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Back on April 5, Spectrum Pharmaceuticals (NASDAQ:SPPI) reported their results for Q4 2009 and FY 2009. During the quarter, sales of the company’s non-Hodgkin’s lymphoma (NHL) drug, Zevalin®, were only up modestly quarter over quarter, totaling $5.1 million. During 2009, sales of the drug totaled $15.7 million.

What about these results? Should they be viewed as good or less than stellar?

Q4 2009

During SPPI’s Q3 2009 conference call in early November, the company inadvertently reported that October 2009 (Q4) Zevalin sales exceeded $2 million. Since the company reported $5.1 million in total sales for Q4, November and December totaled approximately $3 million or an average of $1.5 million for the two months.

In my November 22 article, I provided some simple estimates that were based on the sales growth realized during October. The estimates were wrong. This isn’t the first and certainly won’t be the last time I will be wrong.

More importantly, why did average sales for Zevalin fall from $2 million+ in October to $1.5 million- in both November and December? I believe the answer is simple and should have been foreseeable.

Holiday Season: Out of the eight or so weeks in November and December, three are usually allocated for Thanksgiving, Christmas, and Hanukah. For doctors, staff, and namely NHL patients, who are often elderly, scheduling treatment during the two months likely presents some challenges.

Reimbursement: During Q4 2009, the Medicare / Medicaid reimbursement modification for Zevalin was not effective. As of January 1, 2010, Zevalin is now sold at the average sales price (ASP) along with other chemotherapeutics. For more information, reference this article from November 3, 2009. Due to variations in reimbursement policies, treating physicians in some states would likely delay treating patients with Zevalin until 2010 after most of the bureaucratic red tape had been removed.

New Sales Team: SPPI hired several sales executives in the back half of 2009, which led to the increase in sales and marketing expenses during the quarter. Coordinating and preparing any new team takes time. Calling, scheduling appointments and meeting with treating physicians takes time. It should be noted that SPPI’s sales force is composed of at least 50 sales executives who will be responsible for marketing Zevalin.

2010

Let’s cut to the chase. The question most, if not all, investors have been asking is when will SPPI’s share price begin to move higher? What’s the tipping point? Like the answer above, I also believe that this one is simple.

SPPI’s share price will begin to move higher at the point when the company demonstrates that it can generate more meaningful revenue from Zevalin as well as grow sales. Here, more meaningful revenue is that which exceeds prior peak sales.

Prior to first-line approval in September 2009, annual sales of Zevalin peaked somewhere just shy of $25 million during years 2002 to 2006. That’s an average of $6.25 million in sales per quarter. I contend that when SPPI is able to (1) generate sales of $7 million+ in sales and (2) provide investors with some sort of guidance that sales will continue to grow, then larger investors will sit up and take notice.

Zevalin Sales Trends

Quarter
Total Sales
Avg. Sales/Month
Increase Sales/Month (%)
Q1 2009
$2.6 million
$867,000
0% or loss from Q4 2008
Q2 2009
$3.3 million
$1.1 million
+26% from Q1
Q3 2009
$4.7 million
$1.56 million
+42% from Q2
Q4 2009
$5.1 million
$1.7 million
+9% from Q3
Q1 2010
May-June 2010
May-June 2010
May-June 2010

LOOKING AHEAD

Going forward, I believe Zevalin sales will continue to rise. The drug works very well for most patients. For more details on Zevalin, interested investors should take a moment to review my other articles.

Rationale
  • As of January 1, 2010, reimbursement for Zevalin should no longer be an issue for most doctors.
  • Both the size of SPPI’s sales force and the leadership behind it are impressive.
  • More executives in front of more doctors, first-line approval coupled with the 87% PR to CR conversion benefit that Zevalin has been shown to provide patients, and the removal of bureaucratic red tape (reimbursement) should result in more NHL patients receiving this treatment.

CONCLUSION

  • SPPI’s efforts to turn Zevalin around and get the treatment to NHL patients should pay off in 2010.
  • Zevalin sales should surpass $7 million in Q1 2010 which is still TBA (May or June 2010).
  • Over the next several quarters, sales of the drug should continue to grow.
  • Meaningful sales growth will drive SPPI’s share price significantly higher from the current range.

Disclosure: Author holds a long position in SPPI

Source: Spectrum Pharmaceuticals: Looking Ahead at Continued Growth