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Allos Therapeutics Evenly Poised

Zacks Equity Research

We are maintaining our Neutral recommendation on Allos Therapeutics Inc. (NasdaqGS: ALTH - News) with a target price of $1.85.

Allos, founded in 1992 and headquartered in Westminster, Colorado, is a biopharmaceutical company focused on the development and commercialization of small molecule drugs for the treatment of cancer. The company, formerly known as HemoTech Sciences, Inc., changed its name to Allos Therapeutics, Inc. in October 1994.

In August 2011, Allos reported profit in the second quarter of 2011, driven by higher sales of Folotyn. We believe that the earnings report is a non-event and investor focus will be on Allos' impending merger with AMAG Pharmaceuticals (NasdaqGS: AMAG - News). The deal is expected to close by year-end.

The merger will bring together Allos and AMAG's sole marketed products, Folotyn and Feraheme, respectively. The deal will strengthen the balance sheet of the merged entity, thus enabling it to expand the product portfolio beyond Feraheme and Folotyn.

The merger will result in significant cost savings apart from benefiting Allos shareholders who will receive 0.128 shares of AMAG per share of Allos on closure of the deal. Following the deal, AMAG shareholders will own approximately 61% of the combined company while Allos shareholders will own the balance. However, we prefer to remain cautious until the completion of the deal. If the merger fails to materialize, the stock price at Allos will be severely impacted. In that scenario, Allos will revert to the status of a one-drug company without the advantage of a decent pipeline.

We see limited upside potential for the stock prior to the completion of the merger and retain our Neutral stance on the stock.

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