As 2012 nears its end, the rear-view mirror is full of ups and downs in the health care sector. One company that had plenty of both is small-cap Spectrum Pharmaceuticals (SPPI). Here are the major milestones for Spectrum over the past year.
All about Allos
What was the biggest development for Spectrum in 2012? The acquisition of Allos Therapeutics ranks at the top of the list. In April, Spectrum announced plans to acquire Allos for $206 million. The net impact of the purchase was just over half that amount due to Allos' cash on hand.
Spectrum extended its offer several times over the next few months as the Federal Trade Commission investigated whether the deal violated antitrust laws. However, the FTC ultimately cleared the way for the merger, and the deal was completed in September.
Spectrum clearly set its sights on synergies to be obtained from having the same sales force market two complementary drugs, its own Fusilev and Allos' Folotyn, to the same target group of doctors. Soon after the closing of the acquisition, those synergies began to be felt. By November, Spectrum said the synergies would be more than $50 million -- larger than originally expected.
Supply and demand
While the Allos acquisition accounted for much of the news associated with Spectrum over the past year, another big story related to ongoing questions about Fusilev. Many think that Fusilev, which is given to patients to minimize negative effects of cancer drug methotrexate, continues to sell strongly primarily because of a supply shortage of generics.
This argument was and is grounded in reality. Teva (TEVA) and Bedford Labs experienced manufacturing issues during 2012 that restricted supplies of leucovorin, a generic alternative to Fusilev. Short-sellers took note of the potentially limited duration of Fusilev's strength and began piling on throughout the year. A little more than halfway through the year, short interest in Spectrum topped 50%.
Spectrum, however, disputed the notion that Fusilev's sales strength was only temporary. The company pointed out in its third-quarter call that the drug continues to experience solid growth in countries where generic shortages weren't an issue. That sales growth benefits Sanofi (SNY -2.27%), Pfizer (PFE -0.19%),and Takeda rather than Spectrum, which only has marketing rights for the U.S. However, the point does lend some credibility to Spectrum's case that Fusilev's momentum can't be solely because of generic supply shortages.
Beyond Fusilev
Fusilev makes up a big chunk of Spectrum's revenue, but the company does have other irons in the fire. 2012 saw mixed news for these other products.
In January, Spectrum announced that it was acquiring worldwide rights to non-Hodgkin's lymphoma drug Zevalin from Bayer Healthcare. Later that month, the company licensed a biologic from Korea-based Hanmi Pharmaceuticals for treatment of patients with chemotherapy-induced neutropenia. The drug, known as SPI-2012, showed promise in a phase 1 study.
Disappointing news followed in April with phase 3 results from apaziquone, developed with partner Allergan (NYSE: AGN). The bladder cancer drug didn't meet its primary endpoint related to preventing tumor recurrence.
Spectrum had its share of positive clinical results, though. In June, the company announced phase 2 study findings that showed promise for Zevalin in treating diffuse large B-cell lymphoma. A phase 3 trial kicked off in September after these good mid-stage results.
Other drugs also advanced to the next stage during 2012. In May, Spectrum initiated enrollment for a phase 1 study of RenaZorb. The drug has potential for lowering phosphate levels in patients with chronic kidney disease. In July, the company began a phase 2 study of lucanthone in the treatment of brain cancer.The next month, Spectrum began patient enrollment in a phase 2b trial of ozarelix, a drug targeting treatment of prostate cancer.
Results from a phase 2 study of Belinostat caused a minor controversy in September. Spectrum's partner, Topotarget A/S, issued a press release stating that the primary endpoint had been met with the drug, which targets treatment of peripheral T-cell lymphoma. However, Spectrum walked back that announcement a few days later, saying that the analysis of the results were not finalized.
Ups and downs
All of this news contributed to a bumpy ride for Spectrum's shareholders throughout 2012. The stock fell more than 36% by April. It then surged 87% from those lows, hitting the high mark in July. That peak didn't last long, though. Shares slumped soon thereafter, and currently trade down 22% for the year.
The two viewpoints on Spectrum are about as polarized as you can get. Short interest stands at 59% now, reflecting bearish views that Fusilev can't maintain its sales strength. However, some big-name investors like Passport Capital are scooping up shares, seeing Spectrum as a good deal.
Which view will prove correct? We'll have to wait for 2013 to find out.
