** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM10-Q**
| **x**      | **Quarterly report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934.**                                                                                                                                                                                                    |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                                                                                            |
| ** ** | **For the quarterly period ended March 31, 2007.**                                                                                                                                                                                                                                                    |
| ** ** | ** **                                                                                                                                                                                                                                                                                            |
| **o**      | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934.**                                                                                                                                                                                                   |
| ** ** | ** **                                                                                                                                                                                                                                                                                            |
| ** ** | **For the transition period from                        to                      .** |

 

**CommissionFile Number000-29815**

**AllosTherapeutics, Inc.**(Exact name of Registrant as specified in its charter)

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

 

**11080CirclePoint Road, Suite 200Westminster, Colorado  80020(303) 426-6262**(Address, including zip code, and telephone number,including area code, of principal executive offices)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x    No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated  filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes o    No x

As of May 4, 2007, therewere 66,095,978 shares of the registrant’s Common Stock, par value$0.001 per share, outstanding.

 

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**ALLOSTHERAPEUTICS, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**
| PART I.  Financial  Information |                                                                                                                                                                                  |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM 1.                              | Financial Statements  (unaudited)                                                                                                                                                     |   |
|                                 | Balance Sheets — as of December 31, 2006 and  March 31, 2007                                                                                                                |   |
|                                 | Statements of Operations — for the three months ended  March 31, 2006 and 2007 and the cumulative period from September 1, 1992  (date of inception) through March 31, 2007 |   |
|                                 | Statements of Cash Flows — for the three months ended  March 31, 2006 and 2007 and the cumulative period from September 1, 1992  (date of inception) through March 31, 2007 |   |
|                                 | Notes to Financial Statements                                                                                                                                                         |   |
| ITEM 2.                              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                           |   |
| ITEM 3.                              | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                           |   |
| ITEM 4.                              | Controls and  Procedures                                                                                                                                                              |   |
| PART  II.  Other Information    |                                                                                                                                                                                  |
| ITEM 1.                              | Legal Proceedings                                                                                                                                                                     |   |
| ITEM  1A.                            | Risk  Factors                                                                                                                                                                         |   |
| ITEM 2.                              | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                          |   |
| ITEM 3.                              | Defaults Upon  Senior Securities                                                                                                                                                      |   |
| ITEM 4.                              | Submission of  Matters to a Vote of Security Holders                                                                                                                                  |   |
| ITEM 5.                              | Other  Information                                                                                                                                                                    |   |
| ITEM 6.                              | Exhibits                                                                                                                                                                              |   |
| SIGNATURES                           |                                                                                                                                                                                  |   |

 

NOTE:

*AllosTherapeutics, Inc., the Allos Therapeutics, Inc. logo, EFAPROXYNTM(efaproxiral), and all other Allos names are trademarks of AllosTherapeutics, Inc. in the United States and in other selected countries.All other brand names or trademarks appearing in this report are the propertyof their respective holders. Unless the context requires otherwise, referencesin this report to “Allos,” the “Company,” “we,” “us,” and “our” refer to AllosTherapeutics, Inc.*

 

2

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**PART I. FINANCIALINFORMATION**

**ITEM 1.  FINANCIALSTATEMENTS**

**ALLOSTHERAPEUTICS, INC.BALANCE SHEETS(unaudited)**
| ** **                                                                                                                                                                                                                        | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                                                        | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| **ASSETS**                                                                                                                                                                                                                        | ** ** | ** **            | ** ** | ** **         | ** ** |
| Current assets:                                                                                                                                                                                                                   |       |                  |       |               |       |
| Cash and cash  equivalents                                                                                                                                                                                                        |       | $                     | 10,070,526 |               | $          | 32,341,591 |   |
| Restricted cash                                                                                                                                                                                                                   |       | 366,667               |       | 366,667            |       |
| Investments in  marketable securities                                                                                                                                                                                             |       | 22,725,525            |       | 43,177,570         |       |
| Prepaid research  and development expenses                                                                                                                                                                                        |       | 496,265               |       | 509,805            |       |
| Prepaid expenses  and other assets                                                                                                                                                                                                |       | 2,069,840             |       | 1,990,617          |       |
| Total current  assets                                                                                                                                                                                                             |       | 35,728,823            |       | 78,386,250         |       |
| Property and equipment,  net                                                                                                                                                                                                      |       | 603,520               |       | 602,223            |       |
| Other assets                                                                                                                                                                                                                      |       | 49,247                |       | 49,247             |       |
| Total assets                                                                                                                                                                                                                      |       | $                     | 36,381,590 |               | $          | 79,037,720 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                    | ** ** | ** **            | ** ** | ** **         | ** ** |
| Current liabilities:                                                                                                                                                                                                              |       |                  |       |               |       |
| Accounts payable                                                                                                                                                                                                                  |       | $                     | 400,133    |               | $          | 860,842 |   |
| Accrued  liabilities                                                                                                                                                                                                              |       | 6,431,521             |       | 5,177,184          |       |
| Total current  liabilities                                                                                                                                                                                                        |       | 6,831,654             |       | 6,038,026          |       |
| Commitments and  contingencies (See Note 9)                                                                                                                                                                                       |       |                  |       |               |       |
|                                                                                                                                                                                                                              |       |                  |       |               |       |
| Stockholders’ equity:                                                                                                                                                                                                        |       |                  |       |               |       |
| Preferred stock,  $0.001 par value; 10,000,000 shares authorized at December 31, 2006 and  March 31, 2007; no shares issued or outstanding                                                                              |       | —                |       | —             |       |
| Series A Junior  Participating Preferred Stock, $0.001 par value; 1,000,000 shares designated  from authorized preferred stock at December 31, 2006 and March 31, 2007;  no shares issued or outstanding                     |       | —                |       | —             |       |
| Common stock,  $0.001 par value; 150,000,000 shares authorized at December 31, 2006 and  March 31, 2007; 56,695,633 and 65,892,148 shares issued and outstanding at  December 31, 2006 and March 31, 2007, respectively |       | 56,695                |       | 65,892             |       |
| Additional paid-in  capital                                                                                                                                                                                                       |       | 238,052,617           |       | 289,904,042        |       |
| Deficit accumulated  during the development stage                                                                                                                                                                                 |       | (208,559,376          | )          | (216,970,240       | )          |
| Total  stockholders’ equity                                                                                                                                                                                                  |       | 29,549,936            |       | 72,999,694         |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                                  |       | $                     | 36,381,590 |               | $          | 79,037,720 |   |

 

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

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**ALLOS THERAPEUTICS, INC.STATEMENTS OF OPERATIONS(unaudited)**
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative  Period from  September 1, 1992  (date of inception)  through March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2006**                                         | ** ** | **2007**                                                                                                                  | ** ** | **2007** | ** ** |
|                                                                   |       |                                             |       |                                                                                                                      |       |   |   |
| Operating  expenses:                                                   |       |                                             |       |                                                                                                                      |       |   |   |
| Research and development                                               |       | $                                                | 3,439,830  |                                                                                                                      | $          | 3,289,428 |   | $ | 111,144,980 |   |
| Clinical manufacturing                                                 |       | 561,573                                          |       | 1,147,304                                                                                                                 |       | 30,211,999 |   |
| Marketing, general and administrative                                  |       | 2,925,798                                        |       | 4,747,596                                                                                                                 |       | 87,906,123 |   |
| Restructuring and separation costs                                     |       | 645,666                                          |       | —                                                                                                                    |       | 1,663,821 |   |
| Total operating expenses                                               |       | 7,572,867                                        |       | 9,184,328                                                                                                                 |       | 230,926,923 |   |
| Loss from  operations                                                  |       | (7,572,867                                       | )          | (9,184,328                                                                                                                | )          | (230,926,923 | ) |
| Gain on  settlement claims                                             |       | —                                           |       | —                                                                                                                    |       | 5,110,083 |   |
| Interest and  other income, net                                        |       | 503,952                                          |       | 773,464                                                                                                                   |       | 19,083,064 |   |
| Net loss                                                               |       | (7,068,915                                       | )          | (8,410,864                                                                                                                | )          | (206,733,776 | ) |
| Dividends  related to beneficial conversion feature of preferred stock |       | —                                           |       | —                                                                                                                    |       | (10,236,464 | ) |
| Net loss  attributable to common stockholders                          |       | $                                                | (7,068,915 | )                                                                                                                         | $          | (8,410,864 | ) | $ | (216,970,240 | ) |
| Net loss per  share: basic and diluted                                 |       | $                                                | (0.13      | )                                                                                                                         | $          | (0.14 | ) |   |   |
| Weighted average shares  outstanding: basic and diluted                |       | 55,079,180                                       |       | 62,151,400                                                                                                                |       |   |   |

 

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

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**ALLOSTHERAPEUTICS, INC.STATEMENTS OF CASH FLOWS(unaudited)**
| ** **                                                                                                             | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative  Period From  September 1, 1992  (date of inception)  through** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2006**                                         | ** ** | **2007**                                                                                              | ** ** | **March 31, 2007** | ** ** |
| Cash Flows From  Operating Activities:                                                                                 |       |                                             |       |                                                                                                  |       |   |   |
| Net loss                                                                                                               |       | $                                                | (7,068,915 | )                                                                                                     | $          | (8,410,864 | ) | $ | (206,733,776 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                                           |       |                                             |       |                                                                                                  |       |   |   |
| Depreciation and amortization                                                                                          |       | 76,242                                           |       | 84,037                                                                                                |       | 3,171,301 |   |
| Stock-based compensation expense                                                                                       |       | 481,342                                          |       | 1,303,380                                                                                             |       | 26,934,474 |   |
| Write-off of long-term investment                                                                                      |       | —                                           |       | —                                                                                                |       | 1,000,000 |   |
| Other                                                                                                                  |       | —                                           |       | —                                                                                                |       | 99,121 |   |
| Changes in operating assets and liabilities:                                                                           |       |                                             |       |                                                                                                  |       |   |   |
| Prepaid expenses and other assets                                                                                      |       | (52,740                                          | )          | 65,683                                                                                                |       | (2,539,669 | ) |
| Interest receivable on investments                                                                                     |       | (127,087                                         | )          | (123,605                                                                                              | )          | (557,713 | ) |
| Accounts payable                                                                                                       |       | 512,057                                          |       | 460,709                                                                                               |       | 860,842 |   |
| Accrued liabilities                                                                                                    |       | 1,097,336                                        |       | (1,254,337                                                                                            | )          | 5,177,184 |   |
| Net cash used in operating activities                                                                                  |       | (5,081,765                                       | )          | (7,874,997                                                                                            | )          | (172,588,236 | ) |
| Cash Flows From  Investing Activities:                                                                                 |       |                                             |       |                                                                                                  |       |   |   |
| Acquisition of property and equipment                                                                                  |       | (67,630                                          | )          | (82,740                                                                                               | )          | (3,519,518 | ) |
| Purchases of marketable securities                                                                                     |       | (2,836,022                                       | )          | (39,928,440                                                                                           | )          | (466,572,634 | ) |
| Proceeds from sales of marketable securities                                                                           |       | 12,000,000                                       |       | 19,600,000                                                                                            |       | 423,952,777 |   |
| Purchase of long-term investment                                                                                       |       | —                                           |       | —                                                                                                |       | (1,000,000 | ) |
| Payments received on notes receivable                                                                                  |       | —                                           |       | —                                                                                                |       | 49,687 |   |
| Net cash provided by (used in) investing activities                                                                    |       | 9,096,348                                        |       | (20,411,180                                                                                           | )          | (47,089,688 | ) |
| Cash Flows From  Financing Activities:                                                                                 |       |                                             |       |                                                                                                  |       |   |   |
| Principal payments under capital leases                                                                                |       | —                                           |       | —                                                                                                |       | (422,088 | ) |
| Proceeds from sales leaseback                                                                                          |       | —                                           |       | —                                                                                                |       | 120,492 |   |
| Pledge of restricted cash                                                                                              |       | —                                           |       | —                                                                                                |       | (366,667 | ) |
| Proceeds from issuance of convertible preferred  stock, net of issuance costs                                          |       | —                                           |       | —                                                                                                |       | 89,125,640 |   |
| Proceeds from issuance of common stock associated  with stock options, stock warrants and employee stock purchase plan |       | 2,280                                            |       | 235,028                                                                                               |       | 4,345,312 |   |
| Proceeds from issuance of common stock, net of  issuance costs                                                         |       | —                                           |       | 50,322,214                                                                                            |       | 159,216,826 |   |
| Net cash provided by financing activities                                                                              |       | 2,280                                            |       | 50,557,242                                                                                            |       | 252,019,515 |   |
| Net increase in  cash and cash equivalents                                                                             |       | 4,016,863                                        |       | 22,271,065                                                                                            |       | 32,341,591 |   |
| Cash and cash  equivalents, beginning of period                                                                        |       | 4,224,634                                        |       | 10,070,526                                                                                            |       | — |   |
| Cash and cash  equivalents, end of period                                                                              |       | $                                                | 8,241,497  |                                                                                                  | $          | 32,341,591 |   | $ | 32,341,591 |   |
| Supplemental  Schedule of Cash and Non-cash Operating and Financing Activities:                                   |       |                                             |       |                                                                                                  |       |   |   |
| Cash paid for interest                                                                                                 |       | $                                                | —     |                                                                                                  | $          | — |   | $ | 1,033,375 |   |
| Issuance of stock in exchange for license agreement                                                                    |       | —                                           |       | —                                                                                                |       | 40,000 |   |
| Capital lease obligations incurred for acquisition  of property and equipment                                          |       | —                                           |       | —                                                                                                |       | 422,088 |   |
| Issuance of stock in exchange for notes receivable                                                                     |       | —                                           |       | —                                                                                                |       | 139,687 |   |
| Conversion of  preferred stock to common stock                                                                         |       | —                                           |       | —                                                                                                |       | 89,125,640 |   |

 

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

5

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

**1.**                 Basis ofPresentation

The unaudited financialstatements of Allos Therapeutics, Inc. (referred to herein as the “Company,” “we,”“us” or “our”) included herein reflect all adjustments, consisting only ofnormal recurring adjustments, which in the opinion of management are necessaryto fairly state our financial position, results of operations and cash flowsfor the periods presented.  Certaininformation and footnote disclosures normally included in audited financialinformation prepared in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omittedpursuant to the Securities and Exchange Commission’s rules andregulations.  Operating results for thethree months ended March 31, 2007 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2007.  These financial statements should be read inconjunction with the audited financial statements and notes thereto which areincluded in our Annual Report on Form 10-K for the year ended December 31,2006 for a broader discussion of our business and the opportunities and risksinherent in such business.

Since our inception in1992, we have not generated any revenue and have experienced significant netlosses and negative cash flows from operations. Our activities have consisted primarily of developing products,licensing products, raising capital and recruiting personnel.  Accordingly, we are considered to be in thedevelopment stage as of March 31, 2007 as defined in Statement ofFinancial Accounting Standards (“SFAS”) No. 7, *Accounting and Reporting by Development Stage Enterprises.*

*Liquidity*

Our ability to generaterevenue and achieve profitability is dependent on our ability, alone or withpartners, to successfully complete the development of our product candidates,conduct clinical trials, obtain the necessary regulatory approvals, andmanufacture and market our product candidates. The timing and costs to complete the successful development of any ofour product candidates are highly uncertain, and therefore difficult toestimate. The lengthy process of seeking regulatory approvals for our productcandidates, and the subsequent compliance with applicable regulations, requirethe expenditure of substantial resources. Clinical development timelines, likelihood of success and total costsvary widely and are impacted by a variety of risks and uncertainties.  Because of these risks and uncertainties, wecannot predict when or whether we will successfully complete the development ofany of our product candidates or the ultimate costs of such efforts.  Due to these same factors, we cannot becertain when, or if, we will generate any revenue or net cash inflow from anyof our current product candidates.

Even if our clinicaltrials demonstrate the safety and effectiveness of our product candidates intheir target conditions, we do not expect to be able to record commercial salesfor any of our product candidates until mid-2008 at the earliest.  We expect to incur significant and growingnet losses for the foreseeable future as a result of our research anddevelopment programs and the costs of preparing for the potential commerciallaunch of EFAPROXYN and PDX.  Althoughthe size and timing of our future net losses are subject to significantuncertainty, we expect them to increase over the next several years as wecontinue to fund our development programs and prepare for the potentialcommercial launch of our product candidates.

Based upon the currentstatus of our product development and commercialization plans, we believe thatour cash, cash equivalents, and investments in marketable securities as ofMarch 31, 2007 will be adequate to satisfy our capital needs through March 31,2008.  If our ongoing Phase 3 ENRICHtrial meets its primary endpoint in mid-2007, we would expect to raiseadditional capital resources to prepare for the potential commercialization ofEFAPROXYN and support the future development of EFAPROXYN in otherindications.  If the ENRICH trial failsto meet its primary endpoint, we believe that our existing resources could beadequate to support our operations through the end of 2008, although there canbe no assurance that this can, in fact, be accomplished.

Ourforecasts of the periods of time through which our financial resources will beadequate to support our operations are forward-looking statements thatinvolve risks and uncertainties, and actual results could vary materially. Weanticipate continuing our current development programs and/or beginning otherlong-term development projects involving our product candidates. These projectsmay require many years and substantial expenditures to complete and mayultimately be unsuccessful. Therefore, we may need to obtain additional fundsfrom outside sources to continue research and development activities, fundoperating expenses, pursue regulatory approvals and build sales and marketingcapabilities, as necessary. However, our actual capital requirements willdepend on many factors, including:

·       thestatus of our product development programs;

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·       thetime and cost involved in conducting clinical trials and obtaining regulatory approvals;

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

·       competingtechnological and market developments; and

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

**2.**                 Prepaid Expensesand Other Assets

Prepaidexpenses and other assets are comprised of the following:

|                                                                        | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Prepaid expenses  and other assets                                     |       | $                           | 320,840    |                     | $          | 240,617 |   |
| Receivable  related to pending litigation settlement (see Note 9) |       | 1,749,000                   |       | 1,750,000                |       |
|                                                                   |       | $                           | 2,069,840  |                     | $          | 1,990,617 |   |

 

**3.**                 Accounts Payableand Accrued Liabilities

Accounts payable arecomprised of the following:

|                         | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** |
|-------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Trade accounts  payable |       | $                           | 388,133    |                     | $          | 860,110 |   |
| Related parties         |       | 12,000                      |       | 732                      |       |
|                    |       | $                           | 400,133    |                     | $          | 860,842 |   |

 

Accrued liabilities arecomprised of the following:

|                                                   | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Accrued research  and development expenses        |       | $                           | 1,430,417  |                     | $          | 677,687 |   |
| Accrued restructuring  and separation costs       |       | 427,266                     |       | 261,682                  |       |
| Accrued  personnel costs                          |       | 1,481,849                   |       | 1,152,750                |       |
| Accrued  litigation settlement costs (see Note 9) |       | 2,000,000                   |       | 2,000,000                |       |
| Accrued clinical  manufacturing expenses          |       | 655,552                     |       | 667,895                  |       |
| Accrued expenses  — other                    |       | 436,437                     |       | 417,170                  |       |
|                                              |       | $                           | 6,431,521  |                     | $          | 5,177,184 |   |

 

**4.**                 Stockholders’Equity

On February 2, 2007,we sold 9,000,000 shares of our common stock in an underwritten offering at aprice of $6.00 per share (the “February 2007 Financing”). We received netproceeds from the offering of approximately $50.3 million, after deductingunderwriting commissions of approximately $3.2 million and other offeringexpenses of approximately $438,000. The shares of common stock were sold underour shelf Registration Statement on Form S-3 (File No. 333-134965),declared effective by the Securities and Exchange Commission on July 10,2006.

Baker Brothers LifeSciences, L.P. and certain other affiliated funds (collectively “Baker”)purchased 3,300,000 shares of common stock in the February 2007Financing.  As a result of such purchase,Baker held in excess of 15% of our outstanding common stock following theclosing of the February 2007 Financing. In connection with the February 2007 Financing, Baker entered intoa standstill agreement, agreeing not to pursue certain activities the purposeor effect of which may be to change or influence control of the Company.

**5.**                 Stock-BasedCompensation

In accordance with themodified prospective transition method of SFAS No. 123 (Revised 2004), *Share-Based Payment* (“SFAS 123R”), stock-based compensationexpense for the three months ended March  31, 2006 and 2007 has beenrecognized in the accompanying Statements of Operations as follows:  

|                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | **2006**                                             | ** ** | **2007** | ** ** |
| Research and  development              |       | $                                                    | 134,454    |   | $ | 264,300 |   |
| Clinical  manufacturing                |       | 23,645                                               |       | 36,018 |   |
| Marketing,  general and administrative |       | 323,243                                              |       | 1,003,062 |   |
| Total stock-based compensation expense |       | $                                                    | 481,342    |   | $ | 1,303,380 |   |

 

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We did not recognize arelated tax benefit during the three months ended March 31, 2006 and 2007 as wemaintain net operating loss carryforwards and we have established a valuationallowance against the entire tax benefit. SFAS 123R did not impact our net cash flows from operating, investing orfinancing activities for the three months ended March 31, 2006 and2007.  No stock-based compensationexpense was capitalized on our Balance Sheet as of December 31, 2006 andMarch 31, 2007.

Thefollowing table summarizes our stock option activity and related informationfor the Plans:
| ** **                                 | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**               | ** ** |
|--------------------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| **Outstanding  at December 31, 2006** |       | 5,778,571                    |       | $                                          | 3.60       |   | 2,900,556 |   | $ | 4.27 |   |
| Granted                                    |       | 1,860,574                    |       | 6.92                                       |       |   |   |   |   |
| Exercised                                  |       | (91,515                      | )          | 2.57                                       |       |   |   |   |   |
| Canceled                                   |       | (174,539                     | )          | 2.91                                       |       |   |   |   |   |
| **Outstanding at March 31,  2007**    |       | 7,373,091                    |       | $                                          | 4.47       |   | 3,381,516 |   | $ | 4.09 |   |

 

During the three monthsended March 31, 2007, we granted 1,860,574 stock options with a weighted-average grant-date fair value pershare for stock options of $4.32 per share. As of March 31, 2007, the unrecorded deferred stock-basedcompensation balance related to stock option awards was $8,550,346 and will berecognized over an estimated weighted-average amortization period of 1.5 years.

Thefollowing table summarizes information about outstanding stock options that arefully vested and currently exercisable, and outstanding stock options that areexpected to vest in the future:
| ** **                                                                | ** ** | **Number  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|
| **As of  March 31, 2007:**                                           | ** ** | ** **              | ** ** | ** **                                                  | ** ** | ** **                                 | ** ** | ** **                          | ** ** |
| Options fully vested and exercisable                                      |       | 3,381,516               |       | 5.6                                                         |       | $                                          | 4.09       |                                | $          | 7,274,115 |   |
| Options expected to vest, including effects  of expected forfeitures |       | 3,538,106               |       | 9.3                                                         |       | $                                          | 3.03       |                                | 6,088,185  |   |
| Options fully  vested and expected to vest                                |       | 6,919,622               |       | 7.5                                                         |       | $                                          | 3.55       |                                | $          | 13,362,300 |   |

 

The aggregate intrinsicvalue in the tables above represents the total pretax intrinsic value, based onour closing stock price of $5.97 as of March 31, 2007, which would havebeen received by the option holders had all option holders with in-the-moneyoptions exercised their options as of that date.  The total number of in-the-money optionsexercisable as of March 31, 2007 was 2,794,921.

The total intrinsic valueof options exercised during the three months ended March 31, 2006 and 2007 was$1,100 and $448,547, respectively, determined as of the date of optionexercise.  We settle employee stockoption exercises with newly issued common shares.  No tax benefits were realized by us inconnection with these exercises during the three months ended March 31,2006 and 2007 as we maintain net operating loss carryforwards and we haveestablished a valuation allowance against the entire tax benefit as ofMarch 31, 2007.

The following tablesummarizes our restricted stock activity:

|                                          | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
|------------------------------------------|------------|----------------------------|------------|----------------------------------------------------|------------|
| **Nonvested  at December 31, 2006** |       | 410,000                    |       | $                                                  | 3.14       |   |
| Granted                                  |       | 105,000                    |       | 6.08                                               |       |
| Vested                                   |       | (75,000                    | )          | 3.14                                               |       |
| **Nonvested at March 31,  2007**    |       | 440,000                    |       | $                                                  | 3.84       |   |

 

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Theshares of restricted stock vest in four equal annual installments from the dateof grant.  During the three monthsended March 31, 2006 and 2007, we recorded stock-based compensationrelated to restricted stock awards of $30,841 and $178,057, respectively.  As of March 31, 2007, the unrecorded deferredstock-based compensation balance related to restricted stock awards was$1,215,722 and will be recognized over an estimated weighted-averageamortization period of 1.7 years.

**6.**                 Net Loss PerShare

Net loss per share iscalculated in accordance with SFAS No. 128, *Earnings Per Share* (“SFAS 128”). Under the provisionsof SFAS 128, basic net loss per share is computed by dividing the net lossattributable to common stockholders for the period by the weighted averagenumber of common shares outstanding during the period.  Diluted earnings per share is computed bygiving effect to all dilutive potential common stock outstanding during theperiod, including stock options, restricted stock, stock warrants and shares tobe issued under our employee stock purchase plan.

Diluted net loss pershare is the same as basic net loss per share for all periods presented becauseany potential dilutive common shares were anti-dilutive due to our net loss(i.e., including such shares would decrease our basic net loss per share).Potential dilutive common shares that would have been included in thecalculation of diluted earnings per share if we had net income are as follows:

|                        | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|
| ** **             | ** ** | **2006**                                             | ** ** | **2007** | ** ** |
| Common stock  options  |       | 638,315                                              |       | 2,543,049 |   |
| Restricted stock       |       | 300,000                                              |       | 440,000 |   |
| Common stock  warrants |       | —                                               |       | 382,877 |   |
|                   |       | 938,315                                              |       | 3,365,926 |   |

 

**7.**                 Restructuring andSeparation Costs

In January 2006,Michael E. Hart notified our Board of Directors of his intent to resign fromhis positions as President, Chief Executive Officer and Chief Financial Officerof the Company once a successor Chief Executive Officer was appointed. OnMarch 3, 2006, we entered into a separation agreement with Mr. Hartto provide certain incentives for his continued employment with the Companywhile we conducted our search for his successor.  On March 9, 2006, we appointed Paul L.Berns as our President, Chief Executive Officer and a member of the Board ofDirectors and Mr. Hart resigned from his positions in accordance with theterms of the separation agreement. The separation agreement with Mr. Hartwas amended on March 9, 2006 and on May 10, 2006 (as so amended, the “SeparationAgreement”).  Pursuant to the SeparationAgreement and as a result of Mr. Hart’s resignation as a director, onMay 10, 2006, we entered into a consulting agreement with Mr. Hart inorder to allow us to retain the benefit of Mr. Hart’s historical knowledgeregarding the Company’s operations and corporate development strategies (the “HartConsulting Agreement”). Pursuant to the Hart Consulting Agreement,Mr. Hart has agreed to provide an average of at least 10 hours ofconsulting services per month as and when requested from time to time by theCompany.  Mr. Hart is not entitledto any compensation or benefits in connection with the performance of hisconsulting services, except for those payments and benefits being provided tohim under the Separation Agreement. The term of the Hart Consulting Agreementis from May 10, 2006 to December 31, 2007; *providedthat*it will automatically terminate upon the occurrence of one ormore events constituting just cause (as defined in the agreement).  Pursuant to the Separation Agreement,Mr. Hart is entitled to certain payments and benefits from the Company,including but not limited to the following:

·       a lump sum payment equal to$181,250, which was paid in September 2006, minus applicable deductionsand withholdings;

·       an amount equal to $362,500payable over the period from September 11, 2006 to September 11,2007, minus applicable deductions and withholdings;

·       a pro rata portion of hisfiscal 2006 bonus, which amounted to $27,327, and was paid in February 2007;

·       reimbursement on agrossed-up basis, for the after tax payment of the premiums on his supplementaldisability and term life insurance coverage for a period of twenty-four monthsfollowing his termination of employment;

·       reimbursement for the costof his COBRA continuation coverage until the earlier of(i) September 10, 2007, or (ii) the date on which he becomeseligible to receive comparable health insurance coverage from a new employer;

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·       continued vesting ofcertain stock options granted to Mr. Hart prior to March 3, 2006 for aperiod of one year following his termination of employment, which options willremain exercisable, subject to the terms of the Hart Consulting Agreement,until ninety days following the termination of his consulting relationship withthe Company.

We recorded separationcosts of $645,666 during the three months ended March 31, 2006 relating toour estimate of our total obligations under the Separation Agreement withMr. Hart.  During the year endedDecember 31, 2006 and the three months ended March 31, 2007, we madepayments to Mr. Hart under the Separation Agreement of $325,208 and$137,707, respectively.  As of March 31,2007, the remaining liability of $182,751 relating to the Separation Agreementwith Mr. Hart is recorded in accrued restructuring and separation costs.

**8.**                 Income Taxes

We adopted the provisionsof Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “*Accounting for Uncertainty in Income Taxes-an interpretation of FASBStatement No. 109*” (“FIN 48”), on January 1, 2007. FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS No. 109, “*Accounting for Income Taxes*”, and prescribes a recognitionthreshold and measurement process for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.FIN 48 also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. Based onour evaluation, we have concluded that there are no significant uncertain taxpositions requiring recognition in our financial statements. Our evaluation wasperformed for the tax years ended December 31, 1993 through 2006, the taxyears which remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.

We have net operatingloss (“NOL”) carryforwards, research and development (“R&D”) creditcarryforwards and orphan drug credit carryforwards and our other deferred taxassets represent an unrecognized future tax benefit.  A valuation allowance has been establishedfor the entire tax benefit as we believe that it is more likely than not thatsuch assets will not be realized.  Theutilization of these carryforwards to reduce future income taxes will depend onour ability to generate sufficient taxable income prior to the expiration ofthe carryforwards, which begin expiring in 2009. Further, the Internal RevenueCode of 1986, as amended, contains provisions in Section 382 that limit theNOL, R&D credit, and orphan drug credit carryforwards available for use inany given year upon the occurrence of certain events, including significantchanges in ownership interest and are subject to review and possible adjustmentby the Internal Revenue Service. A greater than 50% change in ownership of acompany within a three-year period results in an annual limitation on our abilityto utilize our NOL, R&D credit and orphan drug credit carryforwards fromtax periods prior to the ownership change. Our NOL, R&D credit and orphandrug credit carryforwards as of March 31, 2007 will likely be subject to annuallimitation due to changes in ownership resulting from our previous financings.While the amount of these limitations has not been determined, managementbelieves that the amount subject to limitation could be significant, and ourNOL, R&D credit and orphan drug credit carryforwards may expire unused.Additionally, future ownership changes could further limit the utilization ofour NOL, R&D credit and orphan drug credit carryforwards. Until a fullSection 382 study is performed and the amount of limitation is known, noamounts are presented as uncertain under FIN 48.

We may from time to timebe assessed interest or penalties by major tax jurisdictions, although therehave been no such assessments historically, with no material impact to ourfinancial results. In the event we receive an assessment for interest and/orpenalties, it would be classified in the financial statements as income taxexpense.

**9.**                 Commitments andContingencies

*ManufacturingCommitments*

In June 2005, weentered into a manufacturing agreement with Hovione Inter Limited (“Hovione”)covering the supply of EFAPROXYN bulk drug substance, or efaproxiral sodium.Under the terms of the agreement, we are required to purchase a negotiatedpercentage of our annual requirements for efaproxiral sodium from Hovione. Wemust also meet annual minimum purchase requirements of efaproxiral sodium fromHovione equal to $2,000,000 in 2007, $3,500,000 in 2008, $5,000,000 in 2009,and $5,000,000 in each year thereafter through the end of the term of theagreement, which is the seventh anniversary of the date we obtain approval fromthe FDA to market EFAPROXYN. In the event that we do not meet these annualminimum purchase requirements, we have the option to pay two remainingextension fees to move the annual requirements out by a total of two years.These remaining extension fees are equal to $150,000 for the first extensionand $200,000 for the second and final extension, if necessary.  The Company and Hovione each have customarytermination rights, including termination for material breach or other eventsrelating to insolvency or bankruptcy.  Inaddition, we may terminate the agreement at any time, without penalty, if wedecide to discontinue development or, if approved, marketing of EFAPROXYN, andour obligation to Hovione would equal the amount of any unpaid and outstandingpurchase orders.

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*Royalty andLicense Fee Commitments for PDX*

In December 2002, weentered into a license agreement with Memorial Sloan-Kettering Cancer Center,SRI International and Southern Research Institute, under which we obtainedexclusive worldwide rights to several issued United States patents andequivalent foreign patent applications to develop and market any productderived from any formulation of PDX in connection with all diagnostic andtherapeutic uses, including human and veterinary diseases. Under the terms ofthe agreement, we paid an up-front license fee of $2.0 million upon executionof the agreement and are also required to make certain additional cash paymentsbased upon the achievement of certain clinical development or regulatorymilestones or the passage of certain time periods. To date, we have madeaggregate milestone payments of $1.5 million based on the passage of time. Inthe future, we could make aggregate milestone payments of $1.5 million upon theearlier of achievement of a clinical development milestone or the passage ofcertain time periods (the “Clinical Milestone”), and up to $10 million uponachievement of certain regulatory milestones, including regulatory approval tomarket PDX in the United States or Europe. The next scheduled payments towardthe Clinical Milestone of $500,000 each are currently due on December 23,2007, 2008 and 2009. The up-front licensefee and all milestone payments under the agreement, have been or will be recordedto research and development expense when incurred. Under the terms ofthe agreement, we are required to fund all development programs and will havesole responsibility for all commercialization activities. In addition, we willpay the licensors a royalty based on a percentage of net revenues arising fromsales of the product or sublicense revenues arising from sublicensing theproduct, if and when such sales or sublicenses occur. As of March 31,2007, no royalty payments have been made or accrued.

*Contingencies*

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

On November 20,2005, the plaintiff appealed the District Court’s decision to the U.S. Court ofAppeals for the Tenth Circuit (the “Court of Appeals”).   InOctober 2006, the parties held discussions to settle the matter, althoughthe terms of any such potential settlement remain subject to negotiation and nobinding agreement has been reached. A settlement would be subject to variousconditions, including approval of the District Court. We expect that anysettlement in excess of our deductible would be covered by our insurancecarrier. As with any litigation proceeding, we cannot predict with certaintythe eventual outcome of our settlement discussions or the legal proceedings. Inthe event a settlement is not concluded, we intend to vigorously defend againstthe plaintiff’s appeal. If the Court of Appeals reverses the District Court’sdecision and we are not successful in our defense of such claims, we could beforced to make significant payments to the plaintiffs, and such payments couldhave a material adverse effect on our business, financial condition, results ofoperations and cash flows to the extent such payments are not covered by ourinsurance carriers. Even if our defense against such claims is successful, thelitigation could result in substantial costs and divert management’s attention andresources, which could adversely affect our business. As of March 31, 2007, wehave recorded $2,000,000 in accrued litigation settlement costs, whichrepresents our best estimate of the potential gross amount of the settlementcosts to be paid to the plaintiffs, and $1,750,000 in prepaid expenses andother assets, which represents the amount we expect to be reimbursed from ourinsurance carrier. The net difference of $250,000 between these amountsrepresents the remaining unpaid deductible under our insurance policy, and thisamount was recorded to marketing, general and administrative expenses duringthe year ended December 31, 2006.

**10.**          Recent accountingpronouncements

In February 2007, theFASB issued Statement of SFAS No. 159, “*The FairValue Option for Financial Assets and Financial Liabilities — Including anAmendment of FASB Statement No. 115*” which is effective forfiscal years beginning after November 15, 2007. This statement permits anentity to choose to measure many financial instruments and certain other itemsat fair value at specified election dates. Subsequent unrealized gains andlosses on items for which the fair value option has been elected will bereported in earnings. We are currently evaluating the potential impact of thisstatement.

TheEmerging Issues Task Force (“EITF”) has two issues currently underconsideration that may impact the Company. EITF 07-01, *“Accounting for Collaboration Arrangements Related tothe Development and Commercialization of Intellectual Property”*, isfocused on how the parties to a collaborative agreement should account forcosts incurred and revenue generated 

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onsales to third parties, how sharing payments pursuant to a collaborationagreement should be presented in the income statement and certain relateddisclosure questions. EITF 07-3, *“Accountingfor Non-Refundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities”*, is focused on whethernon-refundable advance payments for goods that will be used or services thatwill be performed in future research and development activities should beaccounted for as research and development costs or deferred and capitalizeduntil the goods have been delivered or the related services have been rendered.The Company will continue to monitor the development of these EITF’s andevaluate the effects on its financial statements and disclosures.

 

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

*Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations, as well as information contained elsewhere in thisreport, contains statements that constitute “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended.*Theseforward-looking statements include, but are not limited to, statementsconcerning our projected timelines for the completion of enrollment,performance of interim and final analyses and announcement of results from ourongoing clinical trials, including our Phase 3 ENRICH trial and our Phase 2PROPEL trial; the potential for the results of our Phase 3 ENRICH trial orPhase 2 PROPEL trial to support marketing approval of EFAPROXYN or PDX,respectively; other statements regarding our future product development andregulatory strategies, including our intent to develop or seek regulatoryapproval for our product candidates in specific indications; the ability of ourthird-party manufacturing parties to support our requirements for drug supply;any statements regarding our future financial performance, results ofoperations or sufficiency of capital resources to fund our operatingrequirements; and any other statements which are other than statements ofhistorical fact. In some cases, these statements may be identified byterminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential” or “continue,” or the negativeof such terms and other comparable terminology. Although we believe that theexpectations reflected in the forward-looking statements contained herein arereasonable, we cannot guarantee future results, levels of activity, performanceor achievements. These statements involve known and unknown risks anduncertainties that may cause our results, levels of activity, performanceor achievements to be materially different from those expressed or implied bythe forward-looking statements. Factors that may cause or contribute to suchdifferences include, among other things, those discussed in Part II, Item 1A ofthis report under the caption “Risk Factors.” All forward-lookingstatements included in this report are based on information available to us asof the date hereof and we undertake no obligation to revise any forward-lookingstatements in order to reflect any subsequent events or circumstances. Forward-lookingstatements not specifically described above also may be found in these andother sections of this report.

**Overview**

We are abiopharmaceutical company focused on developing and commercializing innovativesmall molecule drugs for the treatment of cancer. We strive to developproprietary products that have the potential to improve the standard of care incancer therapy. Our goal is to build a profitable company by generating incomefrom products we develop and commercialize, either alone or with one or morepotential strategic partners. Our focus is on product opportunities thatleverage our internal clinical development and regulatory expertise and addressimportant markets with unmet medical need. We may also seek to grow our existingportfolio of product candidates through product acquisition and in-licensingefforts.

Wehave three product candidates that are currently under development, EFAPROXYN(efaproxiral), PDX (pralatrexate) and RH1.

·       **EFAPROXYN** (efaproxiral) is the first synthetic small moleculedesigned to sensitize hypoxic, or oxygen-deprived, areas of tumors duringradiation therapy by facilitating the release of oxygen from hemoglobin, theoxygen-carrying protein contained within red blood cells, therebyincreasing the level of oxygen in tumors. The presence of oxygen in tumors isan essential element for the effectiveness of radiation therapy.  By increasing tumor oxygenation, we believeEFAPROXYN has the potential to enhance the efficacy of standard radiationtherapy.

·       **PDX** (pralatrexate) is a novel, small molecule chemotherapeuticagent that inhibits dihydrofolate reductase, or DHFR, a folic acid (folate)-dependentenzyme involved in the building of nucleic acid, or DNA, and other processes.PDX was rationally designed for efficient transport into tumor cells via thereduced folate carrier, or RFC-1, and effective intracellular drugretention. We believe these biochemical features, together with preclinical andclinical data in a variety of tumors, suggest that PDX may have a favorablesafety and efficacy profile relative to methotrexate and other related DHFRinhibitors. We believe PDX has the potential to be delivered as a single agentor in combination therapy regimens.

·       **RH1** is a small molecule chemotherapeutic agent that we believeis bioactivated by the enzyme DT-diaphorase, or DTD, also known as NAD(P)Hquinone oxidoreductase, or NQ01.  DTD isover-expressed in many tumors relative to normal tissue, including lung, colon,breast and liver tumors. We believe that because RH1 is bioactivated in thepresence of DTD, it has the potential to provide targeted drug delivery tothese tumor types while limiting the amount of toxicity to normal tissue.

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**EFAPROXYN**

In September 2006,we completed patient enrollment in ENRICH, a Phase 3 clinical trial ofEFAPROXYN plus whole brain radiation therapy, or WBRT, in women with brainmetastases originating from breast cancer. A total of 368 patients were enrolled at 78 centers across North America,Europe and South America.  The protocolfor the ENRICH trial was reviewed by the United States Food and DrugAdministration, or FDA, under its special protocol assessment, or SPA, process,which allows for FDA evaluation of a clinical trial protocol intended to formthe primary basis of an efficacy claim in support of a new drug application, orNDA, and provides an agreement that the study design, including trial size,clinical endpoints and/or data analyses are acceptable to the FDA.  The primary endpoint of the trial willmeasure the difference in survival between patients receiving WBRT plussupplemental oxygen, with or without EFAPROXYN. In accordance with the ENRICH trial protocol, we will conduct the finalanalysis of the primary endpoint following the occurrence of 282 patientdeaths, which we currently expect to occur in mid-2007, although theactual timing of the final analysis may vary based on a number of factors,including patient survival rates.  If thetrial is deemed to be positive at the final analysis, we intend to submit an amendmentto our previously filed NDA to the FDA to seek marketing approval for EFAPROXYNfor use as an adjunct to WBRT for the treatment of women with brain metastasesoriginating from breast cancer.  InJune 2004, the FDA issued an “approvable letter” in which it indicatedthat the NDA may be approved if we successfully complete our ongoing Phase 3ENRICH trial and submit the results as an NDA amendment for the FDA’sreview.  In the letter, the FDA stated, “ifthe study shows effectiveness in this population (increased survival) using thepre specified analysis, and the study is otherwise satisfactory, we believe itwould, together with the subset result in [REACH, the prior Phase 3 clinicaltrial of EFAPROXYN in patients with brain metastases], support approval.”

In addition to the ENRICHtrial, we are currently enrolling patients in a Phase 1 clinical trial ofEFAPROXYN in patients with locally advanced non-small cell lung cancer, orNSCLC, receiving concurrent chemoradiotherapy (chemotherapy and radiationtherapy administered at the same time), and a Phase 1b/2 clinical trial ofEFAPROXYN in patients with locally advanced cancer of the cervix receivingconcurrent chemoradiotherapy. In addition, in the event the ENRICH trial ispositive, we intend to expand our clinical development activities involvingEFAPROXYN to pursue additional indications in which there may be potentialclinical benefit.

**PDX**

In August 2006, weinitiated PROPEL, a Phase 2 clinical trial of PDX in patients with relapsed orrefractory peripheral T-cell lymphoma, or PTCL, that we believe, if positive,will be sufficient to support the filing of an NDA to seek marketing approvalfor PDX in this indication.   InJuly 2006, we reached agreement with the FDA under the SPA process, on thedesign of this Phase 2 trial.  The trialwill seek to enroll a minimum of 100 evaluable patients at approximately 35centers across the United States, Canada and Europe.  The primary endpoint of the study isobjective response rate (complete and partial response).  Secondary endpoints include duration ofresponse, progression-free survival and overall survival.  In January 2007, an independent DataMonitoring Committee, or DMC, completed a planned interim analysis of safetydata from the PROPEL trial and recommended that the trial continue per theprotocol. This interim assessment was based upon an evaluation of the first 10patients enrolled to the study who completed at least one cycle of treatmentwith PDX.  No major patient safetyconcerns were identified by the DMC. According to the PROPEL trial protocol, we will conduct an interimanalysis of efficacy data from the PROPEL trial after 35 patients havecompleted at least one cycle of treatment with PDX, and must observe at leastfour responses (complete or partial) out of the first 35 patients in order tocontinue the trial.  We currently expect to conduct the 35 patientefficacy analysis in the second half of 2007, and complete patientenrollment in the trial by the third quarter of 2008, although the actualtiming of the interim analysis and completion of enrollment may vary based on anumber of factors, including site initiation and patient enrollment rates.

In July 2006, theFDA awarded orphan drug status to PDX for the treatment of patients with T-celllymphoma. Under the Orphan Drug Act, if we are the first company to receive FDAapproval for PDX for this orphan drug indication, we will obtain seven years ofmarketing exclusivity during which the FDA may not approve another company’sapplication for the same drug for the same orphan indication.  In October 2006, the FDA granted fasttrack designation to PDX for the treatment of patients with T-cell lymphoma.The fast track program is designed to facilitate the development and expeditethe review of new drugs that are intended to treat serious or life-threateningconditions and that demonstrate the potential to address unmet medicalneeds.  In April 2007, the Commission ofthe European Communities, with a favorable opinion of the Committee for OrphanMedicinal Products of the European Medicines Agency, or EMEA, granted orphandrug designation to PDX for the treatment of patients with PTCL.  The EMEA Orphan Medicinal ProductDesignation, or OMPD, is intended to promote the development of drugs that mayprovide significant benefit to patients suffering from rare diseases identifiedas life-threatening or very serious. Under EMEA guidelines, OMPD provides tenyears of potential market exclusivity once the product candidate is approvedfor marketing for the designated indication in the European Union.  OMPD also provides potential protocol 

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assistance, advice on theconduct of clinical trials, a reduced Marketing Authorization Applicationfiling fee for the drug’s sponsor and the potential for grant funding.

In addition to the PROPELstudy, we are currently enrolling patients in a Phase 1/2 study of PDX inpatients with non-Hodgkin’s lymphoma, or NHL, and Hodgkin’s disease, and aPhase 1 dose escalation of PDX with vitamin B12 and folic acid supplementationin patients with previously treated advanced NSCLC.  During 2007, we also plan to initiate severalnew studies to further evaluate PDX’s potential clinical utility in otherhematologic and oncologic indications, including a Phase 1 study of PDX plusgemcitabine in patients with relapsed or refractory NHL and Hodgkin’s disease,and a Phase 1/2 study of PDX in patients with relapsed or persistent cutaneousT-cell lymphoma, or CTCL.  We also planto initiate a study of PDX in one or more solid tumors during the second halfof 2007, once we have determined the maximum tolerated dose for PDX in theongoing Phase 1 dose escalation study of PDX with vitamin B12 and folic acidsupplementation in patients with previously-treated advanced NSCLC.

**RH1**

**RH1 iscurrently being evaluated in patients with advanced solid tumors refractory toother chemotherapy regimens in an open label, Phase 1 dose escalationstudy to determine the maximum tolerated dose by testing the safety,tolerability and pharmacokinetics of escalating doses of RH1.  In 2006, we completed patient enrollment inthis study.  The final results of thisstudy are scheduled to be presented at the American Society of ClinicalOncology Annual Meeting on June 4, 2007.**

**Resultsof Operations**

Since our inception in1992, we have not generated any revenue from product sales and have experiencedsignificant net losses and negative cash flows from operations. We haveincurred these losses principally from costs incurred in our research anddevelopment programs and from our general and administrative expenses.

Our ability to generaterevenue and achieve profitability is dependent on our ability, alone or withpartners, to successfully complete the development of our product candidates,conduct clinical trials, obtain the necessary regulatory approvals, and manufactureand market our product candidates. The timing and costs to complete thesuccessful development of any of our product candidates are highly uncertain,and therefore difficult to estimate. The lengthy process of seeking regulatoryapprovals for our product candidates, and the subsequent compliance withapplicable regulations, require the expenditure of substantial resources.  Clinical development timelines, likelihood ofsuccess and total costs vary widely and are impacted by a variety of factorsdiscussed in the “Risk Factors” section of Part II, Item IA below.  Because of these risks and uncertainties, wecannot predict when or whether we will successfully complete the development ofany of our product candidates or the ultimate costs of such efforts. Due tothese same factors, we cannot be certain when, or if, we will generate anyrevenue or net cash inflow from any of our current product candidates.

Even if our clinicaltrials demonstrate the safety and effectiveness of our product candidates intheir target conditions, we do not expect to be able to record commercial salesof any our product candidates until mid-2008 at the earliest. We expectto incur significant and growing net losses for the foreseeable future as aresult of our research and development programs and the costs of preparing forthe potential commercial launch of EFAPROXYN and PDX.  Although the size and timing of our futurenet losses are subject to significant uncertainty, we expect them to increaseover the next several years as we continue to fund our development programs andprepare for the potential commercial launch of our product candidates.

*Researchand Development.* Research and development expensesinclude the costs of certain personnel, basic research, preclinical studies,clinical trials, regulatory affairs, biostatistical data analysis, patents andlicensing fees for our product candidates. Research and development expenses for the three months ended March 31,2006 and 2007 were $3.4 million and $3.3 million, respectively.  The $150,000 decrease in research anddevelopment expenses in the three months ended March 31, 2007 as compared tothe same period in 2006 was primarily due to a $1.5 million decrease inclinical trial costs resulting from the completion of patient enrollment in ourPhase 3 ENRICH trial in September 2006; partially offset by the following:

·                  a$730,000 increase in clinical trial and preclinical study costs involving PDX;

·                  a$363,000 increase in personnel and consulting costs; and

·                  a$130,000 increase in non-cash stock-based compensation expense.

For the remainder of2007, we expect our average quarterly research and development expenses toincrease relative to the amount recorded for the three months ended March 31,2007 due to increases in costs for our Phase 2 PROPEL trial, preclinicalstudies and planned clinical trials for PDX, and non-cash stock-basedcompensation expense.  If our ongoing Phase 

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3 ENRICH trial meets its primary endpoint in mid-2007, weexpect additional increases in our research and development expenses as weexpand the development of EFAPROXYN in other indications.  The amount and timing of the costsrelated to our clinical trials are difficult to predict due to the uncertaintyinherent in the timing of clinical trial initiations, the rate of patientenrollment and the detailed design of future trials.

*ClinicalManufacturing.* Clinical manufacturing expenses includethe costs of certain personnel, third party manufacturing costs for developmentof drug materials for use in clinical trials and preclinical studies, and costsassociated with pre-commercial scale-up of manufacturing to support anticipatedregulatory and commercial requirements. Clinical manufacturing expenses for the three months ended March 31,2006 and 2007 were $562,000 and $1.1 million, respectively.  The $586,000 increase in clinicalmanufacturing expenses in the three months ended March 31, 2007 as compared tothe same period in 2006 was primarily due to increases in third-party manufacturingcosts for bulk drug substance and formulated drug product for PDX.

For the remainder of2007, we expect our average quarterly clinical manufacturing expenses toincrease relative to the amount recorded for the three months ended March 31,2007 in order to support our requirements for ongoing and planned clinicaltrials and preclinical studies involving PDX and RH1.  If our ongoingPhase 3 ENRICH trial meets its primaryendpoint in mid-2007, we expect significant increases in our clinicalmanufacturing expenses in the second half of 2007 as we prepare for thepotential commercialization of EFAPROXYN in 2008.

*Marketing,General and Administrative.*  Marketing, general andadministrative expenses include costs for pre-marketing activities, corporatedevelopment, executive administration, corporate offices and relatedinfrastructure.  Marketing, general andadministrative expenses for the three months ended March 31, 2006 and 2007 were$2.9 million and $4.7 million, respectively. The $1.8 million increase in marketing, general and administrativeexpenses in the three months ended March 31, 2007 as compared to the sameperiod in 2006 was primarily due to the following:

·                  a$680,000 increase in non-cash stock-based compensation expense;

·                  a$459,000 increase in market research and consulting expenses related to ourproduct development and commercialization planning for EFAPROXYN and PDX;

·                  a$371,000 increase in personnel costs, mainly attributable to additionalheadcount and increases in compensation costs year over year; and

·                  a$187,000 increase in travel expenses.

For the remainder of2007, we expect our average quarterly marketing, general and administrativeexpenses to increase relative to the amount recorded for the three months endedMarch 31, 2007 due to increases in personnel costs and non-cash stock-basedcompensation expense.  If our ongoing Phase 3 ENRICH trial meets its primary endpoint in mid-2007, weexpect significant increases in our marketing, general and administrativeexpenses in the second half of 2007 as we prepare for the potentialcommercialization of EFAPROXYN in 2008.

*Stock-based Compensation Expense. *In accordance with the modified prospective transitionmethod of SFAS 123R, stock-based compensation expense for the three monthsended March  31, 2006 and 2007 has been recognized in the accompanyingStatements of Operations as follows:  

|                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                             | ** ** | **2007** | ** ** |
| Research and  development               |       | $                                                    | 134,454    |   | $ | 264,300 |   |
| Clinical  manufacturing                 |       | 23,645                                               |       | 36,018 |   |
| Marketing,  general and administrative  |       | 323,243                                              |       | 1,003,062 |   |
| Total  stock-based compensation expense |       | $                                                    | 481,342    |   | $ | 1,303,380 |   |

 

The $481,000 ofstock-based compensation recognized in the three months ended March 31, 2006was primarily related to our stock option plans.  Of the $1.3 million of stock-basedcompensation recognized in the three months ended March 31, 2007,$1.1 million was related to our stock option plans, $178,000 related torestricted stock and $9,000 was related to our employee stock purchase plan.

The $822,000 increase instock-based compensation expense in the three months ended March 31, 2007 ascompared to the same period in 2006 was primarily due to our annual optiongrants and new employee stock option grants which had 

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a higher fair-valuecompared to the options granted in 2006 due to an increase in our stock priceduring the three months ended March 31, 2007 as compared to the same period in2006.

As of March 31, 2007, theunrecorded deferred stock-based compensation balance related to stock optionawards was $8,550,346 and will be recognized over an estimated weighted-averageamortization period of 1.5 years. As of March 31, 2007, the unrecorded deferredstock-based compensation balance related to restricted stock awards was$1,215,722 and will be recognized over an estimated weighted-averageamortization period of 1.7 years.

*Restructuringand Separation Costs. * Restructuring and separation costs for thethree months ended March 31, 2006 and 2007 were $646,000 and $0,respectively.  For a discussion of the separationcosts recorded for the three months ended March 31, 2006, please see Note 7 ofPart I, Item I in this quarterly report.

*Interestand Other Income, Net*. Interest income, net of interest expense, for the three months endedMarch 31, 2006 and 2007 was $504,000 and $773,000, respectively.  The $270,000 increase in net interest incomein the three months ended March 31, 2007 as compared to the same period in 2006was primarily due to higher average investment balances resulting from ourFebruary 2007 Financing and higher yields on our cash, cash equivalents andinvestments in marketable securities.

**Liquidityand Capital Resources**

Our cash, cashequivalents, and investments in marketable securities amounted to$75.5 million at March 31, 2007. Since our inception, we have financed our operations primarily throughpublic and private sales of our equity securities, which have resulted in netproceeds to us of $252.7 million through March 31, 2007.  We have also generated $19.1 million ofnet interest income since our inception from investing the net proceeds ofthese financings.

We have used $172.6million of cash for operating activities from our inception through March 31,2007.  Net cash used to fund ouroperating activities for the three months ended March 31, 2006 and 2007 was$5.1 million and $7.9 million, respectively.

Net cash provided byinvesting activities for the three months ended March 31, 2006 was $9.1 millionand consisted primarily of proceeds from maturities of investments inmarketable securities, partially offset by the purchase of investments inmarketable securities.  Net cash used ininvesting activities for the three months ended March 31, 2007 was $20.4million and consisted primarily of the purchase of investments in marketablesecurities, partially offset by the proceeds from maturities of investments inmarketable securities.

Net cash provided byfinancing activities for the three months ended March 31, 2006 was $2,280and consisted of proceeds from the issuance of common stock associated withstock options exercised by our employees. Net cash provided by financing activities for the three months endedMarch 31, 2007 was $50.6 million and consisted primarily of the netproceeds from the sale of 9,000,000 shares of our common stock in anunderwritten offering at a price of $6.00 per share (the “February 2007Financing”).  We received net proceedsfrom the February 2007 Financing of approximately $50.3 million, afterdeducting underwriting commissions of approximately $3.2 million and otheroffering expenses of approximately $438,000. The shares of common stock weresold under our shelf Registration Statement on Form S-3 (FileNo. 333-134965), declared effective by the Securities and ExchangeCommission on July 10, 2006.

Based upon the currentstatus of our product development and commercialization plans, we believe thatour cash, cash equivalents, and investments in marketable securities as ofMarch 31, 2007 will be adequate to satisfy our capital needs through March 31,2008.  If our ongoing Phase 3 ENRICH trial meets its primary endpoint in mid-2007, we would expect to raiseadditional capital resources to prepare for the potential commercialization ofEFAPROXYN and support the future development of EFAPROXYN in other indications.If the ENRICH trial fails to meet its primary endpoint, we believe thatour existing resources could be adequate to support our operations through theend of 2008, although there can be no assurance that this can, in fact, beaccomplished.

Ourforecasts of the periods of time through which our financial resources will beadequate to support our operations are forward-looking statements thatinvolve risks and uncertainties, and actual results could vary materially. Weanticipate continuing our current development programs and/or beginning otherlong-term development projects involving our product candidates. These projectsmay require many years and substantial expenditures to complete and mayultimately be unsuccessful. Therefore, we may need to obtain additional fundsfrom outside sources to continue research and development activities, fundoperating expenses, pursue regulatory approvals and build sales and marketingcapabilities, as necessary. However, our actual capital requirements willdepend on many factors, including:

·       thestatus of our product development programs;

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

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

·       competingtechnological and market developments; and

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

We will be required toraise additional capital to support our future operations, including the potentialcommercialization of EFAPROXYN and/or PDX in the event we obtain regulatoryapproval to market such product candidates. We may seek to obtain thisadditional capital through arrangements with corporate partners, equity or debtfinancings, or from other sources. Such arrangements, if successfullyconsummated, may be dilutive to our existing stockholders. However, there is noassurance that we will be successful in consummating any such arrangements. Inaddition, in the event that additional funds are obtained through arrangementswith collaborative partners or other sources, such arrangements may require usto relinquish rights to some of our technologies, product candidates orproducts under development that we would otherwise seek to develop or commercializeourselves. If we are unable to generate meaningful amounts of revenue fromfuture product sales, if any, or cannot otherwise raise sufficient additionalfunds to support our operations, we may be required to delay, reduce the scopeof or eliminate one or more of our development programs and our business andfuture prospects for revenue and profitability may be harmed.

**Obligations and Commitments**

*ManufacturingCommitments*

In June 2005, weentered into a manufacturing agreement with Hovione Inter Limited (“Hovione”)covering the supply of EFAPROXYN bulk drug substance, or efaproxiral sodium.Under the terms of the agreement, we are required to purchase a negotiatedpercentage of our annual requirements for efaproxiral sodium from Hovione. Wemust also meet annual minimum purchase requirements of efaproxiral sodium fromHovione equal to $2,000,000 in 2007, $3,500,000 in 2008, $5,000,000 in 2009,and $5,000,000 in each year thereafter through the end of the term of theagreement, which is the seventh anniversary of the date we obtain approval fromthe FDA to market EFAPROXYN. In the event that we do not meet these annualminimum purchase requirements, we have the option to pay two remainingextension fees to move the annual requirements out by a total of twoyears.  These remaining extension feesare equal to $150,000 for the first extension and $200,000 for the second andfinal extension, if necessary.  TheCompany and Hovione each have customary termination rights, includingtermination for material breach or other events relating to insolvency orbankruptcy.  In addition, we mayterminate the agreement at any time, without penalty, if we decide todiscontinue development or, if approved, marketing of EFAPROXYN, and ourobligation to Hovione would equal the amount of any unpaid and outstandingpurchase orders.

*Royalty andLicense Fee Commitments for PDX*

In December 2002, weentered into a license agreement with Memorial Sloan-Kettering Cancer Center,SRI International and Southern Research Institute, under which we obtainedexclusive worldwide rights to several issued United States patents andequivalent foreign patent applications to develop and market any productderived from any formulation of PDX in connection with all diagnostic andtherapeutic uses, including human and veterinary diseases. Under the terms ofthe agreement, we paid an up-front license fee of $2.0 million upon executionof the agreement and are also required to make certain additional cash paymentsbased upon the achievement of certain clinical development or regulatorymilestones or the passage of certain time periods. To date, we have madeaggregate milestone payments of $1.5 million based on the passage of time. Inthe future, we could make aggregate milestone payments of $1.5 million upon theearlier of achievement of a clinical development milestone or the passage ofcertain time periods (the “Clinical Milestone”), and up to $10 million uponachievement of certain regulatory milestones, including regulatory approval tomarket PDX in the United States or Europe. The next scheduled payments towardthe Clinical Milestone of $500,000 each are currently due on December 23,2007, 2008 and 2009. The up-front licensefee and all milestone payments under the agreement, have been or will berecorded to research and development expense when incurred. Under theterms of the agreement, we are required to fund all development programs andwill have sole responsibility for all commercialization activities. Inaddition, we will pay the licensors a royalty based on a percentage of netrevenues arising from sales of the product or sublicense revenues arising fromsublicensing the product, if and when such sales or sublicenses occur. As ofMarch 31, 2007, no royalty payments have been made or accrued.

**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.  The 

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preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities, and expenses.  For a description of our critical accountingpolicies, please see our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2006.

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

We do not use derivativefinancial instruments in our investment portfolio and have no foreign exchangecontracts.  Our financial instruments asof March 31, 2007 consist of cash, cash equivalents, investments inmarketable securities, and accounts payable. All highly liquid investments with original maturities of three monthsor less are considered to be cash equivalents.

We invest in marketablesecurities in accordance with our investment policy.  The primary objectives of our investmentpolicy are to preserve principal, maintain proper liquidity to meet operatingneeds and maximize yields.  Ourinvestment policy specifies credit quality standards for our investments andlimits the amount of credit exposure to any single issue, issuer or type ofinvestment.  The average duration of theissues in our portfolio of investments in marketable securities as ofMarch 31, 2007 is approximately 4 months. As of March 31, 2007, our investments in marketable securities of$43.2 million are all classified as held-to-maturity and were held in avariety of interest-bearing instruments, consisting mainly of high-gradecorporate notes.

Investments in fixed-rateinterest-earning instruments carry varying degrees of interest raterisk.  The fair market value of ourfixed-rate securities may be adversely impacted due to a rise in interestrates.  In general, securities withlonger maturities are subject to greater interest-rate risk than those withshorter maturities.  Due in part to thisfactor, our interest income may fall short of expectations or we may sufferlosses in principal if securities are sold that have declined in market valuedue to changes in interest rates.  Due tothe short duration of our investment portfolio, we believe an immediate 10%change in interest rates would not be material to our financial condition orresults of operations.

**ITEM 4.  CONTROLS AND PROCEDURES**

As of the end of theperiod covered by this report, an evaluation was carried out under thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer (the “EvaluatingOfficers”), of the effectiveness of our disclosure controls and procedures, asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“ExchangeAct”).  Based on that evaluation, ourmanagement, including the Evaluating Officers, concluded that our disclosurecontrols and procedures were effective as of March 31, 2007 to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in Securities and Exchange Commission’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including the Evaluating Officers, as appropriate, to allow timelydecisions regarding required disclosure.

**NoChanges in Internal Control over Financial Reporting**

There were no changes inour internal controls over financial reporting during the three months endedMarch 31, 2007 that have materially affected, or are reasonably likely tomaterially affect, our internal controls over financial reporting.

**PART II. OTHER INFORMATION**

**ITEM1.  LEGAL PROCEEDINGS**

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

On November 20,2005, the plaintiff appealed the District Court’s decision to the U.S. Court ofAppeals for the Tenth Circuit (the “Court of Appeals”).   InOctober 2006, the parties held discussions to settle the matter, althoughthe terms of any such potential settlement remain subject to negotiation and nobinding agreement has been reached. A settlement would be subject to variousconditions, including approval of the District Court. We expect that anysettlement in excess of our deductible would be covered by our insurancecarrier. As with any litigation proceeding, we 

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cannot predict withcertainty the eventual outcome of our settlement discussions or the legalproceedings. In the event a settlement is not concluded, we intend tovigorously defend against the plaintiff’s appeal. If the Court of Appealsreverses the District Court’s decision and we are not successful in our defenseof such claims, we could be forced to make significant payments to theplaintiffs, and such payments could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows to theextent such payments are not covered by our insurance carriers. Even if ourdefense against such claims is successful, the litigation could result insubstantial costs and divert management’s attention and resources, which couldadversely affect our business. As of March 31, 2007, we have recorded$2,000,000 in accrued litigation settlement costs, which represents our bestestimate of the potential gross amount of the settlement costs to be paid tothe plaintiffs, and $1,750,000 in prepaid expenses and other assets, whichrepresents the amount we expect to be reimbursed from our insurance carrier.The net difference of $250,000 between these amounts represents the remainingunpaid deductible under our insurance policy, and this amount was recorded tomarketing, general and administrative expenses during the year endedDecember 31, 2006.

**ITEM 1A.  RISK FACTORS**

*Our business faces significant risks.These risks include those described below and may include additional risks ofwhich we are not currently aware or which we currently do not believe arematerial. If any of the events or circumstances described in the following riskfactors actually occurs, they may materially harm our business, financialcondition, operating results and cash flow. As a result, the market price ofour common stock could decline. Additional risks and uncertainties that are notyet identified or that we think are immaterial may also materially harm ourbusiness, operating results and financial condition.  Stockholdersand potential investors in shares of our common stock should carefully considerthe following risk factors, which hereby update those risks contained in the “RiskFactors” section of our Annual Report on Form 10-K  for the year ended December 31, 2006, inaddition to other information and risk factors in this report.  We are identifying these risk factors asimportant factors that could cause our actual results to differ materially fromthose contained in any written or oral forward-looking statements made by or onbehalf of the Company.  We are relyingupon the safe harbor for all forward-looking statements in this report, and anysuch statements made by or on behalf of the Company are qualified by referenceto the following cautionary statements, as well as to those set forth elsewherein this report. We consistently update and include our risk factors in ourQuarterly Reports on Form 10-Q. Risk factors which have been substantivelychanged from those set forth in our Annual Report on Form 10-K for the periodended December 31, 2006 have been marked with an asterisk immediately followingthe heading of such risk factor.*

**We have a historyof net losses and an accumulated deficit, and we may never generate revenue orachieve or maintain profitability in the future. ***

Since our inception in1992, we have not generated any revenue from product sales and have experiencedsignificant net losses and negative cash flows from operations.  To date, we have financed our operationsprimarily through public and private sales of our equity securities.  For the three months ended March 31,2007, we had a net loss of $8.4 million. As of March 31, 2007, we had accumulated a deficit during ourdevelopment stage of $217.0 million. We have incurred these losses principally from costs incurred in ourresearch and development programs and from our general and administrativeexpenses.  We expect to incur significantand growing net losses for the foreseeable future as a result of our researchand development programs and the costs of preparing for the potentialcommercial launch of EFAPROXYN and PDX. Our ability to generate revenue and achieve profitability is dependenton our ability, alone or with partners, to successfully complete thedevelopment of our product candidates, conduct clinical trials, obtain thenecessary regulatory approvals, and manufacture and market our productcandidates. We may never generate revenue from product sales or becomeprofitable.  We expect to continue tospend substantial amounts on research and development, including amounts spenton conducting clinical trials for our product candidates, and in preparing forthe potential commercial launch of our product candidates. We may not be ableto continue as a going concern if we are unable to generate meaningful amountsof revenue to support our operations or cannot otherwise raise the necessaryfunds to support our operations.

**Our productcandidates are in various stages of development and may never be fullydeveloped in a manner suitable for commercialization. If we do not developcommercially successful products, our ability to generate revenue will belimited.**

We currently have noproducts that are approved for commercial sale. All of our product candidatesare in various stages of development, and significant research and development,financial resources and personnel will be required to develop commerciallyviable products and obtain regulatory approvals.  Even if our clinical trials demonstrate thesafety and effectiveness of our product candidates in their target indications,we do not expect to be able to record commercial sales of any of our productcandidates, including EFAPROXYN and PDX, until mid-2008 at the earliest.  Further, certain of the indications that weare pursuing have relatively low incidence rates, which may make it difficultfor us to enroll a sufficient 

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number of patients in ourclinical trials on a timely basis, or at all, and may limit the revenuepotential of our product candidates. If we are unable to develop, receiveapproval for, or successfully commercialize any of our product candidates, wemay be unable to generate meaningful revenue from product sales and will incurcontinued net losses and negative cash flows.

**We cannot predictwhen or if we will obtain regulatory approval to commercialize our productcandidates.**

A pharmaceutical productcannot be marketed in the United States or most other countries until it hascompleted a rigorous and extensive regulatory approval process. If we fail toobtain regulatory approval to market our product candidates, we will be unableto sell our products and generate revenue, which would jeopardize our abilityto continue operating our business. Satisfaction of regulatory requirementstypically takes many years, is dependent upon the type, complexity and noveltyof the product and requires the expenditure of substantial resources. Ofparticular significance are the requirements covering research and development,testing, manufacturing, quality control, labeling and promotion of drugs forhuman use. We may not obtain regulatory approval for any product candidates wedevelop, including EFAPROXYN and PDX, or we may not obtain regulatory review ofsuch product candidates in a timely manner. For a complete description of theregulatory approval process and related risks, please refer to the “GovernmentRegulation” section of Item 1 of our Annual Report on Form 10-K for the yearended December 31, 2006.

**If our productcandidates, including EFAPROXYN and PDX, fail to meet safety and efficacyendpoints in clinical trials, they will not receive regulatory approval, and wewill be unable to market them.**

Our product candidatesmay not prove to be safe and efficacious in clinical trials and may not meetall of the applicable regulatory requirements needed to receive regulatoryapproval. The clinical development and regulatory approval process is extremelyexpensive and takes many years. Failure can occur at any stage of development,and the timing of any regulatory approval cannot be accurately predicted.

We currently expect toconduct the final analysis of the primary endpoint from our Phase 3 ENRICHtrial in mid-2007.  We cannotassure you that the design of, or data collected from, the ENRICH trial will beadequate to demonstrate the safety and efficacy of EFAPROXYN for use an adjunctto WBRT for the treatment of patients with brain metastases originating frombreast cancer, or otherwise be sufficient to support FDA or any foreignregulatory approval. Similarly, according to the PROPEL trial protocol, we willconduct an interim analysis of efficacy data from the PROPEL trial after 35patients have completed at least one cycle of treatment with PDX, and must observeat least four responses (complete or partial) out of the first 35 patients inorder to continue the trial. We currentlyexpect to conduct the 35 patient efficacy analysis in the second half of 2007,although the actual timing of the interim analysis may vary based on anumber of factors, including patientenrollment rates. We cannot assure you that the design of, or datacollected from, the PROPEL trial will be adequate to continue the trial beyondthe first 35 patients or demonstrate the safety and efficacy of PDX for thetreatment of patients with relapsed or refractory peripheral T-cell lymphoma,or otherwise be sufficient to support FDA or any foreign regulatory approval.

If the ENRICH or PROPELtrials fail to achieve their safety and efficacy endpoints, we may be unable toobtain regulatory approval to commercialize EFAPROXYN or PDX, and our businessand stock price may be harmed. If we fail to obtain regulatory approval forEFAPROXYN, PDX or any of our other current or future product candidates, wewill be unable to market and sell them and therefore may never generatemeaningful amounts of revenue or become profitable.

As part of the regulatoryprocess, we must conduct clinical trials for each product candidate todemonstrate safety and efficacy to the satisfaction of the FDA and otherregulatory authorities abroad. The number and design of clinical trials thatwill be required varies depending on the product candidate, the condition beingevaluated, the trial results and regulations applicable to any particularproduct candidate. The design of our clinical trials is based on manyassumptions about the expected effect of our product candidates, and if thoseassumptions prove incorrect, the clinical trials may not produce statisticallysignificant results. Preliminary results may not be confirmed upon fullanalysis of the detailed results of a trial, and prior clinical trial programdesigns and results may not be predictive of future clinical trial designs orresults. Product candidates in later stage clinical trials may fail to show thedesired safety and efficacy despite having progressed through initial clinicaltrials with acceptable endpoints. If our product candidates fail to showclinically significant benefits, they will not be approved for marketing.

**We may experiencedelays in our clinical trials that could adversely affect our financialposition and our commercial prospects.**

We do not know when ourcurrent clinical trials, including our ENRICH and PROPEL trials, will becompleted, if at all. We also cannot accurately predict when other plannedclinical trials will begin or be completed. Many factors affect patientenrollment, including the size of the patient population, the proximity ofpatients to clinical sites, the eligibility criteria for the trial, competingclinical trials and new drugs approved for the conditions we are investigating.Other companies are conducting 

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

As a result of thenumerous factors which can affect the pace of progress of clinical trials, ourtrials may take longer to enroll patients than we anticipate, if they can becompleted at all. Delays in patient enrollment in the trials may increase ourcosts and slow our product development and approval process. Our productdevelopment costs will also increase if we need to perform more or largerclinical trials than planned. If other companies’ product candidates showfavorable results, we may be required to conduct additional clinical trials toaddress changes in treatment regimens or for our products to be commerciallycompetitive. Any delays in completing our clinical trials will delay ourability to generate revenue from product sales, and we may have insufficientcapital resources to support our operations. Even if we do have sufficient capital resources, our ability to becomeprofitable will be delayed.

**While we havenegotiated special protocol assessments with the FDA relating to our ENRICH andPROPEL trials, these agreements do not guarantee any particular outcome fromregulatory review of the trials or the products, including any regulatoryapproval.**

The protocols for theENRICH and PROPEL trials were reviewed by the FDA under the special protocolassessment, or SPA, process, which allows for FDA evaluation of a clinicaltrial protocol intended to form the primary basis of an efficacy claim insupport of a new drug application, and provides an agreement that the studydesign, including trial size, clinical endpoints and/or data analyses areacceptable to the FDA. However, a SPA agreement is not a guarantee of approval,and we cannot assure you that the design of, or data collected from, the ENRICHor PROPEL trials will be adequate to demonstrate the safety and efficacy ofEFAPROXYN or PDX in their target indications, or otherwise be sufficient tosupport FDA or any foreign regulatory approval. Further, the SPA agreement isnot binding on the FDA if public health concerns unrecognized at the time theSPA agreement is entered into become evident, other new scientific concernsregarding product safety or efficacy arise, or if we fail to comply with theagreed upon trial protocols. In addition, the SPA agreement may be changed byus or the FDA on written agreement of both parties, and the FDA retainssignificant latitude and discretion in interpreting the terms of the SPAagreement and the data and results from the ENRICH and PROPEL trials. As aresult, we do not know how the FDA will interpret the parties’ respectivecommitments under the SPA agreement, how it will interpret the data and resultsfrom the ENRICH or PROPEL trials, or whether EFAPROXYN or PDX will receive anyregulatory approvals as a result of the SPA agreement or the clinical trial.Therefore, despite the potential benefits of the SPA agreement, significantuncertainty remains regarding the clinical development and regulatory approvalprocess for EFAPROXYN for the treatment of brain metastases originating frombreast cancer, and PDX for the treatment of PTCL.

**We may be requiredto suspend, repeat or terminate our clinical trials if they are not conductedin accordance with regulatory requirements, the results are negative orinconclusive or the trials are not well designed.**

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

Even if we achievepositive interim results in clinical trials, these results do not necessarilypredict final results, and acceptable results in early trials may not berepeated in later trials. Data obtained from preclinical and clinicalactivities are susceptible to varying interpretations that could delay, limitor prevent regulatory clearances, and the FDA can request that we conductadditional clinical trials. A number of companies in the pharmaceuticalindustry have suffered significant setbacks in advanced clinical trials, evenafter promising results in earlier trials. As a result, there can be noassurance that our ENRICH or PROPEL trials will achieve their primary endpoints.In addition, negative or inconclusive results or adverse medical events duringa clinical trial could cause a clinical trial to be repeated or terminated.Also, failure to construct clinical trial protocols to screen patients for riskprofile factors relevant to the trial for purposes of segregating patients intothe patient populations treated with the drug being tested and the controlgroup could result in either group experiencing a disproportionate number ofadverse events and could cause a clinical trial to be repeated or terminated.If we have to conduct additional clinical trials, whether for EFAPROXYN, PDX orany other product candidate, it would significantly increase our expenses anddelay marketing of our products.

 

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**Reports of adverseevents or safety concerns involving our product candidates or in relatedtechnology fields or other companies’ clinical trials could delay or prevent usfrom obtaining regulatory approval or negatively impact public perception ofour product candidates.**

Our product candidatesmay produce serious adverse events. These adverse events could interrupt, delayor halt clinical trials of our product candidates and could result in the FDAor other regulatory authorities denying approval of our product candidates forany or all targeted indications. An independent data safety monitoring board,the FDA, other regulatory authorities or the Company may suspend or terminateclinical trials at any time. We cannot assure you that any of our product candidateswill be safe for human use.

At present, there are anumber of clinical trials being conducted by other pharmaceutical companiesinvolving small molecule chemotherapeutic agents. If other pharmaceuticalcompanies announce that they observed frequent adverse events or unknown safetyissues in their trials involving compounds similar to, or competitive with, ourproduct candidates, we could encounter delays in the timing of our clinicaltrials or difficulties in obtaining the approval of our product candidates.  In addition, the public perception of ourproduct candidates might be adversely affected, which could harm our businessand results of operations and cause the market price of our common stock todecline, even if the concern relates to another company’s product or productcandidate.

**Due to ourreliance on contract research organizations and other third parties to conductour clinical trials, we are unable to directly control the timing, conduct andexpense of our clinical trials.**

We rely primarily onthird parties to conduct our clinical trials, including the ENRICH and PROPELtrials. As a result, we have had and will continue to have less control overthe conduct of our clinical trials, the timing and completion of the trials,the required reporting of adverse events and the management of data developedthrough the trial than would be the case if we were relying entirely upon ourown staff. Communicating with outside parties can also be challenging,potentially leading to mistakes as well as difficulties in coordinatingactivities. Outside parties may have staffing difficulties, may undergo changesin priorities or may become financially distressed, adversely affecting theirwillingness or ability to conduct our trials. We may experience unexpected costincreases that are beyond our control. Problems with the timeliness or qualityof the work of a contract research organization may lead us to seek toterminate the relationship and use an alternative service provider. However,making this change may be costly and may delay our trials, and contractualrestrictions may make such a change difficult or impossible. Additionally, itmay be impossible to find a replacement organization that can conduct ourtrials in an acceptable manner and at an acceptable cost.

**Even if ourproduct candidates meet safety and efficacy endpoints in clinical trials,regulatory authorities may not approve them, or we may face post-approvalproblems that require withdrawal of our products from the market.**

We will not be able tocommercialize any of our product candidates until we have obtained regulatoryapproval. We have limited experience in filing and pursuing applicationsnecessary to gain regulatory approvals, which may place us at risk of delays,overspending and human resources inefficiencies.

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

Even if we receiveregulatory approvals, our product candidates may later produce adverse eventsthat limit or prevent their widespread use or that force us to withdraw thoseproduct candidates from the market. In addition, a marketed product continuesto be subject to strict regulation after approval and may be required toundergo post-approval studies. Any unforeseen problems with an approved productor any violation of regulations could result in restrictions on the product,including its withdrawal from the market. Any delay in, or failure to receiveor maintain regulatory approval for, any of our products could harm ourbusiness and prevent us from ever generating meaningful revenues or achievingprofitability.

**Even if we receiveregulatory approval for our product candidates, we will be subject to ongoingregulatory obligations and review.**

Following any regulatoryapproval of our product candidates, we will be subject to continuing regulatoryobligations such as safety reporting requirements and additional post-marketingobligations, including regulatory oversight of the promotion and marketing ofour products. In addition, we or our third-party manufacturers will be requiredto adhere to regulations setting forth current Good Manufacturing Practices.These regulations cover all aspects of the manufacturing, storage, testing,quality control and record keeping relating to our product candidates.Furthermore, we or our third-party manufacturers must pass a pre-approvalinspection of manufacturing facilities by the FDA and foreign authoritiesbefore obtaining marketing approval 

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and will be subject toperiodic inspection by these regulatory authorities. Such inspections mayresult in compliance issues that could prevent or delay marketing approval, orrequire the expenditure of financial or other resources to address. If we orour third-party manufacturers fail to comply with applicable regulatoryrequirements, we may be subject to fines, suspension or withdrawal ofregulatory approvals, product recalls, seizure of products, operatingrestrictions and criminal prosecution.

**Budget constraintsmay force us to delay our efforts to develop certain product candidates infavor of developing others, which may prevent us from commercializing allproduct candidates as quickly as possible.**

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

**If we fail toobtain the capital necessary to fund our operations, we will be unable tosuccessfully develop or commercialize our product candidates. ***

Weexpect that significant additional capital will be required in the future tocontinue our research and development efforts and to commercialize our productcandidates, if approved for marketing. Our actual capital requirements willdepend on many factors, including, among other factors:

·       the timing and outcome ofour ongoing ENRICH and PROPEL trials;

·       costs associated with thecommercialization of our product candidates, if approved for marketing;

·       our evaluation of, anddecisions with respect to, our strategic alternatives; and

·       costs associated withsecuring in-license opportunities, purchasing product candidates and conductingpreclinical research and clinical development for our current and futureproduct candidates.

We will be required toraise additional capital to support our future operations, including thepotential commercialization of EFAPROXYN and/or PDX in the event we obtainregulatory approval to market such product candidates. We may seek to obtainthis additional capital through arrangements with corporate partners, equity ordebt financings, or from other sources. Such arrangements, if successfullyconsummated, may be dilutive to our existing stockholders. However, there is noassurance that we will be successful in consummating any such arrangements. Inaddition, in the event that additional funds are obtained through arrangementswith collaborative partners or other sources, such arrangements may require usto relinquish rights to some of our technologies, product candidates orproducts under development that we would otherwise seek to develop orcommercialize ourselves.  If we areunable to generate meaningful amounts of revenue from future product sales, ifany, or cannot otherwise raise sufficient additional funds to support ouroperations, we may be required to delay, reduce the scope of or eliminate oneor more of our development programs and our business and future prospects forrevenue and profitability may be harmed.

**If we are unableto effectively protect our intellectual property, we will be unable to preventthird parties from using our technology, which would impair our competitivenessand ability to commercialize our product candidates. In addition, enforcing ourproprietary rights may be expensive and result in increased losses.**

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

Our commercial successwill also depend in part on our ability to commercialize our product candidateswithout infringing patents or other proprietary rights of others or breachingthe licenses granted to us. We may not be able to obtain a license tothird-party technology that we may require to conduct our business or, ifobtainable, we may not be able to license such technology at a reasonable cost.If we fail to obtain a license to any technology that we may require tocommercialize our technologies or product candidates, or fail to obtain alicense at a reasonable cost, we will be unable to commercialize the affectedproduct or to commercialize it at a price that will allow us to becomeprofitable.

In addition to patentprotection, we also rely upon trade secrets, proprietary know-how andtechnological advances which we seek to protect through confidentialityagreements with our collaborators, employees and consultants. Our employees and

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consultants are requiredto enter into confidentiality agreements with us. We also have entered intonon-disclosure agreements, which are intended to protect our confidentialinformation delivered to third parties for research and other purposes.However, these agreements could be breached and we may not have adequateremedies for any breach, or our trade secrets and proprietary know-how couldotherwise become known or be independently discovered by others.

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

**We do not havemanufacturing facilities or capabilities and are dependent on third parties tofulfill our manufacturing needs, which could result in the delay of clinicaltrials, regulatory approvals, product introductions and commercial sales.**

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

We have a contract withHovione Inter Limited for the supply of EFAPROXYN bulk drug substance, and acontract with Baxter Healthcare for the supply of EFAPROXYN formulated drugproduct. These manufacturers are currently our only contracted sources for theproduction and formulation of EFAPROXYN. Both PDX and RH1 are cytotoxic whichrequires manufacturers of these substances to have specialized equipment andsafety systems to handle such substances. In addition, the starting materialsfor PDX require custom preparations, which will require us to manage anadditional set of suppliers to obtain the needed supplies of PDX.

Even if we obtainapproval to market our product candidates in one or more indications, ourcurrent or future manufacturers may be unable to accurately and reliablymanufacture commercial quantities of our product candidates at reasonablecosts, on a timely basis and in compliance with the FDA’s current GoodManufacturing Practices. If our current or future contract manufacturers failin any of these respects, our ability to timely complete our clinical trials,obtain required regulatory approvals and successfully commercialize our productcandidates will be materially and adversely affected. This risk may be heightenedwith respect to PDX and RH1 as there are a limited number of fill/finishmanufacturers with the ability to handle cytotoxic products such as PDX andRH1.  Our reliance on contractmanufacturers exposes us to additional risks, including:

·       delays or failure to manufacture sufficientquantities needed for clinical trials in accordance with our specifications orto deliver such quantities on the dates we require;

·       our current and future manufacturers are subjectto ongoing, periodic, unannounced inspections by the FDA and correspondingstate and international regulatory authorities for compliance with strictlyenforced current Good Manufacturing Practice regulations and similar state andforeign standards, and we do not have control over our contract manufacturers’compliance with these regulations and standards;

·       our current and future manufacturers may not beable to comply with applicable regulatory requirements, which would prohibitthem from manufacturing products for us;

·       if we need to change to other commercialmanufacturing contractors, the FDA and comparable foreign regulators mustapprove our use of any new manufacturer, which would require additionaltesting, regulatory filings and compliance inspections, and the newmanufacturers would have to be educated in, or themselves develop substantiallyequivalent processes necessary for, the production of our products;

·       our manufacturers might not be able to fulfillour commercial needs, which would require us to seek new manufacturingarrangements and may result in substantial delays in meeting market demands;and

·       we may not have intellectual property rights, ormay have to share intellectual property rights, to any improvements in themanufacturing processes or new manufacturing processes for our products.

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Any of these factorscould result in the delay of clinical trials, regulatory submissions, requiredapprovals or commercialization of our product candidates.  They could also entail higher costs andresult in our being unable to effectively commercialize our product candidates.

**We may explore newalliances that may never materialize or may fail.**

We may, in the future,periodically explore a variety of possible partnerships or alliances in aneffort to gain access to additional complimentary resources. At the currenttime, we cannot predict what form such a partnership or alliance might take.Such strategic business alliances could result in:

·                  the issuance ofequity securities that would dilute stockholders’ percentage ownership;

·                  the expenditure ofsubstantial operational, financial, and management resources in integrating newbusinesses, technologies, and products;

·                  the assumptionof substantial actual or contingent liabilities;

·                  or a businesscombination transaction featuring terms that stockholders might not deemdesirable.

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

Evenif approved for marketing, our products may not achieve market acceptance. Thedegree of market acceptance will depend upon a number of factors, including:

·       the receipt of timely regulatory approval forthe uses that we are studying;

·       the establishment and demonstration in themedical community of the safety and efficacy of our products and theirpotential advantages over existing and newly developed therapeutic products;

·       ease of use of our products;

·       reimbursement and coverage policies ofgovernment and private payors such as Medicare, Medicaid, insurance companies,health maintenance organizations and other plan administrators; and

·       the scope and effectiveness of our sales andmarketing efforts.

Physicians, patients, payors or the medical communityin general may be unwilling to accept, utilize or recommend the use of any ofour products.

**The status ofreimbursement from third-party payors for newly approved health care drugs isuncertain and failure to obtain adequate coverage and reimbursement could limitour ability to generate revenue.**

Ourability to successfully commercialize our products will depend, in part, on theextent to which coverage and reimbursement for the products will be availablefrom: government and health administration authorities; private healthinsurers; managed care programs; and other third-party payors.

Significant uncertaintyexists as to the reimbursement status of newly approved health care products.Third-party payors, including Medicare, are challenging the prices charged formedical products and services. Government and other third-party payorsincreasingly are attempting to contain health care costs by limiting bothcoverage and the level of reimbursement for new drugs and by refusing, in somecases, to provide coverage for uses of approved products for disease conditionsfor which the FDA has not granted labeling approval. Third-party insurancecoverage may not be available to patients for our products. If government andother third-party payors do not provide adequate coverage and reimbursementlevels for our product candidates, their market acceptance may be reduced.

**Health care reformmeasures could adversely affect our business.**

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

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**We may not obtain orphan drug exclusivity or we maynot receive the full benefit of orphan drug exclusivity even if we obtain it. ***

The FDA has grantedorphan drug designation to EFAPROXYN for the treatment of patients with brainmetastases originating from breast cancer and to PDX for the treatment ofpatients with T-cell lymphoma. Under the Orphan Drug Act, if we are the firstcompany to receive FDA approval for these drugs for the designated indications,we will obtain seven years of marketing exclusivity during which FDA may notapprove another company’s application for the same drug for the same orphan indication.Orphan drug exclusivity would not prevent FDA approval of a different drug forthe orphan indication or the same drug for a different indication. Moreover, ifanother company obtains orphan drug designation for efaproxiral, the activeingredient of EFAPROXYN, or for pralatrexate, which we refer to as PDX, andobtains FDA approval of an NDA before we do, we could be prevented fromobtaining approval of our drugs for seven years. Even if we obtain orphan drugexclusivity, we can lose that exclusivity if FDA determines that we are unableto supply the relevant patient population or if another manufacturerdemonstrates that its efaproxiral or pralatrexate product is superior to ours.

**If we fail tocomply with healthcare fraud and abuse laws, we could face substantialpenalties and our business, operations and financial condition could beadversely affected*.***

As abiopharmaceutical company, even though we do not and will not control referralsof healthcare services or bill directly to Medicare, Medicaid or otherthird-party payors, certain federal and state healthcare laws and regulationspertaining to fraud and abuse will be applicable to our business. These lawsand regulations, include, among others:

·       the federal Anti-KickbackStatute, which prohibits, among other things, persons from soliciting,receiving or providing remuneration, directly or indirectly, to induce eitherthe referral of an individual, for an item or service or the purchasing orordering of a good or service, for which payment may be made under federalhealthcare programs such as the Medicare and Medicaid programs;

·       federal false claims lawswhich prohibit, among other things, individuals or entities from knowinglypresenting, or causing to be presented, claims for payment from Medicare,Medicaid, or other third-party payors that are false or fraudulent;

·       the federal HealthInsurance Portability and Accountability Act of 1996, or HIPAA, which prohibitsexecuting a scheme to defraud any healthcare benefit program or making falsestatements relating to healthcare matters; and

·       state law equivalents ofeach of the above federal laws, such as anti-kickback and false claims lawswhich may apply to items or services reimbursed by any third-party payor,including commercial insurers.

Although there are anumber of statutory exemptions and regulatory safe harbors protecting certaincommon activities from prosecution under the federal Anti-Kickback statute, theexemptions and safe harbors are drawn narrowly, and practices that involveremuneration intended to induce prescribing, purchases, or recommendations maybe subject to scrutiny if they do not qualify for an exemption or safe harbor.Our practices may not in all cases meet all of the criteria for safe harborprotection from anti-kickback liability.

If our operations arefound to be in violation of any of the laws described above or any othergovernmental regulations that apply to us, we may be subject to penalties,including civil and criminal penalties, damages, fines and the curtailment orrestructuring of our operations. Any penalties, damages, fines, curtailment orrestructuring of our operations could adversely affect our ability to operateour business and our financial results. Although compliance programs canmitigate the risk of investigation and prosecution for violations of theselaws, the risks cannot be entirely eliminated. Any action against us forviolation of these laws, even if we successfully defend against it, could causeus to incur significant legal expenses and divert our management’s attentionfrom the operation of our business. Moreover, achieving and sustainingcompliance with all applicable federal and state fraud and abuse laws may provecostly.

**If we are unableto develop adequate sales, marketing or distribution capabilities or enter intoagreements with third parties to perform some of these functions, we will notbe able to commercialize our products effectively.**

We have limitedexperience in sales, marketing and distribution. To directly market anddistribute any products, we must build a sales and marketing organization withappropriate technical expertise and distribution capabilities. We may attemptto build such a sales and marketing organization on our own or with theassistance of a contract sales organization. For some market opportunities, wemay need to enter into co-promotion or other licensing arrangements with largerpharmaceutical or biotechnology firms in order to increase the likelihood ofcommercial success for our products. We may not be able to establish sales,marketing and distribution capabilities of our own or enter into sucharrangements with third parties in a timely manner or on acceptable terms. Tothe extent that we enter into co-promotion or other licensing arrangements, ourproduct revenues are 

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likely to be lower thanif we directly marketed and sold our products, and some or all of the revenueswe receive will depend upon the efforts of third parties, and these efforts maynot be successful. Additionally, building marketing and distributioncapabilities may be more expensive than we anticipate, requiring us to divertcapital from other intended purposes or preventing us from building ourmarketing and distribution capabilities to the desired levels.

**If our competitorsdevelop and market products that are more effective than ours, our commercialopportunity will be reduced or eliminated.**

Even if we obtain thenecessary regulatory approvals to market EFAPROXYN, PDX or any other productcandidates, our commercial opportunity will be reduced or eliminated if ourcompetitors develop and market products that are more effective, have fewerside effects or are less expensive than our product candidates. Our potentialcompetitors include large fully integrated pharmaceutical companies and more establishedbiotechnology companies, both of which have significant resources and expertisein research and development, manufacturing, testing, obtaining regulatoryapprovals and marketing. Academic institutions, government agencies, and otherpublic and private research organizations conduct research, seek patentprotection and establish collaborative arrangements for research, development,manufacturing and marketing. It is possible that competitors will succeed indeveloping technologies that are more effective than those being developed byus or that would render our technology obsolete or noncompetitive.

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

The testing and marketingof pharmaceutical products entail an inherent risk of product liability.Product liability claims might be brought against us by consumers, health careproviders or by pharmaceutical companies or others selling our future products.If we cannot successfully defend ourselves against such claims, we may incursubstantial liabilities or be required to limit the commercialization of ourproduct candidates. We have obtained limited product liability insurance coveragefor our human clinical trials. However, product liability insurance coverage isbecoming increasingly expensive, and we may be unable to maintain productliability insurance coverage at a reasonable cost or in sufficient amounts toprotect us against losses due to product liability. A successful productliability claim in excess of our insurance coverage could have a materialadverse effect on our business, financial condition and results of operations.We may not be able to obtain commercially reasonable product liabilityinsurance for any products approved for marketing.

**We are currentlyinvolved in a securities class action litigation, which could harm our businessif management attention is diverted or the claims are decided against us.**

We have been named as adefendant in an alleged securities class action lawsuit seeking unspecifieddamages relating to the issuance of allegedly false and misleading statementsregarding EFAPROXYN during the period from May 29, 2003 to April 29,2004 and subsequent declines in our stock price. On October 20, 2005, theDistrict Court granted our motion to dismiss the lawsuit with prejudice andentered judgment in our favor. On November 20, 2005, the plaintiffappealed the decision to the United States Court of Appeals for the TenthCircuit. In October 2006, the parties held discussions to settle thematter, although the terms of any such potential settlement remain subject tonegotiation and no binding agreement has been reached. A settlement would besubject to various conditions, including approval of the District Court. Weexpect that any settlement in excess of our deductible would be covered by ourinsurance carrier. As with any litigation proceeding, we cannot predict withcertainty the eventual outcome of our settlement discussions or the legalproceedings. In the event a settlement is not concluded, we intend tovigorously defend against the plaintiff’s appeal. If the Court of Appealsreverses the District Court’s decision and we are not successful in our defenseof such claims, we could be forced to make significant payments to theplaintiffs, and such payments could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows to theextent such payments are not covered by our insurance carriers. Even if ourdefense against such claims is successful, the litigation could result insubstantial costs and divert management’s attention and resources, which couldadversely affect our business. As of March 31, 2007, we have recorded$2,000,000 in accrued litigation settlement costs, which represents our bestestimate of the potential gross amount of the settlement costs to be paid tothe plaintiffs, and $1,750,000 in prepaid expenses and other assets, whichrepresents the amount we expect to be reimbursed from our insurance carrier.The net difference of $250,000 between these amounts represents the remainingunpaid deductible under our insurance policy, and this amount was recorded tomarketing, general and administrative expenses during the year endedDecember 31, 2006.

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

We are a small companywith 64 full-time employees, and our success depends on our continued abilityto attract, retain and motivate highly qualified management and scientificpersonnel and on our ability to develop and maintain important relationshipswith leading academic institutions and scientists. Competition for personneland academic collaborations is intense. In particular, our product development programs depend on our ability toattract and retain highly skilled clinical 

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developmentpersonnel.  In addition, we will need tohire additional personnel and develop additional academic collaborations as wecontinue to expand our research and development activities. We do not know ifwe will be able to attract, retain or motivate personnel or maintain ourrelationships with academic institutions and scientists. If we fail tonegotiate additional acceptable collaborations with academic institutions andscientists, or if our existing academic collaborations were to be unsuccessful,our product development programs may be delayed.

**We cannotguarantee that we will be in compliance with all potentially applicableregulations.**

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

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

**If our internalcontrols over financial reporting are not considered effective, our businessand stock price could be adversely affected.**

Section 404 of theSarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of ourinternal controls over financial reporting as of the end of each fiscal year,and to include a management report assessing the effectiveness of our internalcontrols over financial reporting in our annual report on Form 10-Kfor that fiscal year. Section 404 also requires our independent registeredpublic accounting firm to attest to, and report on, management’s assessment ofour internal controls over financial reporting.

Our management, includingour chief executive officer and principal financial officer, does not expectthat our internal controls over financial reporting will prevent all error andall fraud. A control system, no matter how well designed and operated, canprovide only reasonable, not absolute, assurance that the control system’sobjectives will be met. Further, the design of a control system must reflectthe fact that there are resource constraints, and the benefits of controls mustbe considered relative to their costs. Because of the inherent limitations inall control systems, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud involving a company have been,or will be, detected. The design of any system of controls is based in part oncertain assumptions about the likelihood of future events, and we cannot assureyou that any design will succeed in achieving its stated goals under all potentialfuture conditions. Over time, controls may become ineffective because ofchanges in conditions or deterioration in the degree of compliance withpolicies or procedures. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected. We cannot assure you that we or our independent registered publicaccounting firm will not identify a material weakness in our internal controlsin the future. A material weakness in our internal controls over financialreporting would require management and our independent registered publicaccounting firm to consider our internal controls as ineffective. If ourinternal controls over financial reporting are not considered effective, we mayexperience a loss of public confidence, which could have an adverse effect onour business and on the market price of our common stock.

**If we do notprogress in our programs as anticipated, our stock price could decrease.**

For planning purposes, weestimate the timing of a variety of clinical, regulatory and other milestones,such as when a certain product candidate will enter clinical development, whena clinical trial will be initiated or completed, or when an application forregulatory approval will be filed. Some of our estimates are included in thisreport. Our estimates are based on information available to us as of the dateof this report and a variety of assumptions. Many of the underlying assumptionsare outside of our control. If milestones are not achieved when we estimatedthat they would be, investors could be disappointed, and our stock price maydecrease.

**Warburg PincusPrivate Equity VIII, L.P. (“Warburg”) and Baker Brothers Life Sciences, L.P. (“Baker”)each control a substantial percentage of the voting power of our outstandingcommon stock.**

On March 2, 2005, weentered into a Securities Purchase Agreement with Warburg Pincus Private EquityVIII, L.P. (“Warburg”) and certain other investors pursuant to which we issuedand sold an aggregate of 2,352,443 shares of our Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) at a price per share of $22.10,for aggregate gross proceeds of 

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approximately$52.0 million. On May 18, 2005, at our Annual Meeting ofStockholders, our stockholders voted to approve the issuance of shares of ourcommon stock upon exchange of shares of the Exchangeable Preferred. As a resultof such approval, we issued a total of 23,524,430 shares of common stock uponexchange of 2,352,443 shares of Exchangeable Preferred. In connection with itspurchase of the Exchangeable Preferred, Warburg entered into a standstillagreement agreeing not to pursue certain activities the purpose or effect ofwhich may be to change or influence the control of the Company.

On February 2, 2007,we closed an underwritten offering of 9,000,000 shares of common stock, ofwhich Baker Brothers Life Sciences, L.P. and certain other affiliated funds(collectively “Baker”) purchased 3,300,000 shares, at a price per share of$6.00, for aggregate gross proceeds of approximately $54.0 million. In connectionwith its purchase of shares in the February 2007 Financing, Baker enteredinto a standstill agreement agreeing not to pursue certain activities thepurpose or effect of which might be to change or influence the control of theCompany.

As of March 31,2007, we had approximately 65.9 million shares of common stockoutstanding, of which Warburg owned 22,624,430 shares, or approximately 34% ofthe voting power of our outstanding common stock, and Baker owned 9,929,493shares, or approximately 15% of the voting power of our outstanding commonstock. Although each of Warburg and Baker have entered into a standstillagreement with us, they are, and will continue to be, able to exercisesubstantial influence over any actions requiring stockholder approval.

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

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

·       authorizing the issuance of“blank check” preferred stock that could be issued by our board of directors toincrease the number of outstanding shares or change the balance of votingcontrol and thwart a takeover attempt;

·       prohibiting cumulative votingin the election of directors, which would otherwise allow for less than amajority of stockholders to elect director candidates;

·       prohibiting stockholderaction by written consent, thereby requiring all stockholder actions to betaken at a meeting of our stockholders;

·       eliminating the ability ofstockholders to call a special meeting of stockholders; and

·       establishing advance noticerequirements for nominations for election to the board of directors or forproposing matters that can be acted upon at stockholder meetings.

In addition, we aresubject to Section 203 of the Delaware General Corporation Law, whichgenerally prohibits a Delaware corporation from engaging in any of a broadrange of business combinations with an interested stockholder for a period ofthree years following the date on which the stockholder became an interestedstockholder. This provision could have the effect of delaying or preventing achange of control, whether or not it is desired by or beneficial to ourstockholders. Notwithstanding the foregoing, the three year moratorium imposedon business combinations by Section 203 will not apply to either Warburgor Baker because, prior to the dates on which they became interestedstockholders, our board of directors approved the transactions which resultedin Warburg and Baker becoming interested stockholders. However, in connectionwith its purchase of Exchangeable Preferred in March 2005, Warburg enteredinto a standstill agreement agreeing not to pursue certain activities the purposeor effect of which may be to change or influence the control of theCompany.  Similarly, in connection withthe February 2007 Financing, Baker entered into a standstill agreementagreeing not to pursue certain activities the purpose or effect of which may beto change or influence the control of the Company.

**We have adopted astockholder rights plan that may discourage, delay or prevent a merger oracquisition that is beneficial to our stockholders.**

In May 2003, ourboard of directors adopted a stockholder rights plan that may have the effectof discouraging, delaying or preventing a merger or acquisition of us that isbeneficial to our stockholders by diluting the ability of a potential acquirerto acquire us. Pursuant to the terms of our plan, when a person or group,except under certain circumstances, acquires 15% or more of our outstandingcommon stock or 10 business days after announcement of a tender or exchangeoffer for 15% or more of our outstanding common stock, the rights (except thoserights held by the person or group who has acquired or announced an offer toacquire 15% or more of our outstanding common stock) would generally becomeexercisable for shares of our 

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common stock at adiscount. Because the potential acquirer’s rights would not become exercisablefor our shares of common stock at a discount, the potential acquirer wouldsuffer substantial dilution and may lose its ability to acquire us. Inaddition, the existence of the plan itself may deter a potential acquirer fromacquiring or making an offer to acquire the Company.  As a result, either by operation of the planor by its potential deterrent effect, mergers and acquisitions of the Companythat our stockholders may consider in their best interests may not occur.

Because Warburg owns asubstantial percentage of our outstanding common stock, we amended thestockholder rights plan in connection with Warburg’s purchase of ExchangeablePreferred in March 2005 to provide that Warburg and its affiliates will beexempt from the stockholder rights plan, unless Warburg and its affiliatesbecome, without the prior consent of our board of directors, the beneficialowner of more than 44% of our common stock. Likewise, since Baker owns asubstantial percentage of our outstanding common stock, we amended thestockholder rights plan in connection with the February 2007 Financing toprovide that Baker and its affiliates will be exempt from the stockholderrights plan, unless Baker becomes, without the prior consent of our board ofdirectors, the beneficial owner of more than 20% of our common stock. Under thestockholder rights plan, our board of directors has express authority to amendthe rights plan without stockholder approval.

**The market pricefor our common stock has been and may continue to be highly volatile, and anactive trading market for our common stock may never exist.**

Wecannot be sure that an active trading market for our common stock will exist atany time. Holders of our common stock may not be able to sell shares quickly orat the market price if trading in our common stock is not active. The tradingprice of our common stock has been and is likely to be highly volatile andcould be subject to wide fluctuations in price in response to various factors,many of which are beyond our control, including:

·       actual or anticipatedresults of our clinical trials, including ENRICH and PROPEL;

·       actual or anticipatedregulatory approvals or non-approvals of our product candidates, includingEFAPROXYN and PDX, or of competing product candidates;

·       changes in laws orregulations applicable to our product candidates;

·       changes in the expected oractual timing of our development programs;

·       actual or anticipatedvariations in quarterly operating results;

·       announcements oftechnological innovations by us or our competitors;

·       changes in financialestimates or recommendations by securities analysts;

·       conditions or trends in thebiotechnology and pharmaceutical industries;

·       changes in the marketvaluations of similar companies;

·       announcements by us of significantacquisitions, strategic partnerships, joint ventures or capital commitments;

·       additions or departures ofkey personnel;

·       disputes or otherdevelopments relating to proprietary rights, including patents, litigationmatters and our ability to obtain patent protection for our technologies;

·       developments concerning anyof our research and development, manufacturing, and marketing collaborations;

·       sales of large blocks ofour common stock;

·       sales of our common stockby our executive officers, directors and five percent stockholders; and

·       economic and other externalfactors, including disasters or crises.

Public companies ingeneral and companies included on the Nasdaq Global Market in particular haveexperienced extreme price and volume fluctuations that have often beenunrelated or disproportionate to the operating performance of those companies.There has been particular volatility in the market prices of securities ofbiotechnology and other life sciences companies, and the market prices of thesecompanies have often fluctuated because of problems or successes in a givenmarket segment or because investor interest has shifted to other segments.These broad market and industry factors may cause the market price of ourcommon stock to decline, regardless of our operating performance. We have nocontrol over this volatility and can only focus our efforts on our ownoperations, and even these may be affected due to the state of the capitalmarkets. In the past, following large price declines in the public market priceof a company’s securities, securities class action litigation has often beeninitiated against that company, including in 2004 against us. Litigation ofthis type could result in substantial costs and diversion of management’sattention and resources, which would hurt our business. Any adversedetermination in litigation could also subject us to significant liabilities.

 

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**We are required to recognize stock-based compensationexpense relating to employee stock options, restricted stock, and stockpurchases under our Employee Stock Purchase Plan, and the amount of expense werecognize may not accurately reflect the value of our share-based paymentawards. Further, the recognition of stock-based compensation expense will causeour net losses to increase and may cause the trading price of our common stockto fluctuate.**

On January 1, 2006,we adopted SFAS 123R, which requires the measurement and recognition ofcompensation expense for all stock-based compensation based on estimated fairvalues. As a result, our operating results for the three months endedMarch 31, 2006 and 2007 include, and future periods will include, a chargefor stock-based compensation related to employee stock options, restrictedstock and discounted employee stock purchases. The application of SFAS 123R requires the use of an option-pricingmodel to determine the fair value of share-based payment awards.  This determination of fair value is affectedby our stock price as well as assumptions regarding a number of highly complexand subjective variables. These variables include, but are not limited to, ourexpected stock price volatility over the term of the awards, and actual andprojected employee stock option exercise behaviors. Option-pricing models weredeveloped for use in estimating the value of traded options that have novesting or hedging restrictions and are fully transferable. Because ouremployee stock options have certain characteristics that are significantlydifferent from traded options, and because changes in the subjectiveassumptions can materially affect the estimated value, in management’s opinionthe existing valuation models may not provide an accurate measure of the fairvalue of our employee stock options.

Our adoption ofSFAS 123R has had a material impact on our financial statements andresults of operations. We also expect that SFAS 123R will have a materialimpact on our future financial statements and results of operations. We cannotpredict the effect that our stock-based compensation expense will have on thetrading price of our common stock.

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

If our stockholders sellsubstantial amounts of our common stock, the market price of our common stockmay decline. These sales also might make it more difficult for us to sellequity or equity-related securities in the future at a time and price that weconsider appropriate. We are unable to predict the effect that sales may haveon the then prevailing market price of our common stock.  We have entered into a Registration RightsAgreement entered into between us with Warburg and the other purchasers of ourExchangeable Preferred, pursuant to which such investors are entitled tocertain registration rights with respect to the shares of common stock that weissued upon exchange of the Exchangeable Preferred.

In addition, we will needto raise substantial additional capital in the future to fund ouroperations.  If we raise additional fundsby issuing equity securities, the market price of our common stock may declineand our existing stockholders may experience significant dilution.
| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE  OF PROCEEDS** | **None**   |
|-------------|------------------------------------------------------------------|------------|
| ** **  | ** **                                                       | ** ** | ** ** |
| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES**                              | **None**   |
| ** **  | ** **                                                       | ** ** | ** ** |
| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS**         | **None**   |
| ** **  | ** **                                                       | ** ** | ** ** |
| **ITEM 5.** | **OTHER INFORMATION**                                            | **None**   |
|        |                                                             |       |   |
| **ITEM 6.** | **EXHIBITS**                                                     | ** ** |

 
| Exhibit No. | ** ** | **Note** | ** ** | **Description**                                                                                        |
|-------------|------------|----------|------------|--------------------------------------------------------------------------------------------------------|
| 10.43       |       | (1)      |       | Employment Agreement dated March 19, 2007 between  Allos Therapeutics, Inc. and Pablo J. Cagnoni, M.D. |
| 10.44       |       | (2)      |       | Corporate Bonus Plan.                                                                                  |
| 31.1        |       |     |       | Certification of principal executive officer  required by Rule 13a-14(a) / 15d-14(a)                   |
| 31.2        |       |     |       | Certification of principal financial officer  required by Rule 13a-14(a) / 15d-14(a)                   |
| 32.1        |       |     |       | Section 1350 Certification.                                                                       |

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(1)             Incorporatedby reference to the same numbered exhibit filed with our Current Report onForm 8-K filed on March 21, 2007.

(2)             Incorporatedby reference to the same numbered exhibit filed with our Current Report onForm 8-K filed on May 1, 2007.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
| Date: May 10, 2007 | **ALLOS THERAPEUTICS, INC.**                 |
|-------------------------|----------------------------------------------|
|                    | ** **                                   |
|                    | /s/ Paul L. Berns                            |
|                    | Paul L. Berns                                |
|                    | President and Chief Executive Officer        |
|                    | (Principal Executive Officer)                |
|                    |                                         |
|                    |                                         |
|                    | /s/ David C. Clark                           |
|                    | David C. Clark                               |
|                    | Vice President, Finance                      |
|                    | (Principal Financial and Accounting Officer) |

 

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