By VFC’s Stock House
Shares of Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) were dropping fast late last week, with Thursday’s trading day culminating in a near-ten percent price dip after the company announced that apaziquone – a late-stage treatment for bladder cancer for which the company planned to file for approval later this year – failed to meet individual Phase III trial endpoints. According to a company press release, however, pooled data from the trials looked to show efficacy, compelling the company to discuss bringing that information before the FDA for a look-see before moving forward, but there’s little hope that the FDA would approve on the pooled data alone.
It’s possible additional studies could take place, but rather than concentrate on those prospects, Spectrum announced another big move to try and offset the bad — namely a buyout of Allos Therapeutics, Inc. (NASDAQ:ALTH). The move to buy Allos brings in Folotyn, a treatment for refractory peripheral T-cell lymphoma that brought in net sales of $50 million last year and could become a significant cash-flow positive money maker for Spectrum as soon as later this year after the expected synergies of the merger kick in.
Rajesh C. Shrotriya, MD, Chairman, Chief Executive Officer (CEO) and President of Spectrum Pharmaceuticals commented in regards to the deal:
“For Spectrum, this acquisition adds another diversified source of revenue, accelerates the development of our hematology franchise, and affirms our commitment to becoming a leader in the treatment of lymphoma.”
Spectrum already markets Zevalin for different forms of lymphoma, making the two companies a nice match in terms of commercialization because the two products are targeted to the same hematologists and oncologists, which leads to the aforementioned synergies in marketing.
The move also helps to diversify the company’s portfolio at a time when Zevalin sales are expected to grow, thanks to the lifting of a bioscan requirement last year, and as Fusilev has gained steam in the market.
News of the buyout sparked a near-thirty percent run in ALTH shares as they spiked to the $1.82 valuation of the deal.
Spectrum has come into its own over the past year, and although the failure of the apaziquone trials puts that pipeline development on hold, the Allos acquisition opens up new doors – and new revenue streams – which essentially means the company won’t miss a beat.
Sales of Folotyn jumped from $35 million in 2010 to the $50 million of 2011.
Shares of acquiring companies generally do not run higher as do the shares of those being purchased, so part of Spectrum’s decline was due to that phenomena as well as the trial failure, but it would not be surprising to see SPPI approaching its 52-week highs again, if not setting new ones.
Any continued dips in price could be a nice buying opportunity, especially if shares decline back to below ten if the market as a whole experiences a pullback, as is expected by many.
This one still reminds me of Jazz Pharmaceuticals (NASDAQ:JAZZ) – which slowly inched higher and higher and before you knew it the share price was at $40. Spectrum still has a long way to go before we can even begin to entertain those levels, but if the business plan continues to evolve as it has over the past year, then this company could potentially become even more of a powerhouse success story over the mid to long term.
Things look pretty rosy for Spectrum right now, but it will take further successes from the pipeline, continued market penetration by its existing products, and/or additional savvy acquisitions for full potential to be recognized.
Could be a good ‘buy the dips’ play, for the both the short and long term.
Disclosure: No positions
Contact the Author: vfc@vfcsstockhouse.com
VFC’s Stock House offers investing opinions, insight and ideas on a variety of different stocks, options and ETFs, as well as commenting on news that affects the market.
The pharmaceutical companies that survive a serious clinical meltdown often have profitable products in the market place and cash on the balance sheet. Spectrum has both. However, considerable investor concern is focused at the moment on Fusilev, the companies popular and highly profitable medication. The profit associated with levoleucovorin is based on a shortage of the alternative leucovorin, a cheaper generic and much less expensive medication. The pivotal point of analysis for investors and Spectrum is when, if ever, the generic version will become available again in sufficient quantities to make a dent in Fusilev sales? Well, the technology and raw materials are available to ramp-up leucovorin immediately, but I believe, that pharmaceutical companies that woud make the generic version are looking at the evolution of oncological science and are speculating that leucovorin- a medication that had been around for decades – will not be financially viable in coming years, as this treatment is surpassed by other biological approaches including fully-human radio-labeled antibodies. In fact, members of congress are looking to introduce something like an orphan-drug status for certain medications like leucovorin that are in shortage. Congressional action may take several quarters, and without financial incentives, I don’t believe enough leucovorin will become available to dent Fusilev sales in 2012. This being said, I believe Spectrum will have enough time – with its other medications and initiatives to gradually move away from Fusilev as the primary driver of corporate profitability. I believe as additional business news becomes available, investor sentiment will probably turn positive on Spectrum’s prospects once again, as the company has the current products, profits and the cash to survive the clinical failure with Apaziquone.