Spectrum a future Winner

Being a  Danish investor I first learned about Spectrum Pharmaceuticals back in 2010, when Spectrum and Danish TopoTarget entered into an agreement on HDACi inhibitor Belinostat.

After having read extensively about the possibilities of Spectrum I decided to make a investment  in 2010, at the time the stock was trading in the 4-5 dollar range. Today the stock is trading around 11-12 – but still the Market is only focusing on the present revenue and profits of Spectrum, and are not taking into consideration the upside potential that lies in the portfolio.

Over the last two years from 2010 to 2012 I have been trading Spectrum on a regular basis, with more than 100 completed buys and sales, while at the same time I have been  continuously adding shares into my long term investment portfolio.

Why you might ask ?  I listened to the Jeffries conference last week. During the period from 2002 to 2010 CEO Raj completely transformed the company.  In 2002, when Raj was approved CEO, he  changed name, focus and strategy of the company . He hired people and built up infrastructure of Spectrum with in-house development division, sales division and drug research and development division. The latter is not really doing basic or first line research, but it is identifying and aquiring already existing drugs that fits into the Spectrum portfolio.

Since 2002 Spectrum have added a lot of drugs to their pipeline at various stages of development, upon maturation some have been licensed to other companies: an example of this is Apaziquone. When Spectrum purchased the drug, they paid $100.000. Today they have received over $ 50.000.000 just in upfront payments from their partners and more than $ 400.000.000 in potential milestone payments if Apaziquone gets approval in multiple installations. (more on Apaziquone later in this article)

Some drugs have failed and some drugs have been approved. But then that is the strategy of Spectrum.  CEO Raj says: ” I would rather have 10 different drugs selling for 100 million $ each, instead of just 1 blockbuster doing 1 billion. ”

In this article I will reviewed 5 of the Spectrum drugs that have approval or in late stage development. Its noteworthy though, that apart from these 5 drugs (Fusilev, Zevalin, Folotyn (merged from Allos), Belinostat and Apaziquone) Spectrum have presently 9 drugs in phase I or phase II development (Ozarelix, Lucanthone, SPI-1620, MTRN-2696, Ortataxel, SPI-014, SPI-205, SPI-2012, RenaZorb).

Fusilev:

Fusilev recieved  approval in April 2011 for advanced metastatic colorectal cancer. Fusilev is a drug that uses the active isomer in the generic drug called Leucovorin. Fusilev is given with 50-fluraxil. Before I will tell more about Fusilev I want readers to understand a really important thing: generic Leucovorin is not generic Fusilev.

Fusilev is a totally different drug. Fusilev has its own J-code (important for reimbursement), it is given in different doses and is a “purer” drug. FDA has granted Fusilev an Orphan Drug designation lasting until 2018. Sales of Fusilev have seen a strong growth in the previous quarters after it was approved in April 2011 (the drug was approved for a small indication in 2009). Some say that the sales of Fusilev only are growing because there is a current shortage on generic Leucovorin.  Personally I don’t think that is the case. Listening to James Shields on the Jeffries conference you will understand why. Generic Leucovorin is not actively marketed by the producers Teva, Bedford and APP. Spectrum presently has 50 sales reps. that are actively consulting those community doctors, and it has changed the market completely. Apparantly Doctors that use Fusilev are not switching back to generic Leucovorin. Actually they are quite happy with Fusilev as a replacement. And, quite importantly, as they have no problems with reimbursements,  they earn more more money prescribing Fusilev. But as James Shields says “the most important thing is, doctors can trust Fusilev. Fusilev will always been available for the patients” . And that’s crucial – James Shields said that under the last shortage he talked to some nurses. They said it was an awful time. They has to disengage treatment of patients  because they ran out of Leucovorin. As one said to him, they were playing God. They had to choose what patients they would treat and who they didn’t want to treat, simply because there wasn’t Leucovorin enough for everyone. They won’t need to do that again, because they now trust Fusilev. That’s vital, and that’s why Fusilev in my view will keep growing and will eventually be a $500 million  a year drug. In Q3 and Q4 2012, I expect sales to hit $75-100 millions  a quarter.

Zevalin:

Zevalin  is right now “the black sheep” in the Spectrum pipeline. The company is spending a lot of money on Zevalin on new trials and have bought worldwide rights from Bayer in January 2012. In my book,  Zevalin had a lot of potential. Spectrum are doing some new studies that hopefully will prove that Zevalin is better head-to-head against Rituxan, and also that Zevalin can be given without chemotherapy. This is really important because chemotherapy is very  aggressive toward the bone marrow . So NHL treatment without chemotherapy can be a paradigm shift. But this is in the coming  years from, I do not  expect to Zevalin to contribute significantly revenue-wise on medium term

Folotyn:

Spectrum had made a tender offering to to buy all outstanding shares of Allos.  Allos have Folotyn in their pipeline. A drug approved against PTCL. Folotyn sales in 2011 were about $50 million. But Folotyn can potentially  treat other type of cancer such as CTCL and also some solid tumours. Spectrum  are evaluating the possibility to mix Folotyn with Belinostat and  Fusilev which will hopefully be a very strong combination against PTCL and other tumours. In my view  Folotyn fits in perfectly in Spectrums already strong pipeline.

Belinostat:

Belinostat is a novel HDACi inhibitor to treat multiple type of cancer such as PTCL, CUP, NSCLC, Ovarian cancer and bladder cancer just to name a few. Belinostat is in late stage development in PTCL where Spectrum will announce topline data in Q4 2012 and will do an NDA after that. Belinostat have fast track designation so Belinostat will possibly get approved in Q3 2013. Spectrums partner, Danish listed company TopoTarget (TOPO)  is running a randomised phase II trial in CUP (cancer of unknown primary). They have now broken the randomisation code themselves and sent data to a third party to analyse the data. They expect to announce topline data in the first half of 2012, thats within  3 weeks!

Those data are important because it is the first randomised trial where Belinostat as BelCaP are tested against CaP. The study was started in April 2009 and fully enrolled in December 2010. So it is more than 3 years since the first patient was enrolled to this study and more than 18 months since the study was fully enrolled. They study is an event driven study with progression free survival (PFS) as the primary endpoint. In some earlier CaP studies the PFS in the CaP arm is normally about 4-6 months. So a lot of investors  anticipate that the delay of the events in this study is driven by the BelCaP arm. I hope they are right and we will see some fantastic results in this study.

Apaziquone:

Apaziquone (or Eoquin) against NMIBC (non muscle invasive bladder cancer). Spectrum  announced in April 2012 that the two phase III studies did not meet their primary endpoints on recurrance rate two years after TURBT. But the pooled data showed great statistic significant difference between Apaziquone and placebo, and the secondary endpoints also showed some positive trends. Spectrum and their partner Allergen will try to get a meeting with the FDA to discuss the data, probably by the end of 2012. But as investor I don’t think you should have any hope on seeing Apaziquone in single installations.  However Apaziquone is also in phase III in multiple installations. Data from those studies are some years away.

 I expect earnings per share for 2012 to be around $2-2,5 . So the stock is now trading with a price earning about 5 for this year!!! With Folotyn and Belinostat approved next year and a possible uptake in Zevalin earnings may even go higher.

That was everything from now. If someone have questions  I will of course try to answer them to the best of my ability

J