# **UNITED STATES**

# **SECURITIES AND EXCHANGE COMMISION**

**Washington,D.C. 20549**

 

# **FORM 10-Q**

 
| **ý** |   | **Quarterly report pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934.**                                                                                                                                                          |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                   |
|       |   | **For  the quarterly period ended March 31, 2003**                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                   |
| **o**      |   | **Transition report pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934.**                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                   |
|       |   | **For  the transition period from                   to                   .** |

 

**CommissionFile Number**

**000-29815**

 

**AllosTherapeutics, Inc.**

(Exact name ofRegistrant as specified in its charter)

 

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

 

##### **11080CirclePoint Road, Suite 200**

**Westminster, Colorado  80020**

**(303) 426-6262**

(Address,including zip code, and telephone number,

including areacode, of principal executive offices)

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes   ý             No   o

 

Check whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act.

 

Yes   ý             No   o

 

As of May 8, 2003 there were 25,884,554 shares of theRegistrant’s Common Stock outstanding, par value $0.001 per share.

 

This quarterlyreport on Form 10-Q consists of 19 pages.

 

 

----

 

**ALLOS THERAPEUTICS, INC.**

**FORM 10-Q**

 

**INDEX**

 
| PART I. Financial  Information |
|--------------------------------|
|                           |   |
| ITEM 1.                        | Financial Statements |
|                           |   |
|                           | Balance Sheets (unaudited) — as of  December 31, 2002 and March 31, 2003 |
|                           |   |
|                           | Statements  of Operations (unaudited) — for the three months ended March 31, 2002 and  2003 and the cumulative period from September 1, 1992 (date of inception)  through March 31, 2003 |
|                           |   |
|                           | Statements  of Cash Flows (unaudited) — for the three months ended March 31, 2002 and  2003 and the cumulative period from September 1, 1992 (date of inception)  through March 31, 2003 |
|                           |   |
|                           | Notes to Financial  Statements (unaudited) |
|                           |   |
| ITEM 2.                        | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|                           |   |
| ITEM 3.                        | Quantitative and Qualitative Disclosures About  Market Risk |
|                           |   |
| ITEM 4.                        | Controls and Procedures |
|                           |   |
| PART II. Other Information     |
|                           |   |
| ITEM 1.                        | Legal  Proceedings |
|                           |   |
| ITEM 2.                        | Changes in  Securities and Use of Proceeds |
|                           |   |
| ITEM 3.                        | Defaults Upon Senior  Securities |
|                           |   |
| ITEM  4.                       | Submission  of Matters to a Vote of Security Holders |
|                           |   |
| ITEM 5.                        | Other  Information |
|                           |   |
| ITEM 6.                        | Exhibits and Reports  on Form 8-K |
|                           |   |
| SIGNATURES and CERTIFICATIONS  |

 

2

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**PART I.  FINANCIALINFORMATION**

 

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

 

**ALLOS THERAPEUTICS, INC.**

**BALANCESHEETS**

**(unaudited)**

** **
|                                                                                                                                                                                                                   |   | **December 31,  2002** |       | **March 31,  2003** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|---------------------|------------|
|                                                                                                                                                                                                                   |   |                   | ** ** |                | ** ** |
| **ASSETS**                                                                                                                                                                                                             |   |                   | ** ** |                | ** ** |
|                                                                                                                                                                                                                   |   |                   |       |                |       |
| Current assets:                                                                                                                                                                                                        |   |                   |       |                |       |
| Cash and cash equivalents                                                                                                                                                                                              |   | $                      | 3,756,951  |                | $          | 9,613,058 |   |
| Restricted cash                                                                                                                                                                                                        |   | 550,000                |       | 550,000             |       |
| Short-term investments                                                                                                                                                                                                 |   | 50,676,010             |       | 38,905,125          |       |
| Prepaid research and development expenses                                                                                                                                                                              |   | 534,287                |       | 979,920             |       |
| Prepaids and other assets                                                                                                                                                                                              |   | 240,789                |       | 166,569             |       |
| Total current assets                                                                                                                                                                                                   |   | 55,758,037             |       | 50,214,672          |       |
| Long-term marketable securities                                                                                                                                                                                        |   | 5,816,529              |       | 3,901,114           |       |
| Property and equipment, net                                                                                                                                                                                            |   | 1,826,277              |       | 1,804,449           |       |
| Long-term investment                                                                                                                                                                                                   |   | 1,000,000              |       | 1,000,000           |       |
| Total assets                                                                                                                                                                                                           |   | $                      | 64,400,843 |                | $          | 56,920,235 |   |
|                                                                                                                                                                                                                   |   |                   | ** ** |                | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                         |   |                   | ** ** |                | ** ** |
|                                                                                                                                                                                                                   |   |                   | ** ** |                | ** ** |
| Current liabilities:                                                                                                                                                                                                   |   |                   |       |                |       |
| Accounts payable — related parties                                                                                                                                                                                |   | $                      | 111,656    |                | $          | 141,808 |   |
| Trade accounts payable and accrued expenses                                                                                                                                                                            |   | 408,879                |       | 417,875             |       |
| Accrued research and development expenses                                                                                                                                                                              |   | 5,117,400              |       | 5,794,429           |       |
| Accrued bonus and employee benefits                                                                                                                                                                                    |   | 1,440,725              |       | 694,395             |       |
| Total current liabilities                                                                                                                                                                                              |   | 7,078,660              |       | 7,048,507           |       |
|                                                                                                                                                                                                                   |   |                   |       |                |       |
| Commitments and contingencies                                                                                                                                                                                          |   |                   |       |                |       |
|                                                                                                                                                                                                                   |   |                   |       |                |       |
| Stockholders’ equity:                                                                                                                                                                                             |   |                   |       |                |       |
| Preferred  stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2002  and March 31, 2003; no shares issued or outstanding                                                                             |   | —                 |       | —              |       |
| Common  stock, $0.001 par value; 75,000,000 shares authorized at December 31, 2002  and March 31, 2003; 25,863,454 and 25,884,554 shares issued and outstanding  at December 31, 2002 and March 31, 2003, respectively |   | 25,863                 |       | 25,885              |       |
| Additional paid-in capital                                                                                                                                                                                             |   | 171,020,705            |       | 170,319,628         |       |
| Deferred compensation related to grant of options                                                                                                                                                                      |   | (1,101,466             | )          | (717,517            | )          |
| Accumulated deficit                                                                                                                                                                                                    |   | (112,622,919           | )          | (119,756,268        | )          |
|                                                                                                                                                                                                                   |   |                   |       |                |       |
| Total stockholders’ equity                                                                                                                                                                                        |   | 57,322,183             |       | 49,871,728          |       |
|                                                                                                                                                                                                                   |   |                   |       |                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                        |   | $                      | 64,400,843 |                | $          | 56,920,235 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

3

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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,** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|------------|-----------------------------------------------------------------------------------------------|--------|
|                                                                  |   | **2002**                            |       | **2003**                                                                                      |   | **2003** |   |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Operating  expenses:                                                  |   |                                |       |                                                                                          |   |   |   |
| Research  and development                                             |   | $                                   | 3,938,887  |                                                                                          | $      | 3,405,572 |   | $ | 63,607,589 |   |
| Clinical  manufacturing                                               |   | 445,164                             |       | 2,080,207                                                                                     |   | 17,364,841 |   |
| Marketing,  general and administrative                                |   | 2,688,019                           |       | 2,019,254                                                                                     |   | 42,685,928 |   |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Total  operating expenses                                             |   | 7,072,070                           |       | 7,505,033                                                                                     |   | 123,658,358 |   |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Loss  from operations                                                 |   | (7,072,070                          | )          | (7,505,033                                                                                    | )      | (123,658,358 | ) |
| Interest  and other income, net                                       |   | 611,942                             |       | 371,684                                                                                       |   | 13,515,065 |   |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Net  loss                                                             |   | (6,460,128                          | )          | (7,133,349                                                                                    | )      | (110,143,293 | ) |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Dividend  related to beneficial conversion feature of preferred stock |   | —                              |       | —                                                                                        |   | (9,612,975 | ) |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Net  loss attributable to common stockholders                         |   | $                                   | (6,460,128 | )                                                                                             | $      | (7,133,349 | ) | $ | (119,756,268 | ) |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Net  loss per common share:                                           |   |                                |       |                                                                                          |   |   |   |
| Basic  and diluted                                                    |   | $                                   | (0.28      | )                                                                                             | $      | (0.28 | ) |   |   |
|                                                                  |   |                                |       |                                                                                          |   |   |   |
| Weighted  average common shares:                                      |   |                                |       |                                                                                          |   |   |   |
| Basic  and diluted                                                    |   | 23,129,771                          |       | 25,880,216                                                                                    |   |   |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

4

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**ALLOS THERAPEUTICS, INC.**

**STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                                        |   | **Three  Months Ended   March 31,** |       | **Cumulative  Period   From September 1,   1992 (date of   inception) through   March 31,** |   |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|---------------------------------------------------------------------------------------------|--------|
|                                                                                        |   | **2002**                            |       | **2003**                                                                                    |   | **2003** |   |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| **Cash  Flows From Operating Activities:**                                                  |   |                                |       |                                                                                        |   |   |   |
| Net  loss                                                                                   |   | $                                   | (6,460,128 | )                                                                                           | $      | (7,133,349 | ) | $ | (110,143,293 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities:                |   |                                |       |                                                                                        |   |   |   |
| Depreciation  and amortization                                                              |   | 104,704                             |       | 149,447                                                                                     |   | 1,390,614 |   |
| Stock-based  compensation                                                                   |   | 629,965                             |       | 365,379                                                                                     |   | 21,212,821 |   |
| Other                                                                                       |   | —                              |       | —                                                                                      |   | 104,655 |   |
| Changes  in operating assets and liabilities:                                               |   |                                |       |                                                                                        |   |   |   |
| Prepaids  and other assets                                                                  |   | (40,980                             | )          | (371,413                                                                                    | )      | (1,146,490 | ) |
| Interest  receivable on investments                                                         |   | 52,165                              |       | 125,582                                                                                     |   | (673,582 | ) |
| Accounts  payable – related parties                                                    |   | 674,188                             |       | 30,152                                                                                      |   | 3,500,073 |   |
| Trade  accounts payable and accrued expenses                                                |   | (3,690                              | )          | 8,996                                                                                       |   | 417,875 |   |
| Accrued  research and development expenses                                                  |   | 24,508                              |       | 677,029                                                                                     |   | 2,436,165 |   |
| Accrued  bonus and employee benefits                                                        |   | (425,257                            | )          | (746,330                                                                                    | )      | 694,395 |   |
| Net  cash used in operating activities                                                      |   | (5,444,525                          | )          | (7,625,265                                                                                  | )      | (82,206,767 | ) |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| **Cash Flows From Investing Activities:**                                                   |   |                                |       |                                                                                        |   |   |   |
| Acquisition  of property and equipment                                                      |   | (139,971                            | )          | (127,619                                                                                    | )      | (2,936,591 | ) |
| Purchases  of marketable securities                                                         |   | (8,571,592                          | )          | (284,282                                                                                    | )      | (238,239,149 | ) |
| Proceeds  from sales of marketable securities                                               |   | 14,357,500                          |       | 13,845,000                                                                                  |   | 196,106,492 |   |
| Purchase  of long-term investment                                                           |   | (1,000,000                          | )          | —                                                                                      |   | (1,000,000 | ) |
| Payments  received on notes receivable                                                      |   | —                              |       | —                                                                                      |   | 49,687 |   |
| Net  cash provided by (used in) investing activities                                        |   | 4,645,937                           |       | 13,433,099                                                                                  |   | (46,019,561 | ) |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| **Cash Flows From Financing Activities:**                                                   |   |                                |       |                                                                                        |   |   |   |
| Principal  payments under capital leases                                                    |   | —                              |       | —                                                                                      |   | (422,088 | ) |
| Proceeds  from sale leaseback                                                               |   | —                              |       | —                                                                                      |   | 120,492 |   |
| Pledging  restricted cash                                                                   |   | —                              |       | —                                                                                      |   | (550,000 | ) |
| Proceeds  from issuance of convertible preferred stock, net of issuance costs               |   | —                              |       | —                                                                                      |   | 40,285,809 |   |
| Proceeds  from issuance of common stock, associated with stock options and purchase  rights |   | 9,518                               |       | 48,273                                                                                      |   | 704,004 |   |
| Proceeds  from issuance of common stock, net of issuance costs                              |   | —                              |       | —                                                                                      |   | 97,701,169 |   |
| Net  cash provided by financing activities                                                  |   | 9,518                               |       | 48,273                                                                                      |   | 137,839,386 |   |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                                       |   | (789,070                            | )          | 5,856,107                                                                                   |   | 9,613,058 |   |
| Cash  and cash equivalents, beginning of period                                             |   | 2,745,151                           |       | 3,756,951                                                                                   |   | — |   |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| Cash  and cash equivalents, end of period                                                   |   | $                                   | 1,956,081  |                                                                                        | $      | 9,613,058 |   | $ | 9,613,058 |   |
|                                                                                        |   |                                |       |                                                                                        |   |   |   |
| **Supplemental  Schedule of Noncash Operating****and Financing Activities:**                |   |                                |       |                                                                                        |   |   |   |
| Cash  paid for interest                                                                     |   | 71,593                              |       | —                                                                                      |   | 1,033,375 |   |
| Issuance  of stock in exchange for license agreement                                        |   | —                              |       | —                                                                                      |   | 40,000 |   |
| Capital  lease obligations incurred for acquisition of property and equipment               |   | —                              |       | —                                                                                      |   | 422,088 |   |
| Issuance  of stock in exchange for notes receivable                                         |   | —                              |       | —                                                                                      |   | 139,687 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

5

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**ALLOS THERAPEUTICS, INC.**

**NOTES TO FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

The unaudited financial statements of AllosTherapeutics, Inc. (referred to herein as the “Company,” “we,” “us” or “our”),included herein reflect all adjustments, consisting only of normal recurringadjustments, which in the opinion of management are necessary to fairly presentthe financial position, results of operations and cash flows of the Company forthe periods presented.  Certaininformation and footnote disclosures normally included in audited financialinformation prepared in accordance with accounting principles generallyaccepted in the United States of America have been condensed or omittedpursuant to the Securities and Exchange Commission’s rules and regulations.  The results of operations for the periodended March 31, 2003 are not necessarily indicative of the results to beexpected for any subsequent quarter or for the entire fiscal year endingDecember 31, 2003.  These financialstatements should be read in conjunction with the financial statements andnotes thereto which are included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2002 for a broader discussion of our businessand the opportunities and risks inherent in such business.

 

**2.****             Accrued Research andDevelopment Expenses**

 

The Company records accruals for contractedthird-party development activity, including estimated clinical study costs,which will be invoiced to us in a subsequent accounting period. Clinical studycosts represent costs incurred by clinical research organizations and clinicalsites. These costs are recorded as a component of research and developmentexpenses. Management accrues costs for these clinical studies based on theprogress of the clinical trials, including patient enrollment, dosing levels ofpatients enrolled, estimated costs to dose patients, invoices received andcontracted costs when evaluating the adequacy of the accrued liabilities.Significant judgments and estimates are made and used in determining theaccrued balance in any accounting period. Actual results could differ fromthose estimates.

 

**3.****             Stock-BasedCompensation**

 

We have recorded stock-based compensation expenseresulting primarily from certain options granted prior to our initial publicoffering with exercise prices below the fair market value of our common stockon their respective grant dates.

 

In December 2002, the FASBissued Statement No. 148, *Accounting forStock-Based Compensation — Transition and Disclosure*. SFAS 148 amendsSFAS 123 to provide alternative methods of transition for a voluntary change tothe fair value based method of accounting for stock-based employeecompensation. In addition, SFAS 148 amends the disclosure requirements of SFAS123 to require more prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results. The additionaldisclosure requirements of SFAS 148 are effective for fiscal years ending afterDecember 15, 2002. We have elected to continue to follow the intrinsic valuemethod of accounting as prescribed by Accounting Principles Board Opinion No.25 (or APB 25), *Accounting for Stock Issuedto Employees*, to account for employee stock options.

 

6

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The following table illustrates the effect on net loss and loss pershare if we had applied the fair value recognition provisions of SFAS 123 tostock-based compensation for the three month periods ended March 31, 2002 and2003.  Such pro forma disclosures maynot be representative of the pro forma effect in future periods because optionsvest over several years and additional grants may be made each year.

 
|                                                                                       |   | **2002** |       | **2003** |   |
|--------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
|                                                                                       |   |     |       |     |   |
| Net  loss - as reported                                                                    |   | $        | (6,460,128 | )        | $      | (7,133,349 | ) |
| Add:  Stock-based compensation expense included in reported net loss                       |   | 629,965  |       | 396,816  |   |
|                                                                                       |   |     |       |     |   |
| Deduct:  Recovery of stock-based compensation expense                                      |   | —   |       | (762,195 | )      |
|                                                                                       |   |     |       |     |   |
| Deduct:  Stock-based compensation expense as determined under the fair value based  method |   | (859,518 | )          | (697,638 | )      |
| Pro  forma net loss                                                                        |   | $        | (6,689,681 | )        | $      | (8,196,366 | ) |
|                                                                                       |   |     |       |     |   |
| Loss  per share:                                                                           |   |     |       |     |   |
| Basic  and diluted - as reported                                                           |   | $        | (0.28      | )        | $      | (0.28 | ) |
| Basic  and diluted - pro forma                                                             |   | $        | (0.29      | )        | $      | (0.32 | ) |

 

Effective February 28, 2003 (“new measurement date”),the employment status of the Company’s Chairman changed from employee toconsultant.  As a result of the changein status, unvested options held by the Chairman on the new measurement dateare prospectively accounted for under variable accounting as prescribed by SFAS123.  Effective on the new measurementdate, the Company reversed approximately $762,000 in stock-based compensationexpense recorded in prior periods related to such unvested options.  For the three months ended March 31, 2003,the Company recorded approximately $209,000 in stock-based compensation expenserelated to variable accounting treatment for the stock options previouslygranted to the Chairman while he was an employee of the Company.

 

**4.****             NetLoss Per Common Share**

 

Basic net loss per common share is computed using theweighted average number of common shares outstanding during the period.  Diluted net loss per common share iscomputed using the weighted average number of common and potential commonshares outstanding during the period. Potential common shares consist of stock options and warrants and havebeen excluded from the computation of diluted net loss per common share becausetheir effect was anti-dilutive.

 

**5.****             Contingencies**

 

In 2002, theCompany signed two purchase orders to purchase approximately $8.0 millionof commercial grade bulk drug material to be delivered in 2004.  In April 2003, the Company elected to cancelthese purchase orders and as a result the Company expects to incur atermination fee which may total up to $3.0 million.

 

**6.****             Subsequent Event**

 

In April 2003, the Company announced that the resultsof its Phase 3 trial for the treatment of patients receiving whole brainradiation therapy (WBRT) for brain metastases did not meet its primary endpointof survival and the results were not statistically significant.  The Company plans to discuss the results ofthe Phase 3 clinical trial with the U.S. Food and Drug Administration (FDA)during the second quarter 2003.

 

After meeting with the FDA, we will decide how toproceed, if at all, with the filing of a new drug application (NDA) with theFDA seeking marketing approval for RSR13 and determine our future developmentplans for RSR13 and our other product candidates.  There can be no assurance that meeting

 

7

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with the FDA will provide the information necessary for us to determinewhether or not we are able to  continueto develop RSR13 or any of our other product candidates in an economicallyviable manner.  If we decide to file anNDA with the FDA, there can be no assurance that the FDA will accept our NDAfor review, or if the FDA accepts our NDA for review, there can be no assurancethey will approve RSR13 for marketing. Any delay in our original timeline for the approval of RSR13 will have amaterial, adverse effect on our business and future prospects.  In any event, we are currently evaluatingour corporate structure and clinical development priorities, including theeconomic viability of performing an additional Phase 3 trial using RSR13 forpatients with metastatic breast cancer, in light of our current cash positionand the restrictive financing environment. We expect to complete our evaluation following our meeting with the FDAand implement a revised business plan soon thereafter.

 

In May 2003, the Company designated 1,000,000 sharesof its authorized preferred stock as Series A Junior Participating PreferredStock, par value $0.001 per share, pursuant to a Stockholder Rights Planapproved by the Board of Directors under which all stockholders of record as ofMay 28, 2003 will receive rights to purchase such shares. The StockholderRights Plan is intended to protect stockholders' rights in the event of anunsolicited takeover attempt; it is not intended to prevent a takeover of theCompany on terms that are favorable and fair to all stockholders and will notinterfere with a merger approved by the Board of Directors.

 

8

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**ITEM 2.****  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations, as well as information containedelsewhere in this report, contains statements that constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended.  You can identify these statements byforward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,”“believe,” “estimate,” “plan,” “could,” “should” and “continue” or similarwords.  Actual results could differmaterially from those anticipated in these forward-looking statements.  Factors that could cause or contribute tosuch differences include, but are not limited to, those mentioned in thediscussion below and those described in the “Risk Factors” discussion of ourAnnual Report on Form 10-K for the year ended December 21, 2002 filed with theSecurities and Exchange Commission. As a result, you should not place unduereliance on these forward-looking statements. We do not intend to update or revise these forward-looking statements toreflect future events or developments.*

 

**RecentDevelopments**

 

In April 2003, weannounced that the results of our pivotal Phase 3 trial for the treatment ofpatients who are receiving whole brain radiation therapy (WBRT) for brainmetastases did not meet its primary endpoint of survival and the results werenot statistically significant.  In this538-patient trial, patients receiving RSR13 plus WBRT experienced a 17.6percent improvement in median survival compared to patients receiving WBRTalone.  However, we observed that mediansurvival was doubled among eligible patients with metastatic breast cancer whoreceived RSR13 plus WBRT versus those who received only WBRT.  While this subset was not prospectivelydefined as an intent-to-treat subgroup, breast cancer was a pre-specifiedstratification factor and the results were statistically significant.  We are encouraged by the results of thissubgroup analysis and we are continuing to analyze the data from the Phase 3trial.  We plan to discuss the resultsof the trial with the U.S. Food and Drug Administration (FDA) during the secondquarter 2003.

 

After meeting with theFDA, we will decide how to proceed, if at all, with the filing of a new drugapplication (NDA) with the FDA seeking marketing approval for RSR13 anddetermine our future development plans for RSR13 and our other productcandidates.  There can be no assurancethat meeting with the FDA will provide the information necessary for us todetermine whether or not we are able to continue to develop RSR13 or any of ourother product candidates in an economically viable manner.  If we decide to file an NDA with the FDA,there can be no assurance that the FDA will accept our NDA for review, or ifthe FDA accepts our NDA for review, there can be no assurance they will approveRSR13 for marketing.  Any delay in ouroriginal timeline for the approval of RSR13 will have a material, adverseeffect on our business and future prospects. In any event, we are currently evaluating our corporate structure andclinical development priorities, including the economic viability of performingan additional Phase 3 trial using RSR13 for patients with metastatic breastcancer, in light of our current cash position and the restrictive financingenvironment.  We expect to complete ourevaluation following our meeting with the FDA and implement a revised businessplan soon thereafter.

 

**Overview**

 

We have incurredsignificant operating losses since our inception in 1992 and, as of March 31,2003, had an accumulated deficit of $119.8 million. We have devotedsubstantially all of our resources to date to the clinical development ofRSR13.  We believe that our existing cash, cash equivalents and investments willbe adequate to satisfy our capital needs for the next twelve months.  However, our ability to continue developingRSR13 and our other drug candidates will require substantial additional capitalbeyond 2003.  We intend to seekadditional capital through arrangements with corporate partners, equity or debtfinancings.  The results of our Phase 3clinical trial and the resulting impact on our stock price as well as therestrictive financing environment will make it difficult to obtain additionalcapital resources.  As a result, we arecurrently evaluating our business plan. Until we complete the evaluation of our business plan, it is uncertainwhat the impact will be on the  level ofactivity and cash expenditures associated with research and development,clinical manufacturing, and marketing, general and administrative activitiesthrough the

 

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remainder of 2003.  We alsointend to evaluate our strategic alternatives related to product developmentplans and corporate development opportunities.

 

We have not derived anycommercial revenues from product sales, and it is uncertain when, if at all, wewill receive product revenues.  Therecan be no assurance if or when we will become profitable.  We expect to continue to incur significantoperating losses over the next several years as we continue to incur researchand clinical development costs, in addition to costs related to manufacturingand administrative activities.  Weexpect that losses will fluctuate from quarter to quarter and that suchfluctuations may be substantial.  Ourability to achieve profitability depends upon our ability, alone or withothers, to successfully complete the development of our product candidates, andobtain required regulatory clearances and successfully manufacture and marketour future products.

 

**CriticalAccounting Policies**

 

Our discussion andanalysis of our financial condition and results of operations are based uponour financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets, liabilities, and expenses.  The critical accounting policies arediscussed in Item 7 Management’s Discussion and Analysis of Financial Conditionand Results of Operations of our consolidated financial statements theretoincluded in Allos Therapeutics’ Annual Report on Form 10-K for the fiscal yearended December 31, 2002.  These criticalaccounting policies are subject to judgments and uncertainties, which affectthe application of these policies.  Webase our estimates on historical experience, available information andassumptions that we believe to be reasonable under the circumstances.  We apply estimation methodologiesconsistently from period to period.  Theactual results may differ from these estimates under different assumptions orconditions.  We have not made anychanges in any of these critical accounting policies during the three monthsended March 31, 2003.

 

**Results of Operations**

 

*Researchand Development.* Research and development expenses include the costs of clinical trials,clinical development, data analysis, non-clinical studies, basic research andlicensing fees. Research and development expenses were $3.4 million for thethree months ended March 31, 2003 compared to $3.9 million for the three monthsended March 31, 2002.  Excluding theimpact of non-cash charges (see “Non-cash Charges” below for discussion ofdeferred stock compensation expense and stock compensation expense allocated toresearch and development), research and development expenses decreased$436,000.  This decrease was primarilydue to lower clinical trial costs resulting from completing the enrollment forour Phase 3 trial of RSR13 for brain metastases in the prior year offset byincreases in headcount, consulting costs and non-clinical studies necessary tosupport our clinical development program for our product candidates.  Due to the results of our Phase 3 trial forRSR13 and pending our meeting with the FDA, we are currently evaluating ourbusiness plan and research and development cost structure. However, until we complete the evaluation of our businessplan, it is uncertain what the impact will be on our research and developmentexpenses.

 

*ClinicalManufacturing.* Clinical manufacturing expenses include third-party manufacturing costsfor RSR13 for use in clinical trials, costs associated with pre-commercialscale-up of manufacturing to support anticipated commercial requirements, anddevelopment activities for clinical trial material for PDX and BGP-15.  Clinical manufacturing expenses were $2.1million for the three months ended March 31, 2003 compared to $445,000 for thethree months ended March 31, 2002.  The$1.6 million increase resulted from increased third-party manufacturing,internal personnel and consulting costs to support our anticipated NDA filingand potential commercialization requirements as well as increased developmentwork to produce clinical trial drug material for PDX and BGP-15.  Due to the results of our Phase 3 trial forRSR13 and pending our meeting with the FDA, we are currently evaluating ourbusiness plan and clinical manufacturing requirements.  However, untilwe complete the evaluation of our business plan, it is uncertain what theimpact will be on our clinical manufacturing expenses.  Although we have not made a decisionregarding our development plans for RSR13 and the resulting need for commercialbulk drug, we were required to notify a manufacturer in April 2003 that we werecanceling our outstanding purchase orders to

 

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avoid additional potential termination fees.  We intend to continue negotiating with the manufacturer but weexpect to incur a termination fee which may total up to $3.0 million forcanceling these purchase orders.

 

*Marketing,General and Administrative.* Marketing, general and administrative expenses include the costs forpre-marketing activities, executive administration, corporate offices and relatedinfrastructure and corporate development. Marketing, general and administrative expenses were $2.0 million for thethree months ended March 31, 2003 compared to $2.7 million for the three monthsended March 31, 2002.  Excluding theimpact of non-cash charges (see “Non-cash Charges” below for discussion ofdeferred stock compensation expense and stock compensation expense allocated togeneral and administrative), marketing, general and administrative expensesincreased $220,000.  The increase wasprimarily due to pre-marketing activities. Due to the results of our Phase 3 trial for RSR13 and pending ourmeeting with the FDA, we are currently evaluating our business plan andmarketing, general and administrative cost structure.  However, until we complete theevaluation of our business plan, it is uncertain what the impact will be onmarketing, general and administrative expenses.

 

*Non-cashCharges.*  We recordedstock-based compensation expense resulting primarily from certain optionsgranted prior to our initial public offering with exercise prices below thefair market value of our common stock on their respective grant dates.  For the three months ended March 31, 2003,we recorded negative $619,000 in marketing, general and administrative, $32,000in research and development and $13,000 in clinical manufacturing.  The negative balance recorded in marketing,general and administrative is due to the change in employment status of ourChairman from an employee to a consultant, resulting in the recovery of expensestotaling $762,000 related to stock-based compensation expense on unvested stockoptions recorded in prior periods.  Forthe three months ended March 31, 2002, we recorded $305,000 in marketing,general and administrative, $132,000 in research and development and $22,000 inclinical manufacturing.  As of March 31,2003, we had $700,000 of deferred stock-based compensation remaining to beexpensed in future periods.

 

For the three monthsended March 31, 2003, we recorded non-cash stock compensation expense inmarketing, general and administrative of $209,000 related to variableaccounting treatment for stock options previously granted to our Chairman whilehe was an employee of the Company.  Hisunvested stock options will continue to vest over the period of his consultingagreement.  For the three months endedMarch 31, 2002, we recorded stock-based compensation expense related tomarketing, general and administrative of $174,000, and a $3,000 recovery ofexpense related to research and development due to variable accounting forvesting of non-employee stock options.

 

*Interestand Other Income, Net.* Interest income, net of interest expense, was $372,000 and $612,000 forthe three months ended March 31, 2003 and 2002, respectively.  This $240,000 decrease was primarily due tolower average investment balances and yields on U.S. government securities,high-grade commercial paper and notes, and money market funds held by us.

 

**Liquidity and Capital Resources**

 

Since inception, we havefinanced our operations primarily through private placements of common andpreferred stock and a public equity financing, which have resulted in netproceeds to us of $137.8 million through March 31, 2003. We have used$82.2 million of cash for operating activities.  As of March 31, 2003, we had approximately $9.6 million in cashand cash equivalents and $43.4 million in investments.  Net cash used in operating activities of$7.6 million and $5.4 million during the three months ended March 31, 2003 and2002, respectively, resulted primarily from the net loss for the period and areduction in working capital.

 

Net cash provided byinvesting activities of $13.4 million for the three months ended March 31, 2003consisted primarily of proceeds from maturities of investments, net of purchasesand capital expenditures.  Net cashprovided by investing activities of $4.6 million for the three months endedMarch 31, 2002 consisted primarily of proceeds from maturities of investments,net of purchases, offset by an investment in equity of another company andcapital expenditures.

 

Net cash provided byfinancing activities of $48,000 and $10,000 for the three months ended March31, 2003 and 2002, respectively, resulted from the exercise of common stockoptions.

 

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We have no other materialexternal sources of liquidity. Because we have not derived any commercialrevenues from product sales and a significant amount of our capital resourcesare held in the form of short-term financial instruments, decreasing yields oninstruments such as United States government securities, high-grade commercialpaper and corporate notes and money market funds would reduce net cash providedby investing activities, which is our primary source of liquidity in the absenceof additional capital raised through additional equity or debt financing.

 

Below is a schedule ofour timing of contractual commitments related to leases and service contracts.

 
|                                |   | **2003**  |      | **2004**  |   | **2005**  |   | **2006** |    | **2007** |   | **Thereafter** |   | **Total** |      |
|-------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|----------|---------|----------|--------|----------------|--------|-----------|-----------|
| Operating  leases                   |   | $         | 433,484   |      | $      | 767,427   |   | $        | 721,309 |     | $      | 717,910        |   | $         | 758,646   |   | $ | 632,205 |   | $ | 4,030,981 |   |
| Other  obligations                  |   | 3,359,265 |      | 1,027,929 |   | —    |   | 500,000  |    | 500,000  |   | 1,000,000      |   | 6,387,194 |      |
|                                |   |      |      |      |   |      |   |     |    |     |   |           |   |      |      |
| Total  contractual cash obligations |   | $         | 3,792,749 |      | $      | 1,795,356 |   | $        | 721,309 |     | $      | 1,217,910      |   | $         | 1,258,646 |   | $ | 1,632,205 |   | $ | 10,418,175 |   |

 

Other obligationsincludes the potential termination fee resulting from the cancellation of ouroutstanding purchase orders for commercial grade bulk drug material,termination fees for contracts with clinical research organizations and futuremilestone payments under our in-licensing commitments which could be paidearlier depending on the timing of achieving the respective milestone.

 

Based on our existingcash, cash equivalents and investments, we believe we have adequate resourcesto satisfy our capital needs for the next twelve months.  However, our capital resources are notsufficient to fund our development programs as currently planned or which maybe required to fund additional Phase 3 studies due to the results of our Phase3 trial for RSR13 for brain metastases. We will require significant levels of additional capital beyond 2003from outside sources to continue research and development activities, fundoperating expenses, pursue regulatory approvals and build commercial sales andmarketing capabilities, as necessary. Our actual capital requirements will depend on many factors, includingproduct development plans; the time and cost involved in conducting clinicaltrials and seeking regulatory approvals; filing, prosecuting and enforcingpatent claims; competing technological and market developments; and our abilityto market and distribute our future products and establish new collaborativeand licensing arrangements.

 

Our forecast of the period of time through which ourfinancial resources will be adequate to support our operations is aforward-looking statement that involves risks and uncertainties, and actualresults could vary materially.  Thefactors described above will impact our future capital requirements and theadequacy of our available funds.  Weintend to raise additional capital in the future through arrangements withcorporate partners, equity or debt financings. Such arrangements may be dilutive to existing stockholders.  In addition, if additional funds areobtained through arrangements with collaborative partners or other sources,such arrangements may require us to relinquish rights to some of ourtechnologies, product candidates or products under development that we wouldotherwise seek to develop or commercialize ourselves.  There is no assurance that we will be successful in consummatingany such arrangements.  In the event weare not able to raise sufficient additional funds, we may be required to delay,scale back, or eliminate one or more of our product development programs.

 

**Risk Factors**

 

In addition to the otherinformation contained in this report, we caution stockholders and potentialinvestors that the following important risk factors, among others, in somecases have affected, and in the future could affect, our actual results ofoperations and could cause our actual results to differ materially from thoseexpressed in any forward-looking statements made by or on behalf of us.  The following information is not intended tolimit in any way the characterization of other statements or information underother captions as cautionary statements for such purpose.  These factors include:

 

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

 

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

 

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efficacy.

 

•                  Failure to conduct clinical trials in compliancewith applicable regulations and at an acceptable cost.

 

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

 

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

 

•                  Dependence upon third parties to manufacture ourproduct candidates and formulated drug product; failure of third parties tomanufacture our product candidates or formulated drug product in compliancewith regulatory requirements and at an acceptable cost; failure of thirdparties to supply sufficient quantities of our product candidates substance orformulated drug product for preclinical, clinical or commercial purposes;failure to establish alternative sources of supply of our product candidates orformulated drug product.

 

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

 

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

 

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

 

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

 

**ITEM 3.** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

#### **Market Risk**

 

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

 

# **Investment Risk**

 

As of March 31, 2003, we held equity securities ofanother company in the amount of $1,000,000. This investment is recorded at cost. We regularly review the carrying value to identify and record losseswhen events and circumstances indicate that a decline in the fair value of theasset below our accounting basis is other-than-temporary.  We do not believe that any impairment hasoccurred at this time.

 

**ITEM 4.** CONTROLS AND PROCEDURES

 

Within the 90-day periodprior to the filing of this report, an evaluation was carried out under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness ofour disclosure controls and procedures, as defined in Rule 13a-14(c) of theSecurities Exchange Act of 1934, as amended (“Exchange Act”).  Based on that evaluation, the CEO and CFOhave concluded that our disclosure controls and procedures are effective toensure that information required to be disclosed by us in reports that we fileor submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms, and that such information is accumulated and

 

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communicated to our management, including our CEO and CFO, asappropriate, to allow timely decisions regarding required disclosure.  Subsequent to the date of their evaluation,there were no significant changes in our internal controls or in other factors thatcould significantly affect the disclosure controls, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

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**PART II.  OTHER INFORMATION**

 
| Item  1. |   | Legal Proceedings                                    |   | None   |
|----------|--------|------------------------------------------------------|--------|--------|
|     |   |                                                 |   |   |
| Item 2.  |   | Changes in Securities  and Use of Proceeds           |   | None   |
|     |   |                                                 |   |   |
| Item 3.  |   | Defaults Upon Senior Securities                      |   | None   |
|     |   |                                                 |   |   |
| Item 4.  |   | Submission of Matters  to a Vote of Security Holders |   | None   |
|     |   |                                                 |   |   |
| Item 5.  |   | Other Information                                    |   | None   |
|     |   |                                                 |   |   |
| Item 6.  |   | Exhibits and Reports on Form 8-K                     |   | None   |

 

(a) Exhibits

 
| 99.1 |   | Chief Executive Officer  and Chief Financial Officer Certificate pursuant to Section 906 of the  Public Company Accounting Reform and Investor Protection Act of 2002. |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

(b) Reports on Form 8-K.

 

On April 30, 2003, the Company filed a report on Form 8-K reporting under Item 5 that it had received preliminary results of a Phase 3 trial that evaluated the radiation sensitizer agent RSR13 (efaproxiral) in patients with brain metastases.

 

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**SIGNATURES**

 

Pursuant to therequirements of the Exchange Act, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
| Date:  May 9, 2003 |   | **ALLOS THERAPEUTICS, INC.**                |
|-------------------------|--------|---------------------------------------------|
|                    |   |                                        |
|                    |   |                                        |
|                    |   | /s/ Daniel R. Hudspeth                      |   |
|                    |   | Daniel R. Hudspeth                          |
|                    |   | Vice President and  Chief Financial Officer |

 

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**CERTIFICATIONS**

 

I, Michael E. Hart,certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of Allos Therapeutics, Inc.;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to theperiod covered by this quarterly report;

 

3.  Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.  The registrant’s other certifying officerand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)  designed such disclosure controls andprocedures to ensure that material information relating to the registrant, includingits consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report isbeing prepared;

 

b)  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officerand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors or (orpersons performing the equivalent function):

 

a)  all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s other certifying officer andI have indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date:  May 9, 2003 |   |                                   |   |
|-------------------------|--------|----------------------------------------|--------|
|                    |   |                                   |   |
|                    |   | /s/ Michael E. Hart                    |   |
|                    |   | Michael E. Hart                        |   |
|                    |   | President and Chief  Executive Officer |   |
|                    |   | (Principal Executive  Officer)         |   |

 

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**CERTIFICATIONS**

 

I, Daniel R. Hudspeth,certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of Allos Therapeutics, Inc.;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.  The registrant’s other certifying officerand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)  designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officerand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors or (orpersons performing the equivalent function):

 

a)  all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s other certifying officerand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  May 9, 2003 |   |                                        |
|-------------------------|--------|---------------------------------------------|
|                    |   |                                        |
|                    |   | /s/ Daniel R. Hudspeth                      |   |
|                    |   | Daniel R. Hudspeth                          |
|                    |   | Vice President and  Chief Financial Officer |
|                    |   | (Principal Financial  Officer)              |

 

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