ALTH Allos Therapeutics, Inc. (MM)

Lexington, Massachusetts (MA) based AMAG Pharmaceuticals (AMAG) and Westminster, Colorado based Allos Therapeutics (ALTH) have agreed to merge in an all stock deal that has a total equity value of $686 million.

The merger has been approved by the boards of both companies. Following the deal, AMAG shareholders will own approximately 61% of the combined company while Allos shareholders will own roughly 39%. The transaction is expected to close by the end of this year and will involve a one-time cost in the range of $35 million to $38 million. The merged entity will be headquartered in Lexington, Massachusetts.

The deal will bring together AMAG’s and Allos’ sole marketed products, Feraheme and Folotyn, respectively. Folotyn is marketed for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL) while Feraheme is marketed for use as an intravenous (IV) iron replacement therapy for the treatment of iron deficiency anemia (IDA) in chronic kidney disease (CKD) patients. Both the products focus on high potential markets.

These two companies have had their share of problems. AMAG’s Feraheme has been struggling since the past few quarters due to decline in sales in the dialysis segment following changes in dialysis reimbursement effective from January 2011. AMAG had reduced its workforce by 24% in 2010 to counter lost sales in the dialysis setting, being unable to offset it with a concomitant rise in Feraheme sales in the non-dialysis CKD indication. Similarly Allos Therapeutics had also announced a workforce reduction of approximately 13% in January 2011.

The merger is expected to benefit both companies. The combined company is expected to generate annual cost synergies in the range of $55 million and $60 million by eliminating certain costs, most of which will be realized in the first year after the merger. The merged entity will also benefit from a strong balance sheet which will enable it to diversify its product portfolio and enter into business reinvestments.

Our Recommendation

We have a Neutral stance on AMAG Pharmaceuticals. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We have a similar stance on Allos Therapeutics.

 
ALLOS THERAPEUT (ALTH): Free Stock Analysis Report
 
AMAG PHARMA INC (AMAG): Free Stock Analysis Report
 
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