Spectrum Breaking Records but Braking Momentum

The headline for the latest earnings release from Spectrum Pharmaceuticals (NASDAQ: SPPI  ) stated that the company was reporting "record revenue, profit, and cash generated from operations" for 2012. All of which is totally true. The details of the results could paint a less-rosy picture, though. The market picked up on this, with shares trading 4% lower in intraday trading on Thursday. Here are the highlights of the earnings announcement -- and what they could mean for the stock going forward.

Breaking records
Guinness doesn't track records achieved by Spectrum, but if they did there would be several new updates from 2012. GAAP revenue of $267.7 million for the year hit an all-time high for the company. Non-GAAP revenue was $302 million. The company's products revenue increased 41% compared to 2011.

Earnings for the full year came in at a record $94.5 million, or $1.46 per diluted share. Those numbers compare very favorably to the $48.5 million, or $0.84 per diluted share, in earnings achieved in 2011. Spectrum also reported $143 million in cash, cash equivalents, and securities at the end of the year.

For the fourth quarter, Spectrum reported revenue of $70.1 million. This reflects a 32.3% increase over the same quarter in 2011 and also represents a high mark for the company. Analysts were expecting $69.87 million in revenue.

Fourth-quarter earnings came in at $8.6 million, or $0.13 per diluted share. Non-GAAP earnings were $17.6 million, or $0.27 per diluted share. That slightly beat the average analyst estimate of $0.26 per share.

Braking momentum
However, while the full-year results were breaking records, the fourth quarter saw braking momentum. Earnings for the quarter were the lowest of any quarter in 2012 and were only 4% higher than the same quarter in 2011.

Spectrum's primary product, Fusilev, generated less revenue in the fourth quarter than it did in the previous quarter even though the sales volume was higher. The company stated that this revenue decline was "due to greater gross-to-net adjustments, mostly attributable to an increase in the customer mix that receives government mandated rebates." While changing customer mix might be an issue, this marked the third quarter in a row that Fusilev revenue decreased.

Suspicions run deep among some observers of Spectrum that greater availability of generic leucovorin is cutting into usage of Fusilev. While a shortage existed in the past for Fusilev's generic rival, the entrance of a new supplier, Sagent Pharmaceuticals (NASDAQ: SGNT  ) , appears to be making an impact. Spectrum's management says that for the past three or four months, there has been easy access to generic leucovorin. However, they note that the clinics that use Fusilev, accounting for 75% of sales, rarely switch back to using the generic drug.

Best days behind it?
Spectrum's stock performance has been mediocre at best for quite a while now. Does the continued sluggishness of Fusilev revenue mean that the company's best days are behind it?

The company's other drugs aren't helping enough, at least so far. Sales for non-Hodgkin's lymphoma drug Zevalin have been basically flat for several quarters. Folotyn, the peripheral T-cell lymphoma drug picked up with last year's acquisition of Allos Therapeutics, seems to have decent growth potential, though. And there are some solid pipeline possibilities.

Rajesh Shrotriya, Spectrum's CEO, says that Fusilev still has plenty of room to grow. He points to a large percentage of physicians who have yet to be called upon and the company's expanded sales force to make those visits. He could be right. However, I suspect this year will prove to be a more difficult challenge at breaking records than 2012 was.

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