Spectrum Pharma: CMS Rules in Favor of Zevalin

Spectrum Pharmaceuticals (SPPI) just announced that the Centers for Medicare and Medicade Services (CMS) ruled in favor of the company's radio-immunotherapy Zevalin®. Zevalin is now approved as a first-line treatment for patients with non-Hodgkin's lymphoma (NHL).

This is good news for SPPI as Zevalin will now be reimbursed at an average sales price (ASP) of most other cancer drugs. As I understand it, this ruling means that Zevain should now be reimbursed at a price +5% to +6% from its current price. It should be noted that the new price will be effective as of January 1, 2010.

Regarding the ruling, Rajesh C. Shrotriya, MD, Chairman, Chief Executive Officer, and President of Spectrum Pharmaceuticals said:

We are pleased with the CMS policy ruling, as it represents an important milestone toward establishing a consistent reimbursement standard for ZEVALIN.

We believe that securing ASP methodology for ZEVALIN removes a significant historical barrier to its use. This ASP methodology has until now been widely used for injectable chemotherapy drugs and as such, there is high familiarity with this reimbursement standard.

Source: Spectrum Pharmaceuticals

I addressed the reimbursement issue on October 18, 2009.

In November, the Centers for Medicare and Medicade Services (CMS), a component of the US Department of Health and Human Services, will decide whether SPPI can sell Zevalin at the average sales price (ASP) like competitive chemotherapeutics. A favorable decision would allow SPPI to compete with other drug makers, who enjoy the privilege of being able to sell their drugs at ASP. Right now, Zevalin is being sold at (1) invoice or (2) the average wholesale price (AWP) and costs between $24,000 and $31,000 per treatment. Unlike most chemotherapy regimens that can last six months or longer, Zevalin is a one time treatment that takes about three to five hours to administer.

On September 4, 2009, the FDA approved Zevalin to be used as a first-line consolidation therapy for the treatment of NHL. Consolidation therapy follows induction therapy which consists of a combination of chemotherapy and Rituxan®. Rituxan is marketed by partners Biogen Idec (BIIB) and Roche (RHHBY.PK).

Coupling the first-line approval with the resolution of this reimbursement issue, it certainly appears that SPPI is executing their plan effectively. As result, Zevalin should begin to generate more revenue with increased use as well as significantly grow the company's earnings over the next 12 to 18 months.

Coming Up

1. In mid-November (11/9 or 11/16), SPPI will report Q3 earnings. At that time, I hope the company will provide some sort of guidance on Q4 Zevalin sales as well as an outlook for 2010.
2. In the next 4 to 6 weeks, the company should announce the outcome of their meeting with the FDA regarding Fusilev®. Unlike yesterday's announcement from GTX, Inc (GTXI), where regulators required the company to conduct another clinical trial for the company's prostate cancer drug toremifene, I contend the FDA is more likely to find a way to work with SPPI in order to get Fusilev approved for colorectal cancer. For more details on Fusilev, interested investors should refer to this October 18 article.

Conclusion

Over the past several weeks, there have been a number of arguments against SPPI and namely Zevalin. While I understand the concerns of others, I believe a better case can be made for investing in the company - over the long-term.

Going forward, I remain optimistic about Zevalin and my investment in SPPI.

Disclosure: Long SPPI.

Comments

[Respirate:]

Thanks, Justin.

Are you buying shares prior to the earnings announcement? (ie, confident of positive news?)

-- R
Long.

Nov 03 11:26 AM

[Justin M. Hall:]

R:

Yes, I'm confident about earnings going forward. Based on the comments Raj made during the BIOCOM presentation last week, it is highly likely that Zevalin sales have increased from Q2.

I believe shares remain a great buy under $7. There's a lot of room for this particular stock.

Justin

Nov 03 12:22 PM

[lyme3m:]

Hey Justin,

I'm not trying to hijack your article, but I have a question about an equity with two FDA action dates coming up in December - Santarus Inc. (SNTS). What do you think about the company fundamentally and technically?

Thanks for your feedback.

Regards,

Charlie

Nov 04 09:09 AM

[Justin M. Hall:]

Charlie:

Please drop me an email at [e-mail].

Thanks!

Justin

Nov 04 09:17 AM

[GimliJan:]

Keep the updates coming Justin. But please try to let "Charlie" and the rest of your followers know about updates on other stocks besides SPPI !
Thanks,
Jan

Nov 04 12:36 PM

[aflitzy:]

Positive news that should give a bump next week


.Semi-Annual Changes to the NASDAQ Biotechnology Index
8:02 pm ET 11/13/2009- GlobeNewswire
NEW YORK, Nov. 13, 2009 (GLOBE NEWSWIRE) -- The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced today the results of the semi-annual re-ranking of the NASDAQ BIOTECHnology Index(R) (Nasdaq:NBI), which will become effective with the market open on Monday, November 23, 2009.


The re-ranking will result in the following eight securities being added to the Index:


China Sky One Medical, Inc. (Nasdaq:CSKI), Hi-Tech Pharmacal Co., Inc. (Nasdaq:HITK), Poniard Pharmaceuticals, Inc. (Nasdaq:PARD), SIGA Technologies, Inc. (Nasdaq:SIGA), Spectrum Pharmaceuticals, Inc. (Nasdaq:SPPI), Targacept, Inc. (Nasdaq:TRGT), Vical Incorporated (Nasdaq:VICL), and Vanda Pharmaceuticals Inc. (Nasdaq:VNDA).


All securities are classified according to the Industry Classification Benchmark (ICB) as either biotechnology or pharmaceutical. The securities that meet the classification criteria then must meet other Index eligibility criteria including listing on the NASDAQ Global Market or the NASDAQ Global Select Market and meeting minimum requirements for market value, average daily share volume and seasoning as a public company. The Index is ranked on a semi-annual basis in May and November. For more information about the NASDAQ Biotechnology Index, including eligibility criteria, visit indexes.nasdaqomx.com/.


As a result of the re-ranking, Matrixx Initiatives, Inc (Nasdaq:MTXX) will be removed from the Index.


The NASDAQ Biotechnology Index is the basis for the iShares Nasdaq Biotechnology Index(SM) Fund (IBB), which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the NASDAQ Biotechnology Index. In addition, options based on the NASDAQ Biotechnology Index and the iShares Nasdaq Biotechnology Index Fund trade on various exchanges.

Nov 17 09:30 AM