**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | ** ** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934.**                                                                                                                                                                                            |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | **For  the quarterly period ended September 30, 2005.**                                                                                                                                                                                                                                        |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                          |
| **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  incoporation 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 markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(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        ý                           No          o

 

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

 

Yes        ý                           No          o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes        o                           No         ý

 

As of November 4,2005, there were 55,033,303 shares of the registrant’s Common Stock, par value$0.001 per share, outstanding.

 

This quarterlyreport on Form 10-Q consists of 20 pages.

 

 

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**ALLOSTHERAPEUTICS, INC.**

 

**FORM 10-Q**

 

**TABLEOF CONTENTS**

 
| PART I. Financial Information |                                                                                                                                                                                                                           |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ITEM 1.                            | Financial Statements (unaudited)                                                                                                                                                                                               |   |
|                               | Balance Sheets — as of December 31, 2004  and September 30, 2005                                                                                                                                                |   |
|                               | Statements of Operations — for the  three— and nine-month periods ended September 30, 2004 and 2005 and the  cumulative period from September 1, 1992 (date of inception) through September 30,  2005 |   |
|                               | Statements of Cash Flows — for the  nine-month periods ended September 30, 2004 and 2005 and the cumulative  period from September 1, 1992 (date of inception) through September 30,  2005                 |   |
|                               | 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 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:

 

*Unlessthe context requires otherwise, references in this report to “Allos,” the “Company,”“we,” “us,” and “our” refer to Allos Therapeutics, Inc.*

 

*“Allos”,the Allos logo, EFAPROXYNTM (efaproxiral), and all other Allos names aretrademarks of Allos Therapeutics, Inc. in the United States and in otherselected countries. All other brand names or trademarks appearing in thisreport are the property of their respective holders.*

 

2

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**PART I.FINANCIAL INFORMATION**

 

**ITEM1.****                                                     FINANCIALSTATEMENTS**

 

**ALLOSTHERAPEUTICS, INC.**

**BALANCESHEETS**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                          | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **2004**              | ** ** | **2005**               | ** ** |
| **ASSETS**                                                                                                                                                                                                                                          |       |                  |       |                   |       |
| Current  assets:                                                                                                                                                                                                                                    |       |                  |       |                   |       |
| Cash  and cash equivalents                                                                                                                                                                                                                          |       | $                     | 1,108,726  |                   | $          | 2,933,762 |   |
| Restricted  cash                                                                                                                                                                                                                                    |       | 550,000               |       | 550,000                |       |
| Investments  in marketable securities                                                                                                                                                                                                               |       | 22,601,805            |       | 49,287,579             |       |
| Prepaid  research and development expenses                                                                                                                                                                                                          |       | 272,061               |       | 275,968                |       |
| Prepaid  expenses and other assets                                                                                                                                                                                                                  |       | 522,591               |       | 685,727                |       |
| Total  current assets                                                                                                                                                                                                                               |       | 25,055,183            |       | 53,733,036             |       |
| Investments  in marketable securities                                                                                                                                                                                                               |       | 138,055               |       | 7,204,850              |       |
| Property  and equipment, net                                                                                                                                                                                                                        |       | 980,242               |       | 747,893                |       |
| Total  assets                                                                                                                                                                                                                                       |       | $                     | 26,173,480 |                   | $          | 61,685,779 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                      |       |                  |       |                   |       |
| Current  liabilities:                                                                                                                                                                                                                               |       |                  |       |                   |       |
| Trade  accounts payable and accrued expenses                                                                                                                                                                                                        |       | $                     | 648,345    |                   | $          | 715,863 |   |
| Accrued  research and development expenses                                                                                                                                                                                                          |       | 894,977               |       | 1,520,476              |       |
| Accrued  bonus and employee benefits                                                                                                                                                                                                                |       | 767,155               |       | 975,065                |       |
| Total  current liabilities                                                                                                                                                                                                                          |       | 2,310,477             |       | 3,211,404              |       |
| Commitments  and contingencies (See Note 8)                                                                                                                                                                                                         |       |                  |       |                   |       |
|                                                                                                                                                                                                                                                |       |                  |       |                   |       |
| Stockholders’  equity:                                                                                                                                                                                                                         |       |                  |       |                   |       |
| Preferred  stock, $0.001 par value; 10,000,000 shares authorized at December 31,  2004 and September 30, 2005; 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, 2004 and September 30,  2005; no shares issued or outstanding                         |       | —                |       | —                 |       |
| Series A  Exchangeable Preferred Stock, $0.001 par value; no and 2,714,932 shares  designated from authorized preferred stock at December 31, 2004 and September 30,  2005, respectively; no shares issued or outstanding            |       | —                |       | —                 |       |
| Common  stock, $0.001 par value; 75,000,000 shares authorized at December 31,  2004 and September 30, 2005; 31,175,783 and 55,015,757 shares issued and  outstanding at December 31, 2004 and September 30, 2005,  respectively |       | 31,176                |       | 55,016                 |       |
| Additional  paid-in capital                                                                                                                                                                                                                         |       | 181,453,476           |       | 231,492,527            |       |
| Deferred  compensation related to stock based compensation                                                                                                                                                                                          |       | (34,820               | )          | (3,789                 | )          |
| Deficit  accumulated during the development stage                                                                                                                                                                                                   |       | (157,586,829          | )          | (173,069,379           | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                    |       | 23,863,003            |       | 58,474,375             |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                    |       | $                     | 26,173,480 |                   | $          | 61,685,779 |   |

 

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

 

3

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**ALLOSTHERAPEUTICS, INC.**

**STATEMENTSOF OPERATIONS**

**(unaudited)**

 
| ** **                                                            | ** ** | **Three  Months Ended  September 30,** | ** ** | **Nine  Months Ended  September 30,** | ** ** | **Cumulative********Period from********September 1, 1992********(date of inception)********through   September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2004**                               | ** ** | **2005**                              | ** ** | **2004**                                                                                                             | ** ** | **2005** | ** ** | **2005** | ** ** |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Operating  expenses:                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Research  and development                                             |       | $                                      | 2,202,790  |                                  | $          | 3,000,993                                                                                                            |       | $ | 7,637,903 |   | $ | 7,969,922 |   | $ | 90,287,741 |   |
| Clinical  manufacturing                                               |       | 432,421                                |       | 306,508                               |       | 2,588,806                                                                                                            |       | 934,246 |   | 26,449,371 |   |
| Marketing,  general and administrative                                |       | 2,034,721                              |       | 2,005,397                             |       | 6,989,233                                                                                                            |       | 6,813,021 |   | 66,051,507 |   |
| Restructuring  costs                                                  |       | —                                 |       | —                                |       | —                                                                                                               |       | 380,086 |   | 1,018,156 |   |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Total  operating expenses                                             |       | 4,669,932                              |       | 5,312,898                             |       | 17,215,942                                                                                                           |       | 16,097,275 |   | 183,806,775 |   |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Loss  from operations                                                 |       | (4,669,932                             | )          | (5,312,898                            | )          | (17,215,942                                                                                                          | )          | (16,097,275 | ) | (183,806,775 | ) |
| Gain  on settlement claims                                            |       | —                                 |       | —                                |       | —                                                                                                               |       | — |   | 5,110,083 |   |
| Interest  and other income, net                                       |       | 115,989                                |       | 521,637                               |       | 364,887                                                                                                              |       | 1,238,214 |   | 15,863,777 |   |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Net  loss                                                             |       | (4,553,943                             | )          | (4,791,261                            | )          | (16,851,055                                                                                                          | )          | (14,859,061 | ) | (162,832,915 | ) |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Dividend  related to beneficial conversion feature of preferred stock |       | —                                 |       | —                                |       | —                                                                                                               |       | (623,489 | ) | (10,236,464 | ) |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Net  loss attributable to common stockholders                         |       | $                                      | (4,553,943 | )                                     | $          | (4,791,261                                                                                                           | )          | $ | (16,851,055 | ) | $ | (15,482,550 | ) | $ | (173,069,379 | ) |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Basic  and diluted net loss per share                                 |       | $                                      | (0.15      | )                                     | $          | (0.09                                                                                                                | )          | $ | (0.54 | ) | $ | (0.36 | ) |   |   |
|                                                                  |       |                                   |       |                                  |       |                                                                                                                 |       |   |   |   |   |
| Weighted  average shares outstanding:  basic and diluted         |       | 31,153,489                             |       | 55,015,757                            |       | 31,134,311                                                                                                           |       | 43,045,637 |   |   |   |

 

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

 

4

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**ALLOSTHERAPEUTICS, INC.**

**STATEMENTSOF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                                               | ** ** | **Nine  Months Ended  September 30,** | ** **  | **Cumulative  Period********From September 1, 1992********(date of inception)********through** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|-------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2004**                              | ** **  | **2005**                                                                                       | ** ** | **September  30, 2005** | ** ** |
| Cash  Flows From Operating Activities:                                                                   |       |                                  |        |                                                                                           |       |   |   |
| Net  loss                                                                                                |       | $                                     | (16,851,055 | )                                                                                              | $          | (14,859,061 | ) | $ | (162,832,915 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities:                             |       |                                  |        |                                                                                           |       |   |   |
| Depreciation  and amortization                                                                           |       | 413,284                               |        | 318,918                                                                                        |       | 2,692,825 |   |
| Stock-based  compensation                                                                                |       | 100,773                               |        | 474,071                                                                                        |       | 22,040,304 |   |
| Write-off  of long-term investment                                                                       |       | —                                |        | —                                                                                         |       | 1,000,000 |   |
| Other                                                                                                    |       | —                                |        | —                                                                                         |       | 98,942 |   |
| Changes  in operating assets and liabilities:                                                            |       |                                  |        |                                                                                           |       |   |   |
| Prepaids  and other assets                                                                               |       | 44,924                                |        | (167,043                                                                                       | )          | (951,695 | ) |
| Interest  receivable on investments                                                                      |       | 94,569                                |        | (446,212                                                                                       | )          | (868,764 | ) |
| Trade  accounts payable and accrued expenses                                                             |       | (7,590                                | )           | 67,518                                                                                         |       | 715,863 |   |
| Accrued  research and development expenses                                                               |       | 377,143                               |        | 625,499                                                                                        |       | 1,520,476 |   |
| Accrued  bonus and employee benefits                                                                     |       | (43,423                               | )           | 207,910                                                                                        |       | 975,065 |   |
| Net  cash used in operating activities                                                                   |       | (15,871,375                           | )           | (13,778,400                                                                                    | )          | (135,609,899 | ) |
|                                                                                                     |       |                                  |        |                                                                                           |       |   |   |
| Cash  Flows From Investing Activities:                                                                   |       |                                  |        |                                                                                           |       |   |   |
| Acquisition  of property and equipment                                                                   |       | (46,171                               | )           | (86,569                                                                                        | )          | (3,186,533 | ) |
| Purchases  of marketable securities                                                                      |       | (31,817,820                           | )           | (63,111,282                                                                                    | )          | (385,976,442 | ) |
| Proceeds  from sales of marketable securities                                                            |       | 46,070,000                            |        | 29,804,925                                                                                     |       | 330,352,777 |   |
| Purchase  of long-term investment                                                                        |       | —                                |        | —                                                                                         |       | (1,000,000 | ) |
| Payments  received on notes receivable                                                                   |       | —                                |        | —                                                                                         |       | 49,687 |   |
| Net  cash provided by (used in) investing activities                                                     |       | 14,206,009                            |        | (33,392,926                                                                                    | )          | (59,760,511 | ) |
|                                                                                                     |       |                                  |        |                                                                                           |       |   |   |
| Cash  Flows From Financing Activities:                                                                   |       |                                  |        |                                                                                           |       |   |   |
| Principal  payments under capital leases                                                                 |       | —                                |        | —                                                                                         |       | (422,088 | ) |
| Proceeds  from sales leaseback                                                                           |       | —                                |        | —                                                                                         |       | 120,492 |   |
| Pledging  restricted cash                                                                                |       | —                                |        | —                                                                                         |       | (550,000 | ) |
| Proceeds  from issuance of preferred stock, net of issuance costs                                        |       | —                                |        | 48,839,831                                                                                     |       | 89,125,640 |   |
| Proceeds  from issuance of common stock, associated with stock options and employee  stock purchase plan |       | 124,758                               |        | 156,531                                                                                        |       | 1,135,516 |   |
| Proceeds  from issuance of common stock, net of issuance costs                                           |       | (8,279                                | )           | —                                                                                         |       | 108,894,612 |   |
| Net  cash provided by financing activities                                                               |       | 116,479                               |        | 48,996,362                                                                                     |       | 198,304,172 |   |
| Net  increase (decrease) in cash and cash equivalents                                                    |       | (1,548,887                            | )           | 1,825,036                                                                                      |       | 2,933,762 |   |
| Cash  and cash equivalents, beginning of period                                                          |       | 4,642,305                             |        | 1,108,726                                                                                      |       | — |   |
| Cash  and cash equivalents, end of period                                                                |       | $                                     | 3,093,418   |                                                                                           | $          | 2,933,762 |   | $ | 2,933,762 |   |
|                                                                                                     |       |                                  |        |                                                                                           |       |   |   |
| Supplemental  Schedule of 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 |   |
| Issuance  of common stock in exchange for Series A Exchangeable Preferred Stock                          |       | —                                |        | 49,463,320                                                                                     |       | 49,463,320 |   |

 

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

 

5

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**ALLOSTHERAPEUTICS, INC.**

**NOTESTO FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

The unaudited financialstatements of Allos Therapeutics, Inc., a company in the development stage(referred to herein as the “Company,” “we,” “us” or “our”), included herein reflectall adjustments, consisting only of normal recurring adjustments, which in theopinion of management are necessary to fairly state the financial position,results of operations and cash flows of the Company for the periods presented.Certain information and footnote disclosures normally included in auditedfinancial information prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted pursuant to the Securities and Exchange Commission’s rules andregulations.  Operating results for thethree- and nine-month periods ended September 30, 2005 are not necessarilyindicative of the results that may be expected for the year ending December 31,2005.  These financial statements shouldbe read in conjunction with the audited financial statements and notes theretowhich are included in our Annual Report on Form 10-K for the year ended December 31,2004 for a broader discussion of our business and the opportunities and risksinherent in such business.

 

We have never generatedany revenue from product sales and have experienced significant net lossessince our inception in 1992.  We haveincurred these losses principally from costs incurred in our research anddevelopment programs and from our general and administrative expenses.  We expect to continue incurring net lossesfor the foreseeable future.  The presenceand size of these potential net losses will depend, in large part, on if andwhen we obtain regulatory approval in the United States to market our leadproduct candidate, EFAPROXYN, as an adjunct to radiation therapy for thetreatment of brain metastases originating from breast cancer. Our ability togenerate revenue and achieve profitability is dependent on our ability, aloneor with partners, to successfully complete the development of our productcandidates, conduct clinical trials, obtain the necessary regulatory approvals,and manufacture and market our product candidates.

 

Based upon the currentstatus of our product development plans and our plans for anticipatedcommercialization of EFAPROXYN, we believe that our existing cash, cashequivalents, and investments in marketable securities will be adequate tosatisfy our capital needs through at least the second quarter of 2007.  We anticipate continuing our currentdevelopment programs and/or beginning other long-term development projects onnew products or technologies. These projects may require many years andsubstantial expenditures to complete and may ultimately be unsuccessful.Therefore, we may need to obtain additional funds from outside sources tocontinue research and development activities, fund operating expenses, pursueregulatory approvals and build sales and marketing capabilities, as necessary.However, our actual capital requirements will depend on many factors,including:

 

•                  thestatus of our product development programs;

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

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

•                  competingtechnological and market developments; and

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

 

**2.****              Cash, Cash Equivalents, and Investmentsin Marketable Securities**

 

All highly liquidinvestments with an original maturity of three months or less are considered tobe cash equivalents. The carrying values of our cash equivalents andinvestments in marketable securities approximate their market values based onquoted market prices. We account for investments in marketable securities inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 115,*Accounting for Certain Investments in Debt andEquity Securities*. Investments in marketable securities areclassified as held to maturity and are carried at cost plus accrued interest.Substantially all of our marketable securities are held in corporate notes withremaining maturities ranging from one to seventeen months.

 

**3.****              Accrued Research and Development Expenses**

 

We record accruals forcontracted third-party development activity, including estimated clinical studycosts, which will be invoiced to us in a subsequent accounting period. Clinicalstudy costs represent costs incurred by clinical research organizations andclinical sites. These costs are recorded as a component of research anddevelopment expenses. Management accrues costs for these clinical studies basedon the progress of the clinical trials, including patient enrollment, dosing levelsof patients 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 fromthese estimates.

 

6

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**4.****              Series A Exchangeable PreferredStock Financing**

 

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 Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) at a price per share of $22.10(the “Preferred Purchase Price”), for aggregate gross proceeds of approximately$52.0 million (the “Preferred Stock Financing”). We incurred offeringexpenses of approximately $3.2 million in connection with the sale of theExchangeable Preferred, resulting in net proceeds to the Company ofapproximately $48.8 million. The shares were sold under our shelfRegistration Statement on Form S-3 (File No. 333-113353) declaredeffective by the Securities and Exchange Commission on April 21, 2004. Theclosing of the sale of 2,262,443 shares of Exchangeable Preferred to Warburgoccurred on March 4, 2005. The closing of the sale of an additional 90,000shares of Exchangeable Preferred to certain other investors occurred on March 8,2005.

 

On May 18, 2005, atour 2005 Annual Meeting of Stockholders, our stockholders voted to approve theissuance of shares of our common stock upon exchange of shares of theExchangeable Preferred.  As a result of such approval, on May 18,2005, we issued a total of 23,524,430 shares of common stock upon exchange of2,352,443 shares of Exchangeable Preferred (the “Share Exchange”).  As aresult of the Share Exchange, we reclassified $48.8 million associated with theExchangeable Preferred from temporary equity to common stock and additionalpaid in capital in the stockholders’ equity section of our balance sheet.

 

The Preferred PurchasePrice represented a 7.5% discount to the 20-day trailing average closing priceof our common stock on the Nasdaq National Market as of March 2, 2005,calculated on an as-exchanged for common stock basis.  In connection withthe Share Exchange, we recorded a deemed dividend related to the beneficialconversion feature of the Exchangeable Preferred equal to $623,489,representing the difference between the effective conversion price per share ofcommon stock and the market value per share of common stock as of the closingdate of the Preferred Stock Financing.  As reflected on the Statements ofOperations, this dividend increases the net loss attributable to commonstockholders for the nine-month period ended September 30, 2005.

 

In connection with thesale of Exchangeable Preferred, we entered into a Registration Rights Agreementdated March 4, 2005 pursuant to which we granted certain registrationrights with respect to the shares of common stock issued upon exchange of theExchangeable Preferred.

 

Pursuant to theSecurities Purchase Agreement, for so long as Warburg owns at least two-thirdsof the shares of common stock issued upon exchange of such ExchangeablePreferred, we will nominate and use our reasonable best efforts to cause to beelected and cause to remain as directors on our board of directors twoindividuals designated by Warburg (each, an “Investor Designee” andcollectively, the “Investor Designees”). If Warburg no longer has the right todesignate two members of our board of directors, then, for so long as Warburgowns at least 50% of the shares of common stock issued upon exchange of suchExchangeable Preferred, we will nominate and use our reasonable best efforts tocause to be elected and cause to remain as a director on our board ofdirectors, one Investor Designee. In addition, subject to applicable law andthe rules and regulations of the Securities and Exchange Commission and theNasdaq Stock Market, we will use our reasonable best efforts to cause one ofthe Investor Designees to be a member of each principal committee of our boardof directors. Effective upon the closing of the sale of Exchangeable Preferredto Warburg on March 4, 2005, Messrs. Stewart Hen and Jonathan Leff,each of whom is a Managing Director of Warburg, were appointed to our board ofdirectors pursuant to Warburg’s right to nominate directors.

 

On November 7, 2005, we filed a Certificate of Elimination of Series AExchangeable Preferred Stock (the “Certificate of Elimination”) with theSecretary of State of the State of Delaware. The Certificate of Elimination had the effect of eliminating from ourRestated Certificate of Incorporation, as amended, all matters with respect tothe Exchangeable Preferred set forth in the Certificate of Designations,Number, Voting Power, Preferences and Rights of Series A Exchangeable PreferredStock (the “Certificate of Designations”) filed with the Secretary of State ofthe State of Delaware on March 3, 2005. As a result of the Certificate of Elimination, all 2,714,932 shares ofExchangeable Preferred authorized pursuant to the Certificate of Designationshave resumed their status as authorized and unissued Preferred Stock as ofNovember 7, 2005.

 

**5.****              Stock-Based Compensation**

 

We account for grants ofstock options according to the intrinsic value method as prescribed by theAccounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB 25”) and related Interpretations. Pro forma net loss information, asrequired by SFAS No. 123,*Accountingfor Stock-Based Compensation* (“SFAS 123”), is presented belowin accordance with SFAS No. 148,*Accounting for Stock-Based Compensation—Transition and Disclosure* (“SFAS 148”).Any deferred stock-based compensation calculated according to APB 25 isamortized over the vesting period of the individual options, generallyfour years, in accordance with Financial Accounting Standards Board (“FASB”)Interpretation No. 28,*Accounting forStock Appreciation Rights and Other Variable Stock Option and Award Plans*(“FIN 28”).

 

7

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On January 12, 2000,we granted Dr. Stephen J. Hoffman a stock option to purchase 328,971shares of common stock at $2.42 per share (the “1995 Plan Option”) under theterms of our 1995 Stock Option Plan (the “1995 Plan”).  Dr. Hoffmanhas served as a member of our board of directors since 1994 and as our Chairmanof the Board since December 2001.  He also served as our Presidentand Chief Executive Officer from July 1994 to December 2001. Effective February 28, 2003, we entered into a two-year consultingagreement with Dr. Hoffman and terminated the employment agreementpreviously entered into with him in January 2001.  The consultingagreement expired in accordance with its terms on February 28, 2005. On May 18, 2005, in recognition of Dr. Hoffman’s efforts and serviceson behalf of the Company and as an incentive for Dr. Hoffman’s continuedservice as our non-executive Chairman of the Board, the Compensation Committeerecommended and our board of directors approved an amendment to the 1995 PlanOption to extend the exercise period for such option until the earlier of (i) January 12,2010 (the expiration date of such option), or (ii) three months after thedate that Dr. Hoffman ceases to serve as a director of the Company. Prior to such amendment, the 1995 Plan Option would have expired on May 28,2005, or three months after the expiration of Dr. Hoffman’s consultingagreement with the Company.  Except as set forth above, the 1995 PlanOption remains in full force and effect in accordance with its originalterms.  In conjunction with this amendment to the 1995 Plan Option, werecorded non-cash stock-based compensation expense of $462,000 during the threemonths ended June 30, 2005 in accordance with SFAS 123.  This expenseis reflected in marketing, general and administrative expenses on theStatements of Operations for the nine-month period ended September 30,2005.

 

The following tableillustrates the effect on net loss and loss per share if we had applied thefair value recognition provisions of SFAS 123 to stock-based compensationfor the three- and nine-month periods ended September 30, 2004 and 2005.Such pro forma disclosures may not be representative of the pro forma effect infuture years because options vest over several years and additional grants maybe made each year.

 
| ** **                                                                                 | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                              | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Net  loss attributable to common stockholders, as reported                                 |       | $                                     | (4,553,943 | )                                    | $          | (4,791,261 | ) | $ | (16,851,055 | ) | $ | (15,482,550 | ) |
| Add  (deduct): Stock-based compensation expense (recovery) included in reported  net loss  |       | (48,406                               | )          | 3,789                                |       | 91,461 |   | 471,741 |   |
|                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Deduct:  Stock-based compensation expense as determined under the fair value based  method |       | (317,314                              | )          | (279,139                             | )          | (1,390,450 | ) | (1,475,303 | ) |
|                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Pro  forma net loss attributable to common stockholders                                    |       | $                                     | (4,919,663 | )                                    | $          | (5,066,611 | ) | $ | (18,150,044 | ) | $ | (16,486,112 | ) |
|                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Basic  and diluted net loss per share – as reported                                   |       | $                                     | (0.15      | )                                    | $          | (0.09 | ) | $ | (0.54 | ) | $ | (0.36 | ) |
|                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Basic  and diluted net loss per share – pro forma                                     |       | $                                     | (0.16      | )                                    | $          | (0.09 | ) | $ | (0.58 | ) | $ | (0.38 | ) |

 

The following assumptionswere used in estimating the stock-based compensation expense, as determinedunder the fair value based method, for activity during the three- and nine-monthperiods ended September 30, 2004 and 2005.

 
| ** **                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2004**                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
|                             |       |                                       |       |                                      |       |   |   |   |   |
| Stock  option plans:             |       |                                       |       |                                      |       |   |   |   |   |
| Expected  dividend yield         |       | 0                                          | %          | 0                                         | %          | 0 | % | 0 | % |
| Expected  stock price volatility |       | 115                                        | %          | 82                                        | %          | 65% - 126 | % | 82% - 85 | % |
| Risk  free interest rate         |       | 2.8% - 3.9                                 | %          | 4.0% - 4.1                                | %          | 2.6% - 5.5 | % | 3.7% - 4.1 | % |
| Expected  life (years)           |       | 3.0 - 5.0                                  |       | 5.0                                       |       | 3.0 - 5.0 |   | 4.0 – 5.0 |   |
|                             |       |                                       |       |                                      |       |   |   |   |   |
| Stock  purchase plan:            |       |                                       |       |                                      |       |   |   |   |   |
| Expected  dividend yield         |       | —                                     |       | —                                    |       | 0 | % | 0 | % |
| Expected  stock price volatility |       | —                                     |       | —                                    |       | 64% - 119 | % | 69 | % |
| Risk  free interest rate         |       | —                                     |       | —                                    |       | 0.94 | % | 1.6 | % |
| Expected  life (years)           |       | —                                     |       | —                                    |       | 1.5 – 2.0 |   | 2.0 |   |

 

8

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**6.****              Net Loss Per Share**

 

Basic and diluted netloss per share have been computed by dividing the net loss attributable tocommon stockholders for each period by the weighted average number of commonshares outstanding during each respective period.  Securities as of September 30, 2004, and2005 that are not included in the diluted net loss per share calculations, asthe effect of including such securities was anti-dilutive, are as follows: 

 

| ** **             | ** ** | **September 30,** | ** ** |
|------------------------|------------|------------------------|------------|
| ** **             | ** ** | **2004**               | ** ** | **2005** | ** ** |
| Common  stock options  |       | 3,867,619              |       | 4,015,793 |   |
| Common  stock warrants |       | 1,706,893              |       | 1,706,893 |   |
|                   |       | 5,574,512              |       | 5,722,686 |   |

 

**7.****              Restructuring Costs**

 

In January 2005, weexecuted agreements to sublease approximately three-quarters of the 12,708square feet of excess space in our corporate offices located in Westminster,Colorado. The term of each sublease agreement is through the term of our officelease, or October 31, 2008. The actual rental payments to us under thesublease agreements approximate $230,000. As the Company’s obligations underour primary lease are in excess of the sum of the actual and expected subleaserental payments for this excess space, we recorded a loss of approximately$380,000 in the nine-month period ended September 30, 2005.  As of September 30, 2005, the amountremaining in accrued expenses relating to this loss was approximately $233,000.

 

**8.****              Commitments and Contingencies**

 

*Commitments*

 

In August 2004, weentered into an agreement with a third party to provide certain trialmanagement services in Europe and South America in connection with our pivotalPhase 3 trial of EFAPROXYN, for the treatment of brain metastases originatingfrom breast cancer, which is called ENRICH (**EN**hancingwhole brain**R**adiation therapy**I**n patients with breast**C**ancer and**H**ypoxic brain metastases). Under the terms of this agreement, we are required to pay this thirdparty approximately $930,000 if a certain patient enrollment milestone isachieved in Europe and South America by July 16, 2006.  As of September 30, 2005, we have accrueda portion of the total potential milestone payment equal to the number ofpatients actually enrolled as compared to the patient enrollment milestone inthe agreement.

 

In June 2005, weentered into a Manufacturing Agreement (the “Agreement”) with Hovione InterLimited (“Hovione”) covering the supply of EFAPROXYN bulk drug substance, orefaproxiral sodium.  Under the terms of the Agreement, we are required topurchase a negotiated percentage of our annual requirements for efaproxiralsodium from Hovione.  We must also meet annual minimum purchaserequirements of efaproxiral sodium from Hovione equal to $2,000,000 in 2006, $3,500,000in 2007, $5,000,000 in 2008, and $5,000,000 in each year thereafter through theend of the term of the agreement.  In the event that we do not meet theseannual minimum purchase requirements, we have the option to pay extension feesto move the annual requirements out by one year.  These extension fees areequal to $100,000 for a first extension, $150,000 for a second extension, and$200,000 for a third and final extension, if necessary.

 

The Agreement has a termof seven years following our receipt of approval, if any, from the UnitedStates Food and Drug Administration to market EFAPROXYN in the UnitedStates.  The Company and Hovione each have customary termination rights,including termination for material breach or other events relating to insolvencyor bankruptcy.  In addition, we may terminate the Agreement at any time ifwe decide to discontinue development or, if approved, marketing of EFAPROXYN.

 

*Contingencies*

 

The Company and one ofour 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.  Thelawsuit was brought on behalf of a purported class of purchasers of oursecurities during the period from May 29, 2003 to April 29,2004, and was seeking 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 DistrictCourt granted the defendants’ motion to dismiss and entered judgment inour favor.  The plaintiff has until November 19,2005 to file any notice of appeal to the United States Court of Appeals for theTenth Circuit.  It is not knownwhether plaintiff will seek an appeal.

 

9

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Webelieve the claims set forth in the lawsuit were without merit, andwe intend to vigorously defend against any appeal of the District Court’sjudgment. This lawsuit has been tendered to our insurance carriers.  As with any litigation proceeding, we cannotpredict with certainty the eventual outcome of the litigation. If an appeal were taken, the decision of the District Court werereversed, and we were not successful in our defense against such claims,we could be forced to make significant payments to the plaintiffs, and suchpayments could have a material adverse effect on our business, financialcondition, results of operations and cash flows to the extent such payments arenot covered by our insurance carriers. Even if our defense against suchclaims were successful, the litigation could result in substantial costsand divert management’s attention and resources, which could adversely affectour business.

 

In July 2005, a shareholder of the Company commenced a stockholder'sderivative action in the United States District Court for the District ofColorado (the "District Court") against several current and formerdirectors of the Company, naming the Company as a nominal defendant.  The factual allegations in the derivativeaction were substantially the same as the factual allegations in the purportedsecurities class action lawsuit filed in May 2004.  On November 2, 2005, the District Court grantedthe parties joint motion for voluntary dismissal and dismissed the case withoutprejudice.

 

We enter intoindemnification provisions under our agreements with other companies in ourordinary course of business, typically with business partners, contractors, clinicalsites and suppliers. Under these provisions we generally indemnify and holdharmless the indemnified party for losses suffered or incurred by theindemnified party as a result of our activities or the use of our productcandidates.  These indemnificationprovisions generally survive termination of the underlying agreement. Themaximum potential amount of future payments we could be required to make underthese indemnification provisions is unlimited. We have not incurred materialcosts to defend lawsuits or settle claims related to these indemnificationagreements. As a result, the estimated fair value of these agreements isminimal. Accordingly, we have no liabilities recorded for these agreements asof September 30, 2005.

 

**9.****              Recently Issued Accounting Pronouncement**

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004),*Share-Based Payment* (“SFAS 123R”), which revises SFAS123 and supersedes APB 25. SFAS 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair values. The pro forma disclosurespreviously permitted under SFAS 123 no longer will be an alternative tofinancial statement recognition. We are required to adopt SFAS 123R in thefirst quarter of fiscal 2006, beginning January 1, 2006. UnderSFAS 123R, we must determine the appropriate fair value model to be usedfor valuing share-based payments, the amortization method for compensation costand the transition method to be used at date of adoption. The transitionmethods include prospective and retroactive adoption options. Under theretroactive option, prior periods may be restated either as of the beginning ofthe year of adoption or for all periods presented. The prospective methodrequires that compensation expense be recorded for all unvested stock optionsand restricted stock at the beginning of the first quarter of adoption ofSFAS 123R, while the retroactive methods would record compensation expensefor all unvested stock options and restricted stock beginning with the firstperiod restated. We are evaluating the requirements of SFAS 123R andexpect that the adoption of SFAS 123R will have a material impact on ourresults of operations and loss per share. We have not yet determined the methodof adoption or the effect of adopting SFAS 123R, and have not determinedwhether the adoption will result in amounts that are similar to the current proforma disclosures under SFAS 123.

 

**10.****       SubsequentEvent**

 

On November 7, 2005, ourboard of directors approved an amendment and restatement of the 2000 StockIncentive Compensation Plan (the "Plan"), to increase the aggregatenumber of shares of common stock authorized for issuance under the Plan by3,500,000 shares, which would result in 4,125,315 shares (plus any shares thatmight in the future be returned to the Plan as a result of termination orexpiration of awards) available for future issuance under the Plan and toprovide that the number of shares of common stock that may be granted under thePlan to any one employee during any calendar year cannot exceed 2,000,000shares.  This amendment is subject tostockholder approval.

 

10

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**ITEM 2.****                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

*Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations, as well as information contained elsewhere in thisreport, contains statements that constitute “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. These forward-lookingstatements include, but are not limited to, statements concerning our plans tocontinue development of our current product candidates; conduct clinical trialswith respect to our product candidates; seek regulatory approvals; addresscertain markets; initiate marketing activities related to the potential commercializationof our products; raise additional capital; hire sales and marketing personnel;develop relationships with pharmaceutical companies; obtain and protect rightsto technology; establish new collaborative and licensing agreements; andevaluate additional product candidates for in-license and subsequent clinicaland commercial development. In some cases, these statements may be identifiedby terminology 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 or our industry’s results, levels of activity,performance or achievements to be materially different from those expressed orimplied by the forward-looking statements. Factors that could cause orcontribute to such differences include, but are not limited to, those mentionedin the discussion below and those described in the “Risk Factors”discussion of our Annual Report on Form 10-K for the year ended December 31,2004 filed with the Securities and Exchange Commission. As a result, you shouldnot place undue reliance on these forward-looking statements. Allforward-looking statements included in this report are based on informationavailable to us as of the date hereof and we undertake no obligation to reviseany forward-looking statements in order to reflect any subsequent events orcircumstances, except as required by law. Forward-looking statements not specificallydescribed above also may be found in these and other sections of this report.*

 

**Overview**

 

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

 

We have never generatedany revenue from product sales and have experienced significant net lossessince our inception in 1992. We have incurred these losses principally fromcosts incurred in our research and development programs and from our generaland administrative expenses. We expect to continue incurring net losses for theforeseeable future. The presence and size of these potential net losses willdepend, in large part, on if and when we obtain regulatory approval in theUnited States to market our lead product candidate, EFAPROXYN, as an adjunct toradiation therapy for the treatment of brain metastases originating from breastcancer. 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 have three productcandidates that are currently under development: EFAPROXYN (efaproxiral),formerly known as RSR13, PDX (pralatrexate) and RH1.

 

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

 

11

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In December 2003, wesubmitted a New Drug Application, or NDA, to the United States Food and DrugAdministration, or FDA, for approval to market EFAPROXYN in the United Statesas an adjunct to whole brain radiation therapy, or WBRT, for the treatment ofpatients with brain metastases originating from breast cancer. The NDA wasbased on the findings from our randomized, open label Phase 3 clinicaltrial of EFAPROXYN in patients with brain metastases, called REACH, whichdemonstrated a statistically significant survival benefit in patients withbrain metastases originating from breast cancer, a subgroup of patients thatwas not prospectively defined as an intent-to-treat subgroup.  The results from the REACH trial wereannounced in April 2003. In May 2004, the FDA’s Oncologic DrugAdvisory Committee, or ODAC, reviewed the NDA and voted not to recommendapproval of EFAPROXYN for this indication based on the data from the REACHtrial. However, in June 2004, the FDA issued an “approvable letter” inwhich it indicated that before the NDA may be approved, it would be necessaryfor us to successfully complete our ongoing Phase 3 clinical trial ofEFAPROXYN in patients with brain metastases originating from breast cancer andsubmit the results as a NDA amendment for the FDA’s review. In the letter, theFDA stated, “if the study shows effectiveness in this population (increasedsurvival) using the pre specified analysis, and the study is otherwisesatisfactory, we believe it would, together with the subset result in the[REACH trial], support approval.”

 

The ongoing Phase 3trial referenced in the FDA’s approvable letter was initiated in February 2004.This pivotal Phase 3 trial, which is called ENRICH (**EN**hancing whole brain**R**adiation therapy**I**n patients with breast**C**ancer and**H**ypoxic brain metastases), will seek to enroll approximately360 patients at up to 125 cancer centers across North America, Europe and SouthAmerica.  As of September 30, 2005,more than 100 of the planned 125 cancer centers were open for enrollment.  The primary endpoint of the trial willmeasure the difference in survival between patients receiving WBRT plussupplemental oxygen, with or without EFAPROXYN. We currently anticipate thatenrollment in the trial will be completed during the second half of 2006, withpreliminary results becoming available approximately six months thereafter.

 

In June 2004, wefiled a Marketing Authorization Application, or MAA, with the EuropeanMedicines Agency, or EMEA, for approval to market EFAPROXYN in Europe as anadjunct to WBRT for the treatment of patients with brain metastases originatingfrom breast cancer.  As with our NDA, the MAA was based on the findingsfrom the REACH trial.  On October 11,2005, we withdrew the MAA as a result of the Rapporteurs’ Day 180 JointAssessment Report, which concluded that the existing data package was notsufficient to support approval.   Althoughwe can provide no assurances, we believe that our ongoing ENRICH trial, ifpositive, together with other supporting data, should allow us to address theEMEA’s concerns regarding EFAPROXYN and provide the additional data necessary tosupport the filing of a new MAA and the future approval of EFAPROXYN for thetreatment of brain metastases originating from breast cancer in Europe.

 

In August 2004, theFDA awarded orphan drug status to EFAPROXYN for use as an adjunct to WBRT forthe treatment of patients with brain metastases originating from breast cancer.The FDA may award orphan drug designation to drugs that target conditionsaffecting 200,000 or fewer U.S. patients per year and provide a significanttherapeutic advantage over existing treatments. The orphan drug designationprovides for U.S. marketing exclusivity for seven years following marketingapproval by the FDA.

 

In addition to thePhase 3 ENRICH trial, we are currently enrolling patients in the followingclinical trials involving EFAPROXYN: (i) a Phase 1 clinical trial inpatients with locally advanced non-small cell lung cancer, or NSCLC, receivingconcurrent chemoradiotherapy (chemotherapy and radiation therapy administeredat the same time) in combination with EFAPROXYN, (ii) a Phase 1b/2clinical trial of EFAPROXYN in patients with locally advanced cancer of thecervix receiving concurrent chemoradiotherapy, and (iii) a Phase 1b/2study of EFAPROXYN administered with BCNU (carmustine) chemotherapy for thetreatment of patients with recurrent malignant glioma, a type of primary braincancer.

 

•     **PDX**is a small molecule chemotherapeutic agent that inhibits dihydrofolatereductase, or DHFR, a folic acid (folate)-dependent enzyme involved in thebuilding of nucleic acid, or DNA, and other processes. Preclinical datasuggests that PDX has an enhanced potency and toxicity profile relative tomethotrexate and other related DHFR inhibitors. Drugs that inhibit DHFR, suchas methotrexate, were among the first antifolate chemotherapeutic agentsdiscovered. Methotrexate remains one of the most widely applied antifolatechemotherapeutics and has been used to treat leukemia, breast, bladder,gastric, esophageal, head, and neck cancers. We believe PDX has the potentialto be delivered as a single agent or in combination therapy regimens.

 

Clinical trials currentlyenrolling patients involving PDX include: (i) a Phase 1/2single-agent study in patients with non-Hodgkin’s lymphoma or Hodgkin’s Disease,and (ii) a Phase 1 single-agent study to determine the maximumtolerated dose of PDX with vitamin B12 and folic acid supplementation inpatients with NSCLC.  We currentlyanticipate that enrollment in these trials will be completed during 2006.

 

During the second quarterof 2005, enrollment was completed in a Phase 1 combination study of PDXwith docetaxel in patients with advanced cancer, including NSCLC, and wecompleted our objective of identifying the maximum tolerated dose.

 

12

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•     **RH1** is a small molecule chemotherapeutic agent that isbioactivated by the enzyme DT-diaphorase, or DTD, which is over-expressed inmany tumors relative to normal tissue, including lung, colon, breast and livertumors. Because RH1 is bioactivated in the presence of DTD, it has thepotential to provide targeted drug delivery to these tumor types while limitingthe toxicity to normal tissue. RH1 has undergone in vivo efficacy testing bythe Developmental Therapeutics Program of the National Cancer Institute and hasdemonstrated significant activity in both NSCLC and ovarian xenograft models.

 

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

 

**Resultsof Operations**

 

*Researchand Development.* Research and development expensesinclude the costs of basic research, nonclinical studies, clinical trials,regulatory affairs, biostatistical data analysis, patents, trademarks andlicensing fees for new products.

 
| ** **                | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                | ** ** | **2004**                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                | ** ** | **(in millions)**                          | ** ** |
| Research  and development |       | $                                          | 2.2        |                                      | $          | 3.0 |   | $ | 7.6 |   | $ | 8.0 |   |
|                           |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |

 

The $798,000 increase inresearch and development expenses in the three months ended September 30,2005 as compared to the same period in 2004 was due primarily to a $1,059,000increase in clinical trial costs, primarily relating to increased patientenrollment in ENRICH, partially offset by a $320,000 decrease in nonclinicalstudy costs for PDX.

 

The $332,000 increase inresearch and development expenses in the nine months ended September 30,2005 as compared to the same period in 2004 was due primarily to a $2,666,000increase in clinical trial costs, primarily relating to increased patientenrollment in ENRICH, partially offset by the following: (i) a $1,000,000decrease in licensing fees related to a milestone payment for PDX made in June 2004,(ii) a $419,000 decrease in personnel costs due to lower headcount, (iii) a$396,000 decrease in consulting costs related to our meeting with ODAC in May 2004,(iv) a $277,000 decrease in regulatory fees related to our MAA filing in June 2004,and (v) a $171,000 decrease in nonclinical study costs for PDX.

 

We expect our researchand development expenses for the three months ended December 31, 2005 to remainapproximately level relative to the amount recorded for the three months ended September 30,2005.  The amount and timing of the costsrelated to our clinical trials is 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.

 

13

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*ClinicalManufacturing.* Clinical manufacturing expenses includethird party manufacturing costs for EFAPROXYN for use in clinical trials, costsassociated with pre-commercial scale-up of manufacturing to support anticipatedcommercial requirements, and development activities for clinical trial materialfor PDX.

 
| ** **             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **             | ** ** | **2004**                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **             | ** ** | **(in millions)**                          | ** ** |
| Clinical manufacturing |       | $                                          | 0.4        |                                      | $          | 0.3 |   | $ | 2.6 |   | $ | 0.9 |   |
|                        |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |

 

The $126,000 decrease inclinical manufacturing expenses in the three months ended September 30,2005 as compared to the same period in 2004 was due primarily to a $117,000decrease in third-party manufacturing costs for bulk drug substance andformulated drug product for PDX.

 

The $1,655,000 decreasein clinical manufacturing expenses in the nine months ended September 30,2005 as compared to the same period in 2004 was due primarily to the following:(i) $690,000 and $610,000 decreases in third-party manufacturing costs forbulk drug substance and formulated drug product for EFAPROXYN and PDX,respectively, as our supplies of both EFAPROXYN and PDX bulk drug substance andformulated drug product were sufficient during the nine months ended September 30,2005 to support our anticipated clinical trial requirements for the remainderof 2005, and (ii) a $207,000 decrease in personnel costs due to lowerheadcount.

 

We expect our clinicalmanufacturing expenses for the three months ended December 31, 2005 toremain approximately level relative to the amount recorded for the three monthsended September 30, 2005.

 

*Marketing,General and Administrative.* Marketing, general andadministrative expenses include costs for pre-marketing activities, executiveadministration, corporate offices and related infrastructure, and corporatedevelopment.

 
| ** **                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                             | ** ** | **(in millions)**                          | ** ** |
| Marketing, general and  administrative |       | $                                          | 2.0        |                                      | $          | 2.0 |   | $ | 7.0 |   | $ | 6.8 |   |
|                                        |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |

 

 Our marketing,general and administrative expenses for the three months ended September 30,2005 remained stable relative to the comparative period in the prior year.

 

The $176,000 decrease inmarketing, general and administrative expenses in the nine months ended September 30,2005 as compared to the same period in 2004 was due primarily to the following:(i) a $302,000 decrease in third-party legal fees relating to generalcorporate matters and the purported securities class action lawsuit filed in May 2004,(ii) a $281,000 decrease in public relations costs due to reduced use ofthird-party agencies, (iii) a $94,000 decrease in depreciation andamortization expense relating to our property and equipment, and (iv) a$91,000 decrease in our facilities costs primarily attributable to the January 2005sublease of excess space in our corporate offices,  partially offset by a $576,000 increase instock-based compensation expense primarily attributable to $462,000 of expenserecorded in the second quarter of 2005 related to the amendment of certainstock options and a $104,000 net recovery of stock-based compensation expenserecorded in the nine months ended September 30, 2004.

 

We expect our marketing,general and administrative expenses for the three months ending December 31,2005 to remain approximately level relative to the amount recorded for thethree months ended September 30, 2005.

 

*RestructuringCosts. * In January 2005, we executed agreementsto sublease approximately three-quarters of the 12,708 square feet of excessspace in our corporate offices located in Westminster, Colorado. The term ofeach sublease agreement is through the term of our office lease, or October 31,2008. The actual rental payments to us under the sublease agreementsapproximate $230,000. As the Company’s obligations under our primary lease arein excess of the sum of the actual and expected sublease rental payments forthis excess space, we recorded a loss of approximately $380,000 inrestructuring costs during the nine-month period ended September 30, 2005.  As of September 30, 2005, the amountremaining in accrued expenses relating to this loss was approximately $233,000.There were no such restructuring costs for the nine-month period ended September 30,2004.

 

14

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*Interestand Other Income, Net*. Interest income, net of interest expense, for the three months ended September 30,2004 and 2005, was $116,000 and $522,000, respectively.  For thenine-month periods ended September 30, 2004 and 2005, net interest incomewas $365,000 and $1,238,000, respectively.  The increases for the three-and nine-month periods ended September 30, 2005, compared to the sameperiods in 2004, were primarily due to higher average investment balancesresulting from the Preferred Stock Financing and higher yields on United Statesgovernment securities, high-grade commercial paper and corporate notes, andmoney market funds held by the Company.

 

**Liquidityand Capital Resources**

 

Our cash, cashequivalents, and investments in marketable securities amounted to$59.4 million at September 30, 2005. From our inception on September 1, 1992 to September 30, 2005,we have funded our operations primarily with $199.2 million of netproceeds from a public equity financing and private placements of common andpreferred stock, and $15.9 million from net interest income earned on cashequivalents and investments.  We haveused $135.6 million of cash for operating activities from inception through September 30,2005.  Net cash used in operatingactivities for the nine-month periods ended September 30, 2004 and 2005was $15.9 million and $13.8 million, respectively, and was used primarily tofund net losses.

 

Net cash provided by investingactivities for the nine-month period ended September 30, 2004 was $14.2 millionand consisted primarily of proceeds from maturities of investments inmarketable securities, net of purchases of investments in marketablesecurities.  Net cash used in investing activities for the nine-month periodended September 30, 2005 was $33.4 million and consisted primarily ofpurchases of investments in marketable securities, net of proceeds frommaturities of investments in marketable securities.

 

Net cash provided by financingactivities during the nine-month period ended September 30, 2004 was$116,000 and resulted primarily from the exercise of common stock options andsales of stock under our employee stock purchase plan.  Net cash provided by financing activitiesduring the nine-month period ended September 30, 2005 was $49.0 millionand resulted primarily from the sale of shares of our Series A ExchangeablePreferred Stock (the “Exchangeable Preferred”) to Warburg Private Equity VIII,L.P. and certain other investors pursuant to the Securities Purchase Agreementdated March 2, 2005, resulting in net proceeds to the Company ofapproximately $48.8 million.  On May 18,2005, at our 2005 Annual Meeting of Stockholders, our stockholders voted toapprove the issuance of shares of our common stock upon exchange of shares ofthe Exchangeable Preferred.  As a result of such approval, on May 18,2005, we issued a total of 23,524,430 shares of common stock upon exchange of2,352,443 shares of Exchangeable Preferred.

 

The following table showsour contractual obligations and commitments as of September 30, 2005.

 
| ** **                      | ** ** | **Less than  1 year** | ** ** | **1 to 3 years** | ** ** | **4 to 5 years** | ** ** | **After  5 years** | ** ** | **Total**  | ** ** |
|---------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|--------------------|------------|------------|------------|
| Operating lease  obligations    |       | $                     | 719,000    |             | $          | 1,551,000        |       | $                  | 148,000    |       | $          | — |   | $ | 2,418,000 |   |
| Contingent  payment obligations |       | 930,000               |       |             |       |             |       |               |       | 930,000    |       |
| License  agreement obligations  |       | —                |       | 1,000,000        |       | 1,000,000        |       | —             |       | 2,000,000  |       |
| Purchase  obligations           |       | —                |       | 10,500,000       |       | 10,000,000       |       | 20,000,000         |       | 40,500,000 |       |
| Total  obligations              |       | $                     | 1,649,000  |             | $          | 13,051,000       |       | $                  | 11,148,000 |       | $          | 20,000,000 |   | $ | 45,848,000 |   |

 

Operating leaseobligations represent future minimum rental commitments for noncancelableoperating leases for our facilities and certain office equipment, net of $224,000of sublease payments on excess space in our corporate offices.

 

Contingent paymentobligations represent a potential milestone payment that may be required underthe terms of an August 2004 agreement with a third party to providecertain trial management services in Europe and South America in connectionwith the ENRICH trial.  Under the termsof this agreement, we are required to pay this third party approximately$930,000 if a certain patient enrollment milestone is achieved in Europe andSouth America by July 16, 2006.  Asof September 30, 2005, we have accrued a portion of the total potentialmilestone payment equal to the number of patients actually enrolled as comparedto the patient enrollment milestone in the agreement.

 

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

 

Purchase obligationsrepresent annual minimum purchase requirements of efaproxiral sodium fromHovione Inter Limited under our June 2005 Manufacturing Agreement, equalto $2,000,000 in 2006, $3,500,000 in 2007, $5,000,000 in 2008, and $5,000,000in each year thereafter through the end of the term of the agreement (equal tothe 7thanniversary of the date we obtain approval from the FDA to marketEFAPROXYN).  In the event that we do not meet these annual minimumpurchase requirements, we have the option to pay extension fees to move theannual requirements out by one year.  These extension fees are equal to$100,000 for a first extension, $150,000 for a second extension, and $200,000 fora third and final extension, if necessary.

 

15

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Based upon the currentstatus of our product development plans and our plans for anticipated commercializationof EFAPROXYN, we believe that our existing cash, cash equivalents, andinvestments in marketable securities will be adequate to satisfy our capitalneeds through at least the second quarter of 2007.  We anticipatecontinuing our current development programs and/or beginning other long-termdevelopment projects on new products or technologies.  These projects mayrequire many years and substantial expenditures to complete and may ultimatelybe unsuccessful.  Therefore, we may need to obtain additional funds fromoutside sources to continue research and development activities, fund operatingexpenses, pursue regulatory approvals and build sales and marketingcapabilities, as necessary. However, our actual capital requirements willdepend on many factors, including:

 

•                  the status ofour product development programs;

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

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

•                  competingtechnological and market developments; and

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

 

We may raise additionalcapital in the future 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 are unable to generate meaningful amounts ofrevenue from future product sales, if any, or cannot otherwise raise sufficientadditional funds to support our operations, we may be required to delay, reducethe scope of or eliminate one or more of our development programs and ourbusiness and future prospects for revenue and profitability may be harmed.

 

**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. Thepreparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets, liabilities, andexpenses. We base our estimates on historical experience, available informationand assumptions that we believe to be reasonable under the circumstances. Weapply estimation methodologies consistently from period to period. The actualresults may differ from these estimates under different assumptions orconditions. The critical accounting policies are discussed in Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations included in our Annual Report on Form 10-K for the year ended December 31,2004. In addition, we consider our accounting policy related to cash, cashequivalents, and investments in marketable securities to be a criticalaccounting policy.  All highly liquid investments with an originalmaturity of three months or less are considered to be cash equivalents. Thecarrying values of our cash equivalents and investments in marketablesecurities approximate their market values based on quoted market prices. Weaccount for investments in marketable securities in accordance with Statementof Financial Accounting Standards (“SFAS”) No. 115,*Accounting for Certain Investments in Debt andEquity Securities*. Investments in marketable securities areclassified as held to maturity and are carried at cost plus accruedinterest.  Substantially all of our marketable securities are held incorporate notes with remaining maturities ranging from one to seventeen months.

 

These critical accountingpolicies are subject to judgments and uncertainties, which affect the applicationof these policies. We have not made any changes in any of these criticalaccounting polices during the three months ended September 30, 2005.

 

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**RiskFactors**

 

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. Thefollowing risk factors should be read in conjunction with the informationcontained in the “Risk Factors” section of our Annual Report on Form 10-Kfor the year ended December 31, 2004 for a broader discussion of the risksand uncertainties inherent in our business. The following information is notintended to limit in any way the characterization of other statements orinformation under other captions as cautionary statements for such purpose.These factors include:

 

•                  Failure tocomplete clinical trials on schedule, in compliance with applicable regulationsand at an acceptable cost; failure to demonstrate the safety and efficacy ofour product candidates in their target indications.

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

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

•                  The ability toobtain, maintain and enforce intellectual property rights; the cost ofacquiring in-process technology and other intellectual property rights, eitherby license, collaboration or purchase of another entity; the cost of enforcingor defending our intellectual property rights.

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

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

•                  The ability tocreate sales, marketing and distribution capabilities for our productcandidates, or enter into agreements with third parties to perform thesefunctions.

•                  The ability toobtain acceptable prices or adequate levels of reimbursement for our productsfrom third-party payors, including government and health administrationauthorities and private health insurers.

•                  Competitive ormarket factors that may limit the use or broad acceptance of our productcandidates.

•                  The ability toattract and retain highly qualified management and scientific personnel.

•                  Changes inaccounting rules and regulations, such as accounting for stock-based compensationthat could have a significant adverse impact on our results of operations,causing our stock price to decline and negatively impacting our efforts toobtain adequate financing.

 

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**ITEM3.****                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The primary objective ofour investment activities is to preserve principal while at the same timemaximizing the income we receive from our investments without significantlyincreasing risk. Some of the securities that we invest in may have market riskand all are classified as held-to-maturity. We do not own derivative financialinstruments in our investment portfolio. This means that a change in prevailinginterest rates may cause the fair value of the principal amount of theinvestment to fluctuate. For example, if we hold a security that was issuedwith a fixed interest rate at the then-prevailing rate and the prevailinginterest rate later rises, the fair value of the principal amount of our investmentwill probably decline. To minimize this risk in the future, we maintain anon-trading investment portfolio of investment grade, liquid debt securitiesthat limits the amount of credit exposure to any one issue, issuer, or type ofinstrument. The weighted average duration of all of our investments is lessthan one year.  Due to the short-term nature of these investments, webelieve we have no material exposure to interest rate risk arising from ourinvestments. Therefore, no quantitative tabular disclosure is provided.

 

**ITEM4.****                                                     CONTROLSAND PROCEDURES**

 

As of the end of theperiod covered by this report, an evaluation was carried out under thesupervision and with the participation of our management, including ourprincipal executive and financial officer (the “Evaluating Officer”), of theeffectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on thatevaluation, our management, including the Evaluating Officer, concluded thatour disclosure controls and procedures were effective 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 the Securities and Exchange Commission’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including the Evaluating Officer, 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-month periodended September 30, 2005 that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**ITEM1.****                                                     LEGALPROCEEDINGS**

 

The Company and one ofour 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.  Thelawsuit was brought on behalf of a purported class of purchasers of oursecurities during the period from May 29, 2003 to April 29,2004, and was seeking 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 DistrictCourt granted the defendants’ motion to dismiss and entered judgment inour favor.  The plaintiff has until November 19,2005 to file any notice of appeal to the United States Court of Appeals for theTenth Circuit.  It is not knownwhether plaintiff will seek an appeal.

 

Webelieve the claims set forth in the lawsuit were without merit, andwe intend to vigorously defend against any appeal of the District Court’sjudgment. This lawsuit has been tendered to our insurance carriers.  As with any litigation proceeding, we cannotpredict with certainty the eventual outcome of the litigation. If an appeal were taken, the decision of the District Court werereversed, and we were not successful in our defense against such claims,we could be forced to make significant payments to the plaintiffs, and suchpayments could have a material adverse effect on our business, financialcondition, results of operations and cash flows to the extent such payments arenot covered by our insurance carriers. Even if our defense against such claims weresuccessful, the litigation could result in substantial costs and divertmanagement’s attention and resources, which could adversely affect ourbusiness.

 

In July 2005, a shareholder of the Company commenced a stockholder'sderivative action in the United States District Court for the District ofColorado (the "District Court") against several current and formerdirectors of the Company, naming the Company as a nominal defendant.  The factual allegations in the derivativeaction were substantially the same as the factual allegations in the purportedsecurities class action lawsuit filed in May 2004.  On November 2, 2005, the District Courtgranted the parties joint motion for voluntary dismissal and dismissed the casewithout prejudice.

 

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| **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**   |
| ** **  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                                             | ** ** |
| ** **  | ** ** | **Procedures for Stockholders Submitting Recommendations for the  Nomination of Directors**

 

In  September 2005, the Company's Nominating and Corporate Governance Committee  of the Board of Directors adopted procedures to be followed by the Company's  stockholders in submitting recommendations for the nomination of directors.  The Nominating Committee Procedures for Stockholders Submitting  Recommendations for the Nomination of Directors is attached hereto as Exhibit  99.1 and incorporated herein by reference.

**Elimination of Series A  Exchangeable Preferred Stock**

 

On November 7, 2005, we filed a  Certificate of Elimination of Series A Exchangeable Preferred Stock (the  "Certificate of Elimination") with the Secretary of State of the  State of Delaware. The Certificate of Elimination had the effect of  eliminating from our Restated Certificate of Incorporation, as amended, all  matters with respect to the Company’s Series A Exchangeable Preferred Stock  set forth in the Certificate of Designations, Number, Voting Power,  Preferences and Rights of Series A Exchangeable Preferred Stock (the  "Certificate of Designations") filed with the Secretary of State of  the State of Delaware on March 3, 2005. As a result of the Certificate of  Elimination, all 2,714,932 shares of Series A Exchangeable Preferred Stock  authorized pursuant to the Certificate of Designations have resumed their  status as authorized and unissued Preferred Stock as of November 7, 2005. The  Certificate of Elimination is attached hereto as Exhibit 3.04 and  incorporated herein by reference. |                                                                                                                   |       |
| ** **  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                   |       |
| ** **  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                   |       |
| **ITEM 6.** | ** ** | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | ** **                                                                                                             | ** ** |
|        |       | 3.01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Amended and Restated Certificate of  Incorporation.                                                                    |       |   |
|        |       | 3.02*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Certificate of Designation of Series A  Junior Participating Preferred Stock.                                          |       |   |
|        |       | 3.03*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Certificate of Designations, Number,  Voting Powers, Preferences and Rights of Series A Exchangeable Preferred  Stock. |       |   |
|        |       | 3.04                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Certificate of Elimination of Series A  Exchangeable Preferred Stock.                                                  |       |   |
|        |       | 31.01                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Rule 13a-14(a) / 15d-14(a)  Certification.                                                                             |       |   |
|        |       | 32.01                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Section 1350 Certification.                                                                                       |       |   |
|        |       | 99.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Nominating Committee Procedures for Stockholders  Submitting Recommendations for the Nomination of Directors.          |       |   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                   |       |
|        |       | * Incorporated by reference to the same numbered exhibit filed  with our Annual Report on Form 10-K for the year ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                   |       |

 

19

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**SIGNATURES**

 

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

 

 
| Date: November 9,  2005 | **ALLOS  THERAPEUTICS, INC.**           |
|-----------------------------------|-----------------------------------------|
|                              | /s/ Michael E. Hart                     |   |
|                              | Michael E. Hart                         |
|                              | President, Chief  Executive Officer and |
|                              | Chief Financial Officer                 |
|                              | (Principal Executive  Officer and       |
|                              | Principal Financial  Officer)           |

 

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