Spectrum Pharmaceuticals (NASDAQ:SPPI) recently announced approval from the Food and Drug Administration for a new manufacturing facility for its top-selling drug, Fusilev. While the news is a positive from a risk-management perspective, it does little to address the large cloud looming over the stock. Fusilev's success is largely attributable to supply shortages of a generic drug Leucovorin, used as part of typical chemotherapy treatments for colorectal cancer. As Brenton Flynn explains in the following video, as long as those supply shortages remain, investors can't truly know whether Fusilev will stand on its own or fall to the competition.
The Fusilev overhang has similarities to Questcor Pharmaceuticals' (Nasdaq:QCOR) recent dilemma. Insurance reimbursement and government investigation concerns have caused considerable investor doubts around the stock. While both Spectrum and Questcor appear cheap using traditional valuation metrics, these risks will are likely to continue.