We recently upgraded our recommendation on Allos Therapeutics Inc. ( ) to Outperform with a target price of $1.75. We believe that the stock is undervalued at current levels.

Allos, a Westminster, Colorado based company, announced decent fourth quarter and full year 2011 results in March 2012. The company suffered a loss of $0.01 per share in the quarter, narrower than the year-ago loss of $0.17 and the Zacks Consensus loss estimate of $0.08. A surge in revenues coupled with lower costs led to the narrower loss in the final quarter of 2011.

Sales of the company’s sole marketed product, Folotyn for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL) improved in the quarter. Net sales of the product improved 17% sequentially in the final quarter of 2011. The company expects Folotyn sales to continue improving in 2012. 2012 sales of the product are projected to improve 16%-28% over 2011 levels (after excluding some infrequently occurring items).

Moreover, we are positive on the deal inked by Allos in May 2011 with Mundipharma for the co-development and commercialization of Folotyn. Per the terms of the deal, the sole responsibility of commercializing the drug in the US and Canada lies with Allos. Mundipharma is responsible for commercializing Folotyn in the rest of the world. Mundipharma is seeking approval of Folotyn for PTCL in countries such as Australia, Switzerland and South Korea. Approval in additional markets would strengthen the top-line.

Furthermore, we view the termination of the deal with AMAG Pharmaceuticals ( AMAG - Snapshot Report ) as a positive for Allos as it will be able to focus its entire attention on marketing Folotyn more effectively. Moreover, the merger did not have enough strategic rationale behind it in the first place.

In view of these positives, we believe that Allos is undervalued at current levels. We believe that the current price represents an attractive entry point for long term investors.