Spectrum Pharmaceuticals: Temporary Setback

Yesterday, Spectrum Pharmaceuticals (Nasdaq: SPPI) announced receipt of a Complete Response Letter (CRL) for Zevalin from the FDA. SPPI submitted a supplemental Biologics License Application (sBLA) earlier this year for the use of Zevalin as a first-line consolidation therapy for the treatment of non-Hodgkin’s lymphoma (NHL). Zevalin is currently approved by the FDA for refractory NHL.

The Issue

SPPI indicated in their press release that regulators have requested data from the Phase 3 FIT study to support the proposed labeling for Zevalin.

Although this request will postpone Zevalin’s approval, this is a relatively minor setback. Labeling issues periodically trigger CRLs. Typically, this is an easy fix. In most circumstances, labeling issues are often last-call before final approval.

What's Next for SPPI?

The key is a timely response. In their release, SPPI indicated that they intend to submit a response or provide the data requested to regulators this Wednesday, July 8.

SPPI’s response to the CRL will be filed as a resubmission of the Zevalin sBLA. There are two types of resubmissions, Class 1 and Class 2. Length of review for the resubmitted application depends on how the FDA classifies the resubmission, which is based on applicant’s response to the CRL. Class 1 resubmissions are generally reviewed and decided within 60 to 90 days. A Class 2 submission will usually take regulators six months or longer to review.

The underlying issue that triggered the CRL involves labeling. Responses to labeling issues are almost always accepted as Class 1 resubmissions. Therefore, regulators are likely to accept the Zevalin resubmission as a Class 1 resubmission.

Does Zevalin Still Have a Shot at Approval?

Yes. A better question is when will Zevalin be approved? Assuming, SPPI submits a response for the CRL on Wednesday, July 8, and it is accepted as a Class 1 resubmission, then the FDA could render a decision on Zevalin within the next 90 days. This means, Zevalin could be approved on or before October 8, which just so happens to be the same day the FDA will review SPPI’s supplemental New Drug Application (sNDA) for Fusilev. SPPI is seeking approval for Fusilev to be used in combination with 5FU for the treatment of colorectal cancer.

• Zevalin (Class 1 resubmission): decision on or before October 8, 2009
• Fusilev standard review: October 8, 2009

Conclusion

While Zevalin’s approval has been setback, the sky is certainly NOT falling. Any pullback as result of the setback will provide investors with a good buying opportunity.

At the end of the day, I remain very optimistic about SPPI going forward. Right now, there is NO other small cap drug maker, except for SPPI, scheduled to have two cancer drugs reviewed by the FDA in 2009 or 2010. Excluding these two potential approvals, analysts already estimate that SPPI will generate about $50 million in revenue (sales) for fiscal year 2009.

As most small to mid cap drug makers trade above 4x sales, SPPI is currently trading near fair value at $6.50 with a market cap of $252 million. The company is also sitting on more than $100 million in cash following three recent stock offerings. Compare SPPI to other small cap cancer drug makers like CTIC with NO approved products on the market, very little cash on hand, and trading with a market cap of $765 million.

I’m not trying to pick on CTIC. My point: relative to other competitors, SPPI is well-positioned for future growth.

For these reasons, I am reaffirming my price target of $31 for shares of SPPI over the next 12 to 17 months.

Disclosure: Long SPPI

Comments

[Michael Becker:]

The PDUFA date of July 2 for the Zevalin sBLA came and went without any word from the company until a mid-Sunday (July 5) press release announcing the receipt of a complete response letter from FDA requesting data from the FIT study to validate a subset of the sBLA. The company stated in the PR that it will provide all data requested to FDA as part of a formal response by Wednesday, July 8 and that the FDA’s request does not involve new clinical studies or new data analyses. The company’s stock was weak as the PDUFA date came and went in addition to the announcement of a $21 million registered direct offering priced at $7.1525 (with 50% warrant coverage) that is expected to be consummated no later than July 6, 2009, subject to customary closing conditions. Despite the stock weakness and regulatory delay, there hasn't been any update from the company as to whether or not the financing closing will proceed as planned. However, significantly improved sales of Zevalin in future quarters will be much more important to Spectrum Pharmaceuticals than near-term approval of the sBLA.

Jul 06 10:24 AM

[Justin M. Hall:]

Mr. Becker:

Thank you for your comment. I agree with your assessment.

Justin M. Hall


On Jul 06 10:24 AM Michael Becker wrote:

". . . improved sales of Zevalin in future quarters will be much more important to Spectrum Pharmaceuticals than near-term approval of the sBLA."

Jul 06 02:16 PM

[orest:]

Justin, thanks for your article! You know, I allocated 70% of my portofolio for SPPI (on tuesday) and the rest for Geron...I understand that we're almost guaranteed to get approval, so what do you think, are we going to see something like $30 on the approval day, or this will take some time? BTW, on october 02, I will celebrate my 30th birthday - day we should get approved for Zevalin..:) I really hope to have some good memories of that day....lol

Jul 07 11:25 PM

[orest:]

BTW, what is your opinion on Geron? Thanks

Jul 07 11:26 PM

[Justin M. Hall:]

Orest:

Thank you for your comments. Happy 30th in advance!


Justin M. Hall

Jul 15 03:47 AM

[Justin M. Hall:]

Orest:

As for Geron (GERN), I do not have an opinon.

RE: Investing in Drug Makers
I make it a practice to hedge all positions - both shares of common stock and/or call options - with put options to mitigate risk of loss.

Good luck!

Justin M. Hall

Jul 15 03:55 AM