Spectrum Pharma Jumps in With the Big Dogs

I'm all for companies jumping into growing, untapped markets. But investors have to be careful that the companies they own don't become too spastic and lose focus in the process.

That's what worries me about Spectrum Pharmaceuticals (Nasdaq: SPPI  ) and its announcement today that it's developing a biosimilar version of Roche and Biogen Idec's (Nasdaq: BIIB  ) Rituxan, which treats types of lymphoma. The knockoff will be developed in a partnership with privately held Viropro, although no terms were given.

Sure, Rituxan fits with Spectrum's oncology focus -- it sells cancer treatments Fusilev and Zevalin -- and with sales of $5.6 billion in 2009, there's a big market for copycat drugs once Rituxan loses patent protection.

But biosimilars -- generic versions of protein-based drugs -- are a whole different can of worms than branded drugs. The EU has a pathway to approval, although getting a biosimilar approved is much more complex than a typical small-molecule drug. In the U.S., a pathway for approval doesn't even exist, although the Food and Drug Administration is working on it as part of last year's health-care reform law.

It's extremely possible that the biosimilars business will turn into a low-margin market if the FDA requires clinical trials to prove similarity and/or makes it so the biosimilars aren't interchangeable with their branded counterpart. If drugmakers have to market their biosimilars to gain prescriptions -- instead of just having pharmacists make a substitution, like they do for small-molecule generics -- the margins could be pretty slim.

That might not be a problem for generic-drug makers such as Teva Pharmaceutical (Nasdaq: TEVA  ) and Mylan (Nasdaq: MYL  ) , which are used to low-margin products. I can even see the reasoning behind Pfizer (NYSE: PFE  ) and Merck (NYSE: MRK  ) jumping into the biosimilar market, since they'll likely be able to make up in volume what they lose in margins.

But will little Spectrum, in a sea of big fish, be able to etch out a large enough corner of a large market to justify jumping in? Unfortunately, we probably won't know for years whether today's move was spastic flailing or a solid shift in the direction of a gold mine.

Interested in keeping track of Spectrum as it moves into biosimilars? Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on Specturm.

Pfizer is a Motley Fool Inside Value recommendation. The Fool owns shares of Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

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  • Report this Comment On January 05, 2011, at 3:49 PM, eggwhite wrote:

    One thing not mentioned in this article is that Spectrum's FDA approved drug, Zevalin, is the same thing as Rituxan. Both are anti-CD20 antibodies, Zevalin is a murine antibody (ibrotumomab) covalently modified using a crosslinker and chelating agent (Tiuxetan) and is radiolabeled with Yttrium90. Rituxan is a humanized mouse antibody, ibrotumomab is a pure murine antibody. This is relevant to your assertion that they are going too far afield. If they already have ibrotumomab IP and are already manufacturing and selling it, it's hardly a 'spastic flailing' to pursue issuance of biosimilar status or even go so far afield as to work on a humanized mouse antibody as well. In reality, both are close to home and justified in pursuit of the large, post-rituxan anti-CD20 market in 2012.

  • Report this Comment On January 05, 2011, at 9:28 PM, TimelessWealth wrote:

    Viropro is not privately-held but publicly-traded. See http://pennystockhaven.com/active-penny-stocks/viropro-inc-o... for their news release regarding the deal with Spectrum.

  • Report this Comment On January 06, 2011, at 9:35 AM, boardwalk97 wrote:

    I agree with you that bringing out a Rituxan version to market sounds great. You articulated your point very well in saying: a degree of time separation exits between when the starting gun sounds off up until when we could conceivably reach the finish line. However, in my OP, (w/ the press release) Raj was merely shooting an arrow as best he could at those sitting atop in the bleachers. The direct message to drug company's, including Roche, would be: Take us seriously, Zevalin is going to become a monotherapy and a force to reckon with. Therefore, take us out equation or else.

  • Report this Comment On January 18, 2011, at 2:21 AM, steven107 wrote:

    Rituxan is given immediately prior to the Zevalin Regimen, as a necessary part of the Treatment. I wonder if SPPI is less trying to compete in the general Rituxan Biosimilar market, and more just trying to Sell as a package deal, a kit [our Biosimilar Rituxan + Zevalin]. He is probably tired of his sales staff saying, here is our Zevalin product, remember to go buy some Ritxuan to use prior to it.

    It's possible this is the one and only biosimilar that he intends. But, He wanted to make some biosimilars back in 2004 also, though the FDA has been slow to get a process for biosimilars, and nothing was ever heard of that biosimilars partnership with Shanda since. So maybe once he gets his feet wet, he will branch out and try to add more due to his prior interest in that area.

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