Allos Therapeutics Inc.‘ (ALTH) second quarter 2010 loss of 19 cents per share was narrower than the Zacks Consensus Estimate of a loss of 20 cents per share. The year-ago loss was also 19 cents. The identical loss per share was attributable to the increased number of shares outstanding in the reported quarter.

The net loss in the quarter was $20 million as against $16.8 million a year ago.  The wider loss in the quarter was attributable to higher costs incurred on selling Folotyn.  The company recorded $7.9 million in net product sales during the reported quarter. No sales were recorded in the second quarter of 2009.

Operating costs and expenses in the reported quarter increased 66.1% to $27.9 million. Selling, general and administrative expenses went up 155% to $20.5 million in the second quarter of 2010 due to the higher costs incurred on selling Folotyn. Research and development expenses, however, declined 26% to $6.5 million. The decrease is attributable to the efficient management of operating costs, which has resulted in savings in the R&D programs at Allos. Cost of sales for the reported quarter was 9.5% of net product sales.

In June 2010, Allos received orphan drug status from the European Commission (EC) for Folotyn (pralatrexate) for the treatment of cutaneous T-cell lymphoma (CTCL). Furthermore, the US Food and Drug administration (FDA) granted orphan drug designation to Folotyn for treating patients suffering from bladder cancer.

Folotyn also enjoys orphan drug status from the EC for other indications such as peripheral T-cell lymphoma (PTCL) and non-papillary transitional cell carcinoma (TCC) of the urinary bladder, a form of bladder cancer. Folotyn is currently approved by the US FDA for treating patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). The drug received accelerated FDA approval in September 2009. Folotyn, launched in January 2010, is the only marketed product at Allos. Folotyn is also being studied in patients with non-small cell lung cancer and metastatic breast cancer.
 
Encouraging Results for Allos Drug

Allos announced positive results from a mid-stage study of Folotyn involving lung cancer patients. The study revealed that the treatment with Folotyn reduced the risk of death by 16% in patients suffering from non-small cell lung cancer when compared with patients taking only Tarceva.
 
2010 Guidance Revised

Allos adjusted its guidance for 2010 due to the efficient management of operating costs by the company. The company expects total operating costs in the range of $115 – $120 million (excluding non-cash stock-based compensation expense). The earlier projection was in the range of $120 – $130 million. Given the recent launch of Folotyn, Allos has not provided any revenue guidance.
 
Our Recommendation
 
Allos Therapeutics is a Zacks #3 Rank (Hold) stock. This implies that the company is expected to perform in line with the broader US equity market over the next 1-3 months. We are also Neutral on Allos in the long-term. Our long-term Neutral stance on the company indicates that the stock is expected to replicate its short-term performance, but over the next 6+ months. Consequently, we advise investors to retain the stock over the time period.

 
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