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The day that some speculated might never arrive finally came. At long last, the Federal Trade Commission approved the acquisition of Allos Therapeutics (Nasdaq: ALTH ) by Spectrum Pharmaceuticals (Nasdaq: SPPI ) . The deal is set to be closed on September 4 for $1.82 per share.
What was once considered unlikely, has become a sure thing. But what does it really mean? Let's take a look.
Shopping for synergies
Spectrum clearly is shopping for synergies with the Allos buy. The doctors who prescribe Spectrum's Zevalin drug are also the target market for Allos' Fotolyn drug.
The drugs don't compete against each other, though. Zevalin is used for the treatment of patients with non-Hodgkin's lymphoma, while Fotolyn is used in treating relapsed or refractory peripheral T-cell lymphoma (PTCL).
Rajesh C. Shrotriya, Chairman and CEO of Spectrum, specifically referred to synergies in his statements following the FTC decision. Shrotriva pointed out that "significant savings" could result from the merger.
The FTC green light means good news for Spectrum, but some yellow caution lights could be flashing.
There are other drugs used in treating PTCL. Baxter (NYSE: BAX ) sells a generic version of Cytoxan. A generic version of Vincristine is sold by Teva Pharmaceuticals (Nasdaq: TEVA ) . Celgene (Nasdaq: CELG ) makes Istodax.
However, only Fotolyn is currently FDA-approved for relapsed or refractory PTCL. With this present monopoly, you might think that Fotolyn sales would be on the rise. But they're not. Fotolyn gross sales for the first half of 2012 were $23.3 million, down 5% from the first half of 2011.
These numbers mask a bigger problem. The number of units sold fell 10% during this period, as compared to the prior year. A price increase of 5% helped make up some of the losses.
Things don't look good across the Atlantic either. The European Commission rejected Fotolyn's Marketing Authorization Application (MAA) in June. That represents a dead end, since there are no further opportunities for appeal. Allos already sold international rights to Fotolyn (outside of North America) to Mundipharma, but could have received another $14.5 million had European approval been secured.
Spectrum seems likely to gain significant synergies from the Allos acquisition. The logic seems sound. Overall, the Allos deal looks like a good one, even with some of the challenges that Fotolyn has encountered.
That doesn't mean that Spectrum is necessarily a great investment option right now, though. There are reasons totally unrelated to the Allos deal for holding off on buying shares. Fellow Fool Brian Orelli recently listed several that could give investors pause. The Foolish view on Spectrum lines up with what Benjamin Franklin said centuries ago: "When in doubt, don't."
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