an employee to aconsultant, resulting in the recovery of expenses totaling $762,000 related tostock-based compensation expense on unvested stock options recorded in priorperiods.   For the nine months endedSeptember 30, 2002, we recorded $1,183,000 in marketing, general andadministrative, a negative $749,000 in research and development and $67,000 inclinical manufacturing.  The negativebalance recorded in research and development is a result of recovery of anexpense of $1,162,000 that was recorded in prior periods due the forfeiture ofan employee’s unvested options.  As ofSeptember 30, 2003, we had $368,000 of deferred stock-based compensationremaining to be expensed in future periods.

 

*Interestand Other Income, Net.* Interest income, net of interest expense, was $180,000 and $549,000 forthe three months ended September 30, 2003 and 2002, respectively.  For the nine months ended September 30,2003 and 2002, net interest income was $828,000 and $1,835,000,respectively.  The decreases of $369,000and $1,007,000, respectively, were primarily due to lower average investmentbalances and yields on U.S. government securities, high-grade commercial paperand notes, and money market funds held by us.

 

**Liquidity and Capital Resources**

 

Since inception, we havefinanced our operations primarily through private placements of common andpreferred stock, a public equity financing, and interest income, which haveresulted in net proceeds to us of $138.0 million through September 30,2003. We have used $99.6 million of cash for operating activities.  As of September 30, 2003, we hadapproximately $6.5 million in cash and cash equivalents and $29.9 million ininvestments.  Net cash used in operatingactivities of $24.0 million during the nine months ended September 30,2003 resulted primarily from the net loss for the period and a reduction inworking capital.  Net cash used inoperating activities of  $15.3 millionduring the nine months ended September 30, 2002 resulted primarily fromthe net loss for the period offset by an increase in accrued research anddevelopment expenses.

 

Net cash provided byinvesting activities of $26.6 million for the nine months endedSeptember 30, 2003 consisted primarily of proceeds from maturities ofinvestments, net of purchases and capital expenditures.  Net cash provided by  investing activities of $699,000 for the ninemonths ended September 30, 2002 consisted primarily of proceeds frommaturities of investments, net of purchases, capital expenditures and investingin equity of another company.

 

Net cash provided byfinancing activities of $138,000 for the nine months ended September 30,2003 resulted from the exercise of common stock options and the sale of stockunder our employee stock purchase plan. Net cash provided by financing 

 

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activities of $15.1 million forthe nine months ended September 30, 2002 resulted from the private sale ofcommon stock to a single investor, exercise of common stock options and thesale of stock under our employee stock purchase plan.

 

We have no other material external sources of liquidity. Because wehave not derived any commercial revenues from product sales and a significantamount of our capital resources are held in the form of financial instruments,decreasing yields on instruments such as United States government securities,high-grade commercial paper and corporate notes and money market funds wouldreduce net cash provided by investing activities, which is our primary sourceof liquidity in the absence of additional capital raised through additionalequity or debt financing.

 

We believe that ourexisting cash, cash equivalents and investments will be adequate to satisfy ourcapital needs through the end of 2004. However, our ability to continue developing RSR13 and PDX will requiresubstantial additional capital beyond 2004. Our forecast of the period of time through which our financial resourceswill be adequate to support our operations is a forward-looking statement thatinvolves risks and uncertainties, and actual results could varymaterially.  Our actual capitalrequirements will depend on many factors, including product development plans;the time and cost involved in conducting clinical trials and seeking regulatoryapprovals; filing, prosecuting and enforcing patent claims; competingtechnological and market developments; and our ability to market and distributeour future products and establish new collaborative and licensing arrangements.We intend to raise additional capital in the future through arrangements withcorporate partners, or through equity or debt financings.  Such arrangements may be dilutive toexisting stockholders.  In addition, ifadditional funds are obtained through arrangements with collaborative partnersor other sources, such arrangements may require us to relinquish rights to someof our technologies, product candidates or products under development that wewould otherwise seek to develop or commercialize ourselves.  The results of our Phase 3 clinical trial and thesubsequent impact on our stock price as well as the restrictive financingenvironment may make it difficult to obtain additional capital resources.  There is no assurance that we will besuccessful in consummating any such arrangements.  In the event we are not able to raise sufficient additionalfunds, we may be required to delay, scale back, or eliminate one or more of ourproduct development programs.

 

**RiskFactors**

 

In addition to the other information contained in this report, wecaution stockholders and potential investors that the following important riskfactors, among others, in some cases have affected, and in the future couldaffect, our actual results of operations and could cause our actual results todiffer materially from those expressed in any forward-looking statements madeby 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:

 

•                  Delay,difficulty, or failure to obtain adequate financing on acceptable terms to fundfuture operations, including research, development and commercialization ofproduct candidates.

 

•                  Delay,difficulty, or failure to complete the submission of our NDA to the FDA onschedule and in accordance with regulatory requirements.

 

•                  Delay,difficulty, or failure to obtain regulatory approval or clearance to market ourproduct candidates, including delays or difficulties in development because ofinsufficient proof of safety or efficacy.

 

•                  Failureto conduct clinical trials in compliance with applicable regulations and at anacceptable cost.

 

•                  Theability to obtain, maintain and enforce intellectual property rights; the costof acquiring in-process technology and other intellectual property rights,either by license, collaboration or purchase of another entity; the cost ofenforcing or defending our intellectual property rights.

 

•                  Failureof third-party collaborators to effectively conduct research and developmentactivities, including drug discovery and clinical testing; conflicts ofinterest or priorities or disputes that may arise between us and such third-partycollaborators.

 

•                  Dependenceupon third parties to manufacture our product candidates; failure of thirdparties to manufacture our product candidates in compliance with regulatoryrequirements and at an acceptable cost; failure of third parties to supplysufficient quantities of our product candidates for preclinical, clinical orcommercial purposes; failure to establish alternative sources of supply of ourproduct candidates.

 

•                  Theability to create sales, marketing and distribution capabilities for ourproduct candidates, or enter into agreements with third parties to performthese functions.

 

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•                  Theability to obtain acceptable prices or adequate levels of reimbursement for ourproducts from third-party payors, including government and healthadministration authorities and private health insurers.

 

•                  Competitiveor market factors that may limit the use or broad acceptance of our productcandidates.

 

•                  Theability to attract and retain highly qualified management and scientificpersonnel.

 

•                  Changesin accounting rules and regulations, such as accounting for guarantees,restructuring charges and stock options, that could have a significant adverseimpact on our results of operations, causing our stock price to decline andnegatively impacting our efforts to obtain adequate financing.

 

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**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

#### **Market Risk**

 

We own financial instruments that are sensitive tomarket risks as part of our investment portfolio.  The investment portfolio is used to preserve our capital until itis required to fund operations.  All ofthese market-risk sensitive instruments are classified asheld-to-maturity.  We do not ownderivative financial instruments in our investment portfolio.  Our investment portfolio containsinstruments that are subject to the risk of a decline in interest rates.  We maintain a non-trading investmentportfolio of investment grade, liquid debt securities that limit the amount ofcredit exposure to any one issue, issuer or type of instrument.  Due to the short duration and conservativenature of these instruments, we do not believe that we have a material exposureto interest rate risk.

 

# **Investment Risk**

 

                                               We identify and record impairment losses onlong-lived assets when events and circumstances indicate that the assets mightbe impaired.  As part of our settlementwith N-Gene Research Laboratories, Inc., as described more fully inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, we relinquished our equity investment in N-Gene, which had a bookvalue of $1.0 million.  As a result, wedeemed this investment to be impaired as of September 30, 2003 andrecorded a $1.0 million write off to research and development expense in thethird quarter.

 

**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 thatevaluation, the Evaluating Officer has concluded that our disclosure controlsand procedures are effective to ensure that information required to bedisclosed by us in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms, and that suchinformation is accumulated and communicated to our management,including our Evaluating Officer, as appropriate, to allow timely decisionsregarding required disclosure.

 

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**PART II.  OTHER INFORMATION**

 
| Item 1. |   | Legal Proceedings                                                                                                                                                       |   | None   |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|    |   |                                                                                                                                                                    |   |   |
| 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                                                                                                                    |   | None   |
|    |   |                                                                                                                                                                    |   |   |
| 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 1350  Certification.         |   |   |
|    |   |                                                                                                                                                                    |   |   |
|    |   | (b)         Reports on Form 8-K.                                                                                                |   |   |
|    |   |                                                                                                                                                                    |   |   |
|    |   | On August 7, 2003,  we filed a report on Form 8-K reporting under Items 9 and 12 that we had  issued an announcement of our second quarter 2003 financial results. |

 

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**SIGNATURES**

 

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

 
| Date:  November 10, 2003 | **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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