I don't get Spectrum Pharmaceuticals (Nasdaq: SPPI), which was the main reason I suggested investors stay away from the stock. After falling 14% yesterday on what seemed like a solid earnings report, investors don't seem to be able to figure it out either.
Revenue increased 51% year over year on the back of its top-selling drug, Fusilev. More doctors are using the cancer drug while manufacturing constraints for a related generic continue. The number of accounts buying the drug increased from over 1,200 in the first quarter to over 1,500 in the second quarter.
Spectrum's other marketed drug, Zevalin, is still struggling; sales were around $9 million in the quarter. That number will grow with the acquisition of the ex-U.S. rights to the drug from Bayer, but what Spectrum really needs to do is convince doctors to prescribe Zevalin instead of Roche and Biogen Idec's (Nasdaq: BIIB) Rituxan. Thus far, that's been a tough sell, even with a label change that makes it easier to sell.
With another profitable quarter under its belt, but with the decline yesterday, Spectrum's P/E fell to 8.2, which is certainly in the bargain-basement level. It's really tempting to call the bottom here and as long as nothing changes, one has to think that'll be the case.
The risk, which presumably is the reason Spectrum is priced so cheaply, is that something will change, most notably that Teva Pharmaceuticals (NYSE: TEVA), APP Pharmaceuticals, and Bedford Laboratories will get their act together and start producing leucovorin, the aforementioned related generic with manufacturing problems. If they don't, we can assume that Mylan (Nasdaq: MYL), Novartis (NYSE: NVS), or one of the other generic-drug makers will step in.
Will doctors stick with Fusilev, when generic leucovorin, which is cheaper and has been around for a lot longer, is readily available? Certainly, the longer the supply constraints go on, the better it is for Spectrum to try and retain the doctors, but there aren't really any comparable situations that I can think of to give us historical context of what will happen.
No one really knows what's going to happen to Fusilev sales going forward, which of course is why the stock chart has looked like a roller coaster over the last two years. Jump on board if you want, but be prepared for a bumpy ride.
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