Wall Street isn't a big fan of Spectrum Pharmaceuticals (SPPI). Presently, 23% of the shares are being sold short and the company's stock has lost over a third of its value in the last year alone.

Spectrum's fall during a time when the entire biotech sector has been soaring seems odd. However, the Street's pessimism does have logic on its side. At the start of last year, generic competition cut deep into the sales of the company's lead cancer drug Fusilev, reducing revenue by nearly half. To top it off, Spectrum raised $120 million through a convertible debt instrument that sent shares tumbling last December.

Even so, my view is that the tide could be turning at Spectrum. As such, the abiding pessimism surrounding the stock might be providing investors a chance to buy shares on the cheap.

Why is Spectrum a turnaround candidate?
First, the company has been making significant progress on the clinical front, headed by the recent New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for Beleodaq.

Beleodaq is an experiment lymphoma drug set to be reviewed by the FDA by Aug. 9. The FDA also gave the drug priority review, meaning the agency believes Beleodaq could be a significant improvement in the treatment of a serious condition. While this expedited regulatory review doesn't guarantee an approval, it certainly doesn't hurt things.

Secondly, Spectrum has bolstered its commercial pipeline through recent acquisitions. In particular, the company acquired Marqibo through its acquisition of Talon Pharmaceuticals last July. Marqibo is an orphan drug approved for the treatment of a rare type of leukemia called Philadelphia chromosome negative (Ph-) acute lymphoblastic leukemia (ALL).

The problem is that the market potential of Marqibo is still up in the air. Strict on-label use should generate around $100 million a year in sales. However, off-label use of Marqibo could potentially drive peak sales over a billion a year. Given that Spectrum has a market cap of only $500 at the time of writing this article, I think it's safe to say that the market hasn't factored Mariqbo sales under either scenario.

Turning to Spectrum's clinical pipeline, the company has two other late-stage candidates under development. Of particular interest is Spectrum's experimental treatment for multiple myeloma in a transplant setting called melphalan. Melphalan has received orphan drug status and should be submitted for regulatory review before the end of 2014.

In terms of market potential, investors should look toward Takeda Pharmaceuticals' Velcade and Celgene's (CELG) Revlimid. Put simply, melphalan has the potential to see sales in the $500 to $800 million range, depending on the influence of competition within the multiple myeloma space.  

In sum, Spectrum has a number of irons in the fire so to speak, giving it a good chance to make a strong comeback this year.

Why did Spectrum fail to rally following Beleodaq's NDA?
Investors appear to be confused over why Spectrum shares rose 6% immediately following the FDA's acceptance of Beleodaq's NDA but ended up finishing the week down 2.62% overall. I believe the answer is partly because Beleodaq would compete with one of Spectrum's other approved drugs, Folotyn. Folotyn has been a commercial disappoint for the most part, and is expected to generate only a tad over $40 million in revenue this year. Beleodaq's approval would thus cut deeper into Folotyn's already tenuous market share.  

More globally, new drugs for relapsed or refractory peripheral T-cell lymphoma face an uncertain financial future in general, because a number of chemotherapies, as well as treatment combos, already exist. And because only 26% of patients responded to treatment with Beleodaq in clinical trials, I wouldn't expect it to make alternative modalities obsolete.

Beleodaq's commercial prospects get even worse when considering that antibody drug conjugates like Seattle Genetic's (SGEN) Adcetris appear to be gaining traction as the preferred treatment for cancers like T-cell lymphoma. In short, it's unclear how much impact Beleodaq's approval would have on Spectrum's bottom line over the long-term.

Foolish takeaways
I think Spectrum shares have excellent upside potential over the long term. By that, I mean three to five years minimum. In the near-term, the market will probably continue to discount Spectrum's potential for a couple of reasons.

First, Beleodaq doesn't appear to be a major revenue generator, and it conflicts with other products in the company's commercial portfolio. Secondly, Marqibo is still very early into its commercial launch, and its maximum revenue potential won't be known for a long time. Finally, melphalan probably won't hit the market until the fourth quarter of 2015, if it's approved.

That said, Spectrum does offer investors multiple avenues for share price appreciation. So, you may want to dig deeper into this intriguing cancer specialist.