We conducted a second survey of the oncologists in our proprietary Expert Network on their Fusilev usage over the past ~2 months. We wanted to see if physician's feedback was consistent with the increasing prescription trend we've noted. We first conducted a survey of oncologists in October of 2011, which yielded helpful information ahead of Spectrum Pharmaceuticals' (SPPI) 3Q earnings release. We decided to conduct a second survey to provide supporting evidence corroborating the monthly Wolters Kluwer (WOLTF.PK) that showed both a step up in Fusilev usage going from January to February and step down in generic leucovorin usage.
We received responses from 43 oncologists who prescribe leucovorin or levoleucovorin and the results are consistent with the Wolters Kluwer data over the January/February time period. Of these physicians only 1 (2%) said that their Fusilev usage had decreased over the last ~2 months, 25 (58%) said their usage stayed the same, and 17 (40%) said their usage had increased. Those oncologists who said their usage increased over the last ~2 months reported that their usage had increased by an average of 51%. These survey results indicate we should then see a ~20% increase in quarter over quarter sales. These results indicated that first quarter sales should come in at roughly $51MM, up from $43MM in the fourth quarter. Consensus is $46MM, so the survey results suggest a beat.
Interestingly, the 25 physicians that said their usage stayed the same over the last ~2 months treated an average of 3 patients in January and 3 patients in March with Fusilev. In contrast, the 17 physicians who said their usage increased reported treated an average of 6 patients in January and 10 in March. Increased use was attributed to leucovorin shortage. The shortage of leucovorin from the generics manufacturers, including from Teva (TEVA), appears to be getting worse.
WK reported Fusilev sales of $13.8MM and $18.5MM for February. Should WK report sales of $19MM for March, the total for the quarter would be $51MM and the run-rate would be ~$228 annually (assumes $19MM for March for x 12 months). This math assumes WK is capturing 100% of the sales. I expect that capture is probably not this high, which may be counter balanced by any discounts that Spectrum offers that are also not picked up by WK. Despite the challenges interpreting the WK data, we are comforted that the magnitude of prescription growth is supported by our physician survey.
A word on valuation after the Allos (ALTH) acquisition: as of 2-16-2012, Spectrum has 63.3MM shares outstanding and a pro forma net cash of position of approximately $53MM (assumes Allos purchase price of $108MM). At $10.00 per share, the enterprise value is $580MM. We estimate that Spectrum has a sales run rate of $228 for Fusilev, $61.6MM for Fotyln (Allos reported $15.4MM in 4Q11), and $28MM for ZevalinN for a total of $318MM in run-rate sales. Hence, at $10.00, shares are trading at 1.8x sales, which is extraordinarily low. At 3x sales, shares of SPPI would be trading at $15.00.
In addition to looking at top-line growth, we are also looking at bottom-line growth. In particular, once Allos is integrated, we expect to see an impact of the sum contribution of these sales to the bottom line. The cash balance should also increase. Spectrum reported EPS of $0.86 in 2011. At $10.00 per share, shares of SPPI trade at 11.6x trailing 12-month EPS. Given the expected increase in Fusilev sales and the savings in SG&A expected once Allos is integrated, we think Spectrum could more than double its earnings per share by year-end 2012, which should be reflected in a more than doubling of stock price, should the multiple stay the same.
Disclosure: I am long SPPI.