This Could be the Comeback Stock of the Year

If you're the CEO of a large corporation, you do not want to see your company's name in this article. The companies in this article stumbled -- badly -- in the past year and have seen their shares prices fall by half -- or more. Apparently, nobody told these companies that there was a bull market underway...

But every dog has his day. Just look at shoe maker Crocs (Nasdaq: CROX). Its shares plunged from $69 in October 2007 to just $1 in early 2009 as demand for the eponymous trendy shoes dried up. Those shoes came back into vogue last year, bringing shares back up to around $17. That's still a big loss for early investors, but for those who gave shares a fresh look when all hope was lost, powerful gains were to be had.

And all hope appears lost for the companies I'm looking at today. Some of these stocks may head even lower.

Marketing firm Dex One (Nasdaq: DEXO), for example, may have to reorganize itself under bankruptcy protections, as it is choking on too much debt. That move could render shares worthless.

I've already mentioned recently that Barnes & Noble (NYSE: BKS) could bounce back nicely. Yet, a move back to where it stood a year ago, at roughly $23 and 155% above current levels, may be too much to ask. In a similar vein, I recently said I think Eastern European liquor distributor Central European Distribution (Nasdaq: CEDC) is also oversold, though I expect it to re-trace only half the losses incurred in the last 12 months.

I've looked closely at all the names on this group and found one that has the making of "The Comeback Stock of the Year." It's Allos Therapeutics (Nasdaq: ALTH), which has been frustratingly slow to ramp up sales for a key cancer drug. With each passing quarter, shares have drifted ever lower, even as the company's long-term outlook remains bright.

Allos has also developed FOLOTYN, which is used in treating relapsed and refractory T-cell lymphoma (R/R PTCL), and is also being tested to see if it will be effective against non-small cell lung cancers (NSCLC), breast cancer and bladder cancer. It's been hard to build revenue in the R/R PTCL application, leading the company to deliver stubbornly high quarterly losses. Sales shot up from $3.6 million in 2009 to $35 million in 2010, but analysts had even higher hopes for annual results when 2010 began. They still think sales will hit $100 million by next year, but Allos had been thought capable of far-higher revenue by 2012.

So what went wrong? Part of the nature comes from "missionary selling." FOLOTYN is not backed by a large pharmaceutical sales force, nor is it supplanting similar drugs. Because it's a new approach, the drug reps must go through a lengthy education process with doctors to explain why FOLOTYN is better than existing drugs that are less effective but work in better-understood mechanisms for cancer cell treatment.

As the education process continues, some investors think Allos will still deliver on its initial promise. Analysts at Brean Murray think FOLOTYN will generate $250 million in annual sales within half a decade  for the PTCL treatment alone. "We believe investors have been overly focused on the sales figures but have lost sight of positive trends, including potential account penetration, new patient adds, and potentially longer treatment duration," wrote the analysts in September.

Recent quarterly results show FOLOTYN may finally be gaining some momentum. Fourth-quarter sales of $11.8 million were up 27% sequentially, although management dampened the good news by also guiding analysts to forecast slightly higher operating expenses than they previously had. Analysts at Needham are perhaps the most bullish on the Street. They see sales rising to $65 million and $127 million in 2012, both of which are above the consensus forecast.

As noted earlier, Allos is testing FOLOTYN in a range of other cancer treatments and early clinical trials have been promising. It's a good thing the company has $98 million remaining in cash, so a development partner is not yet required.

Action to Take --> Analysts at Needham and Brean Murray think shares could more than double from here, with $8 and $9 price targets, respectively. Sanford Bernstein suggests Allos may get acquired before ever bringing all of the applications for FOLOTYN to fruition. With nearly $100 million in cash, shares have likely found a floor in the current $3 range after plunging from $8 last spring. A 167%-plus move back to that level would certainly make this a contender for the "Comeback Stock of the Year."