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UPDATE: Amid Setback, Spectrum Pharma To Buy Allos For $206 Million

Date : 04/05/2012 @ 2:07PM
Source : Dow Jones News
Stock : Allergan, (AGN)
Quote : 214.0  1.9 (0.90%) @ 4:33PM
Allergan share price Chart

UPDATE: Amid Setback, Spectrum Pharma To Buy Allos For $206 Million

Spectrum (NASDAQ:SPPI)
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As prospects dimmed for one of its own cancer drugs, Spectrum Pharmaceuticals (SPPI) is poised to land another cancer drug with its planned acquisition of Allos Therapeutics Inc. (ALTH) for up to $206 million cash, plus additional consideration if certain milestones are met.

Spectrum announced both developments within minutes Thursday morning. The company first disclosed that in two late-stage clinical trials, the experimental drug apaziquone failed to achieve a statistically significant reduction in the rate of tumor recurrences in patients with a form of bladder cancer compared with a placebo.

Though Spectrum said pooled data from both studies suggested the drug provided a benefit, the setbacks for each individual study could impede Spectrum's ability to secure U.S. regulatory approval for the drug, which it is developing in collaboration with Allergan Inc. (AGN). Spectrum had planned to file for Food and Drug Administration approval this year; it is now considering its next steps.

Spectrum shares tumbled $1.18, or 10%, to $11.03 in recent trading.

Soon after disclosing the research setback, Spectrum said it agreed to acquire Allos Therapeutics for $1.82 per share in cash, plus a contingent value right that would be worth an additional 11 cents a share if certain targets are met for Allos's cancer drug Folotyn.

Folotyn was approved by the U.S. Food and Drug Administration in 2009 to treat patients with a form of lymphoma. The drug had U.S. sales of $50.5 million for 2011. The contingent value rights would kick in for Allos shareholders if certain European regulatory approval and commercialization milestones for Folotyn are met.

"The deal brings immediate diversification from a revenue-generating cancer drug" and should add to Spectrum's earnings-per-share later this year, Spectrum Chief Executive Rajesh C. Shrotriya said on a conference call with analysts.

Shrotriya also said the deal would have synergies, including combining sales forces that currently promote certain drugs to the same groups of physicians. Spectrum estimated the deal would generate cost savings of $40 million to $50 million in the first year after the deal closes. The deal is expected to close by midyear.

Overall, Spectrum said the upfront portion of the transaction is valued at up to $206 million on a fully diluted basis, and $108 million net of Allos's cash balance at the end of 2011.

Allos shares jumped 38 cents, or 27%, to $1.81 in recent trading. Still, the stock is down significantly from a peak above $10 in 2008. Recently shares suffered because an advisory body to the European Medicines Agency recommended against conditional approval of Folotyn.

Last year, Allos had agreed to be acquired by Amag Pharmaceuticals Inc. (AMAG) in an all-stock deal with total equity value of about $686 million, but the deal fell through after Amag shareholders rejected it.

Allos's largest shareholder, Warburg Pincus, which owns about 24% of Allos shares, agreed to tender its shares in the Spectrum offer, the companies said.

As for the experimental drug apaziquone, the outlook is uncertain. The drug is designed to be administered into the bladder immediately after surgical removal of low-risk, nonmuscle invasive bladder tumors. The late-stage studies tracked the rate of tumor recurrences after two years.

Spectrum said each study failed to meet its primary endpoint. However, analysis of the pooled data from both studies showed a "statistically significant treatment effect in favor of apaziquone in the primary endpoint of the rate of tumor recurrence at 2 years" and in a key secondary endpoint, time to recurrence, the company said.

Spectrum said it's considering requesting a meeting with the FDA to discuss future steps, and it needs to convince the FDA that the drug is safe and effective.

-By Peter Loftus, Dow Jones Newswires; +1-215-982-5581; peter.loftus@dowjones.com



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