"Four key reasons to buy the stock today. Outperform. $20 target"
JMP Securities
September 25, 2009
Allos Therapeutics, Inc. (1)
First Look – Folotyn Approval Bodes Well for First to Market Strategy
MARKET OUTPERFORM
Target Price $20.00
The FDA has granted accelerated approval for Folotyn (pralatrexate), and the drug will be available in the US in October; reiterate Market Outperform rating and $20 target price on Allos (1) (ALTH - $8.15, $663M market cap). We expect a more formal “coming out party” for the drug at the American Society of Hematology meeting in December. The drug is the first to be approved for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). We would remain buyers of the stock for four primary reasons outlined below. Our $20 price target is based on 30x our FY12 EPS estimate of $0.90, discounted at 20%.
Four key reasons to buy the stock today:
1) We are confident that physicians are eager to have this drug available and will begin using it in patients immediately.
2) We are confident in the market potential in PTCL and point to a statement from the FDA reviewer at the ODAC panel that there are 9,500 PTCL patients in the US.
3) We believe there is upside from current Street expectations with broader applicability of the drug in hematology indications (NHL, CTCL) as well as solid tumors (lung cancer).
4) A buyer for the company could emerge within the next 6-12 months.
# Product label is strong, supporting duration of response of 9.4 months. The Folotyn label (available at http://www.allos.com/Amend/images/pdfs/FOLOTYN package Insert.pdf) contains results from the pivotal PROPEL trial, which demonstrated an overall response rate of 27% and a median duration of response of 9.4 months.
# Looking to conference call for added color on launch. The key questions we have for the conference calls are 1) details on the launch plans for Folotyn; 2) the selling price of the drug; and 3) the requirements for converting accelerated approval into full approval (although we note that accelerated approval will not impede physician adoption and rapid sales ramp of Folotyn).
# PTCL market assumptions. We assume that sales in PTCL may reach $250MM in our target price year of 2012, above the Street consensus estimate of $220MM. We believe that sales recorded in 2009 will be small (~$6MM) but meaningful. Our estimate for sales in 2010 is $136MM, compared to the Street consensus of $82MM, and we will look for information from early “channel checks” to better gauging the sales potential next year as the launch progresses
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