Shares of Spectrum Pharmaceuticals (SPPI) have started to rally as the fears of the threat of generic entry of leucovorin have started to subside. The stock closed yesterday's trading session at $16.46, up $0.71 (4.51%).
Investors now have greater confidence in the staying power of Spectrum's Fusilev. Spectrum continues to report increasing sales for Fusilev. In the first quarter of this year, they posted sales of $51MM, up from $43MM in 4Q11.
In the first quarter, Spectrum reported diluted EPS of $0.36, which is $1.44 if annualized. At a stock price of $16.46, the company is trading at 11.4x EPS, which is cheap relative to the current S&P 500 P/E ratio of 15.7. Hence, if investors believed that Fusilev and the related earnings were here to stay, shares of Spectrum should be trading at $23.00 now. Furthermore, if the growth continues at a rate greater than the S&P, shares of Spectrum should be valued higher.
Given the upside potential of shares of Spectrum, I believe investors should watch developments closely. Recently, there was a big announcement from Bedford Laboratories, which is one of the major suppliers of generic leucovorin. Bedford announced a nationwide voluntary recall of leucovorin due to the discovery of particulate material in a small number of vials. This has been an ongoing problem for the manufacturers of generic leucovorin and probably speaks to their relative lack of interest in a product that doesn't generate much revenue for them.
It's my opinion Spectrum will continue to post increasing sales of Fusilev, which should drive increases to the bottom line too. The recent recall announcement and the reported strong prescription data for Fusilev ($22.3MM in April and $24.9MM in May) bodes well for another strong quarter of sales. This is likely causing anxiety for the shorts (~25.8MM shares short as of June 15th) who have been expecting oncologists to switch to using generic leucovorin, which does not appear to be happening. Some of the move in the stock is probably short covering.
It's also my strong opinion that shorts should be covering even more here before they might experience a monster 'short squeeze.'
|Shares Short (as of June 15, 2012):||25.83M|
|Short Ratio (as of June 15, 2012):||17.30|
|Short % of Float (as of June 15, 2012):||52.40%|
|Shares Short (prior month):||23.82M|
52% short interest is just far too excessive with Spectrum, so I do expect the stock to continue the move upwards for a while based on the positive factors mentioned here for the company.
3 good short squeeze candidates:
MannKind Corp. (MNKD) $2.69 up $0.12 (4.67%).
|Shares Short (as of June 15, 2012):||21.06M|
|Short Ratio (as of June 15, 2012):||14.90|
|Short % of Float (as of June 15, 2012):||18.20%|
|Shares Short (prior month):||19.83M|
MannKind has had well documented issues with its Afrezza inhalation powder, an ultra rapid-acting insulin formulation designed to be inhaled by the user. In January 2011, the FDA issued a complete response letter (CRL) to MannKind for its new drug application (NDA) for Afrezza inhalation powder to treat patients suffering from type 1 and type 2 diabetes for the control of hyperglycemia.
In its CRL, the FDA showed its concern regarding the use of the in-vitro performance data and clinical pharmacology data to bridge MannKind's next generation inhaler to the Phase 3 trials conducted using its MedTone inhaler. In other words, it appeared Mannkind used a different inhaler in the clinical testing, submitted that data, then sought approval for a totally different inhaler.
Those who I have talked to who are close to this situation have informed me that MannKind has now resolved these issues, and should gain approval on Afrezza this time around. Being short in MannKind is foolish at this time, in my strong opinion.
SIGA Technologies (SIGA) $3.33 up $0.23 (7.42%).
|Shares Short (as of June 15, 2012):||7.67M|
|Short Ratio (as of June 15, 2012):||29.60|
|Short % of Float (as of June 15, 2012):||20.40%|
|Shares Short (prior month):||7.73M|
On Dec.16th, 2011, The Delaware Chancery Court denied SIGA'S motion for reconsideration of certain aspects of the Court's post-trial decision in the litigation brought by PharmAthene (PIP) over rights to ST-246. As previously disclosed, the parties are now obliged to attempt to agree on language that will implement the Court's post-trial decision or, failing such an agreement, submit their respective proposals for implementing language to the Court for decision. Once the Court enters a final judgment implementing the post-trial decision, SIGA intends to appeal the decision and judgment to the Delaware Supreme Court.
On May 31, the court rendered its final judgment - after Siga makes its first $40 million in net profits from the drug ST-246, PharmAthene will get 50 percent of the net profits from all sales over the next 10 years. Siga received a $433 million contract to supply the drug to the U.S. government in 2011. Siga agreed to buy PharmAthene but ended its proposal in 2006. PharmAthene filed a suit alleging Siga had breached a contract over profits from the drug.
On June 12th Siga kept its word and officially filed an appeal in this case. Many people I have talked to about this situation feel Siga has a good chance to win this one on appeal. On this factor, and considering the high short interest, Siga is a good bet in my opinion for a short squeeze upcoming.
Antares Pharma (ATRS) $3.85 up $0.09 (2.39%).
|Shares Short (as of June 15, 2012):||11.93M|
|Short Ratio (as of June 15, 2012):||12.90|
|Short % of Float (as of June 15, 2012):||13.10%|
|Shares Short (prior month):||11.49M|
Antares Pharma has warrants with an exercise price of $2 expiring tomorrow. I know this stock channel very well, owning 86,200 shares of it since last summer. Warrant holders frequently short shares after the stock has hit the exercise price, which in this case, it has done so a while ago. They sell at tops, then short to make money that way, cover those shorts at a price they choose to create a short cover rally, selling at the top again--rinse, lather, repeat. Because the warrants are soon set to expire, there should not be any of this type of price action again. Furthermore, overhead resistance should be taken out of the way, so I expect to see the stock between tomorrow and Tuesday rise over $4 a share, possibly even $4.25. Antares is my one true investment I am planning to hold long term, or until the company might be acquired. My long term target opinion on Antares - 3 years or less is $17 to $23 a share.
1 to stay away from:
Savient Pharma (SVNT) $0.58 up $0.08 (16.00%).
|Shares Short (as of June 15, 2012):||29.42M|
|Short Ratio (as of June 15, 2012):||25.90|
|Short % of Float (as of June 15, 2012):||50.40%|
|Shares Short (prior month):||28.64M|
Savient has had a rough go of it lately, with its stock price losing over 75% in the last 6 weeks. However, on July 2nd, Savient announced a new publication showing that adult patients with refractory chronic gout treated bi-weekly with Krystexxa experienced statistically significant and clinically meaningful improvements in health-related quality of life, pain and physical function. The article confirms that chronic gout, especially refractory chronic gout, is associated with decline in HRQOL and physical functioning compared to patients without chronic gout. The results were published in the print edition of the July 2012 issue of The Journal of Rheumatology.
Savient shares hit a 52 week low of $0.50 cents on July 3rd. The stock is trading at 59.5% of its 50-day moving average and 28.4% of its 200-day moving average.
However, with what appears to be good news for the company above, my sources tell me that bankruptcy may be on the horizon as the company is facing multiple lawsuits, namely one with Tang Capital. Tang Capital is asking the Delaware Court to declare Savient insolvent, and to stop the company from moving ahead with a planned financing, and appoint a receiver to liquidate and distribute the company's remaining assets to creditors.
Tang Capital is also asking that Savient pay them at least $100 million in compensatory damages. Tang Capital owns Savient debt totaling $38.95 million, or 17% of the company's outstanding convertible notes.
I remarked in a prior article on how this company is poised for utter failure when the stock was selling for near $1.60 a share, and it appears most traders agreed with me then, and should still agree now.
With its current stock price under $1, most retailers cannot short this one, but they can certainly stay away from buying any stock. It is my strong opinion that Savient will be headed towards total insolvency soon - stay away.
Disclosure: I am long ATRS.