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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number
000-29815

Allos Therapeutics, Inc.

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 [   ]

     As of July 18, 2002, there were 25,718,927 shares of the Registrant’s Common Stock outstanding, par value $0.001 per share.

This quarterly report on Form 10-Q consists of 16 pages.
The exhibit index is located on page 16.

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ALLOS THERAPEUTICS, INC.
FORM 10-Q

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLOS THERAPEUTICS, INC.
(a development stage company)
BALANCE SHEETS
(unaudited)

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

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ALLOS THERAPEUTICS, INC.
(a development stage company)
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 company)
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 company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

     The accompanying unaudited financial statements of Allos Therapeutics, Inc., referred to herein as the Company, we, us or our, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. The unaudited financial statements included herein have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement in accordance with generally accepted accounting principles in the United States of America. The results for the six-month period ended June 30, 2002 are not necessarily indicative of the results expected for the full fiscal year. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2001. Stockholders are encouraged to review the Form 10-K for a broader discussion of our business and the opportunities and risks inherent in such business.

2. Revenue Recognition

     We have not generated any revenue to date and our activities have consisted primarily of developing products, raising capital and recruiting personnel. Accordingly, we are considered to be in the development stage at June 30, 2002 as defined in Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by Development Stage Enterprises.”

3. Collaborative Agreements

     In March 2002, the Company entered into an agreement under which the Company obtained an exclusive U.S. license to intellectual property surrounding BGP-15, a novel, orally bioavailable small molecule that reduces cellular stress induced by chemotherapy. The Company will have the right to develop and market BGP-15 in the field of oncology and certain cardiovascular conditions. In connection with the license, the Company made an upfront equity investment of $1,000,000 in the licensor, and may also make a subsequent equity investment upon the achievement of certain development milestones, as well as a cash payment based on issuance of certain product related patents. In addition, the Company will pay the licensor a royalty based on a percentage of net revenue arising from sales of
BGP-15 in the U.S. if and when such sales occur.

4. Private Placement

     On April 24, 2002, the Company completed a private stock sale of 2.5 million shares of common stock at a purchase price of $6 per share to Perseus-Soros BioPharmaceutical Fund, L.P. for an aggregate purchase price of $15 million, which resulted in net cash proceeds to the Company of approximately $14.9 million to be used to fund future clinical development and commercialization of RSR13 and BGP-15, a compound that was in-licensed in March 2002.

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5. Net Loss Per Common Share

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

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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 statements that constitute “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. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should” and “continue” or similar words. Actual results could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those mentioned in the discussion below and those described in the “Risk Factors” discussion of our Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission. As a result, you should not place undue reliance on these forward-looking statements. We do not intend to update or revise these forward-looking statements to reflect future events or developments.

Overview

     We are a biopharmaceutical company focused on developing and commercializing innovative small molecule drugs for improving cancer treatments. Small molecule drugs, in general, are non-protein products produced by chemical synthesis rather than biologic methods. Our lead compound, RSR13 (efaproxiral), is a synthetic small molecule that increases the release of oxygen from hemoglobin, the oxygen-carrying protein contained within red blood cells. We believe RSR13 can be used to improve existing treatments and treat many diseases and clinical conditions attributed to or aggravated by oxygen deprivation.

     To date, we have devoted substantially all of our resources to research and clinical development. We have not derived any commercial revenue from product sales, and we do not expect to receive product revenue until at least 2004. We have incurred significant operating losses since our inception in 1992 and, as of June 30, 2002, had an accumulated deficit of $100,192,131. There can be no assurance when or if we will become profitable. We expect to continue to incur significant operating losses over the next several years as we continue to incur increasing research and development costs, in addition to costs related to clinical manufacturing and general administrative activities. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. Our achieving profitability depends upon our ability, alone or with others, to successfully complete the development of our product candidates, obtain required regulatory clearances and successfully manufacture and market our future products.

Results of Operations

Operating Expenses

   Research and Development

     Research and development expenses include the costs of basic research, nonclinical studies, clinical trials and biostatistical data analysis. Research and development expenses were $4,290,000 for the three months ended June 30, 2002, compared to $3,065,000 for the three months ended June 30, 2001, which represents a $1,225,000, or 40%, increase. Excluding the impact of non-cash charges (see “Non-cash Charges” below), research and development expenses increased $1,333,000, or 48%. For the six months ended June 30, 2002 and 2001, research and development expenses were $8,229,000 and $5,846,000, respectively, which represents a

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$2,382,000, or 41%, increase. Excluding the impact of non-cash charges, research and development expenses increased $2,631,000, or 50%. The increase in both periods was primarily due to higher clinical trial costs resulting from increased enrollment in our current Phase III oncology study and personnel costs to support the clinical trials. We expect research and development expenses to continue to increase in 2002 as we continue enrollment in our current Phase III trial and begin additional Phase II and Phase III trials.

   Clinical Manufacturing

     Clinical manufacturing expenses include the cost of third-party manufacturing of RSR13 for use in clinical trials and costs associated with the scale-up of manufacturing to support commercial requirements. Clinical manufacturing expenses were $726,000 for the three months ended June 30, 2002, compared to $1,191,000 for the three months ended June 30, 2001, which represents a $465,000, or 39%, decrease. For the six months ended June 30, 2002 and 2001, clinical manufacturing expenses were $1,171,000 and $2,206,000, respectively, which represents a $1,035,000, or 47%, decrease. The decrease in both periods was attributable to the commercial scale validation runs in 2001, which produced adequate bulk drug product to support our clinical development trials. We expect clinical manufacturing expenses to increase during the remainder of 2002 as we continue to scale-up our manufacturing to support commercial requirements.

   General and Administrative

     General and administrative expenses include the costs to maintain our corporate offices and related infrastructure. General and administrative expenses were $2,537,000 for the three months ended June 30, 2002, compared to $2,260,000 for the three months ended June 30, 2001, which represents a $277,000, or 12%, increase. Excluding the impact of non-cash charges (see “Non-cash Charges” below), general and administrative expenses increased $544,000, or 32%. For the six months ended June 30, 2002 and 2001, general and administrative expenses were $5,225,000 and $4,395,000, respectively, which represents an $830,000, or 19%, increase. Excluding the impact of non-cash charges, general and administrative expenses increased $1,263,000, or 40%. The increase in both periods was the result of additional infrastructure costs related to our new facility and increases in personnel costs and consulting fees. We expect these costs to continue to increase as personnel is hired to begin developing our commercial efforts.

   Non-cash Charges

     We have recorded stock-based compensation expense resulting from certain options granted with exercise prices below the fair market value of our common stock on their respective grant dates. For the three months ended June 30, 2002 and 2001, we recorded amortization of deferred stock compensation and stock compensation expense of $479,000 and $870,000, respectively. Of the $479,000 recorded for the three months ended June 30, 2002, $305,000 related to general and administrative, $152,000 related to research and development and the remaining $22,000 related to clinical manufacturing. Of the $870,000 recorded for the quarter ended June 30, 2001, $572,000 related to general and administrative, $260,000 related to research and development and the remaining $38,000 related to clinical manufacturing.

     For the six months ended June 30, 2002 and 2001, we recorded amortization of deferred stock compensation and stock compensation expense of $1,109,000 and $1,822,000, respectively. Of the $1,109,000 recorded for the six months ended June 30, 2002, $784,000 related to general and administrative, $280,000 related to research and development and the remaining $45,000 related to clinical manufacturing. Of the $1,822,000 recorded for the quarter ended June 30, 2001, $1,217,000 related to general and administrative, $529,000 related to research and development and the remaining $76,000 related to clinical manufacturing.

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   Interest and Other Income, Net

     Interest income, net of interest expense, was $675,000 and $1,256,000 for the three months ended June 30, 2002 and 2001, respectively, representing a decrease of $581,000, or 46%. For the six months ended June 30, 2002 and 2001, net interest income was $1,287,000 and $2,809,000, respectively, representing a decrease of $1,522,000, or 54%. The decrease for both periods was primarily a result of lower average investment balances and lower yields on U.S. government securities, high-grade commercial paper and notes, and money market funds held by us.

   Critical Accounting Policies

     Our results of operations and financial position are determined based on the application of our accounting policies, as discussed in the notes to the financial statements. Certain of our accounting policies represent a selection among acceptable alternatives under accounting principles generally accepted in the United States of America. We have not determined how reported amounts would differ based on the application of different accounting policies. We also have not determined the likelihood that materially different amounts could be reported under different conditions or using different assumptions.

     The application of accounting policies requires the use of judgment and estimates. As it relates to our company, estimates and forecasts are required to determine deferred tax asset valuation reserves, employee benefit-related liabilities, any impairment of assets and cash forecasts.

     These matters that are subject to judgments and estimation are inherently uncertain, and different amounts could be reported using different assumptions and estimates. We use management’s best estimates and judgments in determining the appropriate amount to reflect in the financial statements, using historical experience and all available information. We apply estimation methodologies consistently from period to period.

Liquidity and Capital Resources

     Our principal source of working capital has been private and public equity financings and interest income.

     As of June 30, 2002, we had approximately $4,717,000 in cash and cash equivalents and $68,870,000 in investments. Net cash used in operating activities of $9,421,000 and $6,824,000 during the six months ended June 30, 2002 and 2001, respectively, resulted primarily from the net loss for the period offset by an increase in payables.

     Net cash used in investing activities of $4,237,000 for the six months ended June 30, 2002 consisted primarily of purchases of investments, net of proceeds, investing in equity of another company and capital expenditures. Net cash provided by investing activities of $6,273,000 for the six months ended June 30, 2001, consisted primarily of proceeds from maturities of investments, net of purchases.

     Net cash provided by financing activities of $15,079,000 for the six months ended June 30, 2002 resulted from the private sale of common stock to a single investor and the exercise of common stock options. Net cash used in financing activities of $579,000 for the six months ended June 30, 2001, primarily resulted from pledging collateral for the letter of credit related to our new facility.

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

     Based upon the current status of our product development and commercialization plans, we believe that our existing cash, cash equivalents and investments, will be adequate to satisfy our capital needs through at least the calendar year 2003. However, our actual capital requirements will depend on many factors, including the status of product development; the time and cost involved in conducting clinical trials and obtaining regulatory approvals; filing, prosecuting and enforcing patent claims; competing technological and market developments; and our ability to market and distribute our future products and establish new collaborative and licensing arrangements.

     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. The factors described above will impact our future capital requirements and the adequacy of our available funds. We may be required to raise additional funds through public or private financings, collaborative relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to existing stockholders and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require us to relinquish rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed could have a material adverse effect on our business, financial condition and results of operations.

Market Risk

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

Investment Risk

     As of June 20, 2002, we held equity securities of another company in the amount of $1,000,000. This investment is recorded at cost. We regularly review the carrying value to identify and record losses when events and circumstances indicate that a decline in the fair value of the asset below our accounting basis is other-than-temporary. We do not believe that any impairment has occurred at this time.

Risk Factors

     In addition to the other information contained in this report, we caution stockholders and potential investors that the following important risk factors, among others, in some cases have affected, and in the future could affect, our actual results of operations and could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on

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behalf of us. The following information is not intended to limit in any way the characterization of other statements or information under other captions as cautionary statements for such purpose. These factors include:

•		Delay, difficulty, or failure to obtain regulatory approval or clearance to market our product candidates, including delays or difficulties in development because of insufficient proof of safety or efficacy.
•		Our limited experience in conducting and managing clinical trials; failure to conduct clinical trials in compliance with applicable regulations and at an acceptable cost.
•		The ability to obtain, maintain and enforce intellectual property rights; the cost of acquiring in-process technology and other intellectual property rights, either by license, collaboration or purchase of another entity; the cost of enforcing or defending our intellectual property rights.
•		Failure of third-party collaborators to conduct research and development activities, including drug discovery and clinical testing; conflicts of interest or priorities that may arise between us and such third-party collaborators.
•		Dependence upon third parties to manufacture RSR13 bulk drug substance and formulated drug product; failure of third parties to manufacture RSR13 bulk drug substance or formulated drug product in compliance with regulatory requirements and at an acceptable cost; failure of third parties to supply sufficient quantities of RSR13 bulk drug substance or formulated drug product for preclinical, clinical or commercial purposes; failure to establish alternative sources of supply of RSR13 bulk drug substance or formulated drug product.
•		The ability to create sales, marketing and distribution capabilities for our product candidates, or enter into agreements with third parties to perform these functions.
•		The ability to obtain acceptable prices or adequate levels of reimbursement for our products from third-party payors, including government and health administration authorities and private health insurers.
•		Difficulties or the high cost of obtaining adequate financing to fund future research, development and commercialization of product candidates.
•		Competitive or market factors that may limit the use or broad acceptance of our product candidates.
•		The ability to attract and retain highly qualified management and scientific personnel.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     None

Item 2. Changes in Securities and Use of Proceeds

     On April 24, 2002, the Company completed a private stock sale of 2.5 million shares of common stock at a purchase price of $6 per share to Perseus-Soros BioPharmaceutical Fund, L.P. for an aggregate purchase price of $15 million, which resulted in net cash proceeds to the Company of approximately $14.9 million to be used to fund future clinical development and commercialization of RSR13 and BGP-15, a compound that was in-licensed in March 2002. The sale and issuance of common stock was deemed to be exempt from registration under the Act, as amended by virtue of Regulation D promulgated under such Act. Perseus-Soros BioPharmaceutical Fund, L.P. represented that it was an accredited investor within the meaning of Rule 501(a) of the Act and that it was acquiring the securities for investment only and not with the view to the distribution thereof. The Company filed a registration statement on Form S-3 (No. 333-87858) pursuant to the Act, as amended, with the Securities and Exchange Commission related to the resale of the securities.

Item 3. Defaults Upon Senior Securities

     None

Item 4. Submission of Matters to a Vote of Security Holders

     The Company held its annual meeting of stockholders on April 23, 2002. At such meeting, the following actions were voted upon:

a.

Election of Directors

b.

Ratification of PricewaterhouseCoopers, LLP as the Company’s independent accountants for the fiscal year ending December 31, 2002.

Item 5. Other Information

     None

Item 6. Exhibits and Reports on Form 8-K

a.

Exhibits

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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EXHIBIT INDEX

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