Spectrum Pharmaceuticals: The Labor Day Catalyst

This Labor Day, September 7, Spectrum Pharmaceuticals (SPPI) expects an FDA decision for their non-Hodgkin’s lymphoma (NHL) radio-immunotherapeutic (RIT), Zevalin®.

The consensus held by most investors, analysts and commentators is that Zevalin will be approved as a first-line consolidation therapy for patients with NHL. It is important to note that Zevalin is already approved for use in the US for refractory NHL. Unfortunately, Zevalin is usually only administered as a last resort treatment.

FIRST-LINE CONSOLIDATION THERAPY

Upon filing a Supplemental Biologics License Application (sBLA) in late 2008, SPPI’s aim is to obtain regulatory approval for Zevalin in a first-line consolidation setting. Under this setting, Zevalin would be approved for first-line use and administered in consolidation with induction therapy.

Induction therapy generally includes a combination of (1) a chemotherapeutic, such as doxorubicin and (2) rituximab. Consolidation therapy follows induction therapy and is designed to induce remission. Under the consolidation setting, Zevalin would be administered after induction therapy to those patients who obtain either a partial response (PR) or complete response (CR).

In April 2008, Zevalin was approved in the EU as a first-line consolidation therapy for patients with NHL. Here, it should be noted that outside the US, Zevalin is marketed by Bayer Schering (BYERF.PK).

THE FIT STUDY

In the Phase 3 FIT trial, patients, who received Zevalin following induction therapy, (1) received a progression free survival (PFS) benefit of three years (an improvement from two years as previously reported here) and (2) regardless if the patient had received either PR or CR to induction therapy.

During the company’s August 13 conference call Dr. Andrew Sandler, SPPI’s Chief Medical Officer, pointed out, “[A] three year progression free survival advantage is very significant in this patient population.”

Importantly, 77% of the patients, who received a PR following induction therapy, converted to a CR. Here, FIT researchers noted, “[T]his is one of the highest PR-to-CR conversion rates reported in [all] Phase 3 randomized studies in first-line follicular lymphoma.”

Based on these significant findings, the Phase 3 FIT trial was characterized as a “landmark study” by Dr. Oliver W. Press, chair for lymphoma research at Fred Hutchinson Cancer Research Center. (Source: NCI Cancer Bulletin, vol.5/no. 21, Oct. 21, 2008.)

ZEVALIN DISUSE

During last week’s conference call, Dr. Sandler touched on Zevalin’s prior disuse.

Although Zevalin is currently FDA approved in the relapse or refractory setting, for a number of reasons it is unfortunately currently only used in a salvage setting. Many patients, who should be receiving Zevalin, are not. We hope to change that. If Zevalin is approved in the first-line setting, we believe it will be an important first step bringing the treatment of non-Hodgkin’s lymphoma in line with the standard of care in other hematological malignancies.

Consolidation Therapy in Other Cancers

Consolidation therapy is used often to treat other forms of cancers. In the conference call, Dr. Sandler explained how consolidation therapy is used to treat a related cancer, acute leukemia.

For decades, doctors have been treating acute leukemias with (1) induction therapy to wipe out as much bulky disease as possible; (2) followed by consolidation therapy to further reduce any minimal residual disease and to provide the patient with the best quality of response possible; and (3) maintenance therapy to sustain the consolidation response, thus improving the duration of the response.

Issues Surrounding Zevalin Disuse

Dr. Sandler further highlighted the three main issues that led to Zevalin’s disuse. In the table below, a brief summary of each issue has been provided along with SPPI’s solution for each.

Type	Brief Description	Solution
Clinical	It was previously and incorrectly believed that Zevalin might cause damage to patient bone marrow if used in a consolidation setting. As evidenced by the FIT study, this is obviously false. The FIT study clearly shows that Zevalin offers significant benefits for NHL patients in the first-line consolidation setting. Results fro the FIT study indicate that Zevalin is both a very safe and effective treatment for patients in each of the age groups evaluated in the study.	SPPI is working to educate treating physicians. In time, the company expects such education will lead to increased use of Zevalin in BOTH the [pending] first-line and [existing] refractory settings.
Logistical	“Cumbersome” bio-scan requirement in the US. In most EU countries, the bio-scan is NO longer required. Without the bio-scan, Zevalin could be administered in a couple of hours as opposed to 7+ days with the bio-scan. Now, this is would be a great way to cut healthcare costs!	SPPI is also conducting an analysis of the bio-scan upon the FDA's request. The company hopes the results from this analysis will enable the regulators to drop or discontinue the bio-scan requirement.
Financial	Complicated reimbursement for Zevalin policies that differ by state.	SPPI is working with CMS (Medicare) to alleviate reimbursement complications resulting from differing reimbursement policies in various states.

ZEVALIN SALES INCREASED 25% IN Q2 2009

On July 14, 2009, I indicated that, “. . . investors should not be shocked to see an up-tick in Zevalin sales during Q2 2009.” In Q2, SPPI did, in fact, report an increase of 25% in quarter over quarter sales for Zevalin.

During the recent conference call, Amar Singh, SPPI’s Chief Commercial Officer, provided some insight on the upside surprise achieved with Zevalin sales.

We are encouraged by the strong signal that we have received from the market after just one full quarter of marketing and sales under Spectrum’s leadership.

(1) Average growth in unit sales over the prior three years when we compare only the first and second quarters, the rates were a -12%. Despite the fact that two out of these three years, the drug was previously sold by a company (Biogen Idec (BIIB)) much larger than Spectrum.

(2) This improvement from a decrease of -12% to an increase of over 20% was achieved in the first full quarter since Spectrum acquired 100% of the rights to Zevalin.

(3) Importantly, we accomplished this at a time of heightened competition from the launch of Treanda® (marketed in the US by Cephalon (CEPH)) in the refractory NHL setting last fall.

(4) We accomplished this in the absence of receiving regulatory approval of Zevalin in the front-line setting.

Singh concluded, “It appears that we are well on our way to achieving our . . . goal of stabilizing [Zevalin] sales.”

Since SPPI acquired the rights to Zevalin from Cell Therapeutics (CTIC) in mid March 2009, I agree with Mr. Singh’s sentiment. That Zevalin sales actually rose for the first time in the past three years is very compelling. From my view, the 25% increase is a meaningful improvement and strongly suggests that Zevalin may finally have a promising future.

SALES FORCE MATTERS

In response to my June 29, 2009 article, Michael Becker commented, “[I]t is naive to believe that Zevalin has simply been marketed incorrectly.”

In the conference call, Dr. Rajesh Shrotriya, SPPI’s chairman and CEO, revealed that the company’s sales force, responsible for marketing Zevalin, consisted of 40 executives. Dr. Shrotriya also pointed out that the past sales teams from both Biogen Idec (BIIB) and Cell Therapeutics (CTIC), who had previously held the rights to and were responsible for marketing Zevalin, consisted of no more than seven (7), executives.

One could reasonably argue that the size of SPPI’s sales force may be having an impact on current Zevalin sales and responsible for the respective 25% increase.

CONCLUSION

The recent up-tick in Zevalin sales appears to be much more than a stroke of good luck. It appears SPPI is executing a well-designed plan with a right-sized sales force.

Based on the Q2 results, it is evident that SPPI has correctly identified the core issues that led to Zevalin’s disuse. Thus far, the company’s plan seems to be working efficiently and effectively, and SPPI is NOT repeating the same mistakes made in the past.

The sharp increase in quarter over quarter in Zevalin sales implies either: (1) SPPI has assembled the kind of sales force necessary to market Zevalin appropriately; (2) more physicians are beginning to adopt Zevalin; or (3) all of the above. Nevertheless, there appears to be a notable shift from the previous sentiment of disuse to one favoring Zevalin’s use.

For these reasons, I anticipate sales of Zevalin will likely continue to grow in the coming quarters, and especially if this safe and effective treatment is finally approved by the FDA for first-line use on Labor Day, September 7, 2009.

Institutional investors and hedge funds have been slow to catch on. With two weeks before FDA review, SPPI remains a hidden gem. With a current price of $6.32 and a market cap of a mere $263 million, SPPI is well positioned to make hit new multi-year highs in the coming weeks with Zevalin’s approval.

Over the next 6 to 12 months, my target price range for SPPI is $23.80 to $26.67, giving the company a market value of $1.0 to $1.12 billion. If Zevalin sales continue to increase in future quarters, then I believe SPPI could be a buyout target within the next 12 to 18 months.

Disclosure: Long SPPI

To learn more about RITs, Zevalin® and Bexxar®, take a minute and check out the resources listed below. It should be noted that Bexxar is marketed worldwide by GlaxoSmithKline (GSK).

• SNM 2009 Image of the Year
• Betsy de Parry’s Story
• New York Times, July 14, 2007 Article
• Must-See Zevalin Video

Interested investors should take a minute to review my thorough coverage of SPPI.

• Buy Out Rumors Persist
• SPPI: Outlook Remains Very Promising
• Zevalin: The Importance of FDA Approval
• 17 Reasons Bayer Might Acquire Spectrum Pharmaceuticals
• Strong Late-Stage Pipeline

Comments

[ERMES1958:]

SPPI TARGET 07/09 $ 12

Aug 21 01:30 AM

[beachboy25:]

Bertrt is completely clueless. I know all about Zevalin, it is a remarkable drug that works. This stock is not a dog, and neither is SPPI. Bertrt is ignorant of the facts behind radio-immunotherapy and obviously didn't take the time to read the links that Justin provides to learn more about this treatment, which saves lives and which actually works better than the current standard for non-Hodgkin's lymphoma, which is chemo and/or Rituxan.

Aug 21 12:05 PM

[Justin M. Hall:]

Beachboy25:

Thank you for your nice comments! I do appreciate it!

Please resist the urge to reply to the person above. Your best defense is just to ignore it.


With that said, I do appreciate the effort!

Justin

Aug 21 01:08 PM

[Justin M. Hall:]

ERME S1958:

You're on the right track.

Good luck!

Justin

Aug 21 01:10 PM

[User 475056:]

Hey Justin,
Great articles and insight on Spectrum (SPPI).
I am curious if you have any thoughts about
Cell Therapeutics, Inc. Recently a single investor
made a large stock purchase of around $28 million.
Perhaps that investor has some insight or info.
It seems that at its current price, any good news
might make this stock take off. Thanks !
Brian

Aug 21 08:34 PM

[User 473436:]

Hello Justin
I have started to get interested and invest in biotech cpnies since I read some of your articles as well as Mike H.
so I have a couple of questions for you if you have a minute.
1- how many cpnies are you tracking and how do you find about new cpny to track?
2- do you buy any research on cpnies and how do you gather your info?
3- do you trade on line and if yes would you recommand one vs another( I use wachovia but can t trade pink sheet on line)?
4-would you recommand a book either on biotechs in order for me to get more accustomed or articles are sufficients?
I understand that some of my questions can be confidential and that you may not want to answer.
Thank you,
Bernard

Aug 21 10:39 PM

[albatros:]

Hello Justin,

i strongly reccomend to read this article; a "must read" for all sppi investors:

journals.lww.com/oncol...

And remember this phrase: "Dr. Friedberg also mentioned the Phase III SWOG S0016 trial, as did Dr. Flowers, saying that the results will dictate the future of radioimmunotherapy in non-Hodgkin's lymphoma."

Even if this trial is about bexxar, undoubtley S"it will dictate the future of radioimmunotherapy in non-Hodgkin's lymphoma..."


Bye

Aug 22 08:20 AM

[albatros:]

I found zevalin sales WW and Isovorin sales Extra USA..
See the ramp up sales of bayer even in 2007 without first line..i think this is very good info..

Zevalin WW (Biogen sales were about 15 mil$)

[url]www.evaluatepharma.com...[/url]
dato che in USA lo venderà spectrum).

Wyeth (Isovorin)

[url]www.evaluatepharma.com...[/url]

Source: [url]www.evaluatepharma.com/[/url]

Go to the link and search for zevalin and isovorin to read data

Aug 22 11:47 AM

[Penn Bioinv...:]

Can you stop pump this stupid SPPI? Simply too much for serious readers in seekingalfa trying to seek some real objective research on stocks.

Aug 22 11:56 PM

[Justin M. Hall:]

Penn:

Nice call on VNDA -------- ONLY AFTER the catalyst occured.

You're are not much help to investors.

Justin

Aug 23 04:32 AM

[Justin M. Hall:]

Albatros:

Thank you for your comments! Very helpful!

Justin

Aug 23 04:34 AM

[Justin M. Hall:]

Brian:

From my veiw, CTIC appears to be overvalued -- too much risk for me. I just commented on the company in another recent article.

I hope this helps! Good luck!

Justin

Aug 23 04:38 AM

[Justin M. Hall:]

Bernard:

I track just about 300 companies.

The criteria I follow is both objective and subjective.

Regarding brokerage services, I do use a discount broker and have been very pleased with their customer service.

I have never invested or traded a company listed on pink sheets - not necessarily bad, just no my preference.

Regarding a book, stay tuned!


Justin

Aug 23 04:48 AM

[albatros:]

This will decide Spectrum destiny...

I'm sure Justin and most of all will understand the importance of this words... ;)

"At the February 2009 meeting of the APC Panel, the APC Panel
recommended that CMS use the ASP methodology to pay for therapeutic radiopharmaceuticals and, where ASP data are not available, to pay
based on mean costs from claims data for CY 2010. We are accepting this recommendation, and for CY 2010, we are proposing to allow
manufacturers to submit ASP information for any separately payable
therapeutic radiopharmaceutical in order for therapeutic
radiopharmaceuticals to be paid based on ASP beginning in CY 2010 under the OPPS."

Aug 26 04:44 AM

[rgard32:]

You say Catalyst.. How much will this stock pop when zevalin gets approved...

Aug 29 10:31 AM

[Justin M. Hall:]

rgard32:

Not sure.


Justin

Aug 29 08:56 PM

[Rumi Frost:]

Ola,

I have listed Important dates and milestones that SPPI has
for 2009 below. I do feel that is the last week to pick SPPI shares
for under $8.


1.September 7: FDA decision onZevalin
2.October 8: FDA decision on Fusilev
3.November 1: CMS will issue the new rule of HOPPS and RIT may
get a reimbursement.

4.December 31: news on Eoquin ( clinical trial ) which is used in the treatment of non-invasive bladder cancer & has been fast tracked by the FDA.
5. December: Initiate trials with Eoquin in BCG failure cancer patients

May the force be with you!

Rumi Frost

Aug 30 06:22 AM

[Justin M. Hall:]

Thanks Rumi!

Aug 30 05:40 PM