Bad Clinical Trial Trumps Good Acquisition


Spectrum Pharmaceuticals (NAS: SPPI) is down 10% today. Apparently a pair of failed phase 3 trials trumps a smart synergistic purchase.

The spec pharma said two phase 3 trials testing apaziquone's use in bladder cancer after surgery failed to show a statistically significant improvement in tumor recurrence after two years. There must have been a trend in the right direction, however, because when the data from the two trials were pooled, the endpoint reached statistical significance. It's the same concept as how getting seven out of 10 heads isn't that weird, but getting 70 out of 100 might make you think the coin was rigged.

Spectrum and partner Allergan (NYS: AGN) plan to ask the Food and Drug Administration what they think of the data, but I seriously doubt the FDA will approve the drug with pooled data. InterMune (NAS: ITMN) had one trial that worked, one that failed, and pooled data that showed an effect, but the FDA rejected Esbriet.

The data should give the companies confidence that running larger phase 3 trials would should show a statistically significant improvement, but the endpoint requires following patients for two years, so we're years away from an approval if they went that route.

While apaziquone doesn't look as if it'll be contributing to the bottom line anytime in the near future, Allos Therapeutics' (NAS: ALTH) Folotyn will. Spectrum is buying the company for $108 million upfront, net of Allos' cash at the end of last year, and potentially another $12 million if the drug is approved in Europe and sales begin there.

Allos' fit with Spectrum is perfect, and it's certainly better than AMAG Pharmaceuticals (NAS: AMAG) that was previously courting Allos. Spectrum's Zevalin is used by hematologist-oncologists, the same doctors that prescribe Folotyn, but the drugs treat different types of blood cancers, so they don't compete with each other. Spectrum expects to achieve $40 million to $50 million in synergies from combining the companies in the first year, which should allow the deal be cash flow-positive in the fourth quarter of this year.

And the synergies should keep coming, since Folotyn is headed for approval in the EU. Spectrum's move to acquire the rights to Zevalin outside the U.S. doesn't look nearly as risky.

Was Spectrum's haircut today justified? Probably. Apaziquone would have tackled an indication that hasn't seen a new drug approved for it in more than 20 years. Even as good as the fit with Allos looks, sales of Folotyn totaled only $50 million last year; it's not going to be a major money maker for the company.

At the time thisarticle was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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