Down 35%! This Is a Biotech Trainwreck

Spectrum Pharmaceuticals (NASDAQ: SPPI  ) is hurting today after dialing back guidance for the year. Apparently the increased production by Sagent Pharmaceuticals (NASDAQ: SGNT  ) of generic leucovorin, a less purified version of Spectrum's Fusilev, is cutting into Fusilev sales .

Don't say I didn't warn you.

October 2011: "How do you guess when Teva Pharmaceuticals (NYSE: TEVA  ) and others will get their act together? And then when -- dare I say, if -- they do, how do you estimate how many doctors will head back to the generic?" 

July 2012: "If you can confidently say that Fusilev sales are here to stay for the long term, Spectrum is probably a good buy at this point. I don't have that confidence."

Spectrum claims that doctors actually want to buy the product, but that hospitals that stock the drug are cutting back on Fusilev now that the generic is more readily available.

The biotech is guiding for Fusilev sales of $10 to $15 million for the first quarter of the year, and approximately $80 to $90 million for the full year 2013. Spectrum claims sales will stabilize in the second half as inventory is drawn down and sales match demand.

That could be wishful thinking. Even if it hits that goal, assuming $30 million in the first half and $50 million in the second half, we're still a run rate of just half the over $200 million worth of Fusilev sold last year.

Fusilev is Spectrum's top-selling drug by far, so the drop in sales hurts overall sales. Last month, Spectrum guided for 2013 revenue above the $268 million it brought in last year. Now it's looking for revenue in the $160 million to $180 million range.

If Spectrum can stabilize sales and get things moving back in the right direction, it might be worth picking through this train wreck looking for some value. But that's a pretty monumentous task. Risk-adverse investors would be best off watching from the sidelines for a few quarters until things stabilize.

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  • Report this Comment On March 13, 2013, at 10:14 AM, ravens9111 wrote:

    buy low and sell high. i can see why you wouldn't buy near the top, but near the bottom? i would be looking for a rebound although it is still risky. i don't think there is as much downside as there is upside at these levels.

  • Report this Comment On March 13, 2013, at 10:14 PM, vireoman wrote:

    Good luck, ravens. After sticking with this company through the ups and downs of the past year, I was finally back to break-even, but had to sell at a heavy loss after yesterday's news. NINETEEN DAYS after being assured once again by the CEO that everything was still hunky-dory with sales of Fusilev, I find out that sales will in fact be more than halved in 2013. Once lost, trust is very hard to regain. Maybe management will be more honest with you than they were with me.

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