In a major breakthrough, Allos Therapeutics (ALTH) received FDA-accelerated approval for Folotyn (pralatrexate injection) last week.

The company was seeking approval of the drug for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). Folotyn becomes Allos’ first drug to receive FDA approval.

While the drug will be available to patients within a month, the commercial launch is scheduled for January 2010. Allos is increasing its sales force from the current level of 25 to 50, and doing the necessary preparations for its launch.

Allos has agreed to conduct additional clinical trials to further verify the benefit of Folotyn. The requirement of additional trials comes with accelerated FDA approval as the agency requires further studies after the launch to confirm the drug’s benefits to patients.

Earlier this month, Folotyn received a favorable recommendation from the FDA advisory panel, which voted 10-4 in favor of the drug along with stating that new treatments are required for the disease. However, the studies conducted by Allos did not record robust data. The number of patients who responded to the treatment was quite less (27% of 115 patients) with the majority of them responding only partially. Benefit of the treatment lasted for less than 14 weeks for more than half of the responding patients. Nevertheless, the panel voted in favor of the drug due to the current unmet medical need of patients.

According to the FDA, PTCL is a less common type of non-Hodgkin’s lymphoma with about 9,500 people in the US affected by it. Apart from T-cell lymphoma, the drug is being studied for several other indications Incorporatedluding non-small cell lung cancer (NSCLC), bladder cancer, non-Hodgkin’s lymphoma (NHL) and Hodgkin’s disease.

We believe FDA approval could not have come at a more appropriate time as Allos was depending heavily on Folotyn. Since its inception in 1992, the company has not generated any revenue from product sales and has experienced significant net losses and negative cash flows from operations. The successful launch and marketing of the drug in due course should boost its top line. However, we believe Allos, being in a tight liquidity position, may need to raise funds in order to support the launch of the drug.

We have a Neutral recommendation on the stock.

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