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Spectrum Pharmaceuticals: $50 Million Vote of Confidence or Cause for Concern 15 comments
Shares of SPPI closed down -4.39% to $7.18 in Friday trading.
As result of this most recent offering SPPI will now have roughly 48.5 million shares outstanding. At Friday's close, the company retained a market cap of approximately $350 million. Compared to other optionable cancer drug makers, similarly situated, SPPI’s total shares outstanding still falls below the average of 63.12 million while retaining a market cap of half the average. See table below.
Since shares fell today, some investors have expressed some concern for the move. Honestly, I would prefer that institutional investors buy shares in the open market like everyone else. I do share the sentiment with those who are frustrated with the company for agreeing to yet another offering especially since shares fell upon the early approval of Zevalin® on Friday, September 4.
Memo to the folks at Spectrum (SPPI): Stop by-passing your existing shareholders. I hope they are listening.
CAUSE FOR CONCERN V. VOTE OF CONFIDENCE
So, is this recent dilution of SPPI’s common shares a cause for concern and should investors throw in the towel? Not yet.
From my view, SPPI continues to resemble a growth company. As evidenced in the daily chart above, it's still trading like a growth stock (for now).
More importantly, SPPI has a strong pipeline of cancer drugs, including Zevalin®, Fusilev®, and Eoquin®. In early October, the FDA is expected to decide whether they will expand the use of Fusilev to patients with colorectal cancer. I remain confident that Fusilev will be approved. For more details on Fusilev and Eoquin, please reference this June 19 article.
As result of the recent offering, however, previously held price targets must be adjusted - again - to account for the additional shares. On June 12, I projected SPPI would retain a market value of $1.12 billion in 12 to 18 months. So, my longer-term price target for shares of SPPI has been adjusted down - again - to $23.09.
With future growth from sales of Zevalin and Fusilev as well as the company’s collaboration agreement with Allergan (AGN) potentially worth an additional $255 million in milestone payments for the development of SPPI's bladder cancer drug Eoquin, I contend that SPPI still remains undervalued at $7.18. For more details on Zevalin's potential sales growth, interested investors should review this article from September 11.
With approximately $156 million in cash, shares are trading just under 2.3 X cash, which is relatively cheap compared to other cancer drug makers. See table below.
CONCLUSION
For all of the reasons detailed above, this most recent $50 million investment certainly looks more like a vote of confidence rather than a cause for concern. If, however, SPPI continues to bypass existing common shareholders in the future, then such action may be a cause for concern.
Again, I do hope the folks at Spectrum (SPPI) are listening.
OPTIONABLE CANCER DRUG MAKERS
(ex. DNDN)
(ex. CTIC)
(ex. CTIC)
Disclosure: Long SPPI and ARIA.
Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.
This post has 15 comments:
I'm honestly not sure.
With that said, stick to the fundamentals. See table above. Revenue growth and earnings is all that matters in the end. Where there is growth, investors will come - they always do.
The cool thing, here: they have enough cash now to report positive earnings consistently for number of years.
Still looks like a buyout to me. With an increase in Zevalin sales, it will be a no-brainer by March 31, 2010 (following Q4 sales presuming they are good). Nevertheless, If sales are good, then I give the company 9 months from today for it to be acquired. To me, it all rests on Zevalin sales. Stronger Fusilev sales would obviously help.
Justin
Good job, I like to see you on the offensive and defensive, you are not lying down and letting people post nonsense about you. Sometimes you have to fight back and you are doing a great job.
I think this is a good sign. They are going ahead with their business plan and drugs. They know these drugs work (and work really good, as in saving peoples lives) and institutions know how good they are too. Why else would they invest $50 million? I really see this company going places and as long as I believe they are doing the right thing to strengthen the company I am in long term.
As always Justin keep up the good work and alot of people respect you and look forward to your blogs. Don't let the few losers get you down.
-Jugy
I was sooo looking forward to monday, since I was expecting the pps to skyrocket since options expiration was obviously a big factor in keeping the pps down.
Unfortunately management, again, killed the stocks' momentum and shot down my hopes.
I'll still wait until Q4 earnings before I make a decision on selling or not.. We'll see.
Do you read your emails Justin? (your aol email adress on your SA profile)
Later,
M.
My one question is, why do you think its a buyout? Why would a company issue more shares to raise cash when a buyout is lurking. Wouldn't that be a just waste all around......?
Dave
Dave
DISREGARD THE COMMENTS ABOVE. ALL WILL BE REMOVED WITHIN THE NEXT DAY OR TWO.
THANKS IN ADVANCE!
JUSTIN
Thank you for your blog and articles. I enjoy them and consider it advantageous to share your insights and thought processes. I may not agree with absolutely everything, but I genuinely appreciate ALL your efforts.
I noticed the gentlemanly request to your detractors to start their own blogs appears to remain unanswered - no surprises there! You work hard and share the fruits of your labor with others and the critics don't want to step up to the plate....
To the folks who are making this a personal issue: show some class. Stop disrespecting another human being who has done NOTHING wrong but express his views in writing. Know that you people are in the minority.
Justin, on a personal note, I think you have conducted yourself under trying circumstances with a lot of dignity and grace. If I can see it, so can others.
Don't ever get discouraged. Most people are decent and can respect and value your opinions even if they don't agree with everything - which is not necessary or desirable anyway - to grow we need contrarian views that challenge our underlying premises...
Keep up the excellent work but more importantly keep smiling & stay cheerful!
Best wishes,
SJ
I like it. I greatly appreciate for your hard working, and best wishes to you and your family. Justin M. Hall simply is the best.
Thank you for this comment!
I'm not accustomed to such personal attacks and therefore less familiar on the best method for dealing with them. I have made mistakes and regret some things that I've said. But I am only man.
I would like to apologize to you again for the previous misunderstanding. I mistook your identity. It appears that you likely read my previous response.
Thank you again! Do have a great day!
Justin
It's absolutely fine - don't worry!
I understand.
Best Wishes,
SJ
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