ALTH Allos Therapeutics, Inc. (MM)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number
000-29815

Allos Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

As of May 1, 2009, there were 89,360,666 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

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ALLOS THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

NOTE:

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

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ALLOS THERAPEUTICS, INC.

(A Development Stage Enterprise)

BALANCE SHEETS

(unaudited)

The accompanying notes are an integral part of these financial statements.

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ALLOS THERAPEUTICS, INC.

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

(unaudited)

The accompanying notes are an integral part of these financial statements.

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ALLOS THERAPEUTICS, INC.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of these financial statements.

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ALLOS THERAPEUTICS, INC.

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

(unaudited)

1.                  Basis of Presentation

The unaudited financial statements of Allos Therapeutics, Inc. (referred to herein as the “Company,” “we,” “us” or “our”) included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state our financial position, results of operations and cash flows for the periods presented.  Certain information and footnote disclosures normally included in audited financial information prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.  Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.  These financial statements should be read in conjunction with the audited financial statements and notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2008, as amended, for a broader discussion of our business and the opportunities and risks inherent in such business.

Since our inception in 1992, we have not generated any revenue from product sales and have experienced significant net losses and negative cash flows from operations.  Our activities have consisted primarily of developing product candidates, raising capital and recruiting personnel.  Accordingly, we are considered to be in the development stage as of March 31, 2009, as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.

Liquidity

Our ability to generate revenue and achieve profitability is dependent on our ability, alone or with partners, to successfully complete the development of pralatrexate, conduct clinical trials, obtain the necessary regulatory approvals, and manufacture and market pralatrexate. The timing and costs to complete the successful development of pralatrexate is highly uncertain, and therefore difficult to estimate. The lengthy process of seeking regulatory approvals for pralatrexate, and the subsequent compliance with applicable regulations, require the expenditure of substantial resources. Clinical development timelines, likelihood of success and total costs vary widely and are impacted by a variety of risks and uncertainties. Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of pralatrexate or the ultimate costs of such efforts. Due to these same factors, we cannot be certain when, or if, we will generate any revenue or net cash inflow from pralatrexate.

Even if our clinical trials demonstrate the safety and effectiveness of pralatrexate in its target indications, we do not expect to be able to generate commercial sales of pralatrexate until the second half of 2009, at the earliest. We expect to continue incurring net losses and negative cash flows for the foreseeable future.  Although the size and timing of our future net losses are subject to significant uncertainty, we expect them to increase over the next several years as we continue to fund our research and development programs and prepare for the potential commercial launch of pralatrexate.

As of March 31, 2009, we had $72.5 million in cash, cash equivalents and investments in marketable securities.  Based upon the current status of our product development plans, we believe that our cash, cash equivalents, and investments in marketable securities as of March 31, 2009, together with the net proceeds of $46.8 million from the April 2009 Financing discussed in Note 8, Subsequent Event, should be adequate to support our operations through at least the next 12 months, although there can be no assurance that this can, in fact, be accomplished.

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We anticipate continuing our current development programs and/or beginning other long-term development projects involving pralatrexate. These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we submitted a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for pralatrexate for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma, or PTCL, in March of 2009.  We expect to incur significant costs relating to the potential commercialization of pralatrexate, including pre-commercial scale up of manufacturing and development of sales and marketing capabilities.  Therefore, we will need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

·        the timing and outcome of our NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL;

·        the timing and costs associated with developing sales and marketing capabilities and commercializing pralatrexate, if it is approved for marketing;

·        the timing and costs associated with manufacturing clinical and commercial supplies of pralatrexate;

·        the timing and amount of revenues generated by our business activities, if any;

·        the timing and costs associated with conducting preclinical and clinical development of pralatrexate, as well as our evaluation of, and decisions with respect to, additional therapeutic indications for which we may develop pralatrexate;

·        the timing, costs and potential revenue associated with any co-promotion or other partnering arrangements entered into to commercialize pralatrexate, if it is approved for marketing; and

·        our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources. Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders. However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us. In particular, the current instability in the global financial markets and lack of liquidity in the credit and capital markets may adversely affect our ability to secure adequate capital to support our future operations.  In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development, which we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.  If we are unable to generate meaningful amounts of revenue from future product sales, if any, or cannot otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for revenue and profitability may be harmed.

2.                  Prepaid Expenses and Other Assets

Prepaid expenses and other assets are comprised of the following:

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3.                  Accrued Liabilities

Accrued liabilities are comprised of the following:

4.                  Stock-Based Compensation

In accordance with the modified prospective transition method of SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”), stock-based compensation expense for the three months ended March 31, 2009 and 2008 has been recognized in the accompanying Statements of Operations as follows:

We did not recognize a related tax benefit during the three months ended March 31, 2009 and 2008, as we maintain net operating loss carryforwards and we have established a valuation allowance against the entire tax benefit as of March 31, 2009.  SFAS 123R did not impact our net cash flows from operating, investing or financing activities for the three months ended March 31, 2009 and 2008.  No stock-based compensation expense was capitalized on our Balance Sheet as of March 31, 2009 and December 31, 2008.

The following table summarizes activity and related information for stock option awards granted under our equity incentive plans:

During the three months ended March 31, 2009, we granted 1,620,072 stock options with a weighted-average grant-date fair value of $3.97 per share.  During the three months ended March 31, 2009 and 2008, we recorded stock-based compensation related to our stock option plans of $2,224,730 and $1,946,600, respectively.  As of March 31, 2009, the unrecorded stock-based compensation balance related to stock option awards was $10,911,125 and will be recognized over an estimated weighted-average amortization period of 1.5 years.

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The following table summarizes information about outstanding stock options that are fully vested and currently exercisable, and outstanding stock options that are expected to vest in the future:

The aggregate intrinsic value in the tables above represents the total pretax intrinsic value, based on our closing stock price of $6.18 as of March 31, 2009, which would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date.  The total number of in-the-money options exercisable as of March 31, 2009 was 2,762,110.

The total intrinsic value of options exercised during the three months ended March 31, 2009 and 2008 was $1,544,156 and $728,260, respectively, determined as of the date of option exercise.  We settle employee stock option exercises with newly issued common shares.  No tax benefits were realized by us in connection with these exercises during the three months ended March 31, 2009 and 2008 as we maintain net operating loss carryforwards and we have established a valuation allowance against the entire tax benefit as of March 31, 2009.

The following table summarizes activity and related information for restricted stock, or RS, awards granted under our equity incentive plans:

The shares of restricted stock vest in four equal annual installments from the date of grant.  D uring the three months ended March 31, 2009 and 2008, we recorded stock-based compensation related to restricted stock awards of $85,313 and $147,499, respectively.  As of March 31, 2009, the unrecorded stock-based compensation balance related to restricted stock awards was $247,779 and will be recognized over an estimated weighted-average amortization period of 1.3 years.

The following table summarizes activity and related information for restricted stock unit, or RSU, awards granted under our equity incentive plans:

The shares of restricted stock unit awards vest in four equal annual installments from the date of grant.  D uring the three months ended March 31, 2009 and 2008, we recorded stock-based compensation related to restricted stock unit awards of $47,232 and $0, respectively.  As of March 31, 2009, the unrecorded stock-based compensation balance related to restricted stock unit awards was $849,363 and will be recognized over an estimated weighted-average amortization period of 1.7 years.

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5.                  Net Loss Per Share

Net loss per share is calculated in accordance with SFAS No. 128, Earnings Per Share (“SFAS 128”). Under the provisions of SFAS 128, basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by giving effect to all dilutive potential common stock outstanding during the period, including stock options, restricted stock, restricted stock unit awards and shares to be issued under our employee stock purchase plan.

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

6.                  Commitments and Contingencies

Royalty and License Fee Commitments for pralatrexate

In December 2002, we entered into a license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute, as amended, under which we obtained exclusive worldwide rights to a portfolio of patents and patent applications related to pralatrexate and its uses. Under the terms of the agreement, we paid an up-front license fee of $2.0 million upon execution of the agreement and are also required to make certain additional cash payments based upon the achievement of certain clinical development or regulatory milestones or the passage of certain time periods. To date, we have made aggregate milestone payments of $2.5 million based on the passage of time. In the future, we could make an aggregate milestone payment of $500,000 upon the earlier of achievement of a clinical development milestone or the passage of certain time periods, or the Clinical Milestone, and up to $10.3 million upon achievement of certain regulatory milestones, or the Regulatory Milestones, including regulatory approval to market pralatrexate in the United States or Europe. The last scheduled payment towards the Clinical Milestone of $500,000 is currently due on December 23, 2009. We submitted an NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We have requested a priority review of the application, which, if granted, would give the FDA six months from receipt of the submission to take action on the application.  If the FDA accepts our NDA for review and if we obtain FDA approval to market pralatrexate, we will be obligated to make payments of $1,500,000 and $5,300,000, respectively, which represent a portion of the Regulatory Milestones. The up-front license fee and all milestone payments under the agreement have been or will be recorded to research and development expense when incurred. Under the terms of the agreement, we are required to fund all development programs and will have sole responsibility for all commercialization activities. In addition, we will pay the licensors a royalty based on a percentage of net revenues arising from sales of the product or sublicense revenues arising from sublicensing the product, if and when such sales or sublicenses occur.

Contingencies

We were named as a defendant in a purported securities class action lawsuit filed in May 2004 seeking unspecified damages relating to the issuance of allegedly false and misleading statements regarding EFAPROXYN during the period from May 29, 2003 to April 29, 2004 and subsequent declines in our stock price. In an opinion dated October 20, 2005, the U.S. District Court for the District of Colorado concluded that the plaintiffs’ complaint failed to meet the legal requirements applicable to its alleged claims and dismissed the lawsuit. On November 20, 2005, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Tenth Circuit. On February 6, 2008, the parties signed a stipulation of settlement, settling the case for $2,000,000. The settlement was subject to various conditions, including without limitation approval of the District Court.  On January 29, 2009, the District Court issued its Order and Final Judgment approving the settlement, including the releases of the defendants for which the settlement provided.  Neither we nor our former officer, who was also named as a defendant, admitted any liability in connection with the settlement.  The amount of the settlement in excess of our deductible was covered by our insurance carrier.  The period to appeal the District Court’s approval of the settlement

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lapsed during the three months ended March 31, 2009 without any further appeals being filed and the settlement is final. As of March 31, 2009, we have been released of our obligation related to this lawsuit and have no accrual remaining related to the settlement.

7.                  Recent Accounting Pronouncements

In November 2007, the Emerging Issues Task Force, or EITF, issued a consensus, EITF 07-1, Accounting for Collaboration Arrangements Related to the Development and Commercialization of Intellectual Property , which is focused on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure questions. EITF 07-1 is to be applied retrospectively for collaboration arrangements in fiscal years beginning after December 15, 2008 and we adopted it January 1, 2009.  We currently do not have any such arrangements.

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141(R), Business Combinations . This Statement replaces SFAS No. 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS No. 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS No. 141(R)). In addition, SFAS No. 141(R)’s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer. SFAS No. 141(R) amends SFAS No. 109, Accounting for Income Taxes , to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, Goodwill and Other Intangible Assets , to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and we adopted it January 1, 2009. We have not entered into any business combinations and will apply it to any business combinations in the future.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements . SFAS No. 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements , to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS No. 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008 and we adopted it January 1, 2009. We currently do not have any subsidiaries.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities . SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring companies to enhance disclosure about how these instruments and activities affect their financial position, performance and cash flows. SFAS No. 161 also improves the transparency about the location and amounts of derivative instruments in a company’s financial statements and how they are accounted for under SFAS No. 133. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods beginning after that date and we adopted it January 1, 2009. We currently do not have any derivative instruments.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles . SFAS No. 162

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identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board, or PCAOB, amendments to AICPA Codification of Auditing Standards, AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles . This amendment was approved by the PCAOB on September 16, 2008. We do not anticipate that the adoption of SFAS No. 162 will materially impact our financial statements.

In June 2008, the FASB issued FASB Staff Position, or FSP, EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, or FSP EITF 03-6-1, to address whether instruments granted in share-based payment transactions are participating securities prior to their vesting and therefore need to be included in the earnings per share calculation under the two-class method described in SFAS No. 128, Earnings per Share . This FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as participating securities and thus, include them in calculations of basic earnings per share. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and we adopted it January 1, 2009.  There was no impact to our financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments . This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments , to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  This FSP also amends APB Opinion No. 28, Interim Financial Reporting , to require those disclosures in summarized financial information at interim reporting periods.  This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We are currently evaluating the disclosure requirements, but do not anticipate that the adoption will materially impact our financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments . This FSP amends the other-than-temporary impairment guidance in U.S. Generally Accepted Accounting Principles for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.  This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We are currently evaluating the potential impact, but do not anticipate that the adoption of this FSP will materially impact our financial statements.

8.                  Subsequent Event

On April 3, 2009, we completed an underwritten public offering of 7,750,000 shares of our common stock at the public offering price of $6.30 per share (the April 2009 Financing). We received net proceeds from the offering of approximately $46.8 million, after deducting underwriting commissions and estimated offering expenses.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained elsewhere in this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding our New Drug Application for pralatrexate as a treatment for patients with relapsed or refractory peripheral T-cell lymphoma; our intent to present final results from the PROPEL trial at an upcoming scientific meeting; our projected timeline for completing enrollment in our Phase 2b trial comparing pralatrexate and erlotinib in patients with advanced non-small cell lung cancer; our projected net cash use in operating activities for fiscal year 2009; other statements regarding our future product development and regulatory strategies, including our intent to develop or seek regulatory approval for our product candidates in specific indications; the ability of our third-party manufacturing parties to support our requirements for drug supply; any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; and any other statements that are other than statements of historical fact. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our, or our industry’s results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among other things, those discussed in Part II, Item 1A of this report under the caption “Risk Factors.” All forward-looking statements included in this report are based on information available to us as of the date hereof and we undertake no obligation to revise any forward-looking statements in order to reflect any subsequent events or circumstances. Forward-looking statements not specifically described above also may be found in these and other sections of this report.

Overview

We are a biopharmaceutical company focused on developing and commercializing innovative small molecule drugs for the treatment of cancer. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with one or more potential strategic partners.  We strive to develop proprietary products that have the potential to improve the standard of care in cancer therapy.  Our focus is on product opportunities for oncology that leverage our internal clinical development and regulatory expertise and address important markets with unmet medical need. We may also seek to grow our existing portfolio of product candidates through product acquisition and in-licensing efforts.

Pralatrexate

Pralatrexate is a targeted antifolate designed to accumulate preferentially in cancer cells. Based on preclinical studies, we believe that pralatrexate selectively enters cells expressing RFC-1, a protein that is over expressed on certain cancer cells compared to normal cells. Once inside cancer cells, pralatrexate is efficiently polyglutamylated, which leads to high intracellular drug retention. Polyglutamylated pralatrexate essentially becomes “trapped” inside cancer cells, making it less susceptible to efflux-based drug resistance. Acting on the folate pathway, pralatrexate interferes with DNA synthesis and triggers cancer cell death. We believe pralatrexate has the potential to be delivered as a single agent or in combination therapy regimens.

In February 2009, we announced the final results from PROPEL, our pivotal Phase 2 trial of pralatrexate in patients with relapsed or refractory peripheral T-cell lymphoma, or PTCL.  The trial enrolled a total of 115 patients, 109 of whom were considered evaluable for response according to the trial protocol.  The results of the trial demonstrated that 29 of 109 evaluable patients, or 27%, achieved a response as assessed by central independent oncology review, which is the primary endpoint of the trial.  The Kaplan-Meier estimate for the median duration of response was 287 days, or 9.4 months.  Duration of response is the key secondary endpoint of the trial.  The most common grade 3/4 adverse events were thrombocytopenia, which was observed in 32% of patients; mucosal inflammation in 21% of patients; neutropenia in 20% of patients; and anemia in 17% of patients.

Based on the results of this trial, we submitted a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We have requested a priority review of the application, which, if granted, would give the FDA six months from receipt of the submission to take

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action on the application.  If it is approved for marketing, we intend to commercialize pralatrexate by building an oncology focused U.S. sales and marketing organization that may be complemented by co-promotion arrangements with pharmaceutical or biotechnology partners, where appropriate.  We intend to enter into co-promotion or out-licensing arrangements with other pharmaceutical or biotechnology partners, where necessary to reach foreign market segments that are not reachable by a U.S.-based sales force or when deemed strategically and economically advisable.  We currently retain exclusive worldwide commercial rights to pralatrexate for all indications.

The PROPEL trial was conducted under an agreement reached with the FDA under its special protocol assessment, or SPA, process. The SPA process allows for FDA evaluation of a clinical trial protocol intended to form the primary basis of an efficacy claim in support of an NDA, and provides an agreement that the trial design, including trial size, clinical endpoints and data analyses are acceptable to the FDA. However, the SPA agreement is not a guarantee of approval, and we cannot assure you that the design of, or data collected from, the PROPEL trial will be adequate to demonstrate the safety and efficacy of pralatrexate for the treatment of patients with relapsed or refractory PTCL, or otherwise be sufficient to support FDA or any foreign regulatory approval.  For example, the response rate, duration of response and safety profile required to support FDA approval are not specified in the PROPEL trial protocol and will be subject to FDA review.  In addition, the median duration of response reported above is a Kaplan-Meier estimate based on the length of follow up for all responders at the time the PROPEL trial database was locked. As a result, the median duration of response may change based on continued patient follow up.

In addition to the PROPEL trial, we are committed to evaluating pralatrexate for oncology use as a single agent and in combination with other therapies.  We currently have seven ongoing clinical trials involving pralatrexate, including the PROPEL trial, and plan to initiate additional trials to evaluate pralatrexate’s potential clinical utility in other hematologic malignancies and solid tumor indications.  The following clinical trials involving pralatrexate are currently open for enrollment:

·              a Phase 2b, randomized, multi-center study comparing pralatrexate and Tarceva (erlotinib), both with vitamin B 12  and folic acid supplementation, in patients with Stage IIIB/IV non-small cell lung cancer, or NSCLC, who are, or have been, cigarette smokers who have failed treatment with at least one prior platinum-based chemotherapy regimen.  We initiated patient enrollment in this study in January 2008. The study will seek to enroll a minimum of 160 patients in up to 50 investigative sites worldwide. Based on current enrollment rates, we expect to complete patient enrollment in this study in the third quarter of 2009.

·              a Phase 2, open-label, single-arm, multi-center study of pralatrexate with vitamin B 12  and folic acid supplementation in patients with advanced or metastatic relapsed transitional cell carcinoma, or TCC, of the urinary bladder.  We initiated patient enrollment in this study in July 2008.  The study will seek to enroll approximately 41 patients in up to 20 investigative sites worldwide.

·              a Phase 1/2a, open-label, multi-center study of pralatrexate and gemcitabine with vitamin B 12  and folic acid supplementation in patients with relapsed or refractory non-Hodgkin’s lymphoma, or NHL, and Hodgkin’s disease.  We initiated patient enrollment in this study in May 2007.  We plan to enroll up to 54 evaluable patients in the Phase 1 portion of the study and up to 45 additional patients in the expanded Phase 2a portion of the study.

·              a Phase 1, open-label, multi-center study of pralatrexate with vitamin B 12  and folic acid supplementation in patients with relapsed or refractory cutaneous T-cell lymphoma.  We initiated patient enrollment in this study in August 2007.  We plan to enroll up to 56 evaluable patients in the study with the objective of determining the optimal dose and safety profile, including at least 20 patients at what we believe to be the optimal dose and schedule.

·              a Phase 1/2, open-label, single-center study of pralatrexate with vitamin B 12  and folic acid supplementation in patients with relapsed or refractory NHL and Hodgkin’s disease.  This study is currently focused on exploring alternate dosing and administration schedules in patients with B-cell lymphoma to further evaluate pralatrexate’s potential clinical utility in this setting.

In addition to our ongoing NSCLC and bladder cancer studies, we are evaluating the potential future development of pralatrexate for other solid tumor indications, including Stage III/IV head and neck cancer and Stage III/IV breast cancer, among others.    There can be no assurances that we will pursue the development of pralatrexate for one or more of these indications or that such development efforts will be ultimately successful.

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The FDA has awarded orphan drug status to pralatrexate for the treatment of patients with T-cell lymphoma, follicular lymphoma and diffuse large B-cell lymphoma. Under the U.S. Orphan Drug Act, if we are the first company to receive FDA approval for pralatrexate for the designated orphan drug indication, we will obtain seven years of marketing exclusivity during which the FDA may not approve another company’s application for pralatrexate for the same orphan indication. Orphan drug exclusivity would not prevent FDA approval of a different drug for the orphan indication or the same drug for a different indication. The FDA has also awarded fast track designation to pralatrexate for the treatment of patients with T-cell lymphoma. The FDA’s fast track program is designed to facilitate the development and expedite the review of new drugs that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs.

The European Medicines Agency, or EMEA, has granted Orphan Medicinal Product Designation to pralatrexate for the treatment of PTCL and non-papillary TCC of the urinary bladder. The EMEA Orphan Medicinal Product Designation is intended to promote the development of drugs that may provide significant benefit to patients suffering from rare diseases identified as life-threatening or very serious. Under EMEA guidelines, Orphan Medicinal Product Designation provides ten years of potential market exclusivity once the product candidate is approved for marketing for the designated indication in the European Union.

In December 2002, we entered into a license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute. Under the agreement, as amended, we obtained exclusive worldwide rights to a portfolio of patents and patent applications related to pralatrexate and its uses. The portfolio currently consists of two issued patents in the United States, two allowed patent applications in Europe, and pending patent applications in the United States, Canada, Europe, Australia, Japan, China, Brazil, Indonesia, South Korea, Mexico, Norway, New Zealand, the Philippines, Singapore, and South Africa.

RH1

RH1 is a small molecule chemotherapeutic agent that we believe is bioactivated by the enzyme DT-diaphorase, or DTD, also known as NAD(P)H quinone oxidoreductase, or NQ01.  We believe DTD is over-expressed in many tumors, relative to normal tissue, including lung, colon, breast and liver tumors.  We believe that because RH1 is bioactivated in the presence of DTD, it may have the potential to provide targeted drug delivery to these tumor types while limiting the amount of toxicity to normal tissue.

In November 2007, we initiated patient enrollment in a Phase 1, open-label, multi-center dose escalation study of RH1 in patients with advanced solid tumors or NHL.  We have closed this study and are in the process of determining our future development plans, if any, for RH1.

Results of Operations

We are a development stage company. Since our inception in 1992, we have not generated any revenue from product sales and have experienced significant net losses and negative cash flows from operations. We have incurred these losses principally from costs incurred in our research and development programs, clinical manufacturing and from our marketing, general and administrative expenses. Our ability to generate revenue and achieve profitability is dependent on our ability, alone or with partners, to successfully complete the development of pralatrexate, conduct clinical trials, obtain the necessary regulatory approvals, and manufacture and market pralatrexate. The timing and costs to complete the successful development of pralatrexate  is highly uncertain, and therefore difficult to estimate. The lengthy process of seeking regulatory approvals for pralatrexate, and the subsequent compliance with applicable regulations, require the expenditure of substantial resources. Clinical development timelines, likelihood of success and total costs vary widely and are impacted by a variety of risks and uncertainties, including those discussed in the “Risk Factors” section of Part II, Item 1A below. Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of pralatrexate or the ultimate costs of such efforts. Due to these same factors, we cannot be certain when, or if, we will generate any revenue or net cash inflow from pralatrexate.

Even if our clinical trials demonstrate the safety and effectiveness of pralatrexate in its target indications, we do not expect to be able to generate commercial sales of pralatrexate until the second half of 2009, at the earliest. We expect to continue incurring net losses and negative cash flows for the foreseeable future.  Although the size and timing of our future net losses are subject to significant uncertainty, we expect them to increase over the next several years as we continue to fund our

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research and development programs, prepare for the potential commercial launch of pralatrexate, and commercialize pralatrexate for the treatment of patients with relapsed or refractory PTCL, if it is approved for marketing.

We anticipate continuing our current development programs and/or beginning other long-term development projects involving pralatrexate. These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we submitted an NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We have requested a priority review of the application, which, if granted, would give the FDA six months from receipt of the submission to take action on the application.  We expect to incur significant costs relating to the potential commercialization of pralatrexate, including pre-commercial scale up of manufacturing and development of sales and marketing capabilities.  Therefore, we will need to raise additional capital to support our future operations, including the potential commercialization of pralatrexate if approved for marketing.  Our actual capital requirements will depend on many factors, including those discussed under the “Liquidity and Capital Resources” section below.

Comparison of three months ended March 31, 2009 and 2008

Research and Development.  Research and development expenses include the costs of certain personnel, basic research, preclinical studies, clinical trials, regulatory affairs, biostatistical data analysis and licensing fees for our product candidates.  Research and development expenses for the three months ended March 31, 2009 and 2008 were $5.7 million and $6.0 million, respectively.  The $269,000 decrease in research and development expenses in the three months ended March 31, 2009 as compared to the same period in 2008 was primarily due to a $663,000 decrease in clinical trial costs involving pralatrexate, including decreased costs for PROPEL which completed patient enrollment in April 2008.  This decrease was partially offset by a $525,000 increase related to key personnel changes, mainly attributable to additional headcount and increases in compensation costs year over year.

For the remainder of 2009, we expect our average quarterly research and development expenses to increase relative to the amount recorded for the three months ended March 31, 2009 due to the following:

·           potential increases in licensing costs for pralatrexate, as $1.5 million of regulatory milestone payments under the license agreement for pralatrexate will become due if the FDA accepts our NDA for review in 2009 and $5.3 million of regulatory milestone payments under the license agreement for pralatrexate will become due if the FDA approves pralatrexate for marketing in the United States in 2009;

·           an increase in personnel costs primarily resulting from additional headcount; and

·           an increase in non-cash stock-based compensation expense related to grants for new employees and a full quarter of expense related to our annual grants to existing employees that occurred at the end of February 2009.

Clinical Manufacturing.  Clinical manufacturing expenses include the costs of certain personnel, third-party manufacturing costs for development of drug materials for use in clinical trials and preclinical studies, and costs associated with pre-commercial scale-up of manufacturing to support anticipated regulatory and potential commercial requirements.  Clinical manufacturing expenses for the three months ended March 31, 2009 and 2008 were $2.7 million and $1.6 million, respectively.  The $1.1 million increase in clinical manufacturing expenses in the three months ended March 31, 2009 as compared to the same period in 2008 was primarily due to the following:

·                   an $829,000 increase in third-party manufacturing costs for clinical trial material and pre-commercial scale-up activities for pralatrexate; and

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·                   a $392,000 increase in consulting expenses, primarily related to preparations for submission of the NDA to the FDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.

For the remainder of 2009, we expect our average quarterly clinical manufacturing expenses to increase relative to the amount recorded for the three months ended March 31, 2009 due to the following:

·                   an increase in third-party manufacturing costs for pralatrexate to support ongoing and planned clinical trials and pre-commercial scale-up;

·                   an increase in personnel costs primarily resulting from additional headcount; and

·                   an increase in non-cash stock-based compensation expense related to grants for new employees and a full quarter of expense related to our annual grants to existing employees which occurred at the end of February 2009.

Marketing, General and Administrative.   Marketing, general and administrative expenses include costs for pre-marketing activities, corporate development, executive administration, corporate offices and related infrastructure.  Marketing, general and administrative expenses for the three months ended March 31, 2009 and 2008 were $7.0 million and $5.0 million, respectively.  The $2.0 million increase in marketing, general and administrative expenses in the three months ended March 31, 2009 as compared to the same period in 2008 was primarily due to the following:

·                   a $1.1 million increase related to pre-commercial planning activities for pralatrexate; and

·                   a $413,000 increase related to key personnel changes and related travel costs, mainly attributable to additional headcount and increases in compensation costs year over year.

For the remainder of 2009, we expect our average quarterly marketing, general and administrative expenses to increase relative to the amount recorded for the three months ended March 31, 2009 due to the following:

·                   an increase in non-cash stock-based compensation expense related to grants for new employees and a full quarter of expense related to our annual equity grants to existing employees that occurred at the end of February 2009;

·                   an increase in costs relating to pre-commercial planning activities for pralatrexate; and

·                   an increase in personnel costs, primarily resulting from additional headcount related to preparation for the potential commercial launch of pralatrexate, if it is approved for marketing.

Stock-based Compensation Expense.  Stock-based compensation expense for the three months ended March 31, 2009 and 2008 has been recognized in our Statements of Operations as follows:

Of the $2.4 million of stock-based compensation recognized in the three months ended March 31, 2009, $2.2 million was related to our stock option plans, $133,000 related to restricted stock and restricted stock units and $21,000 related to our employee stock purchase plan.  Of the $2.1 million of stock-based compensation recognized in the three months ended March 31, 2008, $1.9 million was related to our stock option plans, $147,000 related to restricted stock and $20,000 related to our employee stock purchase plan.  The $264,000 increase in stock-based compensation expense in the three months ended March 31, 2009 as compared to the same period in 2008 was primarily due to the increase in the number of options granted resulting from grants for new employees and our annual grants to existing employees that occurred in February 2009.

As of March 31, 2009, the unrecorded stock-based compensation balance related to stock option awards was $10.9 million and will be recognized over an estimated weighted-average amortization period of 1.5 years. As of March 31, 2009, the unrecorded stock-based compensation balance related to restricted stock unit awards was $849,000 and will be recognized

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over an estimated weighted-average amortization period of 1.7 years.  As of March 31, 2009, the unrecorded stock-based compensation balance related to restricted stock awards was $248,000 and will be recognized over an estimated weighted-average amortization period of 1.3 years.

Interest and Other Income, Net .  Interest income, net of interest expense, for the three months ended March 31, 2009 and 2008 was $173,000 and $565,000, respectively.  The $392,000 decrease in net interest income in the three months ended March 31, 2009 as compared to the same period in 2008 was primarily due to lower yields on our cash, cash equivalents and investments in marketable securities, and a realized loss of approximately $157,000 on the sale of certain of our investments in marketable securities during the three months ended March 31, 2009.  In response to the instability in the global financial markets, we reviewed our investments in marketable securities and sold certain investments during the three months ended March 31, 2009 prior to their maturity in order to preserve our principal, as the issuers of these securities experienced significant deteriorations in their creditworthiness as evidenced by investment rating downgrades.  We have the ability and intent to hold our remaining investments in marketable securities as of March 31, 2009 to their scheduled maturity, although we monitor our investment portfolio with the primary objectives of preserving principal and maintaining proper liquidity to meet our operating needs.

Liquidity and Capital Resources

As of March 31, 2009, we had $72.5 million in cash, cash equivalents, and investments in marketable securities.  Until required for use in our business, we invest our cash reserves in bank deposits, money market funds, high-grade corporate notes and U.S. government instruments in accordance with our investment policy.  The weighted average duration of the remaining time to maturity for our portfolio of investments in marketable securities as of March 31, 2009 was approximately three months.   Our investments in marketable securities as of March 31, 2009 primarily consisted of high-grade corporate notes. We did not hold any derivative instruments, foreign exchange contracts, asset backed securities, mortgage backed securities, auction rate securities, or securities of issuers in bankruptcy in our investment portfolio as of March 31, 2009.  Our liquidity, capital resources and results of operations may be adversely affected by future declines in the value of our investments in marketable securities.  The value of our investments in marketable securities may be adversely affected by rating downgrades or bankruptcies affecting the issuers of such securities, whether caused by instability in the global financial markets, lack of liquidity in the credit and capital markets, or other factors.  We have the ability and intent to hold our remaining investments in marketable securities as of March 31, 2009 to their scheduled maturity, although we monitor our investment portfolio with the primary objectives of preserving principal and maintaining proper liquidity to meet our operating needs.

Since our inception, we have financed our operations primarily through public and private sales of our equity securities, which have resulted in net proceeds to us of $329.7 million through March 31, 2009.  On April 3, 2009, we completed an underwritten public offering of 7,750,000 shares of our common stock at the public offering price of $6.30 per share, (the April 2009 Financing). We received net proceeds from the offering of approximately $46.8 million, after deducting underwriting commissions and estimated offering expenses. We plan to use the net proceeds from the offering primarily for activities relating to preparations for the potential commercial launch of pralatrexate, clinical and preclinical research and development of pralatrexate, working capital and general corporate purposes. We have also generated $23.7 million of net interest income since our inception from investing the net proceeds of these financings.

We have used $250.3 million of cash for operating activities from our inception through March 31, 2009.  Net cash used to fund our operating activities for the three months ended March 31, 2009 and 2008 was $11.9 million and $9.3 million, respectively.

For fiscal year 2009, we currently anticipate that net cash use in operating activities will approximate $55 to $60 million.  Our 2009 financial guidance includes the phase-in of certain key investments related to the potential commercialization of pralatrexate, as well as $1.5 million and $5.3 million of potential milestone payments under our license agreement for pralatrexate payable upon FDA acceptance of our NDA for review and FDA approval to market pralatrexate, respectively.

Net cash provided by investing activities for the three months ended March 31, 2009 was $27.3 million and consisted primarily of proceeds from maturities and sales of investments in marketable securities.  Net cash provided by investing activities for the three months ended March 31, 2008 was $4.1 million and consisted primarily of proceeds from maturities of investments in marketable securities, partially offset by the purchase of investments in marketable securities.

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Net cash provided by financing activities for the three months ended March 31, 2009 was $1.2 million and consisted primarily of proceeds associated with the exercise of common stock options.  On April 3, 2009, we completed the April 2009 Financing and we received net proceeds of approximately $46.8 million, after deducting underwriting commissions and estimated offering expenses. Net cash provided by financing activities for the three months ended March 31, 2008 was $2.3 million and consisted primarily of proceeds associated with the exercise of common stock options.

Based upon the current status of our product development plans, we believe that our cash, cash equivalents, and investments in marketable securities as of March 31, 2009, together with the net proceeds from the April 2009 Financing, should be adequate to support our operations through at least the next 12 months, although there can be no assurance that this can, in fact, be accomplished. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

We anticipate continuing our current development programs and/or beginning other long-term development projects involving pralatrexate. These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we submitted an NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We have requested a priority review of the application, which, if granted, would give the FDA six months from receipt of the submission to take action on the application.  If the FDA accepts our NDA for review and if we obtain FDA approval to market pralatrexate, we will be obligated to make license fee payments of $1.5 million and $5.3 million, respectively.  We expect to incur significant costs relating to the potential commercialization of pralatrexate, including pre-commercial scale up of manufacturing and development of sales and marketing capabilities. Therefore, we will need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

·        the timing and outcome of our NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL;

·        the timing and costs associated with developing sales and marketing capabilities and commercializing pralatrexate, if it is approved for marketing;

·        the timing and costs associated with manufacturing clinical and commercial supplies of pralatrexate;

·        the timing and amount of revenues generated by our business activities, if any;

·        the timing and costs associated with conducting preclinical and clinical development of pralatrexate, as well as our evaluation of, and decisions with respect to, additional therapeutic indications for which we may develop pralatrexate;

·        the timing, costs and potential revenue associated with any co-promotion or other partnering arrangements entered into to commercialize pralatrexate, if it is approved for marketing; and

·        our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources. Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders. However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us. In particular, the current instability in the global financial markets and lack of liquidity in the credit and capital markets may adversely affect our ability to secure adequate capital to support our future operations.  In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development, which we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.  If we are unable to generate meaningful amounts of revenue from future product sales, if any, or cannot otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for revenue and profitability may be harmed.

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Obligations and Commitments

Royalty and License Fee Commitments for Pralatrexate

In December 2002, we entered into a license agreement with Memorial Sloan-Kettering Cancer Center, SRI International and Southern Research Institute, as amended, under which we obtained exclusive worldwide rights to a portfolio of patents and patent applications related to pralatrexate and its uses. Under the terms of the agreement, we paid an up-front license fee of $2.0 million upon execution of the agreement and are also required to make certain additional cash payments based upon the achievement of certain clinical development or regulatory milestones or the passage of certain time periods. To date, we have made aggregate milestone payments of $2.5 million based on the passage of time. In the future, we could make an aggregate milestone payment of $500,000 upon the earlier of achievement of a clinical development milestone or the passage of certain time periods, or the Clinical Milestone, and up to $10.3 million upon achievement of certain regulatory milestones, or the Regulatory Milestones, including regulatory approval to market pralatrexate in the United States or Europe. The last scheduled payment towards the Clinical Milestone of $500,000 is currently due on December 23, 2009. We submitted an NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We have requested a priority review of the application, which, if granted, would give the FDA six months from receipt of the submission to take action on the application.  If the FDA accepts our NDA for review and if we obtain FDA approval to market pralatrexate, we will be obligated to make payments of $1.5 million and $5.3 million, respectively, which represent a portion of the Regulatory Milestones. The up-front license fee and all milestone payments under the agreement have been or will be recorded to research and development expense when incurred. Under the terms of the agreement, we are required to fund all development programs and will have sole responsibility for all commercialization activities. In addition, we will pay the licensors a royalty based on a percentage of net revenues arising from sales of the product or sublicense revenues arising from sublicensing the product, if and when such sales or sublicenses occur.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses.  We base our estimates on historical experience, available information and assumptions that we believe to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  For a description of our critical accounting policies, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as amended.

Recent Accounting Pronouncements

For a description of our recent accounting pronouncements, please see Note 7 of the unaudited March 31, 2009 financial statements included herein.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments as of March 31, 2009 consisted of cash, cash equivalents, investments in marketable securities, and accounts payable.  All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.  We invest in marketable securities in accordance with our investment policy.  The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields.  Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.  The weighted average duration of the remaining time to maturity for our portfolio of investments in marketable securities as of March 31, 2009 was approximately three months.  As of March 31, 2009, our investments in marketable securities of $25.5 million were all classified as held-to-maturity and were held in a variety of interest-bearing instruments, consisting mainly of high-grade corporate notes. We did not hold any derivative instruments, foreign exchange contracts, asset backed securities, mortgage backed securities, auction rate securities, or securities of issuers in bankruptcy in our investment portfolio as of March 31, 2009.  The value of our investments in marketable securities may be adversely affected by rating downgrades or bankruptcies affecting the issuers of such securities, whether caused by instability in the global financial markets, lack of liquidity in the credit and capital markets, or other factors.  In response to the recent instability in the global financial markets, we reviewed our investments in marketable securities and sold certain investments that we deemed to have increased risk during the three months ended March 31, 2009.  We have the ability and intent to hold our remaining investments in marketable securities as of March 31, 2009 to their scheduled maturity, although we monitor our investment portfolio with the primary objectives of preserving principal and maintaining proper liquidity to meet our operating needs.

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Investments in fixed-rate interest-earning instruments carry varying degrees of interest rate risk.  The fair market value of our fixed-rate securities may be adversely impacted due to a rise in interest rates.  In general, securities with longer maturities are subject to greater interest-rate risk than those with shorter maturities.  Due in part to this factor, our interest income may fall short of expectations or we may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates.  Due to the short duration of our investment portfolio, we believe an immediate 10% change in interest rates would not be material to our financial condition or results of operations.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of March 31, 2009 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

No Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the three months ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. In the first quarter of 2009, we implemented new accounting software in preparation for our potential growth and the commercialization of pralatrexate.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We were named as a defendant in a purported securities class action lawsuit filed in May 2004 seeking unspecified damages relating to the issuance of allegedly false and misleading statements regarding EFAPROXYN during the period from May 29, 2003 to April 29, 2004 and subsequent declines in our stock price. In an opinion dated October 20, 2005, the U.S. District Court for the District of Colorado concluded that the plaintiffs’ complaint failed to meet the legal requirements applicable to its alleged claims and dismissed the lawsuit. On November 20, 2005, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Tenth Circuit. On February 6, 2008, the parties signed a stipulation of settlement, settling the case for $2,000,000. The settlement was subject to various conditions, including without limitation approval of the District Court.  On January 29, 2009, the District Court issued its Order and Final Judgment approving the settlement, including the releases of the defendants for which the settlement provided.  Neither we nor our former officer, who was also named as a defendant, admitted any liability in connection with the settlement.  The amount of the settlement in excess of our deductible was covered by our insurance carrier.  The period to appeal the District Court’s approval of the settlement lapsed during the three months ended March 31, 2009 without any further appeals being filed and the settlement is final. As of March 31, 2009, we have been released of our obligation related to this lawsuit and have no accrual remaining related to the settlement.

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ITEM 1A.  RISK FACTORS

Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or which we currently do not believe are material. If any of the events or circumstances described in the following risk factors actually occurs, they may materially harm our business, financial condition, operating results and cash flow. As a result, the market price of our common stock could decline. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, operating results and financial condition.  Stockholders and potential investors in shares of our common stock should carefully consider the following risk factors, which hereby update those risks contained in the “Risk Factors” section of our Annual Report on Form 10-K  for the year ended December 31, 2008, as amended, in addition to other information and risk factors in this report.  We are identifying these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by or on behalf of the Company.  We are relying upon the safe harbor for all forward-looking statements in this report, and any such statements made by or on behalf of the Company are qualified by reference to the following cautionary statements, as well as to those set forth elsewhere in this report. We consistently update and include our risk factors in our Quarterly Reports on Form 10-Q. Risk factors that have been substantively changed from those set forth in our Annual Report on Form 10-K for the period ended December 31, 2008, as amended, have been marked with an asterisk immediately following the heading of such risk factor.

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

Since our inception in 1992, we have not generated any revenue from product sales and have experienced significant net losses and negative cash flows from operations. To date, we have financed our operations primarily through the public and private sale of securities.  For the three months ended March 31, 2009, we had a net loss of $15.2 million.  As of March 31, 2009, we had accumulated a deficit during our development stage of $314.8 million.  We have incurred these losses principally from costs incurred in our research and development programs, clinical manufacturing and from our marketing, general and administrative expenses. We expect to continue incurring net losses for the foreseeable future. Our ability to generate revenue and achieve profitability is dependent on our ability, alone or with partners, to successfully complete the development of pralatrexate, conduct clinical trials, obtain the necessary regulatory approvals, and manufacture and market pralatrexate. We may never generate revenue from product sales or become profitable. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for pralatrexate, and in preparing for the potential commercial launch of pralatrexate. We may not be able to continue as a going concern if we are unable to generate meaningful amounts of revenue to support our operations or cannot otherwise raise the necessary funds to support our operations.

Our near-term prospects are substantially dependent on pralatrexate, our lead product candidate.  If we are unable to successfully develop and obtain regulatory approval for pralatrexate for the treatment of patients with relapsed or refractory PTCL, our ability to generate revenue will be significantly delayed.

We currently have no products that are approved for commercial sale. Our product candidates are in various stages of development, and significant research and development, financial resources and personnel will be required to develop commercially viable products, obtain the necessary regulatory approvals therefor, and successfully commercialize them.  Substantially all of our efforts and expenditures over the next few years will be devoted to pralatrexate as we have closed our Phase 1 clinical study of RH1 in patients with advanced solid tumors or NHL and are in the process of determining our future development plans, if any, for RH1. Accordingly, our future prospects are substantially dependent on the successful development, regulatory approval and commercialization of pralatrexate for the treatment of patients with relapsed or refractory PTCL. Even if we receive regulatory approval, pralatrexate is not expected to be commercially available for this or any other indication until at least the second half of 2009. Further, certain of the indications that we are pursuing  for pralatrexate have relatively low incidence rates, which may make it difficult for us to enroll a sufficient number of patients in our clinical trials on a timely basis, or at all, and may limit the revenue potential of pralatrexate. If we are unable to successfully develop, obtain regulatory approval for and commercialize pralatrexate for the treatment of patients with relapsed or refractory PTCL, our ability to generate revenue from product sales will be significantly delayed and our stock price would likely decline.

We cannot predict when or if we will obtain regulatory approval to commercialize pralatrexate.

Pralatrexate is in the clinical stage of development and has not been approved for marketing in the United States or any other

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country. A pharmaceutical product cannot be marketed in the United States or most other countries until it has completed a rigorous and extensive regulatory review and approval process. If we fail to obtain regulatory approval to market pralatrexate, we will be unable to sell pralatrexate and generate revenue, which would jeopardize our ability to continue operating our business. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use. We may not obtain regulatory approval for pralatrexate, or we may not obtain regulatory review of pralatrexate in a timely manner.

While we have negotiated a special protocol assessment with the FDA relating to our PROPEL trial, this agreement does not guarantee any particular outcome from regulatory review of the trial or the product, including any regulatory approval.

The protocol for the PROPEL trial was reviewed by the FDA under its special protocol assessment, or SPA process, which allows for FDA evaluation of a clinical trial protocol intended to form the primary basis of an efficacy claim in support of a new drug application, and provides an agreement that the study design, including trial size, clinical endpoints and/or data analyses are acceptable to the FDA. However, the SPA agreement is not a guarantee of approval, and we cannot be certain that the design of, or data collected from, the PROPEL trial will be adequate to demonstrate the safety and efficacy of pralatrexate for the treatment of patients with relapsed or refractory PTCL, or otherwise be sufficient to support FDA or any foreign regulatory approval.  In addition, the response rate, duration of response and safety profile required to support FDA approval are not specified in the PROPEL trial protocol and will be subject to FDA review. Further, the SPA agreement is not binding on the FDA if public health concerns unrecognized at the time the SPA agreement was entered into become evident, other new scientific concerns regarding product safety or efficacy arise, or if we fail to comply with the agreed upon trial protocols. In addition, the SPA agreement may be changed by us or the FDA on written agreement of both parties, and the FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from the PROPEL trial. As a result, we do not know how the FDA will interpret the parties’ respective commitments under the SPA agreement, how it will interpret the data and results from the PROPEL trial, or whether pralatrexate will receive any regulatory approvals as a result of the SPA agreement or the PROPEL trial. Therefore, despite the potential benefits of the SPA agreement, significant uncertainty remains regarding the clinical development and regulatory approval process for pralatrexate for the treatment of patients with relapsed or refractory PTCL.

Even if pralatrexate meets safety and efficacy endpoints in clinical trials, regulatory authorities may not approve pralatrexate, or we may face post-approval problems that require withdrawal of pralatrexate from the market.

The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country.  We will not be able to commercialize pralatrexate until we have obtained regulatory approval. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may place us at risk of delays, overspending and human resources inefficiencies.

Pralatrexate may not be approved even if it achieves its endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors, may disagree with our interpretations of data from preclinical studies and clinical trials. The FDA has substantial discretion in the approval process, and when or whether regulatory approval will be obtained for any drug we develop. For example, even though we established an SPA with the FDA for our PROPEL trial, there is no guarantee that the data generated from the PROPEL trial will be adequate to support FDA approval. Regulatory agencies also may approve a product candidate for fewer conditions than requested or may grant approval subject to the performance of post-marketing studies or risk evaluation and mitigation strategies (REMS) for a product candidate. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of pralatrexate.

Even if we receive regulatory approval, pralatrexate may later produce adverse events that limits or prevents its widespread use or that force us to withdraw pralatrexate from the market. In addition, a marketed product continues to be subject to strict regulation after approval and may be required to undergo post-approval studies. Any unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market. Any delay in or failure to receive or maintain regulatory approval for pralatrexate could harm our business and prevent us from ever generating meaningful revenues or achieving profitability.

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Even if we receive regulatory approval for pralatrexate, we will be subject to ongoing regulatory obligations and review.

Following any regulatory approval of pralatrexate, we will be subject to continuing regulatory obligations such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of pralatrexate. In addition, we or our third-party manufacturers will be required to adhere to regulations setting forth the FDA’s current Good Manufacturing Practices, or cGMP. These regulations cover all aspects of the manufacturing, storage, testing, quality control and record keeping relating to pralatrexate. Furthermore, we or our third-party manufacturers must pass a pre-approval inspection of manufacturing facilities by the FDA and foreign authorities before obtaining marketing approval and will be subject to periodic inspection by these regulatory authorities to ensure strict compliance with cGMP or other applicable government regulations and corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and standards. Such inspections may result in compliance issues that could prevent or delay marketing approval, or require the expenditure of substantial financial or other resources to address. If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

We will need to raise additional capital to support our future operations.  If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop or commercialize pralatrexate. *

Based upon the current status of our product development plans, we believe that our cash, cash equivalents, and investments in marketable securities as of March 31, 2009, together with the net proceeds from the April 2009 Financing, should be adequate to support our operations through at least the next 12 months, although there can be no assurance that this can, in fact, be accomplished.  We anticipate continuing our current development programs and/or beginning other long-term development projects involving pralatrexate. These projects may require many years and substantial expenditures to complete and may ultimately be unsuccessful.  In addition, we submitted an NDA to the FDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We expect to incur significant costs relating to the potential commercialization of pralatrexate, including pre-commercial scale up of manufacturing and development of sales and marketing capabilities.  Therefore, we will need to raise additional capital to support our future operations.  Our actual capital requirements will depend on many factors, including:

·        the timing and outcome of our NDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL;

·        the timing and costs associated with developing sales and marketing capabilities and commercializing pralatrexate, if it is approved for marketing;

·        the timing and costs associated with manufacturing clinical and commercial supplies of pralatrexate;

·        the timing and amount of revenues generated by our business activities, if any;

·        the timing and costs associated with conducting preclinical and clinical development of pralatrexate, as well as our evaluation of, and decisions with respect to, additional therapeutic indications for which we may develop pralatrexate;

·        the timing, costs and potential revenue associated with any co-promotion or other partnering arrangements entered into to commercialize pralatrexate, if it is approved for marketing; and

·             our evaluation of, and decisions with respect to, potential in-licensing or product acquisition opportunities or other strategic alternatives.

We may seek to obtain this additional capital through equity or debt financings, arrangements with corporate partners, or from other sources. Such financings or arrangements, if successfully consummated, may be dilutive to our existing stockholders. However, there is no assurance that additional financing will be available when needed, or that, if available, we will obtain such financing on terms that are favorable to our stockholders or us. In particular, the current instability in the global financial markets and lack of liquidity in the credit and capital markets may adversely affect our ability to secure adequate capital to support our future operations.  In the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development that we might otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.  If we are unable to generate meaningful amounts of revenue

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from future product sales, if any, or cannot otherwise raise sufficient additional funds to support our operations, we may be required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for revenue and profitability may be harmed.

Budget constraints may force us to delay our efforts to develop pralatrexate for certain indications in favor of developing it for other indications, which may prevent us from commercializing pralatrexate for all desired indications as quickly as possible.

Because we have limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget. As a result, we may have to prioritize development of pralatrexate for certain indications and may not be able to fully realize the value of pralatrexate for other indications in a timely manner, if at all.

If pralatrexate fails to meet safety and efficacy endpoints in clinical trials, it will not receive regulatory approval and we will be unable to market pralatrexate. *

Pralatrexate may not prove to be safe and efficacious in clinical trials and may not meet all of the applicable regulatory requirements needed to receive regulatory approval. The clinical development and regulatory approval process is expensive and takes many years. Failure can occur at any stage of development, and the timing of any regulatory approval cannot be accurately predicted. In addition, failure to comply with the FDA and other applicable U.S. and foreign regulatory requirements applicable to clinical trials may subject us to administrative or judicially imposed sanctions.

As part of the regulatory process, we must conduct clinical trials for pralatrexate and any other product candidate to demonstrate safety and efficacy to the satisfaction of the FDA and other regulatory authorities abroad. The number and design of clinical trials that will be required varies depending on the product candidate, the condition being evaluated, the trial results and regulations applicable to any particular product candidate. The design of our pralatrexate clinical trials is based on many assumptions about the expected effect of pralatrexate, and if those assumptions prove incorrect, the clinical trials may not demonstrate the safety or efficacy of pralatrexate. Preliminary results may not be confirmed upon full analysis of the detailed results of a trial, and prior clinical trial program designs and results may not be predictive of future clinical trial designs or results. Product candidates in later stage clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials with acceptable endpoints. For example, we terminated the development of EFAPROXYN, one of our former product candidates, when it failed to demonstrate statistically significant improvement in overall survival in the targeted patients in a Phase 3 clinical trial. If pralatrexate fails to show clinically significant benefits, it will not be approved for marketing.

Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. Data obtained from preclinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances, and the FDA can request that we conduct additional clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. In addition, negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or terminated. Also, failure to construct clinical trial protocols to screen patients for risk profile factors relevant to the trial for purposes of segregating patients into the patient populations treated with the drug being tested and the control group could result in either group experiencing a disproportionate number of adverse events and could cause a clinical trial to be repeated or terminated. If we have to conduct additional clinical trials for pralatrexate, it would significantly increase our expenses and delay potential marketing of pralatrexate.

We announced the final results from our pivotal Phase 2 PROPEL trial in February 2009. Based on the results of the trial, we submitted an NDA to the FDA for pralatrexate for the treatment of patients with relapsed or refractory PTCL in March 2009.  We cannot assure you that the design of, or data collected from, the PROPEL trial will be adequate to demonstrate the safety and efficacy of pralatrexate for the treatment of patients with relapsed or refractory PTCL, or otherwise be sufficient to support FDA or any foreign regulatory approval. The FDA may disagree with our interpretation of the results of the trial and determine that the data are not sufficient to support approval. If we fail to obtain regulatory approval for pralatrexate, we will be unable to market and sell pralatrexate and therefore may never generate meaningful amounts of revenue or become profitable.

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We may experience delays in our clinical trials that could adversely affect our financial position and our commercial prospects.

We do not know when our current clinical trials will be completed, if at all. We also cannot accurately predict when other planned clinical trials will begin or be completed. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating. Other companies are conducting clinical trials and have announced plans for future trials that are seeking or likely to seek patients with the same diseases as those we are studying. Competition for patients in some cancer trials is particularly intense because of the limited number of leading specialist physicians and the geographic concentration of major clinical centers.

As a result of the numerous factors that can affect the pace of progress of clinical trials, our trials may take longer to enroll patients than we anticipate, if they can be completed at all. Delays in patient enrollment in the trials may increase our costs and slow our product development and approval process. Our product development costs will also increase if we need to perform more or larger clinical trials than planned. If other companies’ product candidates show favorable results, we may be required to conduct additional clinical trials to address changes in treatment regimens or for our products to be commercially competitive. Any delays in completing our clinical trials will delay our ability to generate revenue from product sales, and we may have insufficient capital resources to support our operations. Even if we do have sufficient capital resources, our ability to become profitable will be delayed.

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.

Clinical trials must be conducted in accordance with the FDA’s current Good Clinical Practices or other applicable foreign government guidelines and are subject to oversight by the FDA, other foreign governmental agencies and Institutional Review Boards at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced under cGMP and may require large numbers of test subjects. Clinical trials may be suspended by the FDA, other foreign governmental agencies, or us for various reasons, including:

·                   deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;

·                   deficiencies in the clinical trial operations or trial sites;

·                   the product candidate may have unforeseen adverse side effects;

·                   the time required to determine whether the product candidate is effective may be longer than expected;

·                   fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;

·                   the product candidate may not appear to be more effective than current therapies;

·                   the quality or stability of the product candidate may fall below acceptable standards; or

·                   we may not be able to produce sufficient quantities of the product candidate to complete the trials.

In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to Institutional Review Boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. Due to these and other factors, pralatrexate could take a significantly longer time to gain regulatory approval than we expect or may never gain approval, which could reduce or eliminate our revenue by delaying or terminating the potential commercialization of pralatrexate.

Reports of adverse events or safety concerns involving pralatrexate or in related technology fields or other companies’ clinical trials could delay or prevent us from obtaining regulatory approval or negatively impact public perception of pralatrexate.

Pralatrexate may produce serious adverse events. These adverse events could interrupt, delay or halt clinical trials of pralatrexate and could result in the FDA or other regulatory authorities denying approval of pralatrexate for any or all targeted indications. An independent data safety monitoring board, the FDA, other regulatory authorities or we may suspend

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or terminate clinical trials at any time. We cannot assure you that pralatrexate or any other product candidate will be safe for human use.

At present, there are a number of clinical trials being conducted by other pharmaceutical companies involving small molecule chemotherapeutic agents. If other pharmaceutical companies announce that they observed frequent adverse events or unknown safety issues in their trials involving compounds similar to, or competitive with, pralatrexate, we could encounter delays in the timing of our clinical trials or difficulties in obtaining the approval of pralatrexate. In addition, the public perception of pralatrexate might be adversely affected, which could harm our business and results of operations and cause the market price of our common stock to decline, even if the concern relates to another company’s product or product candidate.

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

We rely primarily on third parties to conduct our clinical trials, including the PROPEL trial. As a result, we have had and will continue to have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, any of which may adversely affect their willingness or ability to conduct our trials. We may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

We do not have manufacturing facilities or capabilities and are dependent on third parties to fulfill our manufacturing needs, which could result in the delay of clinical trials, regulatory approvals, product introductions and commercial sales.

We are dependent on third parties for the manufacture and storage of pralatrexate for clinical trials and, if approved, for commercial sale. If we are unable to contract for a sufficient supply of pralatrexate on acceptable terms, or if we encounter delays or difficulties in the manufacturing process or our relationships with our manufacturers, we may not have sufficient product to conduct or complete our clinical trials or support commercial requirements for pralatrexate, if it is approved for marketing.

Pralatrexate is cytotoxic, which requires the manufacturers of pralatrexate to have specialized equipment and safety systems to handle such a substance. In addition, the starting materials for pralatrexate require custom preparations, which will require us to manage an additional set of suppliers to obtain the needed supplies of pralatrexate.

Given our lack of formal supply agreements and the fact that in many cases our components are supplied by a single source, our third party suppliers may not be able to fulfill our potential commercial needs or meet our deadlines, or the components they supply to us may not meet our specifications and quality policies and procedures. If we need to find an alternative supplier of pralatrexate or its components, we may not be able to contract for those components on acceptable terms, if at all. Any such failure to supply or delay caused by such suppliers would have an adverse effect on our ability to continue clinical development of pralatrexate or commercialize pralatrexate, if it is approved for marketing.

Even if we obtain approval to market pralatrexate in one or more indications, our current or future manufacturers may be unable to accurately and reliably manufacture commercial quantities of pralatrexate at reasonable costs, on a timely basis and in compliance with the FDA’s cGMP. If our current or future contract manufacturers fail in any of these respects, our ability to timely complete our clinical trials, obtain required regulatory approvals and successfully commercialize pralatrexate will be materially and adversely affected. This risk may be heightened with respect to pralatrexate as there are a limited number of fill/finish manufacturers with the ability to handle cytotoxic products such as pralatrexate. Our reliance on contract manufacturers exposes us to additional risks, including:

·        our current and future manufacturers are subject to ongoing, periodic, unannounced inspections by the FDA and corresponding state and international regulatory authorities for compliance with strictly enforced cGMP regulations and similar state and foreign standards, and we do not have control over our contract manufacturers’ compliance with

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these regulations and standards;

·        our manufacturers may not be able to comply with applicable regulatory requirements, which would prohibit them from manufacturing products for us;

·        our manufacturers may have staffing difficulties, may undergo changes in control or may become financially distressed, adversely affecting their willingness or ability to manufacture products for us;

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

·        if we need to change to other commercial manufacturing contractors, the FDA and comparable foreign regulators must approve our use of any new manufacturer, which would require additional testing, regulatory filings and compliance inspections, and the new manufacturers would have to be educated in, or themselves develop substantially equivalent processes necessary for, the production of our products; and

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

Any of these factors could result in the delay of clinical trials, regulatory submissions, required approvals or commercialization of pralatrexate. They could also entail higher costs and result in our being unable to effectively commercialize pralatrexate.

If we are unable to effectively protect our intellectual property, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize pralatrexate. In addition, enforcing our proprietary rights may be expensive and result in increased losses.

Our success will depend in part on our ability to obtain and maintain meaningful patent protection for pralatrexate, both in the United States and in other countries. We rely on patents to protect a large part of our intellectual property and our competitive position. Any patents issued to or licensed by us could be challenged, invalidated, infringed, circumvented or held unenforceable, based on, among other things, obviousness, inequitable conduct, anticipation or enablement. In addition, it is possible that no patents will issue on any of our licensed patent applications. It is possible that the claims in patents that have been issued or licensed to us or that may be issued or licensed to us in the future will not be sufficiently broad to protect our intellectual property or that the patents will not provide protection against competitive products or otherwise be commercially valuable. Failure to obtain and maintain adequate patent protection for our intellectual property would impair our ability to be commercially competitive.

Our commercial success will also depend in part on our ability to commercialize pralatrexate without infringing patents or other proprietary rights of others or breaching the licenses granted to us. We may not be able to obtain a license to third-party technology that we may require to conduct our business or, if obtainable, we may not be able to license such technology at a reasonable cost. If we fail to obtain a license to any technology that we may require to commercialize pralatrexate, or fail to obtain a license at a reasonable cost, we will be unable to commercialize pralatrexate or to commercialize it at a price that will allow us to become profitable.

In addition to patent protection, we also rely upon trade secrets, proprietary know-how and technological advances that we seek to protect through confidentiality agreements with our collaborators, employees, advisors and consultants. Our employees and consultants are required to enter into confidentiality agreements with us. We also enter into non-disclosure agreements with our collaborators and vendors, which agreements are intended to protect our confidential information delivered to third parties for research and other purposes. However, these agreements could be breached and we may not have adequate remedies for any breach, or our trade secrets and proprietary know-how could otherwise become known or be independently discovered by others.

Furthermore, as with any pharmaceutical company, our patent and other proprietary rights are subject to uncertainty. Our patent rights related to pralatrexate might conflict with current or future patents and other proprietary rights of others. For the same reasons, the products of others could infringe our patents or other proprietary rights. Litigation or patent interference proceedings, either of which could result in substantial costs to us, may be necessary to enforce any of our patents or other proprietary rights, or to determine the scope and validity or enforceability of other parties’ proprietary rights. We may be

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dependent on third parties, including our licensors, for cooperation and information that may be required in connection with the defense and prosecution of our patents and other proprietary rights. The defense and prosecution of patent and intellectual property infringement claims are both costly and time consuming, even if the outcome is favorable to us. Any adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease selling our future products. We are not currently a party to any patent or other intellectual property infringement claims.

We may explore strategic partnerships that may never materialize or may fail.

We may, in the future, periodically explore a variety of possible strategic partnerships in an effort to gain access to additional product candidates or resources. At the current time, we cannot predict what form such a strategic partnership might take. We are likely to face significant competition in seeking appropriate strategic partners, and these strategic partnerships can be complicated and time consuming to negotiate and document. We may not be able to negotiate strategic partnerships on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic partnerships because of the numerous risks and uncertainties associated with establishing strategic partnerships.

If we enter into one or more strategic partnerships, we may be required to relinquish important rights to and control over the development of pralatrexate or otherwise be subject to unfavorable terms .

Any future strategic partnerships we enter into could subject us to a number of risks, including:

·                   we may be required to undertake the expenditure of substantial operational, financial and management resources in integrating new businesses, technologies and products;

·                   we may be required to issue equity securities that would dilute our existing stockholders’ percentage ownership;

·                   we may be required to assume substantial actual or contingent liabilities;

·                   we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of pralatrexate;

·                   strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing;

·                   strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs;

·                   strategic partners may not commit adequate resources to the marketing and distribution of pralatrexate or any other products, limiting our potential revenues from these products;

·                   disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or commercialization of pralatrexate or any other product candidate or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

·                   strategic partners may experience financial difficulties;

·                   strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

·                   business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement;

·                   strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

·                   strategic partners could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing pralatrexate or any other product candidate.

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Acceptance of pralatrexate in the marketplace is uncertain, and failure to achieve market acceptance will limit our ability to generate revenue and become profitable.

Even if pralatrexate is approved for marketing, pralatrexate may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:

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

·        the establishment and demonstration in the medical community of the safety and efficacy of pralatrexate and its potential advantages over existing and newly developed therapeutic products;

·        ease of use of pralatrexate;

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

·        the scope and effectiveness of our sales and marketing efforts.

Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend the use of pralatrexate.

The status of reimbursement from third-party payors for newly approved health care drugs is uncertain and failure to obtain adequate coverage and reimbursement could limit our ability to generate revenue.

Our ability to successfully commercialize pralatrexate will depend, in part, on the extent to which coverage and reimbursement for pralatrexate will be available from government and health administration authorities, private health insurers, managed care programs, and other third-party payors.

Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease conditions for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for pralatrexate. If government and other third-party payors do not provide adequate coverage and reimbursement levels for pralatrexate, pralatrexate’s market acceptance may be reduced.

Health care reform measures could adversely affect our business.

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

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

The FDA has awarded orphan drug status to pralatrexate for the treatment of patients with T-cell lymphoma, follicular lymphoma and diffuse large B-cell lymphoma. Under the Orphan Drug Act, if we are the first company to receive FDA approval for pralatrexate for the designated orphan drug indication, we will obtain seven years of marketing exclusivity during which the FDA may not approve another company’s application for pralatrexate for the same orphan indication. Orphan drug exclusivity would not prevent FDA approval of a different drug for the orphan indication or the same drug for a different indication.

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If we fail to comply with healthcare fraud and abuse laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected .

As a biopharmaceutical company, even though we do not and will not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse will be applicable to our business. These laws and regulations, include, among others:

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

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

·        the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

·        federal self-referral laws, such as STARK, which prohibits a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest; and

·        state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA.

Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution under the federal Anti-Kickback statute, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with all applicable federal and state fraud and abuse laws may be costly.

If we are unable to develop adequate sales, marketing or distribution capabilities or enter into agreements with third parties to perform some of these functions, we will not be able to commercialize pralatrexate effectively.

We have limited experience in sales, marketing and distribution.  If it is approved for marketing, we intend to build commercialize pralatrexate by building an oncology-focused U.S. sales and marketing organization that may be complemented by co-promotion arrangements with pharmaceutical or biotechnology partners, where appropriate.  We intend to enter into co-promotion or out-licensing arrangements with other pharmaceutical or biotechnology partners where necessary to reach foreign market segments that are not reachable by a U.S.-based sales force or when deemed strategically and economically advisable. To directly market and distribute pralatrexate, we must build a sales and marketing organization with appropriate technical expertise and distribution capabilities. We may not be able to establish sales, marketing and distribution capabilities of our own or enter into such arrangements with third parties in a timely manner or on acceptable terms. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold pralatrexate, and some or all of the revenues we receive will depend upon the

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efforts of third parties, and these efforts may not be successful. Additionally, building marketing and distribution capabilities may be more expensive than we anticipate, requiring us to divert capital from other intended purposes or preventing us from building our marketing and distribution capabilities to the desired levels.

If our competitors develop and market products that are more effective than pralatrexate, our commercial opportunity will be reduced or eliminated.

Even if we obtain the necessary regulatory approvals to market pralatrexate, our commercial opportunity will be reduced or eliminated if our competitors develop and market products that are more effective, have fewer side effects or are less expensive than pralatrexate. Our potential competitors include large, fully-integrated pharmaceutical companies and more established biotechnology companies, both of which have significant resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals and marketing. Academic institutions, government agencies, and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing. It is possible that competitors will succeed in developing technologies that are more effective than those being developed by us or that would render our technology obsolete or noncompetitive.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of pralatrexate.

The testing and marketing of pharmaceutical products entail an inherent risk of product liability. Product liability claims might be brought against us by consumers or health care providers or by pharmaceutical companies or others selling our future products. If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to limit the commercialization of our pralatrexate. We have obtained limited product liability insurance coverage for our human clinical trials. However, product liability insurance coverage is becoming increasingly expensive, and we may be unable to maintain such insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. We may not be able to obtain commercially reasonable product liability insurance for pralatrexate, if it is approved for marketing.

Our success depends on retention of our President and Chief Executive Officer, Chief Medical Officer and other key personnel.

We are highly dependent on our President and Chief Executive Officer, Paul L. Berns, our Chief Medical Officer, Pablo J. Cagnoni, M.D., and other members of our management team. We are named as the beneficiary on a term life insurance policy covering Mr. Berns in the amount of $10.0 million. We also depend on academic collaborators for each of our research and development programs. The loss of any of our key employees or academic collaborators could delay our discovery research program and the development and commercialization of pralatrexate or result in termination of our pralatrexate development program in its entirety. Mr. Berns and Dr. Cagnoni, as well as others on our executive management team, have employment agreements with us, but the agreements provide for “at-will” employment with no specified term. Our future success also will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization of pharmaceutical products. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. If we are unsuccessful in our recruitment and retention efforts, our business will be harmed.

We also rely on consultants, collaborators and advisors to assist us in formulating and conducting our research. All of our consultants, collaborators and advisors are employed by other employers or are self-employed and may have commitments to or consulting contracts with other entities that may limit their ability to contribute to the Company.

We cannot guarantee that we will be in compliance with all potentially applicable regulations.

The development, manufacturing, and, if approved, pricing, marketing, sale and reimbursement of pralatrexate, together with our general operations, are subject to extensive regulation by federal, state and other authorities within the United States and numerous entities outside of the United States. We have fewer employees than many other companies that have one or more product candidates in late stage clinical development and we rely heavily on third parties to conduct many important functions.

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As a publicly-traded company, we are subject to significant regulations including the Sarbanes Oxley Act of 2002. We cannot assure you that we are or will be in compliance with all potentially applicable regulations. If we fail to comply with the Sarbanes Oxley Act of 2002 or any other regulations we could be subject to a range of consequences, including restrictions on our ability to sell equity securities or otherwise raise capital funds, the de-listing of our common stock from the Nasdaq Global Market, suspension or termination of our clinical trials, failure to obtain approval to market pralatrexate, restrictions on future products or our manufacturing processes, significant fines, or other sanctions or litigation.

If our internal controls over financial reporting are not considered effective, our business and stock price could be adversely affected.

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

Our management, including our chief executive officer and principal financial officer, does not expect that our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become ineffective because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We cannot assure you that we or our independent registered public accounting firm will not identify a material weakness in our internal controls in the future. A material weakness in our internal controls over financial reporting would require management and our independent registered public accounting firm to consider our internal controls as ineffective. If our internal controls over financial reporting are not considered effective, we may experience a loss of public confidence, which could have an adverse effect on our business and on the market price of our common stock.

If we do not progress in our programs as anticipated, our stock price could decrease.

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

Warburg Pincus Private Equity VIII, L.P. and Baker Brothers Life Sciences, L.P. each control a substantial percentage of the voting power of our outstanding common stock.*

On March 2, 2005, we entered into a Securities Purchase Agreement with Warburg Pincus Private Equity VIII, L.P., or Warburg, and certain other investors pursuant to which we issued and sold an aggregate of 2,352,443 shares of our Series A Exchangeable Preferred Stock, or the Exchangeable Preferred, at a price per share of $22.10, for aggregate gross proceeds of approximately $52.0 million. On May 18, 2005, at our Annual Meeting of Stockholders, our stockholders voted to approve the issuance of shares of our common stock upon exchange of shares of the Exchangeable Preferred. As a result of such approval, we issued a total of 23,524,430 shares of common stock upon exchange of 2,352,443 shares of Exchangeable Preferred. In connection with its purchase of the Exchangeable Preferred, Warburg entered into a standstill agreement agreeing not to pursue certain activities the purpose or effect of which may be to change or influence the control of the Company.

On February 2, 2007, we completed an underwritten offering of 9,000,000 shares of common stock, of which Baker Brothers Life Sciences, L.P. and certain other affiliated funds, which are collectively referred to hereinafter as “Baker,” purchased 3,300,000 shares, at a price per share of $6.00, for aggregate gross proceeds of approximately $54.0 million. In connection

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therewith, Baker entered into a standstill agreement agreeing not to pursue certain activities the purpose or effect of which may be to change or influence the control of the Company.

On May 29, 2008, we sold 12,420,000 shares of our common stock in an underwritten public offering at a price of $5.64 per share, for aggregate gross proceeds of approximately $70.0 million.  Warburg and Baker purchased 3,500,000 and 1,500,000 shares, respectively, of the 12,420,000 shares sold in such public offering.

As of March 31, 2009, we had 81,610,666 shares of common stock outstanding, of which Warburg owned 26,124,430 shares, or approximately 32.0% of the voting power of our outstanding common stock. According to filings with the SEC, as of February 6, 2009, Baker owns less than 10% of our outstanding common stock.  Although each of Warburg and Baker have entered into a standstill agreement with us, they are, and will continue to be, able to exercise substantial influence over any actions requiring stockholder approval.

Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay or prevent an acquisition of us, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. In addition, these provisions may make it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:

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

·        prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;

·        prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

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

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

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Notwithstanding the foregoing, the three year moratorium imposed on business combinations by Section 203 will not apply to either Warburg or Baker because, prior to the dates on which they became interested stockholders, our board of directors approved the transactions that resulted in Warburg and Baker becoming interested stockholders. However, in connection with its purchase of Exchangeable Preferred in March 2005, Warburg entered into a standstill agreement agreeing not to pursue certain activities the purpose or effect of which may be to change or influence the control of the Company.  Similarly, in connection with our February 2007 Financing, Baker entered into a standstill agreement agreeing not to pursue certain activities the purpose or effect of which may be to change or influence the control of the Company.

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

In May 2003, our board of directors adopted a stockholder rights plan that may have the effect of discouraging, delaying or preventing a merger or acquisition of us that our stockholders may consider beneficial by diluting the ability of a potential acquirer to acquire us. Pursuant to the terms of the stockholder rights plan, when a person or group, except under certain circumstances, acquires 15% or more of our outstanding common stock or 10 business days after announcement of a tender or exchange offer for 15% or more of our outstanding common stock, the rights (except those rights held by the person or

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group who has acquired or announced an offer to acquire 15% or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount. Because the potential acquirer’s rights would not become exercisable for our shares of common stock at a discount, the potential acquirer would suffer substantial dilution and may lose its ability to acquire us. In addition, the existence of the plan itself may deter a potential acquirer from acquiring or making an offer to acquire us.  As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of the Company that our stockholders may consider in their best interests may not occur.

Because Warburg owns a substantial percentage of our outstanding common stock, we amended the stockholder rights plan in connection with Warburg’s purchase of Exchangeable Preferred in March 2005 to provide that Warburg and its affiliates will be exempt from the stockholder rights plan, unless Warburg and its affiliates become, without the prior consent of our board of directors, the beneficial owner of more than 44% of our common stock. Likewise, since Baker owns a substantial percentage of our outstanding common stock, we amended the stockholder rights plan in connection with our February 2007 Financing to provide that Baker and its affiliates will be exempt from the stockholder rights plan, unless Baker becomes, without the prior consent of our board of directors, the beneficial owner of more than 20% of our common stock. Under the stockholder rights plan, our board of directors has express authority to amend the rights plan without stockholder approval.

Unstable market conditions may have serious adverse consequences on our business.

The recent economic downturn and market instability has made the business climate more volatile and more costly. Our general business strategy may be adversely affected by unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary equity or debt financing more difficult, more costly, and more dilutive. While we believe we have adequate capital resources to meet our expected working capital and capital expenditure requirements for at least the next 12 months, a radical economic downturn or increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. There is a risk that one or more of our current service providers, manufacturers or other partners may encounter difficulties during challenging economic times, which could have an adverse effect on our business, results of operations and financial condition.

Our liquidity, capital resources and results of operations may be adversely affected by declines in the value of our investments in marketable securities.*

As of March 31, 2009, we had $72.5 million in cash, cash equivalents, and investments in marketable securities.  Until required for use in our business, we invest our cash reserves in bank deposits, money market funds, high-grade corporate notes and U.S. government instruments in accordance with our investment policy.  The weighted average duration of the remaining time to maturity for our portfolio of investments in marketable securities as of March 31, 2009 was approximately three months.   Our investments in marketable securities as of March 31, 2009 primarily consisted of high-grade corporate notes. We did not hold any derivative instruments, foreign exchange contracts, asset backed securities, mortgage backed securities, auction rate securities, or securities of issuers in bankruptcy in our investment portfolio as of March 31, 2009.

Based upon the current status of our product development and commercialization plans, we believe that our cash, cash equivalents, and investments in marketable securities as of March 31, 2009, together with the net proceeds from the April 2009 Financing, should be adequate to support our operations through at least the next 12 months, although there can be no assurance that this can, in fact, be accomplished.  In particular, our liquidity, capital resources and results of operations may be adversely affected by declines in the value of our investments in marketable securities.  The value of our investments in marketable securities may be adversely affected by rating downgrades or bankruptcies affecting the issuers of such securities, whether caused by instability in the global financial markets, lack of liquidity in the credit and capital markets, or other factors.  For example, during the three months ended March 31, 2009 and September 30, 2008, we realized losses of approximately $157,000 and $552,000, respectively, on the sale of certain of our investments in marketable securities, which were sold in order to preserve our principal as the issuers of these securities experienced significant deteriorations in their creditworthiness as evidenced by investment rating downgrades.  We have the ability and intent to hold our remaining investments in marketable securities as of March 31, 2009 to their scheduled maturity, although we monitor our investment portfolio with the primary objectives of preserving principal and maintaining proper liquidity to meet our operating needs.

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The market price for our common stock has been and may continue to be highly volatile, and an active trading market for our common stock may never exist.

We cannot assure you that an active trading market for our common stock will exist at any time. Holders of our common stock may not be able to sell shares quickly or at the market price if trading in our common stock is not active. The trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

·        actual or anticipated regulatory approvals or non-approvals of pralatrexate or of competing product candidates;

·        actual or anticipated results of our clinical trials involving pralatrexate;

·        changes in laws or regulations applicable to pralatrexate;

·        changes in the expected or actual timing of our development programs;

·        actual or anticipated variations in quarterly operating results;

·        announcements of technological innovations by us or our competitors;

·        changes in financial estimates or recommendations by securities analysts;

·        conditions or trends in the biotechnology and pharmaceutical industries;

·        changes in the market valuations of similar companies;

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

·        additions or departures of key personnel;

·        disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

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

·        sales of large blocks of our common stock;

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

·        economic and other external factors, including disasters or crises.

Public companies in general and companies included on the Nasdaq Global Market in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. There has been particular volatility in the market prices of securities of biotechnology and other life sciences companies, and the market prices of these companies have often fluctuated because of problems or successes in a given market segment or because investor interest has shifted to other segments. These broad market and industry factors may cause the market price of our common stock to decline, regardless of our operating performance. We have no control over this volatility and can only focus our efforts on our own operations, and even these may be affected due to the state of the capital markets. In the past, following large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company, including in 2004 against us. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

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

If our stockholders sell substantial amounts of our common stock, the market price of our common stock may decline. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we

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consider appropriate. We are unable to predict the effect that sales may have on the then prevailing market price of our common stock.  We have entered into a Registration Rights Agreement with Warburg and the other purchasers of our Exchangeable Preferred pursuant to which such investors are entitled to certain registration rights with respect to the shares of common stock that we issued upon exchange of the Exchangeable Preferred.

In addition, we will need to raise substantial additional capital in the future to fund our operations.  If we raise additional funds by issuing equity securities, the market price of our common stock may decline and our existing stockholders may experience significant dilution.

†                      Indicates management contract or compensatory plan or arrangement.

#                     The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Allos Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

(1)              Incorporated by reference to exhibit 10.2 filed with our current report on Form 8-K filed on February 27, 2009.

(2)              Incorporated by reference to exhibit 10.3 filed with our current report on Form 8-K filed on February 27, 2009.

(3)              Incorporated by reference to exhibit 10.4 filed with our current report on Form 8-K filed on February 27, 2009.

(4)              Incorporated by reference to exhibit 10.1 filed with our current report on Form 8-K filed on February 27, 2009.

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SIGNATURES

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

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