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Big Potential from Small Molecule?

03/12/2004 12:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

Allos Therapeutics has developed a "small molecule" that is hoped to enhance the efficacy of radiation therapy and chemotherapeutic drugs. Biotech expert John McCamant, editor of the excellent Medical Technology Stock Letter,considers it a compelling value. Here's his comments.

"We feel that Allos Therapeutics (ALTH NASDAQ) is one of the most compelling buys in the biotech sector. At current price levels, we believe the stock is significantly undervalued. The current market cap is below $130 million. With $45 million in cash, the company has an enterprise value of under $90 million. This is an extremely low valuation and does not reflect the fact that their lead product, RSR13, has already been filed with, and accepted by, the FDA for approval.

"Allos also announced that the company has filed for a $75 million shelf offering.  We note that shelf offerings are neither positive nor negative. Rather, it is how the company executes the shelf offering, and it is at that point at which we will offer an opinion. With a PDUFA date of June 4 for their lead drug candidate, RSR13, we do not expect ALTH to do anything with the shelf until they hear from the FDA, positive or negative. If RSR13 is approved, the company will need cash fast to launch the drug. In addition, a strong cash position will provide them with a stronger negotiating position with potential RSR13 partners, either in the US or Europe."

"We are not aware of any companies that are this far into the approval process and which have a valuation which is as low and attractive as Allos. We believe that ALTH is currently unmatched by its peers when you combine the company's market cap with the fact that they are on the cusp of FDA approval for the leading product candidate. As a result, even after the nice move the stock has recently made, we think it still represents a solid buy and we are raising our buy limit and the target price. ALTH is now a buy under $6 with a target price of $12."

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