Shares of Spectrum Pharmaceuticals (SPPI) were dropping fast late last week, with Thursday's trading day culminating in a near-ten percent price dip after the company announced that apaziquone - a late-stage treatment for bladder cancer for which the company planned to file for approval later this year - failed to meet individual Phase III trial endpoints. According to a company press release, however, pooled data from the trials looked to show efficacy, compelling the company to discuss bringing that information before the FDA for a look-see before moving forward, but there's little hope that the FDA would approve on the pooled data alone.
It's possible additional studies could take place, but rather than concentrate on those prospects, Spectrum announced another big move to try and offset the bad - namely a buyout of Allos Therapeutics (ALTH). The move to buy Allos brings in Folotyn, a treatment for refractory peripheral T-cell lymphoma that brought in net sales of $50 million last year and could become a significant cash-flow positive money maker for Spectrum as soon as later this year after the expected synergies of the merger kick in.
Rajesh C. Shrotriya, MD, Chairman, Chief Executive Officer and President of Spectrum Pharmaceuticals commented in regards to the deal:
For Spectrum, this acquisition adds another diversified source of revenue, accelerates the development of our hematology franchise, and affirms our commitment to becoming a leader in the treatment of lymphoma.
Spectrum already markets Zevalin for different forms of lymphoma, making the two companies a nice match in terms of commercialization because the two products are targeted to the same hematologists and oncologists, which leads to the aforementioned synergies in marketing.
The move also helps to diversify the company's portfolio at a time when Zevalin sales are expected to grow, thanks to the lifting of a bioscan requirement last year, and as Fusilev has gained steam in the market.
News of the buyout sparked a near-thirty percent run in ALTH shares as they spiked to the $1.82 valuation of the deal.
Spectrum has come into its own over the past year, and although the failure of the apaziquone trials puts that pipeline development on hold, the Allos acquisition opens up new doors - and new revenue streams - which essentially means the company won't miss a beat.
Sales of Folotyn jumped from $35 million in 2010 to the $50 million of 2011.
Shares of acquiring companies generally do not run higher as do the shares of those being purchased, so part of Spectrum's decline was due to that phenomenon as well as the trial failure, but it would not be surprising to see SPPI approaching its 52-week highs again, if not setting new ones.
Any continued dips in price could be a nice buying opportunity, especially if shares decline back to below ten if the market as a whole experiences a pullback, as is expected by many.
This one still reminds me of Jazz Pharmaceuticals (JAZZ) - which slowly inched higher and higher and before you knew it the share price was at $40. Spectrum still has a long way to go before we can even begin to entertain those levels, but if the business plan continues to evolve as it has over the past year, then this company could potentially become even more of a powerhouse success story over the mid to long term.
Things look pretty rosy for Spectrum right now, but it will take further successes from the pipeline, continued market penetration by its existing products, and/or additional savvy acquisitions for full potential to be recognized.
Could be a good 'buy the dips' play, for the both the short and long term.
Disclosure: No positions.