Why Spectrum Pharmaceuticals Shares Slumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biotechnology company Spectrum Pharmaceuticals (Nasdaq: SPPI  ) dipped as much as 15% after the company reported its second-quarter earnings.

So what: For the quarter, Spectrum reported a whopping 51.5% increase in revenue to $68.7 million, led mostly by strength from its combination therapy, Fusilev, which is used for palliative care in patients with advanced colorectal cancer. Profits didn't lag either, up 48% from the previous year to $0.37. Both figures come in well ahead of estimates found on Yahoo! Finance.

Now what: If the results are so strong, why is Spectrum Pharmaceuticals down? It probably has a lot to do with the extended stagnant growth of Zevalin, a treatment for follicular lymphoma, and a recent string of poor clinical data from bladder cancer drug hopeful, apaziquone, that it is developing in partnership with Allergan (NYSE: AGN  ) .

In spite of this, and Wall Street's recently reduced earnings estimates, I see a lot of opportunity to be had with Spectrum. Its purchase of Allos Therapeutics (Nasdaq: ALTH  ) will add the already FDA-approved Folotyn for the treatment of relapsed or refractory peripheral T-cell lymphoma to its growing product portfolio, and it seems likely that the drug will be approved in Europe as well. At just nine times forward earnings, I would consider today's sell-off a fantastic opportunity to buy into the Spectrum story.

Craving more input? Start by adding Spectrum Pharmaceuticals to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2012, at 2:31 PM, Emperor2 wrote:

    The sell off is a great buying opportunity. Shorts owned over 43% of the shares as of the last report (April 30th). There is no logical reason this stock tanked. There have been reports for a couple of years that Fusilev will lose sales as generic leucovorin becomes more readily available. But guess what, the reports are false.

    First, Fusilev has a higher reimbursement rate for doctors from Medicare and insurance companies than generic leucovorin. THAT MEANS DOCTORS MAKE MORE MONEY BY PRESCRIBING FUSILEV THAN THEY DO BY PRESCRIBING GENERIC LEUCOVORIN. Guess which drug doctor's prefer? No matter how much of a humanitarian you think your doctor is, he or she is in business to make money. They are not stupid.

    Second, generic leucovorin could be readily available if the generic manufacturers made money on it. Teva Pharmaceuticals had a plant that was stopped by the FDA from making generic leucovorin (or any other product). When the plant came back on line, Teva started producing other products that made them more money but they still didn't produce very much generic leucovorin. THEY PRODUCED PRODUCTS ON WHICH THEY MADE THE MOST MONEY.

    That is why SPPI will continue to increase sales and profits with Fusilev. Doctor's make more money with Fusilev and generic drug manufacturer's don't make as much money as they do with other products. Do you understand now why SPPI will continue to prosper, in spite of what the "Shorts" are trying to push?

    Any money SPPI makes with their other products, or products in their pipeline, are a bonus. Add to that the money the additional money they will make with their purchase of ALTH, and this company will continue to grow and prosper.

    Unfortunately, the shorts control so much of the stock they are keeping it down. But sooner or later buyers will realize that this company is for real. I'd buy all you can afford as this is definitely a buying opportunity.

  • Report this Comment On August 08, 2012, at 3:27 PM, will1946 wrote:

    There is no REASON it slumped. Earnings beat expectations. There is manipulation going on. However, I agree with the conclusions in this article.

  • Report this Comment On August 08, 2012, at 4:17 PM, drew946 wrote:

    What happened today with SPPI is exactly the reason that a very large number of retail investors have pulled everything out of the stock market and have no plans to return. There is no rational for the move down today with the results they reported and when you look at their total pipeline. This was market manipulation by the shorts personified. Time to get out of the market. It's a loaded game for just a handfull. Where are all the regulators that we the retail investors need to protect our intrests. Unbelievable.

  • Report this Comment On August 08, 2012, at 5:27 PM, SSide wrote:

    As usual the reaction is extreme. This stock because of the high short ownership will have this continue to happen. First off there is a misconception about reimbursement. The reimbursement "rate" is the same for all drugs. It's ASP+6%. Obviously if a drug is a $100.00 the gross profit is $6.00. If it's $1.00 the gross profit is $.06. The rate doesn't change. You spend more to make more gross profit but your overall profit margin doesn't change appreciably. There are physician practices because of contracting that might make a slightly higher gross profit margin. The days of oncology practices making a killing in chemotherapy, therapeutic and supportive care medications is long gone. The first issue is the continued poor performance of Zevalin. No company has been able to make this more than a niche product. This despite great clinical data and the removal of the bioscan last November. This drug on the surface should do much better but is competing with drugs like Rituxan that doesn't have the administration issues that Zevalin has. Investors are still skittish about this as well as the belief that Fusilev continues to do well solely because of the absence of a generic. Frankly I'm surprised this "shortage" continues to exist. I know there are health care practioners that are unhappy about this and wouldn't hesitate to switch if they could. I expect Fusilev to continue to do well but for this company to really succeed they need a second product. Zevalin doesn't appear to be it and their other candidates are looking questionable at this stage.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1977562, ~/Articles/ArticleHandler.aspx, 10/22/2014 11:38:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement