How Zevalin Is Helping Spectrum

by: Justin M. Hall

With the recent label expansion of Zevalin to MORE patients with non-Hodgkin's lymphoma (NHL), the FDA sent a clear message to doctors: Treat NHL with Zevalin.

So, how does this help Spectrum Pharmaceuticals (NASDAQ:SPPI)?

Previously, SPPI only expected to obtain approval for the first-line use in approximately 26,000 to 28,000 patients.

With the recent label expansion, now 40,000+ patients could qualify for Zevalin.

Past Performance
In the past, Biogen Idec (NASDAQ:BIIB) with seven or fewer sales executives marketed Zevalin for the refractory or last resort setting. This setting consists of a patient population totaling between 6,000 to 8,000.

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On average, BIIB was ONLY able to penetrate about 10.5% of the refractory patients (6,000 to 8,000). That's about one sales executive per 1,000 patients.

Projecting the Future
SPPI is now able to market Zevalin to 40,000+ patients. The company has a team of 40 sales executives to market this drug throughout the US. Like BIIB, SPPI has about one sales executive per 1,000 patients.

Zevalin costs anywhere between $24,000 to $30,000 per patient.

If SPPI just matches the very limited market penetration that BIIB was able to achieve - that's 10.5% - then 4,200 patients could receive Zevalin. At $24,000 per patient, that would account for $100.8 million in sales.

If NHL patients are made aware of the Zevalin option, I suspect most of them would opt for the treatment. Due to SPPI's efforts so far, I believe more doctors are finally using Zevalin in consolidation with induction therapy to treat more NHL patients. Here, I point to the 25% increase in Zevalin sales during Q2, the first quarter under SPPI's control. Notably, this was the first increase in quarter over quarter sales for Zevalin in the past three years.

June 12 Projections
On June 12, when I first started covering SPPI, I projected Zevalin sales could reach $180 million. At that time, people thought I was crazy. My simple man's thinking: if more patients know about the treatment they will opt for it. Why? Zevalin works. For more details on Zevalin, please refer to this article from August 20.

I am sticking to my June 12 projections.

Over the next 12 to 18 months, I estimate that 7,500 NHL patients will opt for Zevalin - if they are made aware of the treatment. That's less than 20% of the total patient population for a drug that carries a three-year progression free survival benefit.

With 7,500 patients at $24,000 per treatment, that would represent roughly $180 million in sales.

Is this projection really all that crazy? Ask Reni Benjamin, Rodman and Renshaw's (RODM) biotech analyst why he projected sales of Zevalin could reach $150 million.

Last night, Cramer said "Don't Buy" SPPI. While I genuinely respect Cramer's opinion a great deal, I believe his call on SPPI is dead wrong.

From my view, shares of SPPI remain terribly undervalued and oversold at their current level.

Disclosure: Long SPPI.