Recently, Allos Therapeutics, Inc. ( ) and Spectrum Pharmaceuticals ( SPPI - Snapshot Report ) inked a deal whereby the latter agreed to acquire the former for $1.82 per share in cash, in addition to one contingent value right (CVR). The offer price represents a premium of 27% to Allos’ closing price on April 4, 2012. Spectrum Pharma intends to finance the deal through its available cash balance in addition to a revolving credit line from Bank of America.

Per the terms of the deal, Spectrum Pharma will initiate a tender offer to buy the entire outstanding shares of Allos for the above mentioned purchase price. The CVR, which will not be traded in the public domain, makes each Allos shareholder eligible to receive a further 11cents per share in cash depending on the conditional European approval and achievement of certain milestones of its sole marketed drug, Folotyn.

The deal, expected to close in the second quarter of this year, is valued (the upfront portion) at $108 million after deducting Allos’ cash balance of $97.8 million at the end of 2011. The deal, cleared by the Boards of both companies, is expected to boost Spectrum Pharma’s earnings in the final quarter of the year.

We remind investors that Folotyn is available in the US for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). The drug is under review in the EU for the indication.

The deal, which is expected to result in savings in the range of $40 -$50 million for Spectrum Pharma in the first year following its closure, is a smart strategic move by Spectrum Pharma as it will further strengthen its product portfolio.

Currently, Spectrum Pharma’s product portfolio comprises two FDA approved products-Fusilev (advanced metastatic colorectal cancer and for rescue in osteosarcoma (a form of bone cancer) patients following treatment with a high-dose of chemotherapy drug, methotrexate) and Zevalin (for treating patients suffering from non-Hodgkin’s lymphoma). The addition of Folotyn will further strengthen the oncology portfolio at Spectrum Pharma. Management at Spectrum Pharma stated that both Zevalin and Folotyn target the same set of doctors for treating different cancer forms. This makes the deal all the more sound strategically.

We note that, last year, the proposed merger between Allos and AMAG Pharma ( AMAG - Snapshot Report ) was called off following insufficient shareholder votes for the deal. However, we expect the deal between Spectrum Pharma and Allos to go through since it makes more strategic sense than the failed deal. AMAG’s sole marketed product, Feraheme, for treating patients suffering from iron deficiency anemia, is an underperformer with nothing to indicate that sales would have improved had the merger materialized.

Our Recommendation

Currently, we have an Outperform Recommendation on Allos. The company carries a Zacks #1 Rank (short-term “Strong Buy” rating). We are Neutral on Spectrum Pharma in the long run. Spectrum Pharma carries a Zacks #3 Rank (short-term “Hold” rating).