Edgar Filing: ALTEON INC /DE

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________TO ______________

Commission file number 001-16043

ALTEON INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 13-3304550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6 CAMPUS DRIVE, PARSIPPANY, NEW JERSEY 07054
(Address of principal executive offices)
(Zip Code)

(201) 934-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------

Common Stock, Par Value $.01 per share American Stock Exchange
Preferred Stock Purchase Rights American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

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, as
amended, 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

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

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, based on the American Stock Exchange closing
price of the common stock ($0.22 per share), as of June 30, 2005, was
$12,736,517.

At March 1, 2006, 57,996,711 shares of the Registrant's common stock, par value
$.01 per share, were outstanding.

Documents Incorporated By Reference

None.

PART I

ITEM 1. BUSINESS.

OVERVIEW

We are a product-based biopharmaceutical company engaged in the development
of small molecule drugs to treat and prevent cardiovascular disease and
diabetes. We identified several promising product candidates that we believe
represent novel approaches to some of the largest pharmaceutical markets. We
have advanced one of these products into Phase 2 clinical trials.

Our lead drug candidate, alagebrium chloride or alagebrium (formerly
ALT-711), is a product of our drug discovery and development program. Alagebrium
has demonstrated potential efficacy in two clinical trials in heart failure, as
well as in animal models of heart failure, nephropathy, hypertension and
erectile dysfunction (ED). It has been tested in approximately 1,000 patients in
a number of Phase 1 and Phase 2 clinical trials. Our goal is to develop
alagebrium in diastolic heart failure (DHF). This disease represents a rapidly
growing market of unmet need, particularly common among diabetic patients, and
alagebrium has demonstrated relevant clinical activity in two Phase 2 clinical
trials.

We are in the process of preparing to submit an investigational new drug
application (IND) to the Division of Cardio-Renal Drug Products (the
Cardio-Renal division) specifically for alagebrium in heart failure, in order to
expand our clinical program in this therapeutic area. However, any continued
development of alagebrium by us is contingent upon our entering into strategic
collaboration agreements for this product candidate which, among other things,
would be required to include funding for product development.

In June 2005, our SPECTRA (Systolic Pressure Efficacy and Safety Trial of
Alagebrium) Phase 2b trial in systolic hypertension was discontinued after an
interim analysis found that the data did not indicate a treatment effect of
alagebrium and we have ceased development of alagebrium for this indication.

Also, in June 2005, we announced that we had submitted preclinical toxicity
data on alagebrium to two divisions of the United States Food and Drug
Administration's, or FDA's, Center for Drug Evaluation and Research (CDER),
specifically the Division of Cardio-Renal Drug Products and the Division of
Reproductive and Urologic Drug Products (the Reproductive/Urologic division).
The preclinical toxicity data were submitted in support of our view that liver
alterations previously observed in rats, and reported in December 2004, were
related to the male rat metabolism and not to genotoxic pathways. Subsequent
preliminary data on liver alterations in rats had caused us to voluntarily
suspend enrolling new patients into all of our alagebrium clinical trials in
February 2005.

Following review of the rat liver data, the Cardio-Renal division allowed
us to proceed with the development of alagebrium in cardiovascular indications.
The Reproductive/Urologic division placed on clinical hold further enrollment in
the EMERALD (Efficacy and Safety of AlagebriuM in ERectile Dysfunction in MALe
Diabetics) study, our Phase 2a study of alagebrium in diabetic patients with
erectile dysfunction, and requested further preclinical toxicity data, which we
submitted in August 2005. After review of these data, the Reproductive/Urologic
division decided to maintain the clinical hold pending further preclinical
testing. In January 2006, we announced that we had withdrawn the IND for the
EMERALD study. We decided instead to commit our resources to the development of
alagebrium in cardiovascular diseases. There can be no assurance that we will
ever pursue the development of alagebrium for the ED indication.

In November 2005, we announced that data presented at the American Heart
Association (AHA), Scientific Sessions from the Phase 2a PEDESTAL (Patients with
Impaired Ejection Fraction and Diastolic Dysfunction: Efficacy and Safety Trial
of ALagebrium) study in diastolic dysfunction demonstrated the ability of
alagebrium to improve measures of diastolic function, including a significant
reduction in left ventricular mass.

Also in November 2005, in conjunction with a presentation at the AHA, we
announced positive findings from a Phase 2a study to evaluate the potential
effects of alagebrium on endothelial dysfunction. Initiated in February 2004,
the study was conducted at Johns Hopkins University (JHU) School of Medicine
under grants from the National Heart, Lung and Blood Institute and the Society
of Geriatric Cardiology.

As a result of having withdrawn the IND for the EMERALD study, there is no
clinical hold remaining on alagebrium from any division of the FDA. The FDA has
never placed a clinical hold on our protocols in cardiovascular diseases, which
are under the oversight of CDER's Division of Cardio-Renal Drug Products.

We are primarily focused on fundraising activities and exploring strategic
relationships to support our development programs. During 2005, as part of these
efforts, we engaged an investment banking firm to help us identify potential
strategic options for the company. Those efforts are underway. At the present
time, we have significantly curtailed all product development activities of
alagebrium due to the absence of sufficient financial resources to continue its
development.

We were incorporated in Delaware in October 1986. Our headquarters are
located at 6 Campus Drive, Parsippany, New Jersey 07054. We maintain a web site
at www.alteon.com and our telephone number is (201) 934-5000. Our annual reports
on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form
8-K, and all amendments to those reports, are available to you free of charge
through the "Investor Relations" section of our website as soon as reasonably
practicable after such materials have been electronically filed with, or
furnished to, the Securities and Exchange Commission.

PATHWAYS

The A.G.E. Pathway

Advanced Glycation End-Products (A.G.E.) are glucose/protein complexes and
are formed by a reaction between circulating blood glucose molecules and
proteins. They appear to induce protein crosslinking. These pathological
complexes affect the structural chemistry of tissues and organs, resulting in
increased stiffness and fibrosis, as well as impaired flexibility and
compromised function. The A.G.E. pathway may provide the scientific explanation
for how and why many of the medical complications of the aging process occur
with higher frequency and earlier in life in diabetic patients. Diabetic
individuals form excessive amounts of A.G.E.s earlier in life than do
non-diabetic individuals, due primarily to higher levels of blood sugar. For
this reason, diabetes may be viewed as an accelerated form of aging.

A.G.E.s and A.G.E. crosslinks are considered to be likely causative factors
in the development of many age-related and diabetic disorders. For example,
proteins in the body such as collagen and elastin, which play an important role
in maintaining the elasticity of the cardiovascular system, are prime targets
for A.G.E. crosslinking. This stiffening process can impair the normal function
of contractile organs, such as blood vessels, which depend on flexibility for
normal function. A loss of flexibility of the vasculature is associated with a
number of cardiovascular disorders, including diastolic dysfunction, left
ventricular hypertrophy (LVH) and heart failure itself, as well as other
diabetic complications.

In addition to their role in promoting the fibrosis and stiffening of
tissues and organs throughout the body, A.G.E.s have been shown to contribute to
disease by adversely altering multiple inflammatory and metabolic pathways.
A.G.E.s can lead to pathologic alterations commonly associated with diabetic
nephropathy, retinopathy and processes that accelerate atherosclerosis.

In recent years, our research and drug development activities targeting the
A.G.E. pathway have focused on the development of A.G.E. Crosslink Breakers and
A.G.E. Formation Inhibitors. We believe that we were the first company to focus
on the development of compounds to treat diseases caused by A.G.E. formation and
crosslinking. Since our inception, we have created an extensive library of novel
compounds targeting the A.G.E. pathway and have actively pursued patent
protection for these discoveries.

The primary focus of our research and development activities is alagebrium,
which is our lead product candidate, and we believe it to be the only A.G.E.
Crosslink Breaker to have entered advanced human clinical testing. Alagebrium is
the first rapidly-acting oral agent designed to "break" A.G.E. crosslinks, the
benefit of which may be to restore structure and function to tissues and organs,
thereby potentially reversing the damage caused by aging and diabetes.

OUR BUSINESS STRATEGY

Our strategy has been to develop drug candidates from our proprietary
portfolio of new chemical entities with a goal to develop compounds to address
large medical needs that are unmet by existing therapies. We may seek, as
appropriate, to selectively in-license clinical stage compounds and as
appropriate to out-license or co-develop some drug candidates with corporate
partners. Assuming we continue the clinical development of alagebrium, we may
elect to retain development and marketing rights for one or several indications,
while at the same time continuing to evaluate potential corporate partnerships
for the further development and ultimate marketing of the compound. In addition
to these pipeline products, we have identified compounds in multiple

chemical classes of A.G.E. Crosslink Breakers and A.G.E. Formation Inhibitors
that may warrant further evaluation and potential development.

In August 2005, in order to enable us to move forward with the continued
development of alagebrium, we announced that we had engaged the services of
Burrill & Company (Burrill) to assist in developing and identifying options
designed to diversify our portfolio of product candidates and to enhance the
ability to raise financing in the future. Such potential transactions include
the acquisition of technologies and product programs, licensing opportunities,
the sale to or merger into another company, and debt and equity financing.
Burrill has identified a number of potential transactions and we are currently
in discussions with one company regarding the acquisition of a cardiovascular
therapeutic technology. We are also in discussions with Genentech regarding the
restructuring of their preferred stock position in the Company. There can be no
assurances that we will be able to consummate a transaction. However, as a
result of our current financial situation, any continued development of
alagebrium by us is contingent upon our entering into one or more strategic
collaboration agreements for this product candidate which, among other things,
would be required to include funding for product development.

MARKETS OF OPPORTUNITY

Our research and development efforts have led us to an initial focus on
cardiovascular and other vascular diseases, including heart failure, retinopathy
and nephropathy, as well as other complications of diabetes. Therapeutic
targeting of the A.G.E. pathway may reverse the progressive fibrosis and
stiffening of tissues and organs thus potentially broadening our markets of
opportunity to include additional medical disorders related to aging and
diabetes. Importantly, there are currently no marketed drugs of which we are
aware that are known to work directly on A.G.E.s and the structural stiffening
of tissues and organs that lead to diseases such as heart failure and renal
failure.

Diastolic Dysfunction in Heart Failure/Left Ventricular Hypertrophy

Diastolic dysfunction is the impaired ability of the heart to relax and
fill properly after a contraction, in part due to the stiffening of the heart
tissue. It is characterized by higher than normal pressures during the relaxing
phase of the heart cycle (diastole). If the heart tissue (interstitium) has
stiffened, the filling of the heart will be impaired. When the ventricles (the
heart's lower pumping chambers) do not relax and fill normally, increased
pressure and fluid in the blood vessels of the lungs may be a result (pulmonary
congestion), resulting in shortness of breath. Diastolic dysfunction can also
cause increased pressure and fluid in the blood vessels returning to the heart
(systemic congestion). Diastolic dysfunction is common to both systolic and
diastolic heart failure in a group that collectively numbers about five million
in the United States alone. DHF, which is estimated to account for 30% to 50% of
all heart failure cases, is an especially poorly treated medical condition. Data
presented from the Phase 2a PEDESTAL study in diastolic dysfunction demonstrated
the ability of alagebrium to improve measures of diastolic function.

Left ventricular hypertrophy, refers to the thickening of the left
ventricle that can occur progressively with hypertension and DHF. It can lead to
decreased cardiac output, the inability to meet the circulatory needs of the
body and to heart failure itself. It is a condition associated with many
cardiovascular diseases and DHF. Patients who were treated with alagebrium have
experienced a rapid remodeling of the heart, resulting in a statistically
significant reduction of left ventricular mass, as well as a marked improvement
in the initial phase of left ventricular diastolic filling. Additionally, in
several preclinical studies, alagebrium has been shown to reduce the thickening
of the left ventricle and induce a reverse remodeling of the heart.

The endothelium, a single-cell lining of the arteries that acts as an
interface between the blood and arterial wall, is impaired in many
cardiovascular conditions. Endothelial damage, and the resulting inability of
smaller vessels to react to changes in blood pressure and flow, can be a
predictor of present and future cardiovascular disease. Recent evidence suggests
that when arteries become increasingly stiff, endothelial function is worsened
even when the endothelial cells themselves are normal. The loss of vascular
tone, due to the interaction between arterial stiffening and endothelial
function, may be important in explaining why stiff arteries are a major risk
factor for cardiovascular disease. Alagebrium has been shown to significantly
improve endothelial function.

Complications of Diabetes

A significant portion of diabetic individuals develop cardiovascular
diseases and other complications due to the high levels of blood glucose and
A.G.E.s within the body. According to the American Diabetes Association, heart
disease is the leading cause of diabetes-related deaths. Heart disease death
rates are two to four times higher in

adults with diabetes than adults without diabetes. The risk of stroke is also
two to four times higher in those with diabetes.

The Diabetes Control and Complications Trial, a multi-center clinical trial
conducted by the National Institutes of Health, demonstrated that elevated blood
glucose levels significantly increase the rate of progression of blood vessel,
kidney, eye and nerve complications from diabetes. More than 50% of people with
diabetes in the United States develop diabetic complications that range from
mild to severe.

Kidney Disease

Kidney disease is a significant cause of morbidity and mortality in
patients with Type 1 and Type 2 diabetes. It is a chronic and progressive
disease that affects approximately one-third of patients with Type 1 diabetes
and approximately 10-15% of patients with Type 2 diabetes. One of the early
signs of kidney damage is microalbuminuria (characterized by leakage of small
amounts of protein into the urine), which progresses to overt nephropathy
(characterized by leakage of large amounts of protein into the urine) and
ultimately to end-stage renal disease. Diabetes is the leading cause of kidney
failure in the United States.

OUR TECHNOLOGY: THE A.G.E. PATHWAY IN AGING AND DIABETES

The harmful consequences of A.G.E. formation in man were proposed in the
1980's by our scientific founders as an outgrowth of a research effort focused
on diabetes. The foundation for our technology is the experimental evidence that
intervention along the A.G.E. pathway provides significant benefit in slowing or
reversing the development of serious diseases in the diabetic and aging
populations. We are the pioneers in A.G.E. technology, and we have built an
extensive patent estate covering our discoveries and compounds.

A.G.E.s are permanent structures that form when simple sugars, such as
glucose, bind to the surface of proteins. As the body ages, A.G.E. complexes
form on proteins continuously and naturally, though slowly throughout life, at a
rate dependent upon glucose levels and on the body's natural ability to clear
these pathological structures. A.G.E. complexes subsequently crosslink to other
proteins. The A.G.E. crosslink has been found to be unique in biology and is
prevalent in animal models of aging and diabetes. Scientific literature suggests
that the formation and subsequent crosslinking of A.G.E.s is an inevitable part
of the aging process and diabetes that leads to the progressive loss of
flexibility and function in various tissues and organs.

The formation and crosslinking of A.G.E.s is a well-known process in food
chemistry called the Maillard Reaction. The browning and toughening of food
during the cooking process occurs, in part, as a result of the formation of
A.G.E. complexes between sugars and the amino acids of proteins.

The A.G.E. pathway may provide the scientific explanation for how and why
many of the medical complications of the aging process occur with higher
frequency and earlier in life in diabetic patients. Diabetic individuals form
excessive amounts of A.G.E.s earlier in life than do non-diabetic individuals,
due primarily to higher levels of blood sugar. For this reason, diabetes may be
viewed as an accelerated form of aging.

A.G.E.s and A.G.E. crosslinks are considered likely causative factors in
the development of many age-related and diabetic disorders. For example,
proteins in the body, such as collagen and elastin, which play an important role
in maintaining the elasticity of the cardiovascular system, are prime targets
for A.G.E. crosslinking. This stiffening process can impair the normal function
of contractile organs, such as blood vessels, which depend on flexibility for
normal function. A loss of flexibility of the vasculature is associated with a
number of cardiovascular disorders diastolic dysfunction, LVH and heart failure
itself, as well as ED and other diabetic complications.

In addition to their role in promoting fibrosis and stiffening of tissues
and organs throughout the body, A.G.E.s have been shown to contribute to disease
by adversely altering multiple inflammatory and metabolic pathways. A.G.E.s can
lead to pathologic alterations commonly associated with diabetic nephropathy,
retinopathy and alterations in molecules that accelerate atherosclerosis.

We incurred research and development expenditures of $9,074,000,
$10,147,000 and $9,930,000 for the years ended December 31, 2005, 2004 and 2003,
respectively.

A.G.E. Crosslink Breakers

A.G.E. Crosslink Breakers have the potential to treat a number of medical
disorders where loss of flexibility or elasticity leads to a loss in function.
Our lead clinical candidate, alagebrium, has demonstrated the ability to reverse
tissue damage and restore function to the cardiovascular system in Phase 2
clinical studies in cardiovascular distensibility and DHF. Additionally, we are
evaluating the development of several compounds in the breaker class for other
indications where A.G.E. crosslinking leads to abnormal function.

We have identified several potential chemical classes of A.G.E. Crosslink
Breakers, and have an extensive library of compounds.

Alagebrium

Alagebrium is a small, easily synthesized compound with a rapid mode of
action. It is well absorbed from an oral tablet formulation. The compound has
completed several Phase 2 studies and is being evaluated in various preclinical
models to assess its safety and potential in a number of other disease states.

CURRENT CLINICAL STUDIES

CLINICAL AND PRECLINICAL DEVELOPMENT OF LEAD COMPOUND ALAGEBRIUM

Our current priorities are to continue the Phase 2 clinical development of
alagebrium in heart failure. If we are able to obtain sufficient funding to do
so, through a collaboration or otherwise, we hope to restart our clinical
studies of alagebrium in heart failure in late 2006 or early 2007.

ALAGEBRIUM: AN A.G.E. CROSSLINK BREAKER

We plan to pursue development of alagebrium in high potential
cardiovascular indications such as heart failure, after recent data presented at
the American Heart Association (AHA) Scientific Sessions in November 2005
demonstrated continued positive results of alagebrium in patients with
cardiovascular disease. The AHA presentations included data from the Phase 2a
PEDESTAL study in diastolic dysfunction in heart failure with impaired ejection
fraction, as well as positive results from a Phase 2a study in endothelial
function.

In addition to these and other Phase 2 clinical studies, we have also
conducted a series of Phase 1 safety and dose escalation studies of alagebrium.
These studies have thus far shown alagebrium to be safe and well tolerated in
humans.

We are in the process of preparing an IND specifically in heart failure in
order to expand alagebrium's clinical program in this therapeutic area. Based on
the previous positive data in heart failure and endothelial dysfunction [see the
discussions of the PEDESTAL, Johns Hopkins and DIAMOND (Distensibility
Improvement And ReMOdeliNg in Diastolic Heart Failure) studies set forth below},
we are proposing an advanced multi-institutional Phase 2 study involving 200
patients with diastolic heart failure and diabetes, and hope to initiate this
trial in late 2006 or early 2007. However, any continued development of
alagebrium by us is contingent upon our entering into strategic collaboration
agreements for this product candidate which, among other things, would be
required to include funding for product development.

As a result of having withdrawn the IND for our EMERALD study, discontinued
the SPECTRA trial and completed the PEDESTAL and Johns Hopkins endothelial
dysfunction studies, all of which are described below, we have no subjects
currently under protocol in any clinical study of alagebrium.

We continue to evaluate potential preclinical and clinical studies in other
therapeutic indications in which alagebrium may address significant unmet needs.
In addition to our anticipated clinical studies in heart failure, we have
conducted early research studies focusing on atherosclerosis; Alzheimer's
disease; photoaging of the skin; eye diseases, including age-related macular
degeneration (AMD), and glaucoma; and other diabetic complications, including
renal diseases.

CLINICAL STUDIES

PEDESTAL

In November 2005, we announced that data presented at the American Heart
Association Scientific Sessions from the Phase 2a PEDESTAL (Patients with
Impaired Ejection Fraction and Diastolic Dysfunction: Efficacy and Safety Trial
of ALagebrium) study in diastolic dysfunction demonstrated the ability of
alagebrium to improve measures of diastolic function, including a significant
reduction in left ventricular mass.

PEDESTAL was an open-label exploratory study to determine the effects of
alagebrium at two oral dosages (35 mg once a day or 210 mg twice daily) for 6,
12, 16 and 24 weeks on diastolic function and left ventricular mass in 20
patients diagnosed with systolic heart failure and diastolic dysfunction. Safety
and quality of life were also evaluated. The study included men and women at
least 30 years of age with or without diabetes, who were classified as having
grade II to IV heart failure under the New York Heart Association guidelines.
The primary endpoints, which include quantification of left ventricular mass and
complete Doppler evaluation of changes in diastolic function, were designed to
look at the therapeutic remodeling capability of alagebrium. Secondary endpoints
include a quality of life assessment as measured by the Minnesota Living With
Heart Failure Questionnaire.

The PEDESTAL data indicated trends consistent with positive data from our
previous heart failure study, DIAMOND. While subjects in PEDESTAL could not be
compared directly with those from DIAMOND, because those in PEDESTAL had
impaired ejection fraction, larger hearts and were sicker overall, treatment
with alagebrium appeared to have important and consistent effects in both
patient groups.

The AHA poster presentation, entitled "Improvements in Diastolic Function
Among Patients with Advanced Systolic Heart Failure Utilizing Alagebrium, an
Oral Advanced Glycation End-product Crosslink Breaker," describes the key
findings from PEDESTAL. Twenty-two subjects were treated at the Baylor College
of Medicine in an open-label, two-dose (35 mg and 210 mg bid) regimen and
followed by echocardiography. The data revealed significant improvements from a
combined analysis of both dose groups in Doppler measures of diastolic function,
including the early/late atrial filling phase ratio, deceleration time,
isovolumetric relaxation time and resulting reduction of left atrial pressure.
In addition, some patients achieved regression of left ventricular mass and left
ventricular end-diastolic volume.

Johns Hopkins University Study in Endothelial Dysfunction

The JHU endothelial study was designed to enroll male or female subjects 50
years of age or more, with systolic hypertension (defined as having systolic
blood pressure of greater than 140 mm Hg and a diastolic blood pressure of less
than 95 mm Hg). Subjects received 210 mg of alagebrium twice daily for eight
weeks, preceded by three weeks of twice daily placebo run-in dosing. The primary
purpose of the study was to determine whether increasing arterial elasticity by
breaking A.G.E. crosslinks improves endothelial function as assessed by
evaluating vessel relaxation and biomarkers of endothelial function.

In the study, "Improved Flow-Mediated Arterial Vasodilation by Advanced
Glycation Crosslink Breaker, Alagebrium Chloride (ALT-711), in Older Adults with
Isolated Systolic Hypertension," 13 adults with isolated systolic hypertension
on stable antihypertensive therapy received a 2-week placebo run-in followed by
8 weeks of oral alagebrium. Data measurements were taken after placebo run-in
and after 8 weeks of therapy. Treatment with alagebrium reduced carotid
augmentation index (AI), a measure of arterial stiffness, by 37% and carotid
augmented pressure, whereas pulse wave velocity (PWV) was unaltered. Thus,
overall arterial stiffening, as reflected by AI, was markedly reduced by
alagebrium therapy. Heart rate, brachial arterial pressures and brachial artery
distensibility measures were unaltered by alagebrium therapy. However,
alagebrium significantly improved flow-mediated dilation, a measure of
endothelial function, by 102%. Alagebrium therapy improved peripheral artery
endothelial function, independent of changing local arterial distensibility,
suggesting a new mechanism through which alagebrium may act on A.G.E.s which
directly impair dynamic vascular function in addition to its apparent effect on
A.G.E.s impacting the structural aspects of arteries.

SPECTRA

In June 2005, SPECTRA, a Phase 2b trial in systolic hypertension, was
discontinued after an interim analysis of data from the first 190 out of an
anticipated 400 patients in the trial did not indicate a treatment effect of
alagebrium. Accordingly, we have ceased development of alagebrium for this
indication.

SAPPHIRE/SILVER

The Phase 2b SAPPHIRE/SILVER (Systolic And Pulse Pressure Hemodynamic
Improvement by Restoring Elasticity/Systolic Hypertension Interaction with Left
VEntricular Remodeling) trial evaluated the effectiveness of alagebrium in
approximately 770 patients having elevated systolic blood pressure with or
without LVH. The trial was dose-ranging, double-blind, placebo-controlled and
conducted at over 60 sites in the United States. In May 2004, the detailed
findings from an analysis of the SAPPHIRE/SILVER trial were presented at the
American Society of Hypertension (ASH), Nineteenth Annual Scientific Meeting.
These data, which were subsequently published in a supplement to the December
15, 2004 issue of the American Journal of Hypertension, demonstrated that
treatment with alagebrium, as recorded by automatic blood pressure measurement
(ABPM), resulted in a significant reduction in systolic blood pressure in
patients that are traditionally difficult to treat.

The findings supported the hypothesis that alagebrium works best in
patients with more serious baseline hypertension via a mechanism of action
unlike any currently marketed high blood pressure drug.

We announced the initial results of the SAPPHIRE/SILVER trial in July 2003.
The pre-specified primary endpoint of this trial, reduction of systolic blood
pressure by office cuff pressure measurement at the highest of the four active
dose levels, 210 mg per day, did not demonstrate statistical significance as
compared to placebo. The data analysis was confounded by a 6 to 10 mm Hg drop in
systolic blood pressures in all arms of the SAPPHIRE/SILVER trial, including
placebo, during the first two weeks after patient randomization. However,
subjects in the SAPPHIRE "intent-to-treat" population demonstrated efficacy net
of placebo, in the 2 to 3 mm Hg range by cuff pressure, at the lower end of the
alagebrium dosing range. As reported at that time, a pre-specified secondary
analysis of ABPM measurements in subjects who completed the study demonstrated a
blood pressure lowering effect at lower doses of about 4 mm Hg net of placebo.
Importantly, there was no significant placebo effect noted in the ABPM
measurements, and that data were presented at the ASH meeting in May 2004, as
noted above.

DIAMOND

In January 2003, we announced positive results from an analysis of the
first 17 subjects in the Phase 2a DIAMOND clinical study, evaluating the
potential effects of alagebrium in patients with diastolic dysfunction in
diastolic heart failure. The study was conducted at Wake Forest University
Baptist Medical Center and the Medical University of South Carolina in subjects
at least 60 years of age with isolated DHF.

In the DIAMOND study, 23 subjects received 210 mg of alagebrium twice daily
on an open-label outpatient basis for 16 weeks in addition to their current
medications. Primary endpoints included changes in exercise tolerance and aortic
stiffness. Effects on left ventricular hypertrophy, diastolic filling and
quality of life were also assessed. Those who received alagebrium for 16 weeks
experienced a rapid remodeling of the heart, resulting in a statistically
significant reduction in left ventricular mass as well as a marked improvement
in the initial phase of left ventricular diastolic filling. Additionally, the
drug was well tolerated and had a positive effect on quality of life.
Measurements of exercise tolerance and aortic distensibility proved to be more
variable than anticipated for a study of this size and were not reportable.

EMERALD

In January 2005, we initiated a Phase 2a study to evaluate the potential
effects of alagebrium in ED. EMERALD was designed to assess the ability of
alagebrium to restore erectile function in approximately 40 male diabetic
subjects with moderate to severe ED who achieve limited benefit from current
treatment with PDE5 inhibitors, the first class of orally-active compounds
approved for the treatment of ED. In a preclinical rat model of diabetes,
alagebrium had demonstrated an ability to restore erectile function through what
appeared to be a unique mechanism of action that might offer significant
potential as an adjunctive treatment for diabetic ED.

In January 2006, we announced that we had withdrawn the IND for the EMERALD
study because the Reproductive/Urologic Division had required additional
preclinical testing of the drug before allowing Phase 2a

testing to proceed, and we decided instead to commit resources to the
development of alagebrium in cardiovascular diseases. There can be no assurance
that we will ever pursue the development of alagebrium for the ED indication.

In June 2005, we announced that we had submitted pre-clinical toxicity data
on alagebrium to two divisions of the FDA's Center for Drug Evaluation and
Research, specifically the Division of Cardio-Renal Drug Products and the
Division of Reproductive and Urologic Drug Products. The pre-clinical toxicity
data were submitted in support of our view that liver alterations previously
observed in rats, and reported in December 2004, were related to the male rat
metabolism and not to genotoxic pathways. Preliminary data on liver alterations
in rats had caused us to voluntarily suspend enrolling new patients into all of
our alagebrium clinical trials, including EMERALD, in February 2005.

Following review of the rat liver data, CDER's Division of Reproductive and
Urologic Drug Products placed on clinical hold further enrollment in the EMERALD
study, our Phase 2a study of alagebrium in diabetic patients with erectile
dysfunction, and requested further pre-clinical toxicity data, which we
submitted in August 2005. After review of these data, the Reproductive/Urologic
division decided to maintain the clinical hold pending further pre-clinical
data.

Phase 2a Cardiovascular Compliance Study

In January 2001, we announced successful results from a Phase 2a clinical
study of alagebrium evaluating the effects of the compound on cardiovascular
elasticity and function. This study, conducted at nine United States clinical
sites, was a double-blind, placebo-controlled study evaluating the safety,
efficacy and pharmacology of alagebrium.

Study results showed that subjects who received alagebrium had a
statistically significant (p<0.02) and clinically meaningful reduction in the
arterial pulse pressure, defined as the difference between systolic and
diastolic blood pressure. Results also showed a statistically significant
increase in large artery compliance (p<0.03), an indicator of greater vascular
flexibility and volume capacity, using a traditional measurement of the ratio of
stroke volume to pulse pressure. Additionally, the drug was well tolerated.

PRECLINICAL STUDIES

Alagebrium efficacy data are consistent across species. Studies in animal
models in several laboratories around the world have demonstrated rapid reversal
of impaired cardiovascular functions with alagebrium. In these preclinical
models, alagebrium reverses the stiffening of arteries, as well as the
stiffening of the hearts that are consequences of aging and diabetes.

Preclinical studies of alagebrium conducted by researchers from the
National Institute on Aging and Johns Hopkins Geriatric Center demonstrated the
ability of the compound to significantly and rapidly reduce arterial stiffness
in elderly Rhesus monkeys. In a preclinical study of alagebrium in aged dogs,
administration of alagebrium for one month resulted in an approximate 40%
decrease in age-related ventricular stiffness, or hardening of the heart, with
an overall improvement in cardiac function. Additionally, in several preclinical
studies, alagebrium has been shown to normalize the thickening of the left
ventricle and to have a beneficial, therapeutic effect on reversing the
pathologic remodeling of the heart. Preclinical studies have also demonstrated
the beneficial effects of alagebrium on atherosclerosis, kidney disease, ED and
certain eye conditions.

MANUFACTURING

We have no manufacturing facilities for either production of bulk chemicals
or the manufacturing of pharmaceutical dosage forms. We have relied in the past
on third-party contract manufacturers to produce the raw materials and chemicals
used as the active drug ingredients in our products used in clinical studies,
and we expect to rely on third parties to perform the tasks necessary to
process, package and distribute these products in finished form.

We will inspect third-party contract manufacturers and their consultants to
confirm compliance with current Good Manufacturing Practice, or cGMP, required
for pharmaceutical products. Upon any resumption of activity in our clinical
trial program, we believe we will be able to obtain sufficient quantities of
bulk chemicals at reasonable prices to satisfy anticipated needs.

MARKETING AND SALES

We retain worldwide marketing rights to our A.G.E. Crosslink Breaker
compounds. We believe that alagebrium may address the cardiovascular, diabetes,
ophthalmologic and primary care physician markets. We plan to market and sell
our products, if and when they are successfully developed and approved, directly
or through co-promotion or other licensing arrangements with third parties. Such
arrangements may be exclusive or nonexclusive and may provide for marketing
rights worldwide or in a specific market.

PATENTS, TRADE SECRETS AND LICENSES

Proprietary protection for our product candidates, processes and know-how
is important to our business. We aggressively file and prosecute patents
covering our proprietary technology, and, if warranted, will defend our patents
and proprietary technology. As appropriate, we seek patent protection for our
proprietary technology and products in the United States and Canada and in key
commercial European and Asia/Pacific countries. We also rely upon trade secrets,
know-how, continuing technological innovation and licensing opportunities to
develop and maintain our competitive position. In addition to our own patent
filings, we have licensed or obtained technology and patent portfolios from
others relating to the A.G.E.-formation and crosslinking technology currently
under development by us.

As of the date of this report, our patent estate of owned and/or licensed
patent rights consisted of 84 issued United States patents and 15 pending patent
applications in the United States, Canada and Mexico, the majority of which are
A.G.E.-related. We also own or have exclusive rights to over 40 issued patents
in Europe, Japan, Australia and Canada. These patents and additional patent
applications cover compounds, compositions and methods of treatment for several
chemical classes of crosslink breaker compounds, including alagebrium.

We previously exclusively licensed from The Picower Institute for Medical
Research, or The Picower, certain patentable inventions and discoveries relating
to A.G.E. technology. The Picower license agreement was terminated as of April
15, 2002, when we entered into a Termination Agreement, pursuant to which The
Picower assigned to us all of its patents, patent applications and other
technology related to A.G.E.s. We agreed to prosecute and maintain the patents
and patent applications and will pay to the trustee for The Picower royalties on
any sales of products falling within the claims of these patents and patent
applications until they expire or are allowed to lapse.

We believe that our licensed and owned patents provide a substantial
proprietary base that will allow us and our collaborative partners to
commercialize products in this field. We believe our research and development
plans will expand and broaden our rights within our technological and patent
base. We are also prepared to in-license additional technology that may be
useful in building our proprietary position. There can be no assurance, however,
that pending or future applications will issue, that the claims of any patents
which do issue will provide any significant protection of our technology or that
our directed discovery research will yield compounds and products of therapeutic
and commercial value.

Where appropriate, we utilize trade secrets and unpatentable improvements
to enhance our technology base and improve our competitive position. We require
all employees, scientific consultants and contractors to execute confidentiality
agreements as a condition of engagement. There can be no assurance, however,
that we can limit unauthorized or wrongful disclosures of unpatented trade
secret information.

We believe that our estate of licensed and owned issued patents, if upheld,
and pending applications, if granted and upheld, will be a substantial factor in
our success. The patent positions of pharmaceutical firms, including ours, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though we are currently prosecuting such patent applications
in the United States and foreign patent offices, we do not know whether any of
such applications will result in the issuance of any additional patents or, if
any additional patents are issued, whether the claims thereof will provide
significant proprietary protection or will be circumvented or invalidated.

Competitors or potential competitors have filed for or have received United
States and foreign patents and may obtain additional patents and proprietary
rights relating to compounds or processes competitive with those of ours.
Accordingly, there can be no assurance that our patent applications will result
in patents being issued or that, if issued, the claims of the patents will
afford protection against competitors with similar technology; nor can there be
any assurance that others will not obtain patents that we would need to license
or circumvent. See "--Competition."

Our success will depend, in part, on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing on the proprietary rights of third parties. There can be no assurance
that our current patent estate will enable us to prevent infringement by third
parties or that competitors will not develop competitive products outside the
protection that may be afforded by the claims of such patents. To the extent we
rely on trade secrets and unpatented know-how to maintain our competitive
technological position, there can be no assurance that others may not develop
independently the same or similar technologies. Failure to maintain our current
patent estate or to obtain requisite patent and trade secret protection, which
may become material or necessary for product development, could delay or
preclude us or our licensees or marketing partners from marketing their products
and could thereby have a material adverse effect on our business, financial
condition and results of operations.

GOVERNMENT REGULATION

We and our products are subject to comprehensive regulations by the FDA and
by comparable authorities in other countries. These national agencies and other
federal, state and local entities regulate, among other things, the preclinical
and clinical testing, safety, effectiveness, approval, manufacturing, labeling,
marketing, export, storage, record keeping, advertising and promotion of our
products.

The process required by the FDA before our products may be approved for
marketing in the United States generally involves (1) preclinical new drug
laboratory and animal tests, (2) submission to the FDA of an investigational new
drug application, or IND, which must become effective before clinical trials may
begin, (3) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug for its intended indication, (4) submission to
the FDA of a new drug application, or NDA, and (5) FDA review of the NDA in
order to determine, among other things, whether the drug is safe and effective
for its intended uses. There is no assurance that the FDA review process will
result in product approval on a timely basis, if at all.

Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of clinical trials or during the conduct of
the clinical trials, as appropriate.

Clinical trials are conducted under protocols that detail such matters as
the objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND. Further, each protocol must be reviewed and approved by an IRB.

Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase 1, when the drug is initially given to human subjects,
the product is tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion. Phase 2 involves studies in a limited patient
population to (1) evaluate preliminarily the efficacy of the product for
specific targeted indications, (2) determine dosage tolerance and optimal
dosage, and (3) identify possible adverse effects and safety risks. Phase 3
trials are undertaken in order to further evaluate clinical efficacy and to
further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.

We will need FDA approval of our products, including a review of the
manufacturing processes and facilities used to produce such products, before
such products may be marketed in the United States. The process of obtaining
approvals from the FDA can be costly, time-consuming and subject to
unanticipated delays. We have experienced such delays in the past, including in
February 2005, when, as discussed elsewhere in this Annual Report on Form 10-K,
based on initial findings from a preclinical toxicity study that provided
direction for further analysis, we voluntarily and temporarily suspended
enrollment of patients into our ongoing clinical studies of alagebrium, pending
receipt of additional preclinical data and discussions with the FDA.

We cannot assure at this time when enrollment in our clinical studies will
resume, if ever. There can no assurance that the FDA will grant approvals of our
proposed products, processes or facilities on a timely basis, if at all. Any
delay or failure to obtain such approvals would have a material adverse effect
on our business, financial condition and results of operations. Moreover, even
if regulatory approval is granted, such approval may include significant
limitations on indicated uses for which a product could be marketed.

Among the conditions for NDA approval is the requirement that the
prospective manufacturer's operating procedures conform to cGMP requirements,
which must be followed at all times. In complying with these requirements,
manufacturers, including a drug sponsor's third-party contract manufacturers,
must continue to expend time, money and effort in the area of production and
quality control to ensure compliance. Domestic manufacturing establishments are
subject to periodic inspections by the FDA in order to assess, among other
things, cGMP compliance. To supply a product for use in the United States,
foreign manufacturing establishments must comply with cGMP and are subject to
periodic inspection by the FDA or by regulatory authorities from other
countries, as applicable.

Both before and after approval is obtained, a product, its manufacturer and
the holder of the NDA for the product are subject to comprehensive regulatory
oversight. Violations of regulatory requirements at any stage, including the
preclinical and clinical testing process, the approval process, or thereafter,
including after approval, may result in various adverse consequences, including
the FDA's delay in approving or refusal to approve a product, withdrawal of an
approved product from the market and/or the imposition of criminal penalties
against the manufacturer and/or NDA holder. In addition, later discovery of
previously unknown problems may result in restrictions on the product,
manufacturer or NDA holder, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of our products under development.

For marketing outside of the United States, we will have to satisfy foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and diagnostic products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. We do not currently have any facilities or personnel outside
of the United States.

COMPETITION

A.G.E.s have been shown to contribute to many of the disorders of aging and
diabetes. Cardiovascular diseases and diabetic complications are among the
diseases that may be a consequence of A.G.E. accumulation in the body. We are
aware of many companies pursuing research and development of compounds for these
indications. In addition, we are aware of companies, such as Novartis AG, that
currently have or previously have had research and development activities in the
A.G.E. field itself and may have identified candidates for clinical development.

Our competition will be determined, in part, by the potential indications
for which our compounds are developed and ultimately approved by regulatory
authorities. An important factor in competition may be the timing of market
introduction of our or our competitors' products. Accordingly, the relative
speed with which we can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market are important competitive factors. We expect that competition among any
products that are approved for sale will be based on, among other things,
product efficacy, safety, reliability, availability, price and patent position.
Our competitive position also depends upon our ability to obtain sufficient
capital resources, attract and retain qualified personnel, and obtain protection
for or otherwise develop proprietary products or processes.

We are competing in an industry in which technologies can become obsolete
over time, thereby reducing or eliminating the market for any pharmaceutical
product. For example, competitive drugs based on other therapeutic mechanisms
are currently marketed and are being developed to treat cardiovascular disease
and diabetic complications. The development by others of non-A.G.E.-related
treatment modalities could render any products that we develop non-competitive.
Therapeutic approaches being pursued by others include treating cardiovascular
disease and diabetic complications via gene therapy and cell transplantation, as
well as pharmaceutical intervention with agents such as aldose reductase
inhibitors.

There are many drugs currently being used for the treatment of heart
failure including ACE inhibitors, angiotensin receptor blockers, adrenergic
alpha 1 receptor antagonists, aldosterone inhibitors, beta-blockers and
diuretics, among others.

Most of our competitors and potential competitors have significantly
greater financial resources than we have. Our competitive position also depends
on our ability to enter into a collaboration agreement with respect to
alagebrium, and we cannot assure that we will be able to do so on reasonable
terms, or at all.

MEDICAL AND CLINICAL ADVISORS

Our Medical and Clinical Advisors are individuals with recognized expertise
in medical and pharmaceutical sciences and related fields who advise us about
present and long-term scientific planning, research and development. These
advisors consult and meet with our management informally on a frequent basis.
All advisors are employed by employers other than us, who may also be
competitors of ours, and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to us. The
advisors have agreed, however, not to provide any services to any other entities
that might conflict with the activities that they provide us. Each member also
has executed a confidentiality agreement for our benefit.

The following persons are our Medical and Clinical Advisors:

Daniel Burkhoff, M.D., PhD, Adjunct Associate Professor,
Medicine/Cardiology, Columbia University and Cardiovascular Research
Foundation, Chief Medical Officer, Impulse Dynamics.

Norman K. Hollenberg, M.D., Ph.D., Professor of Medicine, Harvard Medical
School; Director of Physiologic Research, Brigham and Women's Hospital,
Boston; served as an Editor of the New England Journal of Medicine.

Dalane Kitzman, M.D., Professor, Cardiology, Wake Forest University Baptist
Medical Center.

Peter R. Kowey, M.D., Full Professor, Medicine and Clinical Pharmacology,
Jefferson Medical College; President and Chief of the Division of
Cardiovascular Diseases, Main Line Health Heart Center, Lankenau Hospital;
Fellow of the American Heart Association, the American College of
Cardiology, the American College of Physicians, the College of Physicians
of Philadelphia, the American College of Chest Physicians and the American
College of Clinical Pharmacology.

William Little, M.D., Section Head, Professor, Cardiology, Wake Forest
University Baptist Medical Center.

Craig M. Pratt, M.D., Professor of Medicine, Baylor College of Medicine;
Director of Research, Methodist DeBakey Heart Center; Director, Coronary
Intensive Care Unit, The Methodist Hospital; Member, Continuing Medical
Education Advisory Board, Discovery International; Fellow, American College
of Cardiology.

Vinay Thohan, M.D., Assistant Professor of Medicine, Methodist DeBakey
Heart Center

Guillermo Torre, MD, PhD, Assistant Professor of Medicine/Medical Director,
Heart Transplant Service, Methodist DeBakey Heart Center.

Susan Zieman, M.D., PhD, Assistant Professor, Dept. of
Medicine/Cardiovascular, John Hopkins School of Medicine.

As of March 1, 2006, we employed seven persons; one engaged in research and
development, and 6 engaged in administration and management. One of those
employed held a Ph.D. We believe that we have been successful in the past in
attracting skilled and experienced personnel. Our employees are not covered by
collective bargaining agreements, but all employees are covered by
confidentiality agreements. We believe that our relationship with our employees
is good. We have also engaged consultants for certain administrative and
scientific functions.

FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS

Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by us or our representatives are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "estimate"
or other expressions, which are predictions of or indicate future events and
trends and which do not relate to historical matters, identify forward-looking
statements. The forward-looking statements represent our judgments and
expectations as of the date of this Report. We assume no obligation to update
any such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, as they involve risks and
uncertainties,

and actual results could differ materially from those currently anticipated due
to a number of factors, including those set forth in this section and elsewhere
in this Form 10-K. These factors include, but are not limited to, the risks set
forth below.

The forward-looking statements set forth in this document represent our
judgment and expectations as of the date of this Report. We assume no obligation
to update any such forward-looking statements.

ITEM 1A. RISK FACTORS.

AS A RESULT OF A DECREASE IN OUR AVAILABLE FINANCIAL RESOURCES, WE HAVE
SIGNIFICANTLY CURTAILED THE RESEARCH, PRODUCT DEVELOPMENT, PRECLINICAL TESTING
AND CLINICAL TRIALS OF OUR PRODUCT CANDIDATES, AND IF WE ARE UNABLE TO OBTAIN
SUFFICIENT ADDITIONAL FUNDING IN THE NEAR TERM, WE MAY BE FORCED TO CEASE
OPERATIONS.

As of December 31, 2005, we had working capital of $5,657,311, including
$6,582,958 of cash and cash equivalents. Our cash used in operating activities
for the year ended December 31, 2005 was $14,032,796.

We expect to utilize cash and cash equivalents to fund our operating
activities, including any continued development of our lead compound,
alagebrium. However, as a result of the discontinuation of the Phase 2b SPECTRA
trial in systolic hypertension and a decrease in our financial resources, we
have significantly curtailed all product development activities of alagebrium
and expect to have further reduced expenses in the first half of 2006. As
announced on February 1, 2006, while we intend to pursue development of
alagebrium in high potential cardiovascular indications such as heart failure,
any continued development of alagebrium by us is contingent upon our entering
into strategic collaboration agreements for this product candidate which, among
other things, would be required to include funding for product development. We
may not be able to enter into a strategic collaboration agreement with respect
to alagebrium on reasonable terms, or at all. No enrollment or other activity is
taking place with respect to any of our Phase 2 trials of alagebrium pending the
resolution of our financial resource issues.

We are currently exploring all strategic alternatives with respect to
alagebrium and our company, which could include a sale of the company or its
technology to a third-party and a merger of our company with another company. We
cannot assure that such a transaction will be completed on reasonable terms, or
at all. If we are unable to complete such a transaction, we may be forced to
cease operations. If we do complete such a transaction, no assurance can be
given that such transaction will be on favorable terms or that it will result in
any substantial benefit to our stockholders either in the near or long term.

In August 2005, in order to enable us to move forward with the continued
development of alagebrium, we announced that we had engaged the services of
Burrill & Company (Burrill) to assist in developing and identifying strategic
options designed to diversify our portfolio of product candidates and to enhance
our ability to raise financing in the future. Potential transactions include the
acquisition of technologies and product programs, licensing opportunities, the
sale to or merger into another company, and debt and equity financing. Burrill
has identified a number of potential transactions and we are currently in
discussions with one company regarding the acquisition of a cardiovascular
therapeutic technology. We are also in discussions with Genentech regarding the
restructuring of their preferred stock position. If we are unable to complete
such a transaction on reasonable terms, we will not have the ability to continue
as a going concern after mid-2006. As part of the exploration of our strategic
options, we are considering various transactions that could result in our being
required to make payment of certain obligations in the amount of approximately
$2.0 million, including severance, lease and other contractual and regulatory
requirements.

The amount and timing of our future capital requirements will depend on
numerous factors, including the timing of resuming our research and development
programs, if at all, the number and characteristics of product candidates that
we pursue, the conduct of preclinical tests and clinical studies, the status and
timelines of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the ability to complete strategic
collaborations and the availability of third-party funding, if any.

Selling securities to satisfy our short-term and long-term capital
requirements may have the effect of materially diluting the current holders of
our outstanding stock. We may also seek additional funding through corporate
collaborations and other financing vehicles. Potential financing sources may be
dissuaded from investing in us in light of the fact that Genentech, Inc., as the
sole holder of the outstanding shares of our Series G and Series H Preferred
Stock, currently has a significant liquidation preference and voting position,
on an as-converted to common stock basis. If funds are obtained through
arrangements with collaborative partners or others, we may be required to
relinquish rights to our technologies or product candidates. If we decide to
pursue a merger, several factors may make it difficult for us to complete such a
transaction, including the current uncertain state of our regulatory pathway for
alagebrium and the Genentech preferred stock position. Even if we complete a
merger, there can be no assurance that the products or technologies acquired in
such transaction will result in revenues to the combined company or any
meaningful return on investment to our stockholders.

WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, WHICH COULD NEGATIVELY AFFECT OUR STOCK PRICE AND OUR ABILITY
TO RAISE CAPITAL.

J.H. Cohn LLP, our independent registered public accounting firm, has
included an explanatory paragraph in their report on our financial statements
for the fiscal year ended December 31, 2005, which highlights that current
liquidity is insufficient to support operations until the end of 2006, thereby
raising substantial doubt about our ability to continue as a going concern. The
inclusion of a going concern explanatory paragraph in J.H. Cohn LLP's report on
our financial statements could have a detrimental effect on our stock price and
our ability to raise additional capital.

Our financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. We have not made any adjustments
to the financial statements as a result of the outcome of the uncertainty
described above.

IF WE ARE UNABLE TO RENEGOTIATE OUR PREFERRED STOCK AGREEMENT WITH GENENTECH, WE
MAY NOT BE ABLE TO SECURE FUTURE EQUITY FINANCING OR MERGE WITH A THIRD-PARTY.

In December 1997, we entered into an agreement with Genentech relating to
the development of pimagedine, an A.G.E. formation inhibitor, for the treatment
of diabetic nephropathy. As part of this agreement, Genentech purchased shares
of Alteon Series G Preferred Stock and Series H Preferred Stock, the proceeds of
which were used to fund the pimagedine development program. Both the Series G
Preferred Stock and Series H Preferred Stock have dividends which are payable
quarterly in shares of preferred stock at a rate of 8.5% of the accumulated
balance. The Series G and Series H Preferred Stock each carry a liquidation
preference, which means that the value of that preferred stock would be required
to be paid to the holders of the Series G and Series H Preferred Stock upon a
sale or liquidation before any proceeds from such sale or liquidation are paid
to any other holders of equity securities, including the common stock. As of
December 31, 2005, holders of the outstanding shares of Series G and Series H
Preferred Stock, including shares issued pursuant to the dividend obligation,
were entitled to a liquidation preference of $55,613,905. Our total market
capitalization as of that date was $10,439,408. As a result, unless we are
successful in renegotiating our preferred stock terms with Genentech, holders of
our common stock will not realize any value upon our sale or liquidation at a
valuation of less than $55,613,905. The Series G and Series H Preferred Stock
have no voting rights. Each share of Series G Preferred Stock and Series H
Preferred Stock is convertible, upon 70 days' prior written notice, into the
number of shares of common stock determined by dividing $10,000 by the average
of the closing prices of our common stock, as reported on the American Stock
Exchange, for the 20 business days immediately preceding the date of conversion.
On December 31, 2005, the Series G and Series H Preferred Stock would have been
convertible into 69,464,500 and 208,605,500 shares of common stock,
respectively, representing, in aggregate, approximately 83% of our common stock
outstanding on an as-converted basis as of that date.

While the terms of the Series G and Series H Preferred Stock generally
restrict Genentech's ownership position in us upon conversion to 40% of our
outstanding common stock, any conversion of shares of Series G and/or Series H
Preferred Stock into common stock would represent a substantial dilution to
existing common shareholders. Potential financing sources for us may be
dissuaded from investing in us in light of the presence of a significant holder
of securities having a sizable liquidation preference and/or voting position.
This could also discourage any potential acquirer from pursuing a transaction
with us at a valuation that does not result in sufficient proceeds to pay the
full liquidation preference due to Genentech. Although we have been in
negotiations with Genentech to restructure Genentech's preferred stock position,
we have not been successful to date in reaching a definitive agreement. Our
ability to effect a merger transaction with a third-party in order to diversify
our product portfolio and enhance our ability to raise additional capital will
be severely compromised unless we can restructure the Genentech preferred stock
terms.

IF WE ARE UNABLE TO FORM THE SUCCESSFUL COLLABORATIVE RELATIONSHIPS THAT OUR
BUSINESS STRATEGY REQUIRES, THEN OUR PROGRAMS WILL SUFFER AND WE MAY NOT BE ABLE
TO DEVELOP PRODUCTS.

Our strategy for developing and deriving revenues from our products
depends, in large part, upon entering into arrangements with research
collaborators, corporate partners and others. The potential market, preclinical
and clinical study results and safety profile of our product candidates may not
be attractive to potential corporate partners. A two-year toxicity study found
that male rats exposed to high doses of alagebrium over their natural lifetime
developed dose-related increases in liver cell alterations including
hepatocarcinomas, and that the alteration rate was slightly over the expected
background rate in this gender and species of rat. Also, our Phase 2a EMERALD
study in erectile dysfunction, the IND for which has since been withdrawn, was
placed on clinical hold

by the Reproductive and Urologic Division which may adversely affect our ability
to enter into research and development collaborations with respect to
alagebrium. We face significant competition in seeking appropriate collaborators
and these collaborations are complex and time-consuming to negotiate and
document. We may not be able to negotiate collaborations on acceptable terms, or
at all. If that were to occur, we may have to curtail the development of a
particular product candidate, reduce or delay our development program or one or
more of our other development programs, delay our potential commercialization or
reduce the scope of our sales or marketing activities, or increase our
expenditures and undertake development or commercialization activities at our
own expense. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional
capital, which may not be available to us on acceptable terms, or at all. If we
do not have sufficient funds, we will not be able to bring our product
candidates to market and generate product revenue.

IF WE ARE UNABLE TO ATTRACT AND RETAIN THE KEY PERSONNEL ON WHOM OUR SUCCESS
DEPENDS, OUR PRODUCT DEVELOPMENT, MARKETING AND COMMERCIALIZATION PLANS COULD
SUFFER.

We depend heavily on the principal members of our management and scientific
staff to realize our strategic goals and operating objectives. Over the past few
months, due to the reduction in our clinical trial activities, the number of our
employees has decreased from 30 as of June 30, 2005 to 7 as of March 1, 2006. On
February 1, 2006, we announced the resignation of our Chief Operating Officer,
Judith S. Hedstrom. The loss of services in the near term of any of our other
principal members of management and scientific staff could impede the
achievement of our development priorities. Furthermore, recruiting and retaining
qualified scientific personnel to perform research and development work in the
future will also be critical to our success, and there is significant
competition among companies in our industry for such personnel. We have
established retention programs for our current key employees, and we may be
required to provide additional retention and severance benefits to our employees
as we curtail operations or prepare to effect a strategic transaction such as a
sale or merger with another company. However, we cannot assure you that we will
be able to attract and retain personnel on acceptable terms given the
competition between pharmaceutical and healthcare companies, universities and
non-profit research institutions for experienced managers and scientists, and
given the recent clinical and regulatory setbacks that we have experienced. In
addition, we rely on consultants to assist us in formulating our research and
development strategy. All of our consultants are employed by other entities and
may have commitments to or consulting or advisory contracts with those other
entities that may limit their availability to us.

CLINICAL STUDIES REQUIRED FOR OUR PRODUCT CANDIDATES ARE TIME-CONSUMING, AND
THEIR OUTCOME IS UNCERTAIN.

Before obtaining regulatory approvals for the commercial sale of any of our
products under development, we must demonstrate through preclinical and clinical
studies that the product is safe and effective for use in each target
indication. Success in preclinical studies of a product candidate may not be
predictive of similar results in humans during clinical trials. None of our
products has been approved for commercialization in the United States or
elsewhere. In December 2004, we announced that findings of a routine two-year
rodent toxicity study indicated that male Sprague Dawley rats exposed to high
doses of alagebrium over their natural lifetime developed dose-related increases
in liver cell alterations and tumors, and that the liver tumor rate was slightly
over the expected background rate in this gender and species of rat. In February
2005, based on the initial results from one of the follow-on preclinical
toxicity experiments, we voluntarily and temporarily suspended enrollment of new
subjects into each of the ongoing clinical studies pending receipt of additional
preclinical data. We withdrew our IND for the EMERALD study in February 2006 in
order to focus our resources on the development of alagebrium in cardiovascular
indications.

In June 2005, our Phase 2b SPECTRA trial in systolic hypertension was
discontinued after an interim analysis found that the data did not indicate a
treatment effect of alagebrium and we have ceased development of alagebrium for
this indication.

We cannot predict at this time when enrollment in any of our clinical
studies, will resume, if ever. If we are unable to resume enrollment in our
clinical studies in a timely manner, or at all, our business will be materially
adversely affected.

If we do not prove in clinical trials that our product candidates are safe
and effective, we will not obtain marketing approvals from the FDA and other
applicable regulatory authorities. In particular, one or more of our product
candidates may not exhibit the expected medical benefits in humans, may cause
harmful side effects, may not be effective in treating the targeted indication
or may have other unexpected characteristics that preclude regulatory approval
for any or all indications of use or limit commercial use if approved.

The length of time necessary to complete clinical trials varies
significantly and is difficult to predict. Factors that can cause delay or
termination of our clinical trials include:

- slower than expected patient enrollment due to the nature of the
protocol, the proximity of subjects to clinical sites, the eligibility
criteria for the study, competition with clinical trials for other
drug candidates or other factors;

- adverse results in preclinical safety or toxicity studies;

- lower than expected retention rates of subjects in a clinical trial;

- inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials;

- delays in approvals from a study site's review board, or other
required approvals;

- longer treatment time required to demonstrate effectiveness or
determine the appropriate product dose;

- lack of sufficient supplies of the product candidate;

- adverse medical events or side effects in treated subjects;

- lack of effectiveness of the product candidate being tested; and

- regulatory changes.

Even if we obtain positive results from preclinical or clinical studies for
a particular product, we may not achieve the same success in future studies of
that product. Data obtained from preclinical and clinical studies are
susceptible to varying interpretations that could delay, limit or prevent
regulatory approval. In addition, we may encounter delays or rejections based
upon changes in FDA policy for drug approval during the period of product
development and FDA regulatory review of each submitted new drug application. We
may encounter similar delays in foreign countries. Moreover, regulatory approval
may entail limitations on the indicated uses of the drug. Failure to obtain
requisite governmental approvals or failure to obtain approvals of the scope
requested will delay or preclude our licensees or marketing partners from
marketing our products or limit the commercial use of such products and will
have a material adverse effect on our business, financial condition and results
of operations.

In addition, some or all of the clinical trials we undertake may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals, which could prevent or delay the creation of marketable products. Our
product development costs will increase if we have delays in testing or
approvals, if we need to perform more, larger or different clinical or
preclinical trials than planned or if our trials are not successful. Delays in
our clinical trials may harm our financial results and the commercial prospects
for our products.

Before a clinical trial may commence in the United States, we must submit
an IND, containing preclinical studies, chemistry, manufacturing, control and
other information and a study protocol to the FDA. If the FDA does not object
within 30 days after submission of the IND, then the trial may commence. If
commenced, the FDA may delay, limit, suspend or terminate clinical trials at any
time, or may delay, condition or reject approval of any of our product
candidates, for many reasons. For example:

- ongoing preclinical or clinical study results may indicate that the
product candidate is not safe or effective;

- the FDA may interpret our preclinical or clinical study results to
indicate that the product candidate is not safe or effective, even if
we interpret the results differently; or

- the FDA may deem the processes and facilities that our collaborative
partners, our third-party manufacturers or we propose to use in
connection with the manufacture of the product candidate to be
unacceptable.

IF WE DO NOT SUCCESSFULLY DEVELOP ANY PRODUCTS, OR ARE UNABLE TO DERIVE REVENUES
FROM PRODUCT SALES, WE WILL NEVER BE PROFITABLE.

Virtually all of our revenues to date have been generated from
collaborative research agreements and interest income. We have not received any
revenues from product sales. We may not realize product revenues on a timely
basis, if at all, and there can be no assurance that we will ever be profitable.

At December 31, 2005, we had an accumulated deficit of $222,813,445. We
anticipate that we will incur substantial, potentially greater, losses in the
future as we continue our research, development and clinical studies. We have
not yet requested or received regulatory approval for any product from the FDA
or any other regulatory body. All of our product candidates, including our lead
candidate, alagebrium, are still in research, preclinical or clinical
development. We may not succeed in the development and marketing of any
therapeutic or diagnostic product. We do not have any product other than
alagebrium in clinical development, and there can be no assurance that we will
be able to bring any other compound into clinical development. Adverse results
of any preclinical or clinical study could cause us to materially modify our
clinical development programs, resulting in delays and increased expenditures,
or cease development for all or part of our ongoing studies of alagebrium.

In February 2006, the EMERALD study of alagebrium in ED was discontinued in
order to focus our resources on development of alagebrium for cardiovascular
indications.

In June 2005, our SPECTRA Phase 2b trial in systolic hypertension, was
discontinued after an interim analysis found that the data did not indicate a
treatment effect of alagebrium and we have ceased development of alagebrium for
this indication.

To achieve profitable operations, we must, alone or with others,
successfully identify, develop, introduce and market proprietary products. Such
products will require significant additional investment, development and
preclinical and clinical testing prior to potential regulatory approval and
commercialization. The development of new pharmaceutical products is highly
uncertain and expensive and subject to a number of significant risks. Potential
products that appear to be promising at early stages of development may not
reach the market for a number of reasons. Potential products may be found
ineffective or cause harmful side effects during preclinical testing or clinical
studies, fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to achieve market acceptance
or be precluded from commercialization by proprietary rights of third parties.
We may not be able to undertake additional clinical studies. In addition, our
product development efforts may not be successfully completed, we may not have
the funds to complete any ongoing clinical trials, we may not obtain regulatory
approvals, and our products, if introduced, may not be successfully marketed or
achieve customer acceptance. We do not expect any of our products, including
alagebrium, to be commercially available for a number of years, if at all.

FAILURE TO REMEDIATE THE MATERIAL WEAKNESSES IN OUR INTERNAL CONTROLS AND TO
ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404
OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS AND STOCK PRICE.

During the audit of our financial statements for the year ended December
31, 2005, our independent registered public accounting firm identified a
material weakness, as of December 31, 2005, regarding our internal controls over
the identification of and the accounting for non-routine transactions including
certain costs related to potential strategic transactions, severance benefits
and the financial statement recording and disclosures of stock options that we
have granted to non employee consultants in accordance with Emerging Issues Task
Force ("EITF") 96-18. As defined by the Public Company Accounting Oversight
Board Auditing Standard No. 2, a material weakness is a significant control
deficiency or a combination of significant control deficiencies, that results in
there being more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. This
material weakness did not result in the restatement of any previously reported
financial statements or any other related financial disclosure Management is in
the process of implementing remedial controls to address these matters. In
addition, the changes that would have resulted in the financial statements for
the year ended December 31, 2005, as a consequence of the material weakness,
were deemed to be immaterial but were nevertheless recorded by the Company.

On April 22, 2005, we filed an amendment to our Annual Report on Form 10-K
for the fiscal year ended December 31, 2004 (the "10-K Amendment"), in which we
reported that, as of December 31, 2004, and as required by Section 404 of the
Sarbanes-Oxley Act of 2002, management, with the participation of our principal
executive officer and principal financial officer, had assessed the
effectiveness of our internal control over financial reporting

based on the framework established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Management's assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operational
effectiveness of our internal control over financial reporting. Management
reviewed the results of its assessment with the Audit Committee of our Board of
Directors, and based on this assessment, management determined that as of
December 31, 2004, there were three material weaknesses in our internal control
over financial reporting. In light of these material weaknesses, management
concluded that, as of December 31, 2004, we did not maintain effective internal
control over financial reporting.

The three material weaknesses identified were in the areas of audit
committee oversight of the internal control review process, information
technology controls and process controls, and control over cash disbursements.
With respect to each of these matters, as set forth in the Form 10-K Amendment,
management has implemented remedial measures or procedures to address these
matters. However, we cannot currently assure that the remedial measures that are
currently being implemented will be sufficient to result in a conclusion that
our internal controls no longer contain any material weaknesses, and that our
internal controls are effective. In addition, we cannot assure you that, even if
we are able to achieve effective internal control over financial reporting, our
internal controls will remain effective for any period of time.

IF WE ARE ABLE TO FORM COLLABORATIVE RELATIONSHIPS, BUT ARE UNABLE TO MAINTAIN
THEM, OUR PRODUCT DEVELOPMENT MAY BE DELAYED AND DISPUTES OVER RIGHTS TO
TECHNOLOGY MAY RESULT.

We may form collaborative relationships that, in some cases, will make us
dependent upon outside partners to conduct preclinical testing and clinical
studies and to provide adequate funding for our development programs.

In general, collaborations involving our product candidates pose the
following risks to us:

- collaborators may fail to adequately perform the scientific and
preclinical studies called for under our agreements with them;

- collaborators have significant discretion in determining the efforts
and resources that they will apply to these collaborations;

- collaborators may not pursue further development and commercialization
of our product candidates or may elect not to continue or renew
research and development programs based on preclinical or clinical
study results, changes in their strategic focus or available funding
or external factors, such as an acquisition that diverts resources or
creates competing priorities;

- collaborators may delay clinical trials, provide insufficient funding
for a clinical program, stop a clinical study or abandon a product
candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing;

- collaborators could independently develop, or develop with third
parties, products that compete directly or indirectly with our
products or product candidates if the collaborators believe that
competitive products are more likely to be successfully developed or
can be commercialized under terms that are more economically
attractive; collaborators with marketing and distribution rights to
one or more products may not commit enough resources to their
marketing and distribution;

- collaborators may not properly maintain or defend our intellectual
property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;

- disputes may arise between us and the collaborators that result in the
delay or termination of the research, development or commercialization
of our product candidates or that result in costly litigation or
arbitration that diverts management attention and resources; and

- collaborations may be terminated and, if terminated, may result in a
need for additional capital to pursue further development of the
applicable product candidates.

In addition, there have been a significant number of business combinations
among large pharmaceutical companies that have resulted in a reduced number of
potential future collaborators. If a present or future

collaborator of ours were to be involved in a business combination, the
continued pursuit and emphasis on our product development program could be
delayed, diminished or terminated.

OUR PRODUCT CANDIDATES WILL REMAIN SUBJECT TO ONGOING REGULATORY REVIEW EVEN IF
THEY RECEIVE MARKETING APPROVAL. IF WE FAIL TO COMPLY WITH CONTINUING
REGULATIONS, WE COULD LOSE THESE APPROVALS AND THE SALE OF OUR PRODUCTS COULD BE
SUSPENDED.

Even if we receive regulatory approval to market a particular product
candidate, the approval could be granted with the condition that we conduct
additional costly post-approval studies or that we limit the indicated uses
included in our labeling. Moreover, the product may later cause adverse effects
that limit or prevent its widespread use, force us to withdraw it from the
market or impede or delay our ability to obtain regulatory approvals in
additional countries. In addition, the manufacturer of the product and its
facilities will continue to be subject to FDA review and periodic inspections to
ensure adherence to applicable regulations. After receiving marketing approval,
the manufacturing, labeling, packaging, adverse event reporting, storage,
advertising, promotion and record keeping related to the product will remain
subject to extensive regulatory requirements. We may be slow to adapt, or we may
never adapt, to changes in existing regulatory requirements or adoption of new
regulatory requirements.

If we fail to comply with the regulatory requirements of the FDA and other
applicable United States and foreign regulatory authorities or if previously
unknown problems with our products, manufacturers or manufacturing processes are
discovered, we could be subject to administrative or judicially imposed
sanctions, including:

- restrictions on the products, manufacturers or manufacturing
processes;

- warning letters;

- civil or criminal penalties;

- fines;

- injunctions;

- product seizures or detentions;

- import bans;

- voluntary or mandatory product recalls and publicity requirements;

- suspension or withdrawal of regulatory approvals;

- total or partial suspension of production; and

- refusal to approve pending applications for marketing approval of new
drugs or supplements to approved applications.

IF WE CANNOT SUCCESSFULLY FORM AND MAINTAIN SUITABLE ARRANGEMENTS WITH THIRD
PARTIES FOR THE MANUFACTURING OF THE PRODUCTS WE MAY DEVELOP, OUR ABILITY TO
DEVELOP OR DELIVER PRODUCTS MAY BE IMPAIRED.

We have no experience in manufacturing products and do not have
manufacturing facilities. Consequently, we will depend on contract manufacturers
for the production of any products for development and commercial purposes. The
manufacture of our products for clinical trials and commercial purposes is
subject to current cGMP, regulations promulgated by the FDA. In the event that
we are unable to obtain or retain third-party manufacturing capabilities for our
products, we will not be able to commercialize our products as planned. Our
reliance on third-party manufacturers will expose us to risks that could delay
or prevent the initiation or completion of our clinical trials, the submission
of applications for regulatory approvals, the approval of our products by the
FDA or the commercialization of our products or result in higher costs or lost
product revenues. In particular, contract manufacturers:

- could encounter difficulties in achieving volume production, quality
control and quality assurance and suffer shortages of qualified
personnel, which could result in their inability to manufacture
sufficient quantities of drugs to meet our clinical schedules or to
commercialize our product candidates;

- could terminate or choose not to renew the manufacturing agreement,
based on their own business priorities, at a time that is costly or
inconvenient for us;

- could fail to establish and follow FDA-mandated cGMPs, as required for
FDA approval of our product candidates, or fail to document their
adherence to cGMPs, either of which could lead to significant delays
in the availability of material for clinical study and delay or
prevent filing or approval of marketing applications for our product
candidates; and

- could breach, or fail to perform as agreed, under the manufacturing
agreement.

Changing any manufacturer that we engage for a particular product or
product candidate may be difficult, as the number of potential manufacturers is
limited, and we will have to compete with third parties for access to those
manufacturing facilities. cGMP processes and procedures typically must be
reviewed and approved by the FDA, and changing manufacturers may require
re-validation of any new facility for cGMP compliance, which would likely be
costly and time-consuming. We may not be able to engage replacement
manufacturers on acceptable terms quickly or at all. In addition, contract
manufacturers located in foreign countries may be subject to import limitations
or bans. As a result, if any of our contract manufacturers is unable, for
whatever reason, to supply the contracted amounts of our products that we
successfully bring to market, a shortage would result which would have a
negative impact on our revenues.

Drug manufacturers are subject to ongoing periodic unannounced inspection
by the FDA, the U.S. Drug Enforcement Agency and corresponding state and foreign
agencies to ensure strict compliance with cGMPs, other government regulations
and corresponding foreign standards. While we are obligated to audit the
performance of third-party contractors, we do not have control over our
third-party manufacturers' compliance with these regulations and standards.
Failure by our third-party manufacturers or us to comply with applicable
regulations could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of the government to grant pre-market
approval of drugs, delays, suspension or withdrawal of approvals, seizures or
recalls of product, operating restrictions and criminal prosecutions. Our
dependence upon others for the manufacture of any products that we develop may
adversely affect our profit margin, if any, on the sale of any future products
and our ability to develop and deliver such products on a timely and competitive
basis.

IF WE ARE NOT ABLE TO PROTECT THE PROPRIETARY RIGHTS THAT ARE CRITICAL TO OUR
SUCCESS, THE DEVELOPMENT AND ANY POSSIBLE SALES OF OUR PRODUCT CANDIDATES COULD
SUFFER AND COMPETITORS COULD FORCE OUR PRODUCTS COMPLETELY OUT OF THE MARKET.

Our success will depend on our ability to obtain patent protection for our
products, preserve our trade secrets, prevent third parties from infringing upon
our proprietary rights and operate without infringing upon the proprietary
rights of others, both in the United States and abroad.

The degree of patent protection afforded to pharmaceutical inventions is
uncertain and our potential products are subject to this uncertainty.
Competitors may develop competitive products outside the protection that may be
afforded by the claims of our patents. We are aware that other parties have been
issued patents and have filed patent applications in the United States and
foreign countries with respect to other agents that have an effect on A.G.E.s.,
or the formation of A.G.E. crosslinks. In addition, although we have several
patent applications pending to protect proprietary technology and potential
products, these patents may not be issued, and the claims of any patents that do
issue, may not provide significant protection of our technology or products. In
addition, we may not enjoy any patent protection beyond the expiration dates of
our currently issued patents.

We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to maintain, develop and expand
our competitive position, which we seek to protect, in part, by confidentiality
agreements with our corporate partners, collaborators, employees and
consultants. We also have invention or patent assignment agreements with our
employees and certain, but not all, corporate partners and consultants. Relevant
inventions may be developed by a person not bound by an invention assignment
agreement. Binding agreements may be breached, and we may not have adequate
remedies for such breach. In addition, our trade secrets may become known to or
be independently discovered by competitors.

THE EFFECT OF ACCOUNTING RULES RELATING TO OUR EQUITY COMPENSATION ARRANGEMENTS
MAY HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE AND FINANCIAL CONDITION.

In December 2004, the FASB issued Statement of Financial Accounting
Standards, or SFAS No. 123 (revised 2004), "Share-Based Payment," (SFAS No.
123(R)), which is a revision of SFAS 123 and supersedes APB Opinion No. 25 and
related guidance and will be effective for us beginning January 1, 2006. This
Statement requires that the costs of employee share-based payments be measured
at fair value on the awards' grant date using an option-pricing model and
recognized in the financial statements over the requisite service period. We
have determined to use the modified prospective application as our transition
method and we believe it may have a material effect on our results of
operations.

On December 15, 2005, the Compensation Committee of the Board of Directors
of Alteon Inc. approved the acceleration of the vesting date of all previously
issued, outstanding and unvested options, effective December 31, 2005.
Approximately 1.47 million options were accelerated, of which approximately 1.3
million belong to executive officers and non-employee members of the board of
directors.

Based on the performance of our stock and in order to bolster employee
retention, we repriced certain employee stock options on February 2, 1999. As a
result of this repricing, options to purchase 1.06 million shares of stock were
repriced and certain vesting periods related to these options were modified or
extended. This repricing may have a material adverse impact on future financial
performance based on the Financial Accounting Standards Board, or the FASB,
Interpretation No. 44, (FIN No. 44), "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of Accounting Principles Board
(APB Opinion No. 25)." This interpretation requires us to record compensation
expense or benefit, which is adjusted every quarter, for increases or decreases
in the fair value of the repriced options based on changes in our stock price
from the value at July 1, 2000. The options expire at various dates through
January 2008.

IF WE ARE NOT ABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN THE
DEVELOPMENT AND MARKETING OF CURES AND THERAPIES FOR CARDIOVASCULAR DISEASES,
DIABETES, AND THE OTHER CONDITIONS FOR WHICH WE SEEK TO DEVELOP PRODUCTS, WE MAY
NOT BE ABLE TO CONTINUE OUR OPERATIONS.

We are engaged in pharmaceutical fields characterized by extensive research
efforts and rapid technological progress. Many established pharmaceutical and
biotechnology companies with financial, technical and human resources greater
than ours are attempting to develop, or have developed, products that would be
competitive with our products. Many of these companies have extensive experience
in preclinical and human clinical studies. Other companies may succeed in
developing products that are safer, more efficacious or less costly than any we
may develop and may also be more successful than us in production and marketing.
Rapid technological development by others may result in our products becoming
obsolete before we recover a significant portion of the research, development or
commercialization expenses incurred with respect to those products.

Certain technologies under development by other pharmaceutical companies
could result in better treatments for cardiovascular disease, and diabetes and
its related complications. Several large companies have initiated or expanded
research, development and licensing efforts to build pharmaceutical franchises
focusing on these medical conditions, and some companies already have products
approved and available for commercial sale to treat these indications. It is
possible that one or more of these initiatives may reduce or eliminate the
market for some of our products. In addition, other companies have initiated
research in the inhibition or crosslink breaking of A.G.E.s.

IF GOVERNMENTS AND THIRD-PARTY PAYERS CONTINUE THEIR EFFORTS TO CONTAIN OR
DECREASE THE COSTS OF HEALTHCARE, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR
PRODUCTS SUCCESSFULLY.

In certain foreign markets, pricing and/or profitability of prescription
pharmaceuticals are subject to government control. In the United States, we
expect that there will continue to be federal and state initiatives to control
and/or reduce pharmaceutical expenditures. In addition, increasing emphasis on
managed care in the United States will continue to put pressure on
pharmaceutical pricing. Cost control initiatives could decrease the price that
we receive for any products for which we may receive regulatory approval to
develop and sell in the future and could have a material adverse effect on our
business, financial condition and results of operations. Further, to the extent
that cost control initiatives have a material adverse effect on our corporate
partners, our ability to commercialize our products may be adversely affected.
Our ability to commercialize pharmaceutical products may depend, in part, on the
extent to which reimbursement for the products will be available from government
health administration authorities, private health insurers and other third-party
payers. Significant uncertainty exists as to

the reimbursement status of newly approved healthcare products, and third-party
payers, including Medicare, frequently challenge the prices charged for medical
products and services. In addition, third-party insurance coverage may not be
available to subjects for any products developed by us. Government and other
third-party payers are attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement for new therapeutic products and by
refusing in some cases to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval. If
government and other third-party payers for our products do not provide adequate
coverage and reimbursement levels, the market acceptance of these products would
be adversely affected.

IF THE USERS OF THE PRODUCTS THAT WE ARE DEVELOPING CLAIM THAT OUR PRODUCTS
HAVE HARMED THEM, WE MAY BE SUBJECT TO COSTLY AND DAMAGING PRODUCT LIABILITY
LITIGATION, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The use of any of our potential products in clinical studies and the sale
of any approved products, including the testing and commercialization of
alagebrium or other compounds, may expose us to liability claims resulting from
the use of products or product candidates. Claims could be made directly by
participants in our clinical studies, consumers, pharmaceutical companies or
others. We maintain product liability insurance coverage for claims arising from
the use of our products in clinical studies. However, coverage is becoming
increasingly expensive, and we may not be able to maintain or acquire insurance
at a reasonable cost or in sufficient amounts to protect us against losses due
to liability that 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 any product approved for
marketing in the future, and insurance coverage and our resources may not be
sufficient to satisfy any liability resulting from product liability claims. A
successful product liability claim or series of claims brought against us could
have a material adverse effect on our business, financial condition and results
of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not Applicable.

ITEM 2. PROPERTIES.

We lease 10,800 square feet of space in a building in Parsippany, New
Jersey, which contains our executive and administrative offices. The lease,
which commenced on December 1, 2003, has a 37-month term. We currently do not
intend to renew this lease, which expires on December 31, 2006. We believe that
alternate commercial space is available on reasonable terms.

ITEM 3. LEGAL PROCEEDINGS.

The lawsuit referred to in our Form 10-K for the fiscal year ended December
31, 2004 against Advanced Biologics L.L.C. has settled and, pursuant to the
terms of the settlement, we and Advanced Biologics have dismissed outstanding
claims against each other and an undisclosed payment has been received by
Alteon.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2005.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the American Stock Exchange under the
symbol "ALT." The following table sets forth, for the periods indicated, the
high and low sales price for our common stock, as reported by the American Stock
Exchange:

2005 High Low
---- ----- -----

First Quarter.... $1.43 $0.55
Second Quarter... 0.85 0.19
Third Quarter.... 0.37 0.21
Fourth Quarter... 0.30 0.17

2004 High Low
---- ----- -----

First Quarter.... $2.39 $1.57
Second Quarter... 1.89 1.01
Third Quarter.... 1.20 0.65
Fourth Quarter... 1.59 0.77

As of March 1, 2006, there were 334 holders of the common stock. On
March 1, 2006, the last sale price reported on the American Stock Exchange for
the common stock was $0.26 per share.

We have neither paid nor declared dividends on our common stock since
our inception and do not plan to pay dividends in the foreseeable future. Any
earnings that we may realize will be returned to finance our growth.

The market prices for securities of biotechnology and pharmaceutical
companies, including ours, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors, such as fluctuations in our operating results, announcements
of technological innovations or new therapeutic products by us or others,
clinical trial results, developments concerning agreements with collaborators,
governmental regulation, developments in patent or other proprietary rights,
public concern as to the safety of drugs developed by us or others, future sales
of substantial amounts of common stock by existing stockholders and general
market conditions, can have an adverse effect on the market price of the common
stock.

The information called for by Item 201(d) of Regulation S-K is
provided in response to Item 12 of this Annual Report on Form 10-K.

In connection with our January 2005 public offering of 9,523,813
shares of common stock at $1.05 per share and in connection with our July 2,
2004 public offering of 8,000,000 shares of common stock at $1.00 per share, we
issued five-year warrants to purchase 312,381 shares of common stock at $1.37
per share and 272,500 shares of common stock at $1.30 per share, respectively,
to the placement agent, Rodman & Renshaw, LLC, in consideration of the
introduction of investors to us. No underwriters were involved in the
transaction, and there were no underwriting discounts or commissions. We relied
upon the exemption from registration set forth in Section 4(2) of the Securities
Act of 1933, as amended, because the transaction did not involve any public
offering by us.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth financial data with respect to us as of
and for the five years ended December 31, 2005. The selected financial data has
been derived from our audited financial statements. The selected financial data
below should be read in conjunction with the audited financial statements and
related notes included elsewhere in this Annual Report on Form 10-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7:

Year Ended December 31,
---------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
(in thousands, except per share data)

STATEMENTS OF OPERATIONS DATA:

Income:
Investment income ......................... $ 358 $ 182 $ 179 $ 410 $ 452
Other income .............................. 100 152 -- -- --
--------- --------- --------- --------- ---------
Total income ........................... 458 334 179 410 452
--------- --------- --------- --------- ---------

Expenses:
Research and development .................. 9,074 10,147 9,930 14,992 8,461
General and administrative ............. 4,325 4,532 5,046 2,946 4,761
--------- --------- --------- --------- ---------
Total expenses ......................... 13,399 14,679 14,976 17,938 13,222
--------- --------- --------- --------- ---------
Loss before income tax benefit ............... (12,941) (14,345) (14,797) (17,528) (12,770)
Income tax benefit ........................... 327 386 345 647 1,187
--------- --------- --------- --------- ---------
Net loss ..................................... (12,614) (13,959) (14,452) (16,881) (11,583)
Preferred stock dividends .................... 4,486 4,135 3,791 3,485 3,204
Common stock warrant deemed dividends ........ -- -- -- -- 210
--------- --------- --------- --------- ---------
Net loss applicable to common
stockholders .............................. $ (17,100) $ (18,094) $ (18,243) $ (20,366) $ (14,997)
========= ========= ========= ========= =========
Basic/diluted net loss per share applicable to
common stockholders ....................... $ (0.30) $ (0.41) $ (0.50) $ (0.64) $ (0.61)
========= ========= ========= ========= =========
Weighted average common shares used in
computing basic/diluted net loss per share 57,639 44,349 36,190 31,793 24,556
========= ========= ========= ========= =========

BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments .................... $ 6,583 $ 11,176 $ 16,679 $ 17,439 $ 10,726
Working capital .............................. 5,657 8,740 15,033 13,786 9,758
Total assets ................................. 7,134 11,642 17,255 18,099 13,233
Accumulated deficit .......................... (222,813) (205,713) (187,619) (169,376) (149,009)
Total stockholders' equity ................... 5,992 9,047 15,384 14,303 10,871

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

We are a product-based biopharmaceutical company engaged in the
development of small molecule drugs to treat and prevent cardiovascular disease
and diabetes. In past years, we have identified several promising product
candidates that represent novel approaches to some of the largest pharmaceutical
markets. We have advanced one of these products into Phase 2 clinical trials.

Our lead drug candidate, alagebrium, is a product of our drug
discovery and development program. Alagebrium has demonstrated potential
efficacy in two clinical trials in heart failure, as well as in animal models of
heart failure, nephropathy, hypertension and erectile dysfunction. It has been
tested in approximately 1,000 patients in a number of Phase 1 and Phase 2
clinical trials. However, we have significantly curtailed all product
development activities of alagebrium due to an absence of sufficient financial
resources to continue its development. As announced on February 1, 2006, while
our goal is to pursue development of alagebrium in high potential cardiovascular
indications such as diastolic heart failure, any continued development of
alagebrium by us is contingent upon our entering into strategic collaboration
agreements for this product candidate which, among other things, would be
required to include funding for product development. We may not be able to enter
into a strategic collaboration agreement with respect to alagebrium on
reasonable terms, or at all. No enrollment or other activity is taking place
with respect to any of our Phase 2 trials of alagebrium pending the resolution
of our financial resource issues.

We are currently exploring all strategic alternatives with respect to
alagebrium and our company, which could include a sale of the company or its
technology to a third-party and a merger of our company with another company. We
may not be able to complete such a transaction on reasonable terms, or at all.
If we are unable to complete such a transaction, we may be forced to cease
operations. If we do complete such a transaction, we cannot assure you that it
will be on favorable terms or that it will result in any substantial benefit to
our stockholders either in the near or long term.

We expect to utilize cash and cash equivalents to fund our operating
activities, including any continued development of our lead compound,
alagebrium. As a result of the discontinuation of the Phase 2b SPECTRA trial in
systolic hypertension, we have undertaken curtailment actions and expect to have
reduced expenses in the first half of 2006. These actions include evaluating
clinical strategies before resuming clinical trials, increased selectivity in
preclinical programs and reduced headcount. We have engaged third parties to
assist in developing and identifying options designed to diversify our portfolio
of product candidates and to enhance our ability to raise financing in the
future. Potential transactions include the acquisition of technologies and
product programs, licensing opportunities, the sale to or merger into another
company, and debt and equity financing. If we are unable to secure additional
financing on reasonable terms, unable to generate sufficient new sources of
revenue through collaborative arrangements or if the level of cash and cash
equivalents falls below anticipated levels, we will not have the ability to
continue as a going concern after mid-2006. As part of the exploration of our
strategic options, we are considering various transactions that could result in
our being required to make payment of certain obligations in the amount of
approximately $2.0 million, including severance, lease and other contractual and
regulatory requirements.

We are in the process of preparing to submit an IND to the FDA's Division
of Cardio-Renal Drug Products specifically for alagebrium in heart failure, in
order to expand our clinical program in this therapeutic area.

If we are able to continue the clinical development of alagebrium, we will
determine if it is appropriate to retain development and marketing rights for
one or several indications, while at the same time continuing to evaluate
potential corporate partnerships for the further development and ultimate
marketing of the compound in other territories throughout the world. We believe
that alagebrium may address the cardiovascular, diabetes, and primary care
physician markets.

We continue to evaluate potential preclinical and clinical trials in other
therapeutic indications in which A.G.E. Crosslink Breaker compounds may address
significant unmet needs. In addition to our clinical studies in heart failure
and endothelial dysfunction, we have early research studies focused on
atherosclerosis; Alzheimer's disease; photoaging of the skin; eye diseases,
including AMD and glaucoma; and diabetic complications, including renal
diseases. However, the pursuit of research or development in any of these areas
is contingent upon our ability to secure sufficient funding to proceed with
these programs.

Since our inception in October 1986, we have devoted substantially all of
our resources to research, drug discovery and development programs. To date, we
have not generated any revenues from the sale of products and do not expect to
generate any such revenues for a number of years, if at all. We have incurred an
accumulated deficit of $222,813,000 as of December 31, 2005, and expect to incur
net losses, potentially greater than losses in prior years, for a number of
years.

We have financed our operations through proceeds from public offerings of
common stock, private placements of common and preferred equity securities,
revenue from former collaborative relationships, reimbursement of certain of our
research and development expenses by our collaborative partners, investment
income earned on cash balances and short-term investments and the sale of a
portion of our New Jersey State net operating loss carryforwards.

Our business is subject to significant risks including, but not limited to,
(1) our ability to obtain sufficient additional funding in the near term,
whether through a strategic collaboration agreement or otherwise, to allow us to
resume the development of alagebrium and to continue operations, (2) our ability
to renegotiate our preferred stock agreement with Genentech, (3) our ability to
resume enrollment in our clinical studies of alagebrium should we have adequate
financial and other resources to do so, (4) the risks inherent in our research
and development efforts, including clinical trials and the length, expense and
uncertainty of the process of seeking regulatory approvals for our product
candidates, (5) our reliance on alagebrium, which is our only significant drug
candidate, (6) uncertainties associated with obtaining and enforcing our patents
and with the patent rights of others, (7) uncertainties regarding government
healthcare reforms and product pricing and reimbursement levels, (8)
technological change and competition, (9) manufacturing uncertainties, and (10)
dependence on collaborative

partners and other third parties. Even if our product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. These reasons include the possibilities that the products will
prove ineffective or unsafe during preclinical or clinical studies, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. These risks and others
are discussed under the heading "Item 1A - Risk Factors."

RESULTS OF OPERATIONS

Years Ended December 2005, 2004, and 2003

Revenues

Total revenues for 2005, 2004 and 2003 were $458,000, $334,000, and
$179,000, respectively. Revenues were derived from interest earned on cash and
cash equivalents, other income, and short-term investments. Investment income in
2005 was higher than 2004 due to an increase in short-term interest rates,
partially offset by lower investment balances. In 2005, other income included
$100,000 received from a licensing agreement with Avon Products, Inc. In 2004,
other income included approximately $52,000 derived from the sale of fully
depreciated laboratory equipment and supplies and a reimbursement of $100,000
for improvements made to our former facility in Ramsey, NJ. The increase in
investment income in 2004 versus 2003 was attributed to increased interest
rates.

Operating Expenses

Total expenses decreased to $13,399,000 in 2005 from $14,679,000 in 2004
and from $14,976,000 in 2003 and consisted primarily of research and development
expenses. Research and development expenses were $9,074,000 in 2005, $10,147,000
in 2004, and $9,930,000 in 2003. These expenses consisted primarily of
third-party expenses associated with preclinical and clinical studies,
manufacturing costs, including the development and preparation of clinical
supplies, personnel and personnel-related expenses and an allocation of facility
expense.

Research and development expenses decreased to $9,074,000 in 2005 from
$10,147,000 in 2004, a decrease of $1,073,000, or 10.6%. This was primarily
related to decreased clinical trial costs and manufacturing expenses as a result
of the discontinuation of the SPECTRA trial, partially offset by additional
preclinical toxicity testing. The 2005 results include $3,796,000 in personnel
and personnel-related costs, $2,199,000 in clinical trial costs primarily
related to SPECTRA, $1,288,000 in preclinical expenses primarily associated with
the additional toxicity testing, $579,000 of manufacturing expenses related to
on-going drug stability studies, drug destruction and storage, $425,000 in
consulting expense, $396,000 in trial-related insurance, and $351,000 in
facility allocation.

Research and development expenses increased to $10,147,000 in 2004 from
$9,930,000 in 2003, an increase of $218,000, or 2.2%. This was primarily related
to increased clinical trial costs and manufacturing expenses and offset by lower
facility cost. In 2004, $3,222,000 of the total research and development
expenditures related to SPECTRA. The 2004 results also included $3,901,000 in
personnel and personnel-related costs, $1,088,000 of manufacturing costs
primarily related to tableting, packaging and drug stability studies, $472,000
in facility allocation, $459,000 in consulting expense, $392,000 in preclinical
expenses and $387,000 in trial-related insurance.

General and administrative expenses were $4,325,000 in 2005, a decrease
from $4,532,000 in 2004 and a decrease from $5,046,000 in 2003. The decrease in
2005 over 2004 includes a $397,000 reduction in business development and
marketing that was incurred in early 2004 related to the start-up of SPECTRA,
$284,000 in reduced personnel costs due to reduced headcount, and $123,000 in
reduced patent expenses. This decrease was offset by $597,000 in additional
corporate expenses related to Sarbanes-Oxley compliance and increased
third-party consulting expenses. The decrease in 2004 over 2003 included
$266,000 in patent expense as a result of higher expenses in 2003 associated
with changing patent counsel, $320,000 in reduced facility expenses associated
with the relocation to Parsippany, and $137,000 in reduced marketing expenses
related to the use of consultants.

At December 31, 2005, we had available federal net operating loss
carryforwards of $159,565,000, which expire in various amounts from the years
2006 through 2025, and state net operating loss carryforwards of $56,141,000,
which expire in the years 2006 through 2012. In addition, at December 31, 2005,
we had federal research and development tax credit carryforwards of $6,906,000
and state research and development tax credit carryforwards of $1,646,000.

Net Loss

We had net losses of $12,614,000 in 2005, $13,959,000 in 2004 and
$14,452,000 in 2003. Included in our net loss in 2005, 2004 and 2003 was the
sale of $4,077,000, $3,456,000 and $2,083,000, respectively, of our state net
operating loss carryforwards and $0, $123,000 and $209,000, respectively, of our
state research and development tax credit carryforwards. The proceeds from the
sale of these carryforwards in 2005, 2004 and 2003 were $327,000, $386,000, and
$345,000, respectively.

Included in the net loss applicable to common stockholders for 2005, 2004
and 2003 were preferred stock dividends of $4,486,000, $4,135,000 and
$3,791,000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents at December 31, 2005, of $6,583,000
compared to $11,176,000 at December 31, 2004, a decrease of $4,593,000. Cash
used in operating activities for the year ended December 31, 2005, totaled
$14,033,000 (net of $327,000 of cash received for the sales of our New Jersey
state net operating loss carryforwards) and consisted primarily of research and
development expenses, personnel and related costs, and facility expenses. Cash
used in investing activities totaled $92,000 for the year ended December 31,
2005 and included $13,000 of capital expenditures and $129,000 of deferred
acquisition costs offset by a decrease in restricted cash of $50,000 required by
our facility lease. Cash provided by financing activities for the year ended
December 31, 2005 was $9,532,000 and arose from a January 2005 public offering
of 9,523,813 shares of common stock at $1.05 per share, which provided net
proceeds of $9,532,000.

In 2005, 2004 and 2003, we sold $4,077,000, $3,456,000 and $2,083,000,
respectively, of our gross state net operating loss carryforwards and $0,
$123,000 and $209,000, respectively, of our state research and development tax
credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program. This program allows qualified technology and
biotechnology businesses in New Jersey to sell unused amounts of net operating
loss carryforwards and defined research and development tax credits for cash.
Due to the uncertainty at any time as to our ability to effectuate the sale of
our available New Jersey state net operating losses, and since we have no
control or influence over the tax certificate transfer program, the benefits are
recorded once the agreement with the counterparty is signed and the sale is
approved by the State of New Jersey. The proceeds from the sales in 2005, 2004
and 2003 were $327,000, $386,000 and $345,000, respectively, and such amounts
were recorded as a tax benefit in the statements of operations. As of December
31, 2005, we had state net loss carryforwards and state research and development
tax credit carryforwards available for sale of $57,787,000. We cannot be certain
if we will be able to sell any or all of these carryforwards under the tax
certificate transfer program.

We do not have any approved products and currently derive cash from sales
of our securities, sales of our New Jersey state net operating loss
carryforwards and interest on cash and cash equivalents. We are highly
susceptible to conditions in the global financial markets and in the
pharmaceutical industry. Positive and negative movement in those markets will
continue to pose opportunities and challenges to us. Previous downturns in the
market valuations of biotechnology companies and of the equity markets more
generally have restricted our ability to raise additional capital on favorable
terms.

In August 2005, in order to enable us to move forward with the continued
development of alagebrium, we announced that we had engaged the services of
Burrill & Company to assist in developing and identifying strategic options
designed to diversify our portfolio of product candidates and to enhance our
ability to raise financing in the future. Potential transactions include the
acquisition of technologies and product programs, licensing opportunities, the
sale to or merger into another company, and debt and equity financing. Burrill
has identified a number of

potential transactions and we are currently in discussions with one company
regarding the acquisition of a cardiovascular therapeutic technology. We are
also in discussions with Genentech regarding the restructuring of their
preferred stock position in the Company. If we are unable to complete such a
transaction on reasonable terms, we will not have the ability to continue as a
going concern after mid-2006. As part of the exploration of our strategic
options, we are considering various transactions that could result in our being
required to make the payment of certain obligations in the amount of
approximately $2.0 million, including severance, lease and other contractual and
regulatory requirements.

COMMITMENTS

The table below presents our contractual obligations as of December 31,
2005:

Payments Due by Period
--------------------------------------------------
Within 1 1-3 4-5 After 5
Total Year Years Years Years
---------- ---------- ------ ----- -------

Contractual Obligations:
Employment agreements (1) ...... $1,717,668 $1,717,668 $ -- $-- $--
Operating lease commitments .... 345,464 336,727 8,737 -- --
---------- ---------- ------ --- ---
Total contractual obligations .. $2,063,132 $2,054,395 $8,737 $-- $--
========== ========== ====== === ===

(1) We have employment agreements with key executives, which provide severance
and/or change in control benefits. If we terminate all of the agreements,
we are subject to obligations totaling $1,717,668.

On January 31, 2006, Judith Hedstrom, our COO, resigned and was paid
one year's salary in the amount of $300,000 and COBRA benefits for up to 18
months. Under the terms of her employment agreement with us, Ms. Hedstrom
is entitled to an additional one year's salary upon a change in control.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC issued a statement concerning its views regarding
the appropriate amount of disclosure by publicly held companies with respect to
their critical accounting policies. In particular, the SEC expressed its view
that in order to enhance investor understanding of financial statements,
companies should explain the effects of critical accounting policies as they are
applied, the judgments made in the application of these policies and the
likelihood of materially different reported results if different assumptions or
conditions were to prevail. We have since carefully reviewed the disclosures
included in our filings with the SEC, including, without limitation, this Annual
Report on Form 10-K and accompanying audited financial statements and related
notes thereto. We believe the effects of the following accounting policies are
significant to our results of operations and financial condition.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," (SFAS 123(R)), which replaces the FASB Statement No. 123 and will be
effective for us beginning January 1, 2006. This Statement requires that the
costs of employee share-based payments be measured at fair value on the awards'
grant date using an option-pricing model and recognized in the financial
statements over the requisite service period.

SFAS 123(R) allows for two alternative transition methods. The first method
is the modified prospective application whereby compensation cost for the
portion of awards for which the requisite service has not yet been rendered that
are outstanding as of the adoption date will be recognized over the remaining
service period. The compensation cost for that portion of awards will be based
on the grant date fair value of those awards as calculated for pro forma
disclosures under SFAS No. 123, as originally issued. All new awards and awards
that are modified, repurchased or cancelled after the option date will be
accounted for under the provisions of SFAS 123(R). The second method is the
modified retrospective application, which requires that we restate prior period
financial statements. The modified retrospective application may be applied
either to all prior periods or only to prior interim periods in the year of
adoption of this statement. We have determined to adopt the modified prospective
application and believe that it may have a material effect on our results of
operations.

On December 15, 2005, the Compensation Committee of the Board of Directors
approved the acceleration of the vesting date of all previously issued,
outstanding and unvested options, effective December 31, 2005. Approximately
1.47 million options were accelerated, of which approximately 1.3 million belong
to executive officers and non-employee members of the board of directors.

We believe that because all options that have been accelerated have
exercise prices in excess of the current market value of our common stock, the
options have limited economic value. We also implemented the acceleration
program to eliminate non-cash compensation expenses that would have been
recorded in future periods following our adoption of SFAS 123(R) in the first
quarter of fiscal 2006. SFAS 123(R) requires recognizing compensation expense
for any unvested stock options at the date of adoption of SFAS 123(R) over the
remaining requisite service period of the options. The future expense that will
be eliminated as a result of the option acceleration is estimated to be
approximately $613,000 which would have been recognized over a period of four
years, the time period during which all of the out-of-the-money options would
have vested and is included in the pro-forma disclosure in compliance with SFAS
123.

We account for options granted to employees and directors using the
intrinsic value method in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense is recorded on fixed stock grants only if the current fair value of the
underlying stock exceeds the exercise price of the option at the date of grant
and it is recognized on a straight-line basis over the vesting period. Based on
the performance of our stock, we repriced certain employee stock options on
February 2, 1999. As a result of this repricing, options to purchase 1.06
million shares of stock were repriced and certain vesting periods related to
these options were modified or extended. FIN No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25" requires us to record compensation expense or benefit, which is adjusted
every quarter, for increases or decreases in the fair value of the repriced
options based on changes in our stock price from the value at July 1, 2000. As a
result, net loss applicable to common stockholders and net loss per share
applicable to common stockholders may be subject to volatility.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our exposure to market risk for changes in interest rates relates primarily
to our investment in marketable securities. We do not use derivative financial
instruments in our investments. In 2005 and 2004, all of our investments resided
in money market accounts. In 2003, our investments consisted primarily of debt
instruments of the United States government, government agencies, financial
institutions and corporations with strong credit ratings.

Accordingly, we do not believe that there is any material market risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) The financial statements required to be filed pursuant to this Item 8
are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements" on page
45.

(b) The unaudited quarterly financial data for the two-year period ended
December 31, 2005 is as follows:

Net Loss
Loss Before Applicable to
Income Tax Common Basic/Diluted
Income Expenses Benefit Stockholders Loss Per Share
------ -------- ----------- ------------- --------------
(in thousands, except per share amounts)

2005
First Quarter ... $ 99 $ 4,741 $ (4,642) $ (5,714) $(0.10)
Second Quarter .. 200 3,577 (3,376) (4,482) (0.08)
Third Quarter ... 87 3,043 (2,957) (4,098) (0.07)
Fourth Quarter .. 72 2,038 (1,966) (2,806) (0.05)
---- ------- -------- -------- ------
Total Year ... $458 $13,399 $(12,941) $(17,100) $(0.30)

2004
First Quarter ... $ 89 $ 3,824 $ (3,735) $ (4,731) $(0.12)
Second Quarter .. 129 3,631 (3,502) (4,519) (0.11)
Third Quarter ... 55 3,065 (3,010) (4,060) (0.08)
Fourth Quarter .. 61 4,159 (4,098) (4,784) (0.10)
---- ------- -------- -------- ------
Total Year ... $334 $14,679 $(14,345) $(18,094) $(0.41)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

a) Evaluation of Disclosure Controls and Procedures. Our management has
evaluated, with the participation of our Chief Executive Officer and our
Director of Finance and Financial Reporting, the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
fiscal year covered by this Annual Report on Form 10-K. Based upon that
evaluation, the Chief Executive Officer and the Director of Finance and
Financial Reporting have concluded that as of the end of such fiscal year, our
current disclosure controls and procedures were not effective, because of the
material weakness in internal control over financial reporting described below.
We have taken, and are continuing to take, steps to address this weakness as
described below. With the exception of such weakness, however, the Chief
Executive Officer and the Director of Finance and Financial Reporting believe
that our current disclosure controls and procedures are adequate to ensure that
information required to be disclosed in the reports we file under the Exchange
Act is recorded, processed, summarized and reported on a timely basis.

b) Material Weaknesses and Changes in Internal Controls. During the audit
of our financial statements for the year ended December 31, 2005, our
independent registered public accounting firm identified a material weakness, as
of December 31, 2005, regarding our internal controls over the identification of
and the accounting for non-routine transactions, including certain costs related
to potential strategic transactions, severance benefits and the financial
statement recording and disclosures of stock options that we have granted to
non-employee consultants in accordance with Emerging Issues Task Force ("EITF")
96-18. As defined by the Public Company Accounting Oversight Board Auditing
Standard No. 2, a material weakness is a significant control deficiency or a
combination of significant control deficiencies, that results in there being
more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. This material
weakness did not result in the restatement of any previously reported financial
statements or any other related financial disclosure Management is in the
process of implementing remedial controls to address these matters. In addition,
the changes that would have resulted in the financial statements for the year
ended December 31, 2005, as a consequence of the material weakness, were deemed
to be immaterial but were nevertheless recorded by the Company.

In addition, as described in an amendment to the Form 10-K for our fiscal year
ended December 31, 2004 (the "10-K Amendment"), management concluded that, as of
December 31, 2004, we had three material weaknesses in our internal control over
financial reporting. Since December 31, 2004, we have made the following changes
in our internal control over financial reporting in order to address these
material weaknesses:

1. INTERNAL CONTROL REVIEW -- AUDIT COMMITTEE EFFECTIVENESS. As noted in the
10-K Amendment, the Audit Committee of our Board of Directors and management
initially underestimated the complexity and depth of work that would be required
to comply with the internal control review required under Section 404 of the
Sarbanes-Oxley Act of 2002, as well as the comprehensive nature of the internal
control assessment. As a result, this process was begun later than appropriate
and certain remediation efforts were not completed or tested until after
December 31, 2004.

Since December 31, 2004, management and the Audit Committee have implemented
remedial measures to address these matters, including establishment of a
Disclosure Committee, more rigorous and documented internal sub-certification
procedures, and commitment of additional resources to document and monitor
ongoing changes to our internal control over financial reporting, and to
document Audit Committee involvement with all of the foregoing. As of December
31, 2005, management believes that the implementation of these controls has been
completed and they are operating effectively.

2. INFORMATION TECHNOLOGY CONTROLS AND PROCESS CONTROLS. As noted in the 10-K
Amendment, management determined that, as of December 31, 2004, we did not
adequately document and implement certain controls over information technology.
These areas include certain change management and vendor management procedures.
In addition, certain financial computer program application controls and related
access controls relating to information security were not adequately
implemented. Back-up and recovery processes were not adequately documented, and
testing of recovery procedures was not implemented. As of December 31, 2005,
management believes that the implementation of these controls has been completed
and they are operating effectively.

3. CONTROLS OVER CASH DISBURSEMENTS. As noted in the 10-K Amendment, management
determined that, as of December 31, 2004, inadequate internal controls existed
over our processing of cash disbursements. Specifically, during the fiscal year
ended December 31, 2004, a number of checks, which we believe to be not greater
than nine, were issued from our account without signature, and a number of
checks, in amounts greater than $7,500, which we believe to be not greater than
eight, were issued from our account with only one signature, when our internal
policy requires that checks greater than that amount be issued with two
signatures. In all instances reviewed by us, the disbursements had been
appropriately authorized and were valid disbursements. Since December 31, 2004,
we have implemented remedial controls to address this matter, involving a review
of checks prior to issuance to ensure their signature. As of December 31, 2005,
management believes that the implementation of these controls has been completed
and they are operating effectively.

c) Except for the changes in controls described above, there were no
changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year covered
by this Annual Report on Form 10-K that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

d) As a result of a ruling by the SEC, effective December 27, 2005, the
definition of the term "accelerated filer" has been revised to permit an
accelerated filer that has a market value of voting and non-voting common equity
held by non-affiliates of less than $50 million as of the last day of its second
fiscal quarter to exit accelerated filer status at the end of the fiscal year in
which the market value of such common equity falls below $50 million and to file
its annual report for that year and subsequent periodic reports on a
non-accelerated basis. In consequence of these changes, and because the market
value of the Company's common equity was less than $50 million as of the last
day of the Company's second fiscal quarter, the Company is not required to
comply with Sarbanes-Oxley Section 404 requirements relating to an audit of its
internal controls for the fiscal year ended December 31, 2005. As such, no audit
of internal controls was conducted for the fiscal year ended December 31, 2005,
by our independent registered public accounting firm and, therefore, no opinion
has been rendered on whether the controls implemented to mitigate the material
weaknesses identified during the 2004 audit of internal control over financial
reporting have been effective.

ITEM 9B. OTHER INFORMATION.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a) IDENTIFICATION OF DIRECTORS.

Pursuant to our certificate of incorporation, the Board of Directors is
divided into three classes, each of which serves a term of three years. Class C
consists of Mr. McCurdy and Dr. Novitch, whose terms will expire at the Annual
Meeting of Stockholders in 2006. Class A consists of Ms. Breslow, Mr. Dalby and
Mr. Moore, whose terms will expire at the Annual Meeting of Stockholders in
2007. Class B consists of Mr. Moch, Dr. Bransome and Dr. Naimark, whose terms
will expire at the Annual Meeting of Stockholders in 2008.

The current Board of Directors is comprised of the following persons:

Served as a
Name Age Director Since Positions with Alteon
---- --- -------------- ------------------------------------

Kenneth I. Moch ............... 51 1998 Chairman of the Board, President and
Chief Executive Officer
Edwin D. Bransome, Jr., M.D. .. 72 1999 Director
Marilyn G. Breslow ............ 61 1988 Director
Alan J. Dalby ................. 69 1994 Director
David K. McCurdy .............. 55 1997 Director
Thomas A. Moore ............... 55 2001 Director
George M. Naimark, Ph.D. ...... 81 1999 Director
Mark Novitch, M.D. ............ 73 1994 Director

The principal occupations and business experience, for at least the past
five years, of each director are as follows:

Kenneth I. Moch, Chairman of the Board, President and Chief Executive
Officer, joined the Company in February 1995, as Senior Vice President, Finance
and Business Development and Chief Financial Officer. Mr. Moch became President,
Chief Executive Officer and a Director of the Company in December 1998. In June
2001, he was named Chairman of the Board. From 1990 to 1995, Mr. Moch served as
President and Chief Executive Officer of Biocyte Corporation, a cellular therapy
company that pioneered the use of cord blood stem cells in transplantation
therapy. Mr. Moch was a founder and the Managing General Partner of Catalyst
Ventures, a seed venture capital partnership, and was a founder of The Liposome
Company, Inc. in Princeton, New Jersey, where he served as Vice President from
1982 to 1988. Previously, he was a management consultant with McKinsey &
Company, Inc. and a biomedical technology consultant with Channing, Weinberg &
Company, Inc. Mr. Moch received an A.B. in Biochemistry from Princeton
University, and an M.B.A. with emphasis in Finance and Marketing from the
Stanford Graduate School of Business.

Edwin D. Bransome, Jr., M.D., has been a Director of the Company since July
1999. Dr. Bransome has been a consultant to CSRA Renal Services LLC since 2000.
He is a Professor of Medicine and Physiology Emeritus at the Medical College of
Georgia. He retired as Chief of the Section of Endocrinology and Metabolism in
2000, is the Past-President of the United States Pharmacopoeia Convention and
has been a member of the USP Board of Trustees since 1990. He served on the
Georgia Department of Medical Assistance (Medicaid) Drug Utilization Board from
1992 to 2000 and was its first Chairman. Currently, Dr. Bransome is in medical
practice as a consultant in Endocrinology. He is a member of the editorial board
of the journal, Diabetes Care. Dr. Bransome has had faculty positions at the
Scripps Clinic and Research Foundation, MIT and the Harvard University School of
Medicine. He received his A.B. in 1954 from Yale University and received his
M.D. from Columbia University College of Physicians and Surgeons in 1958. His
post-graduate training in Internal Medicine and Clinical Endocrinology
fellowship was at the Peter Bent Brigham Hospital in Boston and in Biochemistry
at Columbia University College of Physicians and Surgeons.

Marilyn G. Breslow has been a Director of the Company since June 1988. She
had been a Portfolio Manager/Analyst for W. P. Stewart & Co., Inc., the research
subsidiary of W. P. Stewart & Co., Ltd., an investment advisory firm, since
1990, and was previously President of the New York office of WPS, Inc. She was a
General

Partner of Concord Partners and a Vice President of Dillon, Read & Co., Inc.
from 1984 to 1990. Prior to Dillon, Read & Co., she worked at Polaroid
Corporation from 1973 to 1984 and was with Peat, Marwick, Mitchell and Company
from 1970 to 1972 and ICF, Inc. from 1972 to 1973. Ms. Breslow holds a B.S.
degree from Barnard College and an M.B.A. from the Harvard Graduate School of
Business Administration.

Alan J. Dalby has been a Director of the Company since December 1994. He is
the former Chairman of Reckitt Benckiser plc, a household products company, and
former Chairman, Chief Executive Officer and a founder of Cambridge
NeuroScience, Inc. He was Executive Vice President and member of the Board of
Directors for SmithKline Beckman Corporation, retiring in 1987. Mr. Dalby is a
Director of Acambis plc.

David K. McCurdy has been a Director of the Company since June 1997. He is
currently the President of Electronic Industries Alliance ("EIA"), the premier
trade organization representing more than 2,100 of the world's leading
electronics manufacturers. Before becoming President of EIA in November 1998,
Mr. McCurdy was Chairman and Chief Executive Officer of the McCurdy Group
L.L.C., a business consulting and investment firm focused on high-growth
companies in the fields of healthcare, high technology and international
business, which he formed in 1995. Prior to forming the McCurdy Group, Mr.
McCurdy served for 14 years in the United States House of Representatives from
the fourth district of Oklahoma. He attained numerous leadership positions,
including Chairman of the House Intelligence Committee and subcommittee chairs
in both the House Armed Services Committee and the Science and Space Committee.
He held a commission in the United States Air Force Reserve attaining the rank
of major and serving as a Judge Advocate General (JAG). A 1972 graduate of the
University of Oklahoma, Mr. McCurdy received his J.D. in 1975 from the
University of Oklahoma College of Law. He also studied international economics
at the University of Edinburgh, Scotland, as a Rotary International Graduate
Fellow.

Thomas A. Moore has been a Director of the Company since October 2001. He
was President and Chief Executive Officer of Biopure Corporation, a leading
developer, manufacturer and marketer of oxygen therapeutics for the treatment of
anemia and other applications, from 2002 to 2004. Prior to joining Biopure in
2002, Mr. Moore was President and Chief Executive Officer of Nelson
Communications Worldwide, one of the largest providers of healthcare marketing
services globally. From 1992 to 1996, Mr. Moore was President of Procter &
Gamble's worldwide prescription and over-the-counter healthcare products
business, and Group Vice President of the Procter & Gamble Company. Mr. Moore
holds a B.A. in History from Princeton University.

George M. Naimark, Ph.D., has been a Director of the Company since July
1999. He is President of Naimark & Barba, Inc., a management consultancy, since
September 1966, and Naimark & Associates, Inc., a private healthcare consulting
organization, since February 1994. Dr. Naimark has more than 30 years of
experience in the pharmaceutical, diagnostic and medical device industries. His
experience includes management positions in research and development, new
product development and quality control. In addition, Dr. Naimark has authored
books on patent law, communications and business, as well as many articles that
appeared in general business, marketing, scientific and medical journals and was
the editor of a medical journal. He received his Ph.D. from the University of
Delaware in 1951, and received a B.S. and M.S. from Bucknell University in 1947
and 1948, respectively.

Mark Novitch, M.D., has been a Director of the Company since June 1994. He
retired as Vice Chairman and Chief Compliance Officer of the Upjohn Company in
December 1993. Prior to joining Upjohn in 1985, he was Deputy Commissioner of
the U.S. Food and Drug Administration. Dr. Novitch is a Director of Guidant
Corporation, a supplier of cardiology and minimally invasive surgery products;
Neurogen Corporation, a biopharmaceutical firm focused on central nervous system
disorders; and Kos Pharmaceuticals, Inc., a developer of pharmaceutical products
for cardiovascular and respiratory conditions. He graduated from Yale University
and received his M.D. from New York Medical College.

(b) IDENTIFICATION OF EXECUTIVE OFFICERS

The following table identifies our current executive officers:

IN CURRENT
NAME AGE CAPACITIES IN WHICH SERVED POSITIONS SINCE
---- --- ------------------------------------------- ---------------

Kenneth I. Moch .... 51 Chairman of the Board June 2001
President and Chief Executive Officer December 1998
Mary T. Phelan(1) .. 43 Director of Finance and Financial Reporting May 2005

----------
(1) Mary Phelan has served as our Director of Finance and Financial Reporting
since May 2005. Prior to that, she served as our Controller since October
2003. From July 2000 to September 2003, Ms. Phelan served as our Assistant
Controller. Prior to joining us, Ms. Phelan was accounting manager at
Medicom Communications Corporation from August 1999 to July 2000. Ms.
Phelan is a Certified Public Accountant who has held several accounting
positions, including Senior Accountant at KPMG, LLP. Ms. Phelan received a
BBA in Certified Public Accounting from Pace University.

Not applicable.

(d) FAMILY RELATIONSHIPS.

There are no family relationships between any director, executive officer,
or person nominated or chosen by us to become a director or executive officer.

(e) BUSINESS EXPERIENCE.

The business experience of each of our directors, including executive
officers who also serve as our directors, is set forth in Item 10(a),
"Identification of Directors" of this Annual Report on Form 10-K and the
business experience of those executive officers who are not also our directors
is set forth in Item 10(b), "Identification of Executive Officers" of this
Annual Report on Form 10-K.

The directorships held by each of our directors in any company with a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, or subject to Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended, are set forth in Item 10(a), "Identification of Directors" of this
Annual Report on Form 10-K.

(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.

To the best of our knowledge, none of our current directors or executive
officers has been involved during the past five years in any legal proceedings
required to be disclosed pursuant to Item 401(f) of Regulation S-K.

(g) PROMOTERS AND CONTROL PERSONS.

Not applicable.

(h) AND (i) AUDIT COMMITTEE FINANCIAL EXPERT AND IDENTIFICATION OF AUDIT
COMMITTEE.

The Board of Directors has an Audit Committee, which oversees the
accounting and financial reporting processes and the audits of our financial
statements. In 2005, the Audit Committee was comprised of Edwin D. Bransome,
Jr., M.D., Marilyn G. Breslow, Alan J. Dalby, David K. McCurdy, Thomas A. Moore,
George M. Naimark, Ph.D., and Mark Novitch, M.D. All of the members of the Audit
Committee are independent, as such term is defined by Section 121.A of the
American Stock Exchange listing standards. The Board of Directors does not
currently have an "audit committee financial expert," within the meaning of
applicable regulations of the Securities and Exchange Commission, serving on its
Audit Committee. The Board of Directors believes that one or more members of the
Audit Committee satisfy the financial sophistication requirement of the American
Stock Exchange and are capable of (i) understanding generally accepted
accounting principles ("GAAP") and financial statements; (ii) assessing the
application of GAAP in connection with our accounting for estimates, accruals
and

reserves; (iii) analyzing and evaluating our financial statements; (iv)
understanding our internal controls and procedures for financial reporting; and
(v) understanding audit committee functions, all of which are attributes of an
audit committee financial expert. However, the Board of Directors believes that
these members may not have obtained these attributes through the experience
specified in the Securities and Exchange Commission's rules with respect to
audit committee financial experts, and therefore may not qualify to serve in
that role.

(j) PROCEDURES FOR STOCKHOLDER NOMINATIONS TO OUR BOARD OF DIRECTORS.

No material changes to the procedures for nominating directors by our
stockholders were made in 2005.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors, and persons who own more than 10% of a registered
class of our equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by Securities
and Exchange Commission regulation to furnish us with copies of all Forms 3, 4
and 5, and any amendments thereto, they file.

Based solely on our review of the copies of such forms we have received and
written representations from certain reporting persons that they were not
required to file Forms 5 for specified fiscal years, we believe that all of our
officers, directors, and greater than 10% beneficial owners complied with all
filing requirements applicable to them with respect to transactions in our
equity securities during fiscal year 2005.

Code of Ethics

We have adopted a code of conduct and ethics that applies to all of our
employees, including our chief executive officer and chief financial and
accounting officers. The text of the code of conduct and ethics is posted on our
website at www.alteon.com. Disclosure regarding any amendments to, or waivers
from, provisions of the code of conduct and ethics that apply to our directors,
principal executive and financial officers will be included in a Current Report
on Form 8-K within four business days following the date of the amendment or
waiver, unless website posting of such amendments or waivers is then permitted
by the rules of the American Stock Exchange, Inc.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth certain information concerning the annual
and long-term compensation for the fiscal years ended December 31, 2005, 2004
and 2003, of our Chief Executive Officer and our three other highly compensated
executive officers who were serving as executive officers at December 31, 2005,
or who served as executive officers during the fiscal year ended December 31,
2005 (collectively, the "Named Officers"):

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- ---- ------- ------- ------------------ ------------
($) ($) (#) ($)

Kenneth I. Moch .......... 2005 382,454 -- 150,000 15,930(1)
President and Chief 2004 367,744 100,000(2) 600,000 13,619(3)
Executive Officer 2003 353,600 200,000(4) 100,000 3,000(5)
Judith S. Hedstrom (6) ... 2005 300,000 -- -- 3,500(5)
Chief Operating Officer 2004 250,000 75,000(2) 400,000 3,250(5)
2003 223,600 78,333(7) 150,000 3,000(5)
Elizabeth A. O'Dell (8) .. 2005 101,667 -- -- 3,500(5)
Vice President, Finance 2004 183,872 30,000(2) 63,000 3,250(5)
Secretary and Treasurer 2003 176,800 30,000(9) 150,000 3,000(5)
Mary T. Phelan (10) ...... 2005 131,667 32,500 44,000 2,400(5)
Director of Finance and
Financial Reporting

----------

(1) Represents expenses for a car allowance of $11,430 and matching 401(k)
contributions of $4,500.

(2) Represents a deferred p erformance bonus relating to the year ended
December 31, 2004, paid in 2005.

(3) Represents expenses for a car allowance of $9,619 and matching 401(k)
contributions of $4,000.

(4) Includes a $100,000 deferred performance bonus relating to the year ended
December 31, 2003, paid in 2004.

(5) Represents matching 401(k) contributions.

(6) Ms. Hedstrom resigned effective January 31, 2006.

(7) Includes a $45,000 deferred performance bonus relating to the year ended
December 31, 2003, paid in 2004.

(8) Ms. O'Dell resigned effective May 18, 2005.

(9) Includes a $20,000 deferred performance bonus relating to the year ended
December 31, 2003, paid in 2004.

(10) Ms. Phelan became our Director of Finance and Financial Reporting in May
2005.

The following tables set forth certain information concerning grants and
exercises of stock options during the fiscal year ended December 31, 2005, to
and by the Named Officers:

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS

POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM (1)
OPTIONS GRANTED FISCAL YEAR PRICE EXPIRATION --------------------
NAME (#) (%) ($/SH) DATE 5% ($) 10% ($)
---- --------------- ------------- -------- ---------- ------ -------

Kenneth I. Moch...... 150,000 64.7 0.75 02/28/10 31,082 68,682
Mary T. Phelan....... 20,000 8.6 0.58 05/02/15 7,295 18,487
24,000 10.3 0.35 07/25/15 5,283 13,387
Judith S. Hedstrom... -- -- N/A N/A N/A N/A
Elizabeth A. O'Dell.. -- -- N/A N/A N/A N/A

----------
(1) The dollar amounts under these columns are the result of calculations
assuming that the price of Alteon common stock on the date of the grant of
the option increases at the hypothetical 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of our stock price over the
option term of 10 years.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 2005 DECEMBER 31, 2005(1)
ON VALUE (#) ($)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------

Kenneth I. Moch ....... -- -- 1,150,000 -- -- --
Judith S. Hedstrom .... -- -- 825,000 -- -- --
Elizabeth A. O'Dell ... -- -- 576,167 -- -- --
Mary T. Phelan ........ -- -- 81,730 -- -- --

----------
(1) No values are shown in these columns because none of the reported
exercisable options were in-the-money at December 31, 2005.

Compensation of Directors

All of the directors are reimbursed for their expenses for each Board
meeting attended. Directors who are not also compensated as our employees
receive $1,500 per Board meeting attended in person and $1,000 for each Board
meeting attended by telephone.

Pursuant to our 2005 Stock Plan, non-employee directors also receive, upon
the date of their election or re-election to the Board and on the dates of the
next two Annual Meetings of Stockholders (subject to their continued service on
the Board of Directors), a stock option to purchase 20,000 shares of common
stock (subject to adjustment if they received stock options upon appointment to
the Board between Annual Meetings of Stockholders to fill a vacancy or newly
created directorship) at an exercise price equal to the fair market value of the
common stock on the date of grant. Each of these options will vest and become
exercisable upon completion of one full year of service and shall have a term of
ten years regardless of whether the director ceases to be a director of the
Company.

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

We entered into a three-year amended and restated employment agreement with
Kenneth I. Moch as of December 15, 2004. Under the terms of the amended and
restated employment agreement, Mr. Moch serves as our Chief Executive Officer
and is entitled to an annual salary for the 2006 fiscal year of $382,454. The
term of his employment is for a three-year period.

We entered into a three-year amended and restated employment agreement with
Judith S. Hedstrom as of February 11, 2005. Under the terms of the amended and
restated employment agreement, Ms. Hedstrom served as our Chief Operating
Officer and was entitled to an annual salary of $300,000 per annum. The term of
her employment is for a three-year period. Ms. Hedstrom resigned effective
January 31, 2006.

By letter agreement dated December 22, 2003, we entered into an amended and
restated employment agreement with Elizabeth A. O'Dell for an additional three
years. Pursuant to this letter agreement, Ms. O'Dell received stock options to
purchase an aggregate of 100,000 shares of common stock and was entitled to an
annual salary of $182,872 (subject to annual review by the Board of Directors)
plus an annual bonus awarded at the discretion of the Board of Directors. Based
on the provisions of her agreement, in December 2004, the Board of Directors
approved an increase in Ms. O'Dell's base salary to $191,227. Ms. O'Dell
resigned effective May 18, 2005.

In addition to provisions in the above-described agreements requiring each
individual to maintain the confidentiality of our information and assign
inventions to us, such executive officers have agreed that during the terms of
their agreements and for one year thereafter, they will not compete with us by
engaging in any capacity in any business that is competitive with our business.
The employment agreements with Mr. Moch and Ms. Hedstrom provide that either
party may terminate the agreement upon 30 days' prior written notice, subject to
a salary

continuation obligation of Alteon if it terminates the agreements without cause.
Mr. Moch and Ms. Hedstrom will receive a 12-month salary continuation under such
circumstances. The employment agreements with Mr. Moch and Ms. Hedstrom provide
that they are entitled to receive benefits upon a change in control of Alteon,
including payment of an amount equal to their base salary payable each month for
a period of 12 months following the change in control. Mr. Moch and Ms. Hedstrom
may elect to receive this payment, if it is made, in a lump sum, subject to a
discount equal to the then applicable federal rate.

Change in Control Severance Benefits Plan

In February 1996, we adopted the Alteon Inc. Change in Control Severance
Benefits Plan ("the Change in Control Severance Plan") to protect and retain
qualified employees and to encourage their full attention, free from
distractions caused by personal uncertainties and risks in the event of a
pending or threatened change in control of Alteon. The Change in Control
Severance Plan provides for severance benefits to certain employees upon certain
terminations of employment after or in connection with a change in control of
Alteon as defined in the Change in Control Severance Plan. Following a
qualifying termination that occurs as a result of a change in control, our
executive officers will be entitled to continuation of (i) their base salary for
a period of 24 months, and (ii) all benefit programs and plans providing for
health and insurance benefits for a period of up to 18 months. In addition, upon
a change in control of us, all outstanding unexercisable stock options held by
certain employees that are participants in the Change in Control Severance Plan
will become exercisable. The Change in Control Severance Plan was terminated in
November 2005.

Alteon Severance Plan

The Alteon Severance Plan ("the Alteon Severance Plan"), which became
effective June 1, 2005, provides for severance payments and benefits to certain
employees upon termination of their employment as a result of a triggering event
as defined in the Alteon Severance Plan. Upon a triggering event, these
employees will be entitled to continuation of (i) their base salary for a period
of up to six months, and (ii) all benefit programs and plans providing for
health care coverage for a period of up to three months. Our obligation to
provide severance payments and benefits to each employee ends if the employee
secures employment during such time periods. Mary T. Phelan, our Director of
Finance and Financial Reporting, is entitled to the benefits of the Alteon
Severance Plan.

401(k) Plan

We have a tax-qualified employee savings and retirement plan (the "401(k)
Plan") covering all of our employees. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($15,000 in 2006) and have the amount of such reduction contributed
to the 401(k) Plan. The 401(k) Plan does not require that we make additional
matching contributions to the 401(k) Plan on behalf of participants in the
401(k) Plan. However, in 1998, we began making discretionary contributions at a
rate of 25% of employee contributions up to a maximum of 5% of their base
salary. Contributions by employees to the 401(k) Plan and income earned on such
contributions are not taxable to employees until the contributions are withdrawn
from the 401(k) Plan. The Trustees under the 401(k) Plan, at the direction of
each participant, invest the assets of the 401(k) Plan.

Compensation Committee Interlocks and Insider Participation

The persons who served as members of the Compensation Committee of the
Board of Directors during 2005 were Alan J. Dalby, Edwin D. Bransome, Jr., M.D.,
Marilyn G. Breslow, David K. McCurdy, Thomas A. Moore, George M. Naimark, Ph.D.,
and Mark Novitch, M.D. None of the members of the Compensation Committee was an
officer, former officer or employee of Alteon or had any relationship with us
that requires disclosure under Item 404 of the Security and Exchange
Commission's Regulation S-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 15, 2006, except as otherwise set
forth below, by (i) each person who is known by us to own beneficially more than
5% of the common stock, (ii) each Director, (iii) each individual named in the
Summary Compensation Table on page 36 hereof and (iv) all current Directors and
executive officers as a group:

AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS (2)
---------------------------- ----------------------- --------------------

Charles Livingston Grimes
P.O. Box 136
Mendenhall, PA 19357..................................... 5,400,000(3) 9.3%
Kenneth I. Moch............................................. 1,152,123(4) 1.9%
Edwin D. Bransome, Jr., M.D................................. 132,500(5) *
Marilyn G. Breslow.......................................... 154,867(6) *
Alan J. Dalby............................................... 154,867(7) *
David K. McCurdy............................................ 166,067(8) *
Thomas A. Moore............................................. 119,000(9) *
George M. Naimark, Ph.D..................................... 142,337(10) *
Mark Novitch, M.D........................................... 421,067(11) *
Mary T. Phelan.............................................. 82,590(12) *
Judith S. Hedstrom.......................................... 825,000(13) 1.4%
Elizabeth A. O'Dell......................................... 613,667(14) 1.0%
All current directors and officers as a group (9 persons)... 2,525,418(15) 4.2%

----------
* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to stock options and warrants currently exercisable or exercisable within
60 days are deemed outstanding for computing the percentage ownership of
the person holding such options and the percentage ownership of any group
of which the holder is a member, but are not deemed outstanding for
computing the percentage ownership of any other person. Except as indicated
by footnote, and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.

(2) Applicable percentage of ownership is based on 57,996,711 shares of common
stock outstanding.

(3) As set forth in Schedule 13D/A, dated August 18, 2005, filed by Mr. Grimes
with the Securities and Exchange Commission.

(4) Includes 2,023 shares of common stock and 1,150,000 shares of common stock
subject to options which were exercisable as of March 15, 2006, and 100
shares held by Mr. Moch's sons. Does not include options to purchase
1,652,000 shares of common stock held in trust for Mr. Moch's minor
children, for which Mr. Moch's wife is the trustee and Mr. Moch disclaims
beneficial ownership.

(5) Includes 10,000 shares of common stock held directly by Dr. Bransome, 2,500
shares held by his wife and 120,000 shares of common stock subject to
options that were exercisable as of March 15, 2006.

(6) Includes 154,867 shares of common stock subject to options that were
exercisable as of March 15, 2006.

(7) Includes 12,467 shares of common stock held directly by Mr. Dalby and
142,400 shares of common stock subject to options which were exercisable as
of March 15, 2006.

(8) Includes 166,067 shares of common stock subject to options which were
exercisable as of March 15, 2006.

(9) Includes 24,000 shares of common stock held directly by Mr. Moore and
95,000 shares of common stock subject to options which were exercisable as
of March 15, 2006.

(10) Includes 5,000 shares of common stock held directly by Dr. Naimark, 4,000
shares held jointly by Dr. Naimark and his wife and 133,337 shares of
common stock subject to options which were exercisable as of March 15,
2006.

(11) Includes 5,000 shares of common stock held jointly by Dr. Novitch and his
wife and 416,067 shares of common stock subject to options that were
exercisable as of March 15, 2006.

(12) Includes 860 shares of common stock held directly by Ms. Phelan and 81,730
shares of common stock subject to options which were exercisable as of
March 15, 2006.

(13) Includes 825,000 shares of common stock subject to options that were
exercisable as of March 15, 2006.

(14) Includes 37,500 shares of common stock held directly by Ms. O'Dell and
576,167 shares of common stock subject to options which were exercisable as
of March 15, 2006.

(15) Includes 2,459,468 shares of common stock subject to options which were
exercisable as of March 15, 2006.

Equity Compensation Plan Information

The following table sets forth information concerning the number of
outstanding options, the weighted average exercise price of those securities and
the number of securities remaining to be granted under existing equity plans,
whether approved or not approved by security holders, as of December 31, 2005:

NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OPTIONS, WARRANTS UNDER EXISTING EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COMPENSATION PLANS
------------- -------------------- ----------------- ---------------------

Equity compensation plans approved
by security holders(1)............ 6,486,665 $2.12 4,807,978
Equity compensation plans not
approved by security holders...... -- -- --
--------- ----- ---------
Total.......................... 6,486,665 $2.12 4,807,978

----------
(1) These plans consist of our Amended and Restated 1987 Stock Option Plan, our
Amended 1995 Stock Option Plan and our 2005 Stock Option Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Our Audit Committee reviews and approves, in advance, all related party
transactions.

Since January 2005, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeded or exceeds $60,000 and in which
any director, executive officer, holder of more than 5% of our common stock or
any member of the immediate family of any of the foregoing persons had or will
have a direct or indirect material interest.

ITEM 14. PRINCIPAL PUBLIC ACCOUNTING FEES AND SERVICES.

The following table summarizes the fees paid or payable to J. H. Cohn LLP
for services rendered for the fiscal year ended December 31, 2005:

FISCAL YEAR ENDED
TYPE OF FEES DECEMBER 31, 2005
------------ -----------------

Audit Fees............. $288,966
Audit -Related Fees.... 7,150
Tax Fees............... --
All Other Fees......... --
--------
Total Fees.......... $296,116
========

The following table summarizes the fees paid or payable KPMG LLP for
services rendered for the fiscal year ended December 31, 2005:

FISCAL YEAR ENDED
TYPE OF FEES DECEMBER 31, 2005
------------ -----------------

Audit Fees............. $ 7,500
Audit -Related Fees.... 3,500
Tax Fees............... --
All Other Fees......... 3,325
-------
Total Fees.......... $14,325
=======

The following table summarizes the fees paid or payable J.H. Cohn LLP for
services rendered for the fiscal year ended December 31, 2004:

FISCAL YEAR ENDED
TYPE OF FEES DECEMBER 31, 2004
------------ -----------------

Audit Fees............. $47,667
Audit -Related Fees.... 1,500
Tax Fees............... --
All Other Fees......... --
-------
Total Fees.......... $49,167
=======

The following table summarizes the fees paid or payable KPMG LLP for
services rendered for the fiscal year ended December 31, 2004:

FISCAL YEAR ENDED
TYPE OF FEES DECEMBER 31, 2004
------------ -----------------

Audit Fees............. $ 83,000
Audit -Related Fees.... --
Tax Fees............... 12,150
All Other Fees......... 26,828
--------
Total Fees.......... $121,978
========

Information set forth below the caption "audit fees" relates to fees we
paid the independent registered public accountants for professional services for
the audit of our financial statements included in our Form 10-K, review of our
financial statements included in our Forms 10-Q and for the issuance of comfort
letters and/or consents in connection with registration statements. 2005 Audit
Fees to J.H. Cohn LLP also include $196,239 for work related to the audit of our
internal controls over financial reporting and related attestation to
management's report on the effectiveness of our internal controls over financial
reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
"Audit-Related Fees" are fees we paid for assurance and related services by the
independent registered public accountants that are reasonably related to the
performance of the audit or review of our financial statements, including
special procedures required to meet certain regulatory requirements. "All Other
Fees" are fees paid to KPMG LLP for the year ended December 31, 2005 and
December 31, 2004 related to an audit of a third-party vendor. "Tax fees" are
fees for tax compliance, tax advice and tax planning.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by
Independent Accountants

The Audit Committee pre-approves all audit and legally permissible
non-audit services provided by the independent accountants. The Audit Committee
pre-approved all services performed by the independent accountants during 2004
and 2005.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements.

Our audited financial statements and the Reports of Independent
Registered Public Accounting Firms are appended to this Annual Report on Form
10-K. Reference is made to the "Index to Financial Statements" on page 45.

(b) Exhibits.

The exhibits required to be filed are listed on the "Exhibit Index"
attached hereto, which is incorporated herein by reference.

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 this 30th
day of March, 2006.

ALTEON INC.

By: /s/ Kenneth I. Moch
------------------------------------
Kenneth I. Moch
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Kenneth I. Moch Chairman of the Board, March 30, 2006
------------------------------------- President and Chief Executive Officer
Kenneth I. Moch (principal executive officer)

/s/ Mary T. Phelan Director of Finance and Financial Reporting March 30, 2006
------------------------------------- (principal financial and accounting officer)
Mary T. Phelan

/s/ Edwin D. Bransome, Jr., M.D. Director March 30, 2006
-------------------------------------
Edwin D. Bransome, Jr., M.D.

/s/ Marilyn G. Breslow Director March 30, 2006
-------------------------------------
Marilyn G. Breslow

/s/ Alan J. Dalby Director March 30, 2006
-------------------------------------
Alan J. Dalby

/s/ David K. McCurdy Director March 30, 2006
-------------------------------------
David K. McCurdy

/s/ Thomas A. Moore Director March 30, 2006
-------------------------------------
Thomas A. Moore

/s/ George M. Naimark, Ph.D. Director March 30, 2006
-------------------------------------
George M. Naimark, Ph.D.

/s/ Mark Novitch, M.D. Director March 30, 2006
-------------------------------------
Mark Novitch, M.D.

INDEX TO FINANCIAL STATEMENTS

Page
----

Report of Independent Registered Public Accounting Firm - J.H. Cohn LLP .. 46

Report of Independent Registered Public Accounting Firm - KPMG LLP ....... 47

Financial Statements:
Balance Sheets at December 31, 2005 and 2004 .......................... 48

Statements of Operations for the years ended
December 31, 2005, 2004 and 2003 ................................... 49

Statements of Stockholders' Equity for the years ended
December 31, 2005, 2004 and 2003 ................................... 50

Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003 ................................... 51

Notes to Financial Statements ......................................... 52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Alteon Inc.

We have audited the accompanying balance sheets of Alteon Inc. as of December
31, 2005 and 2004, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
2005 and 2004, and its results of operations and cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
incurred a net loss of approximately $13,000,000 and used approximately
$14,000,000 of cash in operating activities during the year ended December 31,
2005. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ J.H. Cohn LLP

Roseland, New Jersey
January 31, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Alteon Inc.:

We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Alteon Inc. for the year ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Alteon Inc.
for the year ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles.

/s/ KPMG LLP

Short Hills, New Jersey
March 3, 2004

ALTEON INC.
BALANCE SHEETS

December 31, December 31,
2005 2004
------------- -------------

ASSETS

Current Assets:
Cash and cash equivalents ................................... $ 6,582,958 $ 11,175,762
Other current assets ........................................ 216,290 159,364
------------- -------------
Total current assets ..................................... 6,799,248 11,335,126
Property and equipment, net .................................... 55,154 107,269
Restricted cash ................................................ 150,000 200,000
Other assets ................................................... 129,195 --
------------- -------------
Total assets ............................................. $ 7,133,597 $ 11,642,395
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable ............................................ $ 351,232 $ 593,094
Accrued expenses ............................................ 790,705 2,002,381
------------- -------------
Total liabilities ........................................ 1,141,937 2,595,475
------------- -------------
Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $0.01 par value,
1,993,329 shares authorized, and 1,389 and 1,277 shares
of Series G and 4,172 and 3,836 shares of Series H
issued and outstanding, as of December 31, 2005 and
December 31, 2004, respectively. The liquidation value
at December 31, 2005 and December 2004 was
$55,613,905 and $51,127,569, respectively ................ 56 51
Common stock, $0.01 par value,
300,000,000 and 175,000,000 shares authorized, and
57,996,711 and 48,472,898 shares issued and
outstanding, as of December 31, 2005 and
December 31, 2004, respectively .......................... 579,967 484,729
Additional paid-in capital .................................. 228,225,082 214,274,790
Accumulated deficit ......................................... (222,813,445) (205,712,650)
------------- -------------
Total stockholders' equity ............................... 5,991,660 9,046,920
------------- -------------
Total liabilities and stockholders' equity ..................... $ 7,133,597 $ 11,642,395
============= =============

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

ALTEON INC.
STATEMENTS OF OPERATIONS

Year ended December 31,
------------------------------------------
2005 2004 2003
------------ ------------ ------------

Income:
Investment income ........................... $ 358,446 $ 182,574 $ 179,006
Other income ................................ 100,000 151,821 --
------------ ------------ ------------
Total income ............................. 458,446 334,395 179,006
------------ ------------ ------------
Expenses:
Research and development .................... 9,074,244 10,147,298 9,929,704
General and administrative .................. 4,325,225 4,531,953 5,046,357
------------ ------------ ------------
Total expenses ........................... 13,399,469 14,679,251 14,976,061
------------ ------------ ------------
Loss before income tax benefit ................. (12,941,023) (14,344,856) (14,797,055)
Income tax benefit .......................... 326,564 386,210 344,637
------------ ------------ ------------
Net loss ....................................... (12,614,459) (13,958,646) (14,452,418)
Preferred stock dividends ................... 4,486,336 4,135,145 3,790,847
------------ ------------ ------------
Net loss applicable to common stockholders ..... $(17,100,795) $(18,093,791) $(18,243,265)
============ ============ ============
Basic/diluted net loss per share applicable
to common stockholders ...................... $ (0.30) $ (0.41) $ (0.50)
============ ============ ============
Weighted average common shares used in
computing basic/diluted net loss per share
applicable to common stockholders ........... 57,639,255 44,349,015 36,189,655
============ ============ ============

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

ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Accumulated
Stock Common Stock Additional Other Total
-------------- -------------------- Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Shares Amount Capital Deficit Income/(Loss) Equity
------ ------ ---------- -------- ------------ ------------- ------------- -------------

Balances at
DECEMBER 31, 2002 ................ 4,320 $43 33,600,841 $336,008 $183,341,416 $(169,375,594) $ 1,364 $ 14,303,237
-------------
Net loss ...................... -- -- -- -- -- (14,452,418) -- (14,452,418)
Change in unrealized gains/
(losses) ................... -- -- -- -- -- -- (1,364) (1,364)
------------
Comprehensive loss ............ (14,453,782)
Issuance of Series G and H
preferred stock dividends .. 379 4 -- -- 3,790,843 (3,790,847) -- --
Exercise of employee stock
options .................... -- -- 51,688 517 54,937 -- -- 55,454
Public offerings of common
stock ...................... -- -- 6,757,146 67,571 15,360,705 -- -- 15,428,276
Exercise of warrants .......... -- -- 57,473 575 (575) -- -- --
Compensation expense related to
variable plan employee stock
options .................... -- -- -- -- 20,019 -- -- 20,019
Compensation expense in
connection with the issuance
of non-qualified stock
options granted to non-
employees .................. -- -- -- -- 31,228 -- -- 31,228
----- --- ---------- -------- ------------ ------------- ------- ------------
DECEMBER 31, 2003 ................ 4,699 47 40,467,148 404,671 202,598,573 (187,618,859) -- 15,384,432
Net loss ...................... -- -- -- -- -- (13,958,646) -- (13,958,646)
Issuance of Series G and H
preferred stock dividends .. 414 4 -- -- 4,135,141 (4,135,145) -- --
Exercise of employee stock
options .................... -- -- 5,750 58 5,027 -- -- 5,085
Public offerings of common
stock ...................... -- -- 8,000,000 80,000 7,501,318 -- -- 7,581,318
Compensation expense in
connection with the issuance
of non-qualified stock
options granted to non-
employees .................. -- -- -- -- 34,731 -- -- 34,731
----- --- ---------- -------- ------------ ------------- ------- ------------
DECEMBER 31, 2004 ................ 5,113 51 48,472,898 484,729 214,274,790 (205,712,650) -- 9,046,920
Net loss ...................... -- -- -- -- -- (12,614,459) -- (12,614,459)
Issuance of Series G and H
preferred stock dividends .. 448 5 -- -- 4,486,331 (4,486,336) -- --
Public offerings of common
stock ...................... -- -- 9,523,813 95,238 9,437,057 -- -- 9,532,295
Compensation expense in
connection with the issuance
of non-qualified stock
options granted to non-
employees .................. -- -- -- -- 26,904 -- -- 26,904
----- --- ---------- -------- ------------ ------------- ------- ------------
DECEMBER 31, 2005 ................ 5,561 $56 57,996,711 $579,967 $228,225,082 $(222,813,445) $ -- $ 5,991,660
===== === ========== ======== ============ ============= ======= ============

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

ALTEON INC.
STATEMENTS OF CASH FLOWS

Year ended December 31,
------------------------------------------
2005 2004 2003
------------ ------------ ------------

Cash flows from operating activities:
Net loss ......................................... $(12,614,459) $(13,958,646) $(14,452,418)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 65,223 74,870 502,826
Stock compensation expense .................... 26,904 34,731 31,228
Gain on sale of laboratory equipment .......... -- (51,821) --
Non-cash compensation expense related to
variable plan employee stock options ....... -- -- 20,019

Changes in operating assets and liabilities:
Other assets .................................. (56,926) 66,075 (82,315)
Accounts payable and accrued expenses ......... (1,453,538) 724,922 (1,925,570)
------------ ------------ ------------
Net cash used in operating activities ...... (14,032,796) (13,109,869) (15,906,230)
------------ ------------ ------------

Cash flows from investing activities:
Capital expenditures .......................... (13,108) (81,175) (86,167)
Proceeds from sale of laboratory equipment .... -- 51,821 --
Purchases of marketable securities ............ -- -- (3,015,164)
Maturities of marketable securities ........... -- -- 6,000,000
Restricted cash ............................... 50,000 50,000 (250,000)
Deferred acquisition costs .................... (129,195) -- --
------------ ------------ ------------
Net cash (used in)/provided by investing
activities .............................. (92,303) 20,646 2,648,669
------------ ------------ ------------

Cash flows from financing activities:
Net proceeds from issuance of common stock .... 9,532,295 7,581,318 15,428,276
Net proceeds from exercise of employee stock
options .................................... -- 5,085 55,454
------------ ------------ ------------
Net cash provided by financing activities .. 9,532,295 7,586,403 15,483,730
------------ ------------ ------------
Net (decrease)/increase in cash and cash equivalents (4,592,804) (5,502,820) 2,226,169
Cash and cash equivalents, beginning of year ........ 11,175,762 16,678,582 14,452,413
------------ ------------ ------------
Cash and cash equivalents, end of year .............. $ 6,582,958 $ 11,175,762 $ 16,678,582
============ ============ ============

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

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business (unaudited)

Alteon Inc., or Alteon, or the Company, is a product-based
biopharmaceutical company engaged in the development of small molecule drugs to
treat and prevent cardiovascular disease and diabetes. In past years, the
Company identified several promising product candidates that represent novel
approaches to some of the largest pharmaceutical markets. Alteon has advanced
one of these products into Phase 2 clinical trials.

Alteon's drug candidate, alagebrium chloride or alagebrium (formerly
ALT-711), is a product of the Company's drug discovery and development program.
Alagebrium has demonstrated potential efficacy in two clinical trials in heart
failure, as well as in animal models of heart failure, nephropathy, hypertension
and erectile dysfunction. It has been tested in approximately 1,000 patients in
a number of Phase 1 and Phase 2 clinical trials. Alteon's goal is to develop
alagebrium in diastolic heart failure (DHF). This disease represents a rapidly
growing market of unmet need, particularly common among diabetic patients, and
alagebrium has demonstrated relevant clinical activity in two Phase 2 clinical
trials.

In June 2005, the SPECTRA (Systolic Pressure EfficaCy and Safety TRial of
Alagebrium) Phase 2b trial in systolic hypertension, was discontinued after an
interim analysis found that the data did not indicate a treatment effect of
alagebrium and the Company has ceased development of alagebrium for this
indication.

Also, in June 2005, Alteon announced that it had submitted preclinical
toxicity data on alagebrium to two divisions of the FDA's Center for Drug
Evaluation and Research (CDER), specifically the Division of Cardio-Renal Drug
Products (the Cardio-Renal division) and the Division of Reproductive and
Urologic Drug Products (the Reproductive/Urologic division). The preclinical
toxicity data were submitted in support of the Company's view that liver
alterations previously observed in rats, and reported in December 2004, were
related to the male rat metabolism and not to genotoxic pathways. Subsequent
preliminary data on liver alterations in rats had caused the Company to
voluntarily suspend enrolling new patients into all of its alagebrium clinical
trials in February 2005.

Following review of the rat liver data, the Reproductive/Urologic division
placed on clinical hold further enrollment in the EMERALD (Efficacy and Safety
of AlagebriuM in ERectile Dysfunction in MALe Diabetics) study, the Company's
Phase 2a study of alagebrium in diabetic patients with erectile dysfunction, and
requested further preclinical toxicity data, which it submitted in August 2005.
After review of these data, the Reproductive/Urologic division decided to
maintain the clinical hold pending further preclinical testing. Therefore, in
January 2006, the Company announced that it had withdrawn the investigational
new drug application (IND) for the EMERALD study. Alteon decided instead to
commit its resources to development of alagebrium in cardiovascular diseases.
There can be no assurance that Alteon will ever pursue the development of
alagebrium for the ED indication.

In August 2005, in order to enable the Company to move forward with the
continued development of alagebrium, it announced that it had engaged the
services of Burrill & Company (Burrill) to assist in developing and identifying
options designed to diversify its portfolio of product candidates and to enhance
the ability to raise financing in the future. Such potential transactions
include the acquisition of technologies and product programs, licensing
opportunities, the sale to or merger into another company, and debt and equity
financing. Burrill has identified a number of potential transactions and we are
currently in discussions with one company regarding the acquisition of a
cardiovascular therapeutic technology. The Company is also in discussions with
Genentech regarding the restructuring of their preferred stock position in the
Company. There can be no assurances that it will be able to consummate a
transaction. However, as a result of its current financial situation, any
continued development of alagebrium by the Company is contingent upon its
entering into one or more strategic collaboration agreements for this product
candidate which, among other things, would be required to include funding for
product development.

The Company's business is subject to significant risks including, but not
limited to, (1) Alteon's ability to obtain sufficient additional funding in the
near term, whether through a strategic collaboration agreement or otherwise, to
allow it to resume the development of alagebrium and to continue operations, (2)
the ability to renegotiate its preferred stock agreement with Genentech, (3) the
ability to resume enrollment in its clinical studies

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

of alagebrium should we have adequate financial and other resources to do so,
(4) the risks inherent in its research and development efforts, including
clinical trials and the length, expense and uncertainty of the process of
seeking regulatory approvals for its product candidates, (5) its reliance on
alagebrium, which is its only significant drug candidate, (6) uncertainties
associated with obtaining and enforcing its patents and with the patent rights
of others, (7) uncertainties regarding government healthcare reforms and product
pricing and reimbursement levels, (8) technological change and competition, (9)
manufacturing uncertainties, and (10) dependence on collaborative partners and
other third parties. Even if the Company's product candidates appear promising
at an early stage of development, they may not reach the market for numerous
reasons. These reasons include the possibilities that the products will prove
ineffective or unsafe during preclinical or clinical studies, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Estimates are used for, but not limited to: accrued expenses, income tax
valuation allowances and assumptions utilized within the Black-Scholes options
pricing model and the model itself. Accounting estimates require the use of
judgment regarding uncertain future events and their related effects and,
accordingly, may change as additional information is obtained.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments that
have a maturity of less than three months at the time of purchase.

Financial Instruments

Financial instruments reflected in the balance sheets are recorded at cost,
which approximates fair value for cash equivalents, restricted cash and accounts
payable.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the useful lives of owned
assets, which range from three to five years.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to the future undiscounted net
cash flows expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets and
would be charged to operations.

Research and Development

Expenditures for research and development are charged to operations as
incurred.

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

Stock-Based Compensation

The Company accounts for employee stock-based compensation and awards
issued to non-employee directors using the intrinsic value method under
Accounting Principles Board (APB), Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, under which no compensation cost
(excluding those options granted below fair market value) has been recognized.
Stock option awards issued to consultants and contractors are accounted for in
accordance with Statement of Financial Accounting Standards (SFAS), No. 123,
"Accounting for Stock-Based Compensation," SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure" and Emerging Issues Task
Force Issue No. 96-18, "Accounting for Equity Instruments that are Issued To
Other Than Employees for Acquiring or In Conjunction with Selling Goods or
Services." In March 2000, the Financial Accounting Standards Board (FASB),
released Interpretation No. 44 (FIN No. 44), "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25." The interpretation became effective on July 1, 2000, but in some
circumstances applies to transactions that occurred prior to the effective date.
Under the interpretation, stock options that are repriced must be accounted for
as variable-plan arrangements until the options are exercised, forfeited or
expire.

If the Company had applied the fair value recognition provisions of SFAS
No. 123 to its employee and director option grants and had amortized the value
over the vesting period, the Company's pro forma net loss and net loss per share
applicable to common stockholders for 2005, 2004 and 2003 would be as follows:

Year Ended December 31,
------------------------------------------
2005 2004 2003
------------ ------------ ------------

Net loss, as reported................................. $(12,614,459) $(13,958,646) $(14,452,418)
Add: Variable non-cash stock compensation expense
recognized in the statements of operations -- -- 20,019
Less: Total stock-based compensation expense
determined under fair value method.............. (1,701,681) (868,390) (1,316,721)
------------ ------------ ------------
Pro forma net loss.................................... (14,316,140) (14,827,036) (15,749,120)
Preferred stock dividends............................. 4,486,336 4,135,145 3,790,847
------------ ------------ ------------
Pro forma net loss applicable to common stockholders.. $(18,802,476) $(18,962,181) $(19,539,967)
============ ============ ============
Net loss per share applicable to common stockholders:
Basic/diluted, as reported......................... $ (0.30) $ (0.41) $ (0.50)
Basic/diluted, pro forma........................... $ (0.33) $ (0.43) $ (0.54)

The fair value of each stock option grant, for recognition or disclosure
purposes, is calculated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 2005, 2004 and
2003, respectively: weighted average risk-free interest rate of 3.72%, 3.34 %
and 3.24%, respectively; weighted average expected life of 3.54, 4.07 and 5.31
years, respectively, and the contractual life for grants to consultants and
contractors; expected dividend yield of 0%; and weighted average expected
volatility of 135.55%, 134.16% and 132.35%, respectively.

In December 2004, the FASB issued SFAS No. 123 (revised 2004) ("SFAS
123(R)"), "Share-Based Payment," which is a revision of SFAS 123 and supersedes
APB 25 and related guidance. Generally, the approach in SFAS 123(R) is similar
to the approach described in SFAS 123. However, SFAS 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the statement of operations based on their fair values at
the date of grant. As a result of the issuance of SFAS 123(R), the Company will
be required to expense the fair value of employee stock options over the service
period, beginning January 1, 2006.

On December 15, 2005, the Compensation Committee of the Board of Directors
of the Company approved the acceleration of the vesting date of all previously
issued, outstanding and unvested options, effective December 31, 2005.
Approximately 1.47 million options were accelerated, of which, approximately 1.3
million belong to executive officers and non-employee members of the board of
directors.

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

The Company believes that because all options that have been accelerated
have exercise prices in excess of the current market value of the Company's
common stock, the options have limited economic value. The Company also
implemented the acceleration program to eliminate non-cash compensation expenses
that would have been recorded in future periods following the Company's adoption
of SFAS 123(R) in the first quarter of fiscal 2006. SFAS 123(R) requires
recognizing compensation expense for any unvested stock options at the date of
adoption of SFAS 123(R) over the remaining requisite service period of the
options. The future expense that will be eliminated as a result of the option
acceleration is approximately $613,000 which would have been recognized over a
period of four years, the time period during which all of the out of the money
options would have vested and the expense is included in the pro-forma
disclosure in compliance with SFAS 123.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis and net operating loss and tax credit carryforwards. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date.

Net Loss Per Share Applicable to Common Stockholders

Basic net loss per share is computed by dividing net loss applicable to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted net loss per share is the same as basic net loss per share
applicable to common stockholders, since the assumed exercise of stock options
and warrants and the conversion of preferred stock would be antidilutive. The
amount of potentially dilutive shares excluded from the calculation as of
December 31, 2005, 2004 and 2003 was 286,187,720, 50,297,525 and 36,969,371
shares, respectively.

NOTE 2 -- LIQUIDITY

The Company has devoted substantially all of its resources to research,
drug discovery and development programs. To date, it has not generated any
revenues from the sale of products and does not expect to generate any such
revenues for a number of years, if at all. As a result, Alteon has incurred net
losses since inception, has an accumulated deficit of $222,813,445 at December
31, 2005, and expects to incur net losses, potentially greater than losses in
prior years, for a number of years assuming the Company is able to continue as a
going concern, of which there can be no assurance.

The Company has financed its operations through proceeds from the sale of
common and preferred equity securities, revenue from former collaborative
relationships, reimbursement of certain of our research and development expenses
by collaborative partners, investment income earned on cash and cash equivalent
balances and short-term investments and the sale of a portion of the Company's
New Jersey state net operating loss carryforwards and research and development
tax credit carryforwards.

As of December 31, 2005, the Company had working capital of $5,657,311,
including $6,582,958 of cash and cash equivalents. During 2005, the Company sold
9,523,813 shares of common stock, raising net proceeds of $9,532,295 (see Note
7). The Company's cash used in operating activities for the years ended December
31, 2005, 2004 and 2003 was $14,032,796, $13,109,869 and $15,906,230,
respectively.

Alteon expects to utilize cash and cash equivalents to fund its operating
activities, including any continued development of its lead compound,
alagebrium. However, as a result of the discontinuation of the Phase 2b

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

SPECTRA trial in systolic hypertension and a decrease in its financial
resources, it has significantly curtailed all product development activities of
alagebrium and expects to have further reduced expenses in the first half of
2006. While the Company intends to pursue development of alagebrium in high
potential cardiovascular indications such as heart failure, any continued
development of alagebrium by the Company is contingent upon its entering into
strategic collaboration agreements for this product candidate which, among other
things, would be required to include funding for product development. The
Company may not be able to enter into a strategic collaboration agreement with
respect to alagebrium on reasonable terms, or at all. No enrollment or other
activity is taking place with respect to any of its Phase 2 trials of alagebrium
pending the resolution of its financial resource issues.

In August 2005, in order to enable the Company to move forward with the
continued development of alagebrium, it announced that it had engaged the
services of Burrill & Company to assist in developing and identifying strategic
options designed to diversify its portfolio of product candidates and to enhance
its ability to raise financing in the future. Potential transactions include the
acquisition of technologies and product programs, licensing opportunities, the
sale to or merger into another company, and debt and equity financing. Burrill
has identified a number of potential transactions and we are currently in
discussions with one company regarding the acquisition of a cardiovascular
therapeutic technology. We are also in discussions with Genentech regarding the
restructuring of their preferred stock position in the Company. If the Company
is unable to complete such a transaction on reasonable terms, it will not have
the ability to continue as a going concern after mid-2006. As part of the
exploration of its strategic options, it is considering various transactions
that could result in our being required to make payment of certain obligations
in the amount of approximately $2.0 million (unaudited), including severance,
lease and other contractual and regulatory requirements. In association with
developing and identifying strategic options, certain costs have been deferred
relating to a potential acquisition of $129,195.

The amount and timing of the Company's future capital requirements will
depend on numerous factors, including the timing of resuming its research and
development programs, if at all, the number and characteristics of product
candidates that the Company pursues, the conduct of preclinical tests and
clinical studies, the status and timelines of regulatory submissions, the costs
associated with protecting patents and other proprietary rights, the ability to
complete strategic collaborations and the availability of third-party funding,
if any.

Selling securities to satisfy its short-term and long-term capital
requirements may have the effect of materially diluting the current holders of
the Company's outstanding stock. The Company may also seek additional funding
through corporate collaborations and other financing vehicles. Potential
financing sources may be dissuaded from investing in the Company in light of the
fact that Genentech, Inc., as the sole holder of the outstanding shares of the
Company's Series G and Series H Preferred Stock, currently has a significant
liquidation preference and voting position, on an as-converted to common stock
basis. If funds are obtained through arrangements with collaborative partners or
others, the Company may be required to relinquish rights to its technologies or
product candidates. If the Company decides to pursue a merger, several factors
may make it difficult for it to complete such a transaction, including the
current uncertain state of its regulatory pathway for alagebrium and the
Genentech preferred stock position. Even if the Company completes a merger,
there can be no assurance that the products or technologies acquired in such
transaction will result in revenues to the combined company or any meaningful
return on investment to its stockholders.

NOTE 3 -- PROPERTY AND EQUIPMENT

December 31,
---------------------
2005 2004
--------- ---------

Laboratory equipment............................ $ 24,650 $ 24,650
Furniture and equipment......................... 218,627 218,627
Computer equipment.............................. 155,067 141,959
--------- ---------
398,344 385,236
Less: Accumulated depreciation & amortization... (343,190) (277,967)
--------- ---------
$ 55,154 $ 107,269
========= =========

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 4 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS

On November 6, 2002, Alteon entered into an agreement, effective as of
April 15, 2002, with The Picower Institute for Medical Research, or The Picower,
which terminated its License Agreement dated as of September 5, 1991. Pursuant
to this termination agreement, The Picower assigned to Alteon all of its
patents, patent applications and other technology related to A.G.E.s and Alteon
agreed to prosecute and maintain the patents and patent applications. Alteon
will pay The Picower royalties on any sales of products falling within the
claims of these patents and patent applications until they expire or are allowed
to lapse.

The Company has also entered into various arrangements with independent
research laboratories to conduct studies in conjunction with the development of
the Company's technology. The Company pays for this research and receives
certain rights to inventions or discoveries that may arise from this research.

NOTE 5 -- ACCRUED EXPENSES

Accrued expenses consisted of the following:

December 31,
----------------------
2005 2004
--------- ----------

Clinical trial expense.......................... $ 282,854 $1,326,175
Professional fees............................... 195,375 255,756
Payroll and related expenses.................... 238,344 293,813
Other........................................... 74,132 126,637
--------- ----------
$ 790,705 $2,002,381
========= ==========

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

Commitments

On December 1, 2003, Alteon signed a 37-month lease for office space in
Parsippany, New Jersey. Annual rent over the term of the lease ranges from
$260,000 in the first year to $280,000 in the third year. As a provision of the
lease, Alteon provided a letter of credit, which is collateralized with a
$150,000 restricted certificate of deposit at December 31, 2005 ($200,000 at
December 31, 2004). Rent expense for the years ended December 31, 2005, 2004 and
2003 was $266,294, $351,499 and $674,493, respectively. We have employment
agreements with key executives, which provide severance and/or change in control
benefits. If we terminate all of the agreements, we are subject to obligations
totaling $1,717,668. On January 31, 2006, Judith Hedstrom, our COO, resigned and
was paid one year's salary in the amount of $300,000 and COBRA benefits for up
to 18 months. She is entitled to an additional one-year's salary upon a change
in control.

As of December 31, 2005, future minimum rentals under operating leases,
including employment agreements and office equipment, which have initial or
remaining non-cancelable terms in excess of one year are as follows:

Operating Leases
----------------

2006........ $336,727
2007........ 8,737
Thereafter.. --
--------
$345,464
========

Contingencies

In the ordinary course of its business, the Company may from time to time
be subject to claims and lawsuits.

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 7 -- STOCKHOLDERS' EQUITY

Common/Preferred Stock Issuances

In January 2005, Alteon completed a public offering of 9,523,813 shares of
common stock at $1.05 per share, which provided net proceeds of approximately
$9,532,295. In connection with this offering, the Company issued a five-year
warrant to purchase 312,381 shares of common stock at $1.37 per share.

In July 2004, Alteon completed a public offering of 8,000,000 shares of
common stock at $1.00 per share, which provided net proceeds of $7,581,318. In
connection with this offering, the Company issued a five-year warrant to
purchase 272,500 shares of common stock at $1.30 per share. In connection with
this offering, certain warrants previously issued in 2000, the 2000 Warrants,
were repriced from $1.75 to $1.00 per share pursuant to antidilution provisions
connected to the warrants.

In October 2003, Alteon completed a public offering of 4,457,146 shares of
common stock at $1.75 per share, which provided net proceeds of $7,772,331.

In July 2003, warrants for 87,462 shares of common stock were exercised in
a "net" exercise transaction in which the exercise price was paid by
cancellation of 29,989 shares of common stock issuable upon the exercise for a
net issuance of 57,473 shares. The shares canceled in payment of the exercise
were valued at the average of the closing prices on the American Stock Exchange
for the 20 business days prior to the exercise of the warrants.

In March 2003, Alteon completed a public offering of 2,300,000 shares of
common stock at $3.50 per share, which provided net proceeds of $7,655,945.

In connection with a 2000 offering of common stock, Alteon issued a
seven-year warrant to purchase 1,133,636 shares of common stock of which
1,046,174 are outstanding as of December 31, 2005. In connection with subsequent
offerings, the exercise price of 953,890 of the 2000 Warrants was adjusted to
$1.00 per share, which could be adjusted further if Alteon sells common stock
below $1.00 per share. The exercise price of 46,142 of the 2000 Warrants, which
was adjusted to $2.92 per share, and 46,142 of the 2000 Warrants, which was
adjusted to $2.93 per share, are not subject to further adjustment upon the sale
of more common stock.

The following table summarizes the outstanding warrants:

Warrants Outstanding at Warrants Outstanding at
December 31, 2005 December 31, 2004
-------------------------- --------------------------
Exercise Price Exercise Price
Warrants Per Warrant Warrants Per Warrant
--------- -------------- --------- --------------

312,381 $1.37 272,500 $1.30
272,500 1.30 953,890 1.00
953,890 1.00 46,142 2.93
46,142 2.93 46,142 2.92
---------
46,142 2.92 1,318,674
--------- =========
1,631,055
=========

In December 1997, the Company and Genentech, Inc., or Genentech, entered
into a stock purchase agreement pursuant to which Genentech agreed to buy shares
of common stock, Series G Preferred Stock and Series H Preferred Stock. In
December 1997, Genentech purchased common stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. On July 27, 1998 and October 1,
1998, Genentech purchased $8,000,000 and $14,544,000, respectively, of Series H
Preferred Stock. As of December 31, 2005, 2004 and 2003, respectively,
$4,486,336, $4,135,145 and $3,790,847 of Preferred Stockholder dividends were
recorded. Series G Preferred Stock and Series H Preferred Stock dividends are
payable quarterly in shares of preferred stock at a rate of 8.5% of the
accumulated balance. Each share of Series G Preferred Stock and Series H
Preferred Stock is convertible, upon 70 days' prior written notice, into the
number of shares of common stock determined by dividing

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

$10,000 by the average of the closing sales price of the common stock, as
reported on the American Stock Exchange, for the 20 business days immediately
preceding the date of conversion. At December 31, 2005, the Series G and Series
H Preferred Stock would have been convertible into 69,464,500 common stock
shares and 208,605,500 common stock shares, respectively, and had a total
liquidation value of $55,613,905. The Series G and Series H Preferred Stock have
no voting rights.

Stock Option Plan

In March 2005, the Company's Board of Directors approved the adoption of a
new stock plan, the "2005 Stock Plan." Upon shareholder approval of the 2005
Stock Plan at the Company's 2005 annual meeting, the two existing stock option
plans were terminated. However, between the two plans, 6,294,643 stock options
remain outstanding. Options to purchase up to 5,000,000 shares of the Company's
common stock may be granted under the 2005 Stock Plan of which 192,022 stock
options are outstanding.

The plan is administered by a committee of the Board of Directors, which
may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10 years
from date of grant. Each option entitles the holder to purchase one share of
common stock at the indicated exercise price. The plan also provides for certain
antidilution and change in control rights, as defined.

The following table summarizes the activity in the Company's stock options:

Weighted
Weighted Average
Average Grant Date
Options Exercise Price Fair Value
---------- -------------- ----------

Balance, December 31, 2002 .. 5,436,279 $3.08

Granted at market price ..... 812,465 2.41 $1.99
Exercised ................... (51,688) 1.07
Canceled .................... (217,738) 5.13
----------
Balance, December 31, 2003 .. 5,979,318 2.93

Granted at market price ..... 1,663,409 1.09 $0.89
Exercised ................... (5,750) 0.88
Canceled .................... (1,087,670) 4.39
----------
Balance, December 31, 2004 .. 6,549,307 2.22

Granted at market price ..... 375,022 0.47 $0.39
Exercised ................... -- --
Canceled .................... (437,664) 2.24
----------
Balance, December 31, 2005 .. 6,486,665 $2.12
========== =====

Stock options exercisable at December 31, 2005, 2004 and 2003 were
6,486,665, 4,132,909 and 4,337,316, respectively, at weighted average grant date
exercise prices of $2.12, $2.64 and $3.06, respectively.

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

The following table summarizes information regarding stock options
outstanding and exercisable at December 31, 2005:

Options Outstanding at Options Exercisable at
December 31, 2005 December 31, 2005
------------------------------------------------- ----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life (Years) Price Exercisable Price
-------- ----------- ------------------------ -------- ----------- --------

$0.200 - $ 0.875 1,222,427 4.29 $0.75 1,222,427 $0.75
0.930 - 1.000 21,500 8.21 0.93 21,500 0.93
1.030 - 1.030 1,306,219 8.93 1.03 1,306,219 1.03
1.063 - 1.560 1,309,663 5.17 1.28 1,309,663 1.28
1.625 - 2.600 1,073,460 6.15 2.24 1,073,460 2.24
2.875 - 4.380 939,792 4.56 3.83 939,792 3.83
4.406 - 15.000 613,604 4.16 6.20 613,604 6.20
--------- ---------
$0.200 - $15.000 6,486,665 5.75 $2.12 6,486,665 $2.12
========= =========

Expenses recorded for options granted to consultants totaled $26,904,
$34,731, and $31,228 in 2005, 2004 and 2003, respectively.

On February 2, 1999, the Company repriced certain stock options. In
accordance with FIN No. 44, the Company recognized a total non-cash stock
compensation expense resulting from the repricing for the years ended December
31, 2005, 2004 and 2003 of $0, $0 and $20,019, respectively. As of December 31,
2005, there were 359,909 repriced options outstanding, which expire on various
dates through January 2008.

NOTE 8 -- SAVINGS AND RETIREMENT PLAN

The Company maintains a savings and retirement plan under Section 401(k) of
the Internal Revenue Code that allows eligible employees to annually contribute
a portion of their annual salary to the plan. In 1998, the Company began making
discretionary contributions at a rate of 25% of an employee's contribution up to
a maximum of 5% of the employee's base salary, as defined. The Company made
contributions of $50,703, $62,641 and $59,183 for the years ended December 31,
2005, 2004 and 2003, respectively.

NOTE 9 -- INCOME TAXES

The components of the deferred tax assets and the valuation allowance are
as follows:

December 31,
---------------------------
2005 2004
------------ ------------

Net operating loss carryforwards ............... $ 57,600,000 $ 57,700,000
Research and development credits ............... 8,600,000 8,400,000
Capitalized research and development expenses .. 13,800,000 11,800,000
Other temporary differences .................... 100,000 700,000
------------ ------------
Gross deferred tax assets ...................... 80,100,000 78,600,000
Valuation allowance ............................ (80,100,000) (78,600,000)
------------ ------------
Net deferred tax assets ........................ $ -- $ --
============ ============

ALTEON INC.
NOTES TO FINANCIAL STATEMENTS

The effective tax rate varied from the statutory rate, as follows:

December 31,
-----------------------
2005 2004 2003
----- ----- -----

Statutory federal income tax rate ............... (34.0)% (34.0)% (34.0)%
State income tax rate (net of federal) .......... (6.0)% (6.0)% (6.0)%
Certain nondeductible expenses .................. 0.1% 0.1% 0.0%
Effect of net operating loss carryforwards and
valuation allowance .......................... 37.4% 37.2% 37.7%
----- ----- -----
Effective tax rate ........................... (2.5)% (2.7)% (2.3)%
===== ===== =====

At December 31, 2005, the Company had available federal net operating loss
carryforwards of $159,565,000, which expire in the years 2006 through 2025 for
income tax purposes and state net operating loss carryforwards of $56,141,000,
which expire in the years 2005 through 2012. In addition, the Company has
federal research and development tax credit carryforwards of $6,906,000 and
state research and development tax credit carryforwards of $1,646,000. The
amount of federal net operating loss and research and development tax credit
carryforwards that can be utilized in any one period may become limited by
federal income tax regulations if a cumulative change in ownership of more than
50% occurs within a three-year period.

Given the Company's history of incurring operating losses, management
believes that it is unlikely that any of the deferred tax assets will be
recoverable. As a result, a valuation allowance equal to the gross deferred tax
assets was established. The valuation allowance increased by $1,500,000,
$4,700,000 and $5,100,000 in 2005, 2004 and 2003, respectively. In 2005, 2004
and 2003, the Company sold $4,077,000, $3,456,000 and $2,083,000, respectively,
of its state net operating loss carryforwards and $0, $123,000 and $209,000,
respectively, of its state research and development tax credit carryforwards
under the State of New Jersey's Technology Business Tax Certificate Transfer
Program, or the Program. The Program allows qualified technology and
biotechnology businesses in New Jersey to sell unused amounts of net operating
loss carryforwards and defined research and development tax credits for cash.
The proceeds from the sale of the Company's carryforwards and credits in 2005,
2004 and 2003 were $327,000, $386,000 and $345,000, respectively, and such
amounts were recorded as a tax benefit in the statements of operations. Due to
the uncertainty at any time as to the Company's ability to effectuate the sale
of Alteon's available New Jersey state net operating losses, and since the
Company has no control or influence over the Program, the benefits are recorded
once the agreement with the counterparty is signed and the sale is approved by
the State.

EXHIBIT INDEX

Exhibit
No. Description of Exhibit
------- ----------------------

3.1 Restated Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company's Report on Form 10-Q filed on
November 10, 1999, SEC File Number 000-19529.)

3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F Preferred
Stock of Alteon Inc. (Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2000, SEC File Number 001-16043.)

3.3 Certificate of Retirement of Alteon Inc., dated September 10, 2000.
(Incorporated by reference to Exhibit 3.1 to the Company's Report on
Form 10-Q filed on November 10, 1999, SEC File Number 000-19529.)

3.4 Certificate of Designations of Series G Preferred Stock of Alteon Inc.
(Incorporated by reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, SEC File
Number 000-19529.)

3.5 Certificate of Amendment of Certificate of Designations of Series G
Preferred Stock of Alteon Inc. (Incorporated by reference to Exhibit
3.4 to the Company's Report on Form 10-Q filed on August 14, 1998, SEC
File Number 000-19529.)

3.6 Certificate of Designations of Series H Preferred Stock of Alteon Inc.
(Incorporated by reference to Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, SEC File
Number 000-19529.)

3.7 Amended Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the Company's
Report on Form 10-Q filed on August 14, 1998, SEC File Number
000-19529.)

3.8 Certificate of Retirement of Alteon Inc., dated November 20, 2000.
(Incorporated by reference to Exhibit 3.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, SEC File
Number 001-16043.)

3.9 Certificate of Amendment to Restated Certificate of Incorporation of
Alteon Inc., dated June 7, 2001. (Incorporated by reference to Exhibit
3.8 to the Company's Report on Form 10-Q filed on August 14, 2001, SEC
File Number 001-16043.)

3.10 By-laws, as amended. (Incorporated by reference to Exhibit 3.10 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002, SEC File Number 001-16043.)

3.11 Certificate of Amendment to Restated Certificate of Incorporation of
Alteon Inc., dated September 17, 2004. (Incorporated by reference to
Exhibit 3.1 to the Company's Report on Form 10-Q filed on November 9,
2004, SEC File Number 001-16043.)

3.12 Amended Certificate of Designations of Series G Preferred Stock of
Alteon Inc., dated October 6, 2004. (Incorporated by reference to
Exhibit 3.2 to the Company's Report on Form 10-Q filed on November 9,
2004, SEC File Number 001-16043.)

3.13 Amended Certificate of the Voting Powers, Designations, Preferences
and Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions or Series F Preferred
Stock of Alteon Inc. (Incorporated by reference to Exhibit 3.1.1 to
the Company's Report on Form 10-Q filed on August 9, 2005, SEC File
Number 001-16043.)

3.14* Certificate of Amendment to Restated Certificate of Incorporation of
Alteon Inc., dated October 24, 2005.

EXHIBIT INDEX

Exhibit
No. Description of Exhibit
------- ----------------------

4.1 Stockholders' Rights Agreement between Alteon Inc. and Registrar and
Transfer Company, as Rights Agent, dated as of July 27, 1995.
(Incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, SEC File
Number 001-16043.)

4.2 Amendment to Stockholders' Rights Agreement between Alteon Inc. and
Registrar and Transfer Company, as Rights Agent, dated as of April 24,
1997. (Incorporated by reference to Exhibit 4.4 to the Company's
Current Report on Form 8-K filed on May 9, 1997, SEC File Number
000-19529.)

4.3 Registration Rights Agreement between Alteon Inc. and the investors
named on the signature page thereof, dated as of April 24, 1997.
(Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997, SEC File Number 000-19529.)

4.4 Form of Common Stock Purchase Warrant. (Incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on May
9, 1997, SEC File Number 000-19529.)

4.5 Amendment to Stockholders' Rights Agreement between Alteon Inc. and
Registrar and Transfer Company, as Rights Agent, dated as of December
1, 1997. (Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on December 10, 1997, SEC File Number
000-19529.)

4.6 Registration Rights Agreement, dated September 29, 2000. (Incorporated
by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K filed on October 5, 2000, SEC File Number 001-16043.)

4.7 Form of Series 1 Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.2 to the Company's Current Report on Form 8-K
filed on October 5, 2000, SEC File Number 001-16043.)

4.8 Form of Series 2 Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K
filed on October 5, 2000, SEC File Number 001-16043.)

4.9 Notice of Appointment of The American Stock Transfer & Trust Company
as successor Rights Agent, dated August 29, 2002, pursuant to
Stockholders' Rights Agreement dated as of July 27, 1995.
(Incorporated by reference to Exhibit 4.4 of the Company's Report on
Form 10-Q filed on November 13, 2002, SEC File Number 001-16043.)

4.10 Form of Common Stock Purchase Warrant, dated July 2, 2004.
(Incorporated by reference to Exhibit 4.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, SEC File
Number 000-16043.)

4.11 Form of Common Stock Purchase Warrant, dated January 5, 2005.
(Incorporated by reference to Exhibit 4.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, SEC File
Number 000-16043.)

4.12 Amended and Restated Stockholder Rights Agreement between Alteon Inc.
and American Stock Transfer & Trust Company as Rights Agent, dated as
of July 27, 2005. (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A/A filed on July 27, 2005,
SEC File Number 001-16043.)

10.1+ Amended and Restated 1987 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, SEC File Number 000-19529.)

10.2+ Amended 1995 Stock Option Plan. (Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, SEC File Number 001-16043.)

10.3 Form of Employee's or Consultant's Invention Assignment, Confidential
Information and Non-Competition Agreement executed by all key
employees and consultants as employed or retained from time to time.
(Incorporated by Reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, SEC File Number 33-42574, which
became effective on November 1, 1991.)

EXHIBIT INDEX

Exhibit
No. Description of Exhibit
------- ----------------------

10.4 Lease Agreement between Ramsey Associates and Alteon Inc., dated
January 11, 1993. (Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2000, SEC File No. 001-16043.)

10.5+ Employment Agreement between Alteon Inc. and Elizabeth O'Dell, dated
as of October 21, 2000. (Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the year ended December
31, 2000, SEC File Number 001-16043.)

10.6+ Alteon Inc. Change in Control Severance Benefits Plan. (Incorporated
by reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000, SEC File Number 001-16043.)

10.7 Preferred Stock Investment Agreement between Alteon Inc. and the
investors named on the signature page thereof, dated as of April 24,
1997. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on May 9, 1997, SEC File Number
000-19529.)

10.8+ Amended and Restated Employment Agreement between Alteon Inc. and
Kenneth I. Moch, dated as of December 15, 1998. (Incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, SEC File Number 000-19529.)

10.9 Common Stock and Warrants Purchase Agreement among Alteon Inc. and EGM
Medical Technology Fund, L.P., EGM Technology Offshore Fund,
Narragansett I, L.P., Narragansett Offshore, Ltd., S.A.C. Capital
Associates, LLC, SDS Merchant Fund, LP and Herriot Tabuteau, dated as
of September 29, 2000. (Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on October 5, 2000, SEC
File Number 001-16043.)

10.10+ Letter Agreement between Alteon Inc. and Kenneth I. Moch, dated
December 3, 2001, amending Amended and Restated Employment Agreement
dated as of December 15, 1998. (Incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, SEC File Number 001-16043.)

10.11 Stock Purchase Agreement between Alteon Inc. and the Purchasers named
therein, dated January 4, 2002. (Incorporated by reference to the
Company's Current Report on Form 8-K filed on January 7, 2002, SEC
File Number 001-16043.)

10.12+ Employment agreement between Alteon Inc. and Judith S. Hedstrom, dated
as of February 11, 2002. (Incorporated by reference to Exhibit 10.2 of
the Company's Report on Form 10-Q filed on May 14, 2002, SEC File
Number 001-16043.)

10.13 Stock Purchase Agreement between Alteon Inc. and the Purchasers named
therein, dated December 20, 2002. (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K filed on
December 24, 2002, SEC File Number 001-16043.)

10.14+ Letter Agreement between Alteon Inc. and Judith S. Hedstrom, dated
June 5, 2003, amending Employment Agreement, dated as of February 11,
2002. (Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q filed on August 11, 2003, SEC File
Number 001-16043.)

10.15+ Letter Agreement between Alteon Inc. and Elizabeth O'Dell, dated June
5, 2003, amending Employment Agreement, dated as of October 21, 2000.
(Incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q filed on August 11, 2003, SEC File Number
001-16043.)

10.16 Stock Purchase Agreement, dated October 15, 2003. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on October 20, 2003, SEC File Number 001-16043.)

EXHIBIT INDEX

Exhibit
No. Description of Exhibit
------- ----------------------

10.17 Amendment to Stock Purchase Agreement, dated October 24, 2003.
(Incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q filed on November 13, 2003, SEC File Number
001-16043.)

10.18+ Letter Agreement between Alteon Inc. and Elizabeth O'Dell, dated
December 22, 2003, amending Amended and Restated Employment Agreement,
dated as of June 5, 2003. (Incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K filed on March 12, 2003,
SEC File Number 001-16043.)

10.19+ Amended and Restated Employment Agreement between Alteon Inc. and
Kenneth I. Moch, dated as of December 15, 2004, amending Amended and
Restated Employment Agreement, dated as of December 15, 1998.
(Incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, SEC File
Number 000-16043.)

10.20+ Amended and Restated Employment Agreement between Alteon Inc. and
Judith S. Hedstrom, dated February 11, 2005, amending Employment
Agreement, dated as of February 11, 2002. (Incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2005, SEC File Number 000-16043.)

10.21 Alteon Inc. Description of Director Compensation Arrangements.
(Incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005, SEC File
Number 000-16043.)

10.22 Alteon Inc. Description of Executive Officer Compensation
Arrangements. (Incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2005, SEC File Number 000-16043.)

10.23 Alteon Inc. 2005 Stock Plan. (Incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed on July 6,
2005, SEC File Number 001-16043.)

10.24 Form of Employee's Stock Option Grant Agreement. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed on August 9, 2005, SEC File Number 001-16043.)

10.25 Form of Director's Formula Award Non-Qualified Stock Option Grant
Agreement. (Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q filed on August 9, 2005, SEC File Number
001-16043.)

10.26 Form of Consultant's Non-Qualified Stock Option Grant Agreement.
(Incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q filed on August 9, 2005, SEC File Number
001-16043.)

10.27* Notice of Option Acceleration.

10.28* Alteon Inc. Severance Plan and Summary Plan Description.

23.1* Consent of J.H. Cohn LLP.

23.2* Consent of KPMG LLP.

31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

32.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

----------
* Filed herewith.
+ Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 15(a) to this Form 10-K.