Does Spectrum Pharmaceuticals Have a Bright Future?

Spectrum Pharmaceuticals SPPI announced on Monday that it had completed the first part of its Phase 1 trial on a new drug designed to treat solid tumors. The treatment showed encouraging activity in patients with various forms of cancer; specifically prostate, breast, and ovarian, among others. CEO Rajesh Shrotriya shared in the enthusiasm. "We are very pleased with the promising top-line data from the SPI-1620 study and believe that it could be an effective drug in the treatment of solid tumors." The news release was one in a line of recent success for the small biotech company. The company's flagship drug Fusilev was approved for the treatment of colon cancer in April, and was primarily responsible for the company's record revenues during the first two quarters of FY2011. The drug's success was due primarily to a shortage in leucovorin, a generic produced by Teva Pharmaceuticals that is also used to treat colon cancer. Investors have taken note, as the stock has doubled in the past year. However, Spectrum's reliance on Fusilev as a stock price driver could prove to be a problem in the near future. Teva has imported supplies of leucovorin from Europe to help shore up stockpiles, and hopes to restore production in the near future. An oncologist from the University of Chicago predicts that doctors will go back to using generic leucovorin over Fusilev, as the generic is significantly cheaper. While Spectrum may continue to benefit through the end of 2011, the company must be worried that the full production of leucovorin could hinder future revenue growth. Sales of Fusilev declined slightly in Q2, from $35 million to $33.9 million. Spectrum has a few other drugs in the pipeline, should Fusilev sales slow. Zevalin was approved by the FDA in September 2009 as a therapy for use in patients diagnosed with non-Hodgkin's lymphoma. Sales of the drug increased to $8.4 million in Q2 from $6 million in Q1. The company is also awaiting word from the FDA on whether Zevalin can be administered without a bioscan, which could cut treatment time and complexity significantly, and increase the drug's marketability. The company is developing Belinostat, in the hopes of bringing a new lung cancer treatment to market. While lung cancer is typically treated by chemotherapy, many lung cancer cells have developed resistance to conventional drugs. Belinostat's anticancer effect primarily revolves around the re-sensitization of cells that have overcome drug resistance to anticancer agents such as topoisomerase inhibitors. Rodman & Renshaw analyst Reni Benjamin expects positive top line results from Belinostat. "We believe Spectrum represents an undervalued oncology player with significant upside potential for the long term investor." The company is looking to add to its stable of cancer drugs, and has been rumored to be pursuing a merger with Allos Therapeutics. The primary draw of Allos is its lymphoma drug Folotyn. Its addition would improve Spectrum's revenue and profits without an increase in the company's marketing budget. Spectrum's specialty is reviving drugs that have fallen short of sales expectations or that are in development purgatory, and Folotyn fits the commercial failure bill. Investors who believe in the prospects for Zevalin and Belinostat should consider purchasing shares or December calls, which could be influenced by Zevalin's PDFUA date of November 20, 2011. Short sellers may consider the possibility that Fusilev sales will decline after Teva resumes generic leucovorin production. Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.