Allos could have a plan b in the form of Company A

 The 4% jump in shares of Amag Pharmaceuticals yesterday in the wake of an increased bid for Allos Therapeutics by an unnamed suitor points to hope that the companies’ highly questionable marriage might not be consummated.

What is threatening to break up Amag and Allos' union of convenience is an improved $2.20 a share offer, up from $2, which rather than rejecting out of hand the cancer specialist is now considering (EP Vantage Exclusive – Allos board rejected $2 a share bid for company, September 20, 2011). With this new bid being seen as a credible option, if Amag does want to hang onto its bride it might have to sweeten its all-share offer for Allos with a cash element. If not, the continued interest from Company A could be a neat way to back out gracefully from a match that very few seemingly want to happen.

Sweet cash

Amag certainly has the cash to pep up its offer if it really is wedded to the idea of a merger. With its bid pegged to its share price, at Amag’s $14.71 close last night Allos would have been worth $1.82 a share, or $192.3m. This compares with the $232.5m for the new $2.20 a share bid, a 21% premium to Amag’s offer.

With $264m in cash on the balance sheet as of June 30, proposing a new bid with a small cash element is more than do-able for Amag. But shareholders, already concerned about the tie up, may see this as squandering valuable money that could be used to help shore up its only marketed and underperforming product, Feraheme.

Cold feet

More tellingly for the eventual outcome is that although Allos has not come out and fully endorsed the new bid - made up of $1.50 in cash and 70 cents in shares in what has only been named as 'Company A' - it is actively considering it, after outright rejecting the earlier $2 a share proposal. This certainly indicates the company is mulliing a future that does not involve Amag.

But there appears to be some caution around the new bid and after rising yesterday by 11% to $1.83, Allos shares have today fallen back to $1.79 in early trading. Amag shares were also slightly down, losing 3% to $14.30.

While some might have used the rise in the shares if not to take profits at least recover some losses, the fact that Allos stock has not risen closer to the bid price from Company A points to widespread scepticism that this enhanced offer will be taken up.

Mystery unmasked?

One thing that has emerged over the last few days is mounting speculation that the mysterious Allos Company A may in fact be Spectrum Pharmaceuticals, The Street reported yesterday. The group would make a credible partner for Allos given that it has two marketed cancer products of its own, Fusilev for colorectal cancer and Zevalin for non-Hodgkin’s lymphoma. The addition of Allos' Folotyn, used to treat peripheral T-cell lymphoma, would give Spectrum a third drug to sell through its existing sales force.

Spectrum also fits the original description of Allos Company A being listed and with a market cap below $500m. Also with approximately $160m in cash following the addition of $25m earlier this week from exercising long-term warrants it is in a strong enough financial position to complete the deal.

But investors in Spectrum, who according to SEC filings will not be given the option to vote on the merger, have not received the rumours linking them with Allos particularly warmly and shares in the group have dropped. After losing 4% yesterday, today they were trading 3% lower at $7.81 in early morning trade.

As such even the arrival of a new suitor, who may not be the whitest of white knights, Allos' future is still less than clear and there are bound to be more twists and turns in the story before shareholders have to vote on the Allos-Amag merger on October 21.

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