Allos Therapeutics Looks Promising Ahead of Crucial 6 Months

Allos Therapeutics’ (ALTH) lead drug PDX presents exactly the sort of niche opportunity that many drugmakers, and investors, are now chasing: a cancer therapy in an orphan indication, for which high prices can be justified. Growing optimism has driven shares in the US company higher in the last few weeks.

The signs are promising; interim data from an ongoing pivotal trial were encouraging, similar drugs are already on the market and successful, further niche indications are looking good and longer term, analysts believe the group is a prime takeover target. Under a special protocol agreement, the FDA has stated that data from 100 patients is enough for it to consider granting a marketing license; the big unknown and key concern is what response rate and duration of response it is looking for.

Pivotal trials

PDX is in a pivotal trial in patients with relapsed peripheral T-cell lymphoma [PTCL], a relatively rare form of non-Hodgkin’s lymphoma which strikes around 5,000 patients a year in the US, and for which there are no specific FDA-approved treatments.

The results, due at be presented in December at the Annual Society of Haematology, are going to be hugely important for Allos. PDX is its only research project so far assigned any value by analysts, and it has an NPV, based on consensus sales forecasts, of $836m, according to EvaluatePharma’s NPV Analyzer. That is significantly higher than the group’s enterprise value of $472m.

Consensus for 2012 sales is $215m, although that is likely to rise with a fresh initiation from Citigroup last week, which has pencilled in $241m, rising to $353m by 2014.

The bank’s analysts believe the FDA will want to see 20%-25% patients respond to the treatment in the trial, and reckon that based on past data that is certainly achievable. An interim analysis published in May showed that 29% of patients had either a complete or partial response, as determined by the central independent oncology review, whilst the studies’ investigators calculated a 45% response rate. That followed a 54% response rate seen in the phase I/II trial.

However, what is important is the FDA’s view of efficacy, and that question is not likely to be answered until the regulator conducts a full review of the trial results. If the company keeps to its timelines, a six-month review period will mean a decision in the middle of next year.

Novel antifolate

PDX is a novel antifolate. Two antifolate’s are already on the market, the widely used methotrexate and Eli Lilly’s Alimta, but PDX promises to be more potent.

Evidence of the drug’s efficacy in further indications will also be available this year. A phase I/II trial in cutaneous T-cell lymphoma, an even rarer form of NHL, is due to report phase I data in the second half of the year. Also at ASH, phase II results in NHL should be available. In the fourth quarter, phase II results from a non small cell lung cancer trial could be announced.

Hence, the coming six months are pivotal for Allos. The company’s share price has had a good run in the last month, advancing 48% to close at $7.96 yesterday, buoyed by encouraging interim results released in May, and positive analyst comments.

Citigroup initiated with an $11 price target last week, adding to the raft of buy recommendations on the stock. Price targets range from $8 to $15, and even the highest looks achievable if things go right for Allos, which retains fulls rights to PDX and thus looks like a tasty morsel for a bigger player.

However, until a bit more data is available, investors are likely to be rightfully nervous to push the shares much further towards the loftier of those Wall Street price targets.

Disclosure: none