Spectrum Pharmaceuticals (SPPI) is a biotechnology company with a focus on oncology and hematology products. The business was founded in 1987 and is based in Irvine, California. The company currently has a broad pipeline of late-stage clinical products, but its two oncology drugs, Zevalin and Fusilev, are currently being marketed.
Zevalin once was thought to be the main driver for revenue for the company. The drug is FDA-approved and is for Indolent Non-Hodgkin's Lymphoma. The drug actually started with the company Biogen (BIIB) and was sold off to Cell Therapeutics (CTIC). Eventually the drug made its way into the hands of Spectrum, where it is being marketed today.
The problems with Zevalin are that it faces stiff competition and with its use comes the requirement of a bioscan. Needless to say, the bioscan requirement makes the use of the product very inconvenient, which in turn hurts sales. This is easily shown as first quarter of 2011 sales ($6 million) showed no growth when compared to the exact same time frame as the first quarter of 2010. On the bright side, the company and investors are awaiting a FDA decision on whether the bioscan may be lifted as a requirement for the treatment. If the FDA does lift the requirement, it is hoped that the drug will be more widely used and bump up revenue numbers. SPPI expects the decision from the FDA sometime in November 2011.
Fusilev is a drug that is used to treat the side effects of the chemotherapy drug Methotrexate. Currently it is approved for use in patients who are being treated for osteosarcoma, which is a type of bone cancer. Revenue for this drug went from $0.6 million in the first quarter of 2010 to over $35 million for the first quarter of 2011. This large increase in sales was helped by the closure of a plant run by Teva (TEVA) that makes a generic version of a competing drug.
The real question, though, is how long Teva will halt production. Another positive for Fusilev was that the FDA did end up approving its use in treatments for colorectal cancer on April 29. SPPI will now be able to open up another market for the drug and further increase Fusilev’s revenue stream.
First Quarter Results
The first quarter results for the company were pretty spectacular. The company recorded net income of $13 million, compared to a net loss of $39 million in the first quarter of 2010. The revenue generated was $44 million which was comprised of product sales of $41 million ($35 million from Fusilev, $6 million from Zevalin) and $3 million from licensing fees. For the same time frame last fiscal year, the revenue recorded in the first quarter of 2010 was product sales of $7 million ($0.6 million from Fusilev, $6 million from Zevalin) and $4 million from licensing fees.
Of course, one needs to review the expenses of the company as well, and here SPPI has also had some changes. Total research and development expenses were $6 million in the first quarter of 2011. When compared to the first quarter of 2010, the expense figure was $37 million. The major change seems to be that, in 2010, the expenses included a $30 million licensing fee. Selling, general and administrative expenses remained roughly the same -- $13 million in 2011 and $11 million in 2010. Current assets on the books also showed improvement, as the company showed $141 million on hand at the end of the first quarter. This is a 12% increase when compared to the end of the calendar, where the current cash assets balance was roughly $125 million.
Spectrum is currently firing on all cylinders. Posting a healthy net income for the first quarter shows the company is moving forward and executing its plan. With the upcoming November FDA decision regarding Zevalin, a positive decision might get the ball rolling again and increase the revenue even more.
The last question really is: What is Teva going to do with the plant closure? If it resumes production, it will hurt SPPI’s bottom line, but that remains to be seen. Teva, being ever watchful, might also have another plan in place which involves just buying SPPI and covering all the bases. Time will tell as investors wait.
Disclosure: I am long SPPI in the form of calls.