ALTH Allos Therapeutics, Inc. (MM)

We have recently downgraded Allos Therapeutics Inc. (ALTH) to Neutral from Outperform with a target price of $1.50.

The failure of Allos’ deal with AMAG Pharma (AMAG) in October 2011 has reverted Allos to a one-drug company, solely dependent on Folotyn for growth. Folotyn is currently marketed for the treatment of patients suffering from relapsed or refractory peripheral T-cell lymphoma (PTCL). The drug received accelerated approval from the US Food and Drug Administration (FDA) in September 2009 and was launched commercially in January 2010.

The merger with AMAG was announced in July 2011. The deal failed to materialize due to insufficient shareholder votes. Following the termination, Allos received approximately $1.8 million (net) from AMAG to make up for merger related costs.

The failure of the merger has also denied Allos the chance to strengthen its balance sheet further. Furthermore, the development has denied Allos the chance to drive bottom-line growth as the merger was expected to result in significant cost savings.

We believe that Allos must not be solely dependent on Folotyn. The company must develop new products to sustain growth.

Even though Allos is evaluating Folotyn for additional indications, any setback in the developmental process will impact the stock. We note that Allos is no stranger to pipeline setbacks. For example, in 2007, Allos discontinued its developmental programs for efaproxyn, its most advanced candidate at that point. The drug was being studied in women with brain metastases originating from breast cancer.

In view of these concerns we have downgraded Allos to Neutral. We see limited upside potential for the stock until Allos is successful in expanding its product portfolio.

 
ALLOS THERAPEUT (ALTH): Free Stock Analysis Report
 
AMAG PHARMA INC (AMAG): Free Stock Analysis Report
 
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