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After Announcing Drug Failure, Spectrum Pharmaceuticals Says It Will Buy Rival Allos


Bladder cancer drug flop is a setback for the biotech but acquisition would start adding to earnings by fourth quarter, company says.

Just minutes after Spectrum Pharmaceuticals (SPPI) announced an experimental cancer drug failed in a study Thursday morning, the company said it would buy rival Allos Therapeutics (ALTH) for $206 million in cash.

The proposed takeover values Allos at $1.82 a share, a 27% premium over the company's closing stock price Wednesday. The deal may be worth an additional 11 cents a share payment based on some European market approval and sales goals for Allos' cancer drug Folotyn.

Folotyn, which recorded $50 million in sales last year, treats a type of blood cancer known as peripheral T-cell lymphoma, while Spectrum has two approved drugs: Fusilev to treat the effects of chemotherapy and Zevalin for non-Hodgkin's lymphoma.

In a conference call, Spectrum CEO Rajesh Shrotriya emphasized his view that Folotyn and Zevalin are complementary products.

"Zevalin and Folotyn are highly synergistic because they're used by the same physicians," Shrotriya said.

A proposed sale to Amag Pharmaceuticals (AMAG) was scuttled last October because Amag investors voted it down. That stock deal was initially valued at about $260 million, a figure that dropped significantly as Amag's share price fell. Some investors and analysts questioned the deal, noting that the two companies didn't have complementary businesses.

There was less said about the failure of a bladder cancer drug apaziquone, which was in the last of three phases of study usually needed for US approval. Spectrum was expected to file for Food and Drug Administration approval of the treatment next year. The company is partnered with Allergan (AGN) and Japan's Nippon Kayaku (NP7.F) for development of the drug.

Shrotriya had not given sales estimates for apaziquone but said he expected it to be a strong contributor to overall sales. Shrotriya told Minyanville recently that his philosophy is to create multiple drugs with more than $100 million in sales each rather than focus on one blockbuster. The CEO also is somewhat of a scavenger when it comes to building his business. He wants to buy other companies' discarded drugs in development rather than spend money on his own lab discoveries. (See This Biotech Would Rather Buy Experimental Cancer Drugs Than Develop Them)

Shrotriya says he plans to shave as much as $50 million in costs from the combined Spectrum-Allos by next year. The acquisition, expected to close by the end of June, would add to Spectrum's earnings by the fourth quarter, he says.

Shares of Spectrum fell 10% to $11.02 in morning trading. The shares have risen 39% in the past six months.

Twitter: @brettchase

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