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Update: 10.9.09

|Includes:Spectrum Pharmaceuticals, Inc. (SPPI)
PRELIMINARY FACTS

Friday morning Spectrum Pharmaceuticals (NASDAQ:SPPI) announced the receipt of a complete response letter (NYSE:CRL) for the company’s supplemental new drug application (sNDA) for Fusilev® in combination with 5-FU for the treatment of colorectal cancer.


Complete Response Letter
  • According to the company’s press release, the FDA indicated the application failed to demonstrate that Fusilev was NOT INFERIOR to [generic] leucovorin.
  • The FDA also recommended SPPI schedule some time to meet with regulators to chat about some other options that may allow the drug to be approved.
     
  • ODDLY, "the FDA did NOT request any changes to the currently approved indications and package insert," according to the release. 

WORK IN PROGRESS

I must admit that today's Fusilev decision has stumped me.  I will continue to work to get some clarity on the issue.

I still like SPPI long-term.  As I said, Q3-Q4 EPS will be the real test for this company.  If SPPI can demonstrate that they can effectively market Zevalin, then shares will advance much higher from here. 

Despite the over-reactive and senseless pessimism, I remain optimistic about SPPI over the next 12 months.  I have not sold anything and will remain invested in the company through Q4 EPS in February 2010. 

For more info about the company going forward, take a minute to review my previous post from last Friday, October 2, 2009.  Next stop, Q3 earnings which will likely be scheduled for November 9 or 16 according to Paul Arndt, IR SPPI.

At $5.09, SPPI is now trading at 1.59 X its cash value.  From here, risk remains to the upside over the long-term.

A loss is never a loss until it is realized.  I have repeatedly and purposely stated that investors should hedge ALL of their long positions with put options.  If you did not catch it, sold and realized a loss, that's your problem.  I have also said - more times than I care to count - that SPPI is a long-term position.  I have reasons for saying the things I say.  So, wise up. 

I'm baffled by today's decision.  It is disappointing, but I do not believe that it is time to throw in the towel.  With SPPI, I'm NOT a trader.  Investing in this environment often takes time for this very reason - the regulatory risk is out of control.  

It took less than 32,000, shares to bring SPPI down this morning in pre-market trading.  Most of the action today was NOT selling.

Unfortunately, Fusilev fell into the 15%.  Was it foreseeable based on the underlying circumstances?  Right now, I cannot find one plausible explanation for the FDA's decision.  I also cannot determine what exactly might be required of the company going forward.  The drug is already approved and was previously recommended by the ODAC panel.  It was also approved for use as an alternative to generic leucovorin during the shortage of 2008.  The likelihood of this drug not getting approved was very low in my view.

THOUGHTS
  • Fusilev is not a "me too" drug.  It is a pure form of leucovorin.  The benefits are less biovariability or less toxicity compared to the generic form. 

  • While the FDA held, Fusilev is non-inferior to the generic version, it makes one wonder whether or not the agency cares about the quality of care for patients.  While Fusilev may cost more and it has been shown for over 10 years to provide colorectal cancer patients with the benefit of less side-effects (toxicity).  I thought the newly appointed FDA head was going to do what was best for patients.  If so, then she is doing a very poor job here.

     
  • Prior to approval, Fusilev was recommended for approval by the ODAC panel in either 2006 or 2007.

  • Fusilev was approved for osteosarcoma in 2008

  • CMS approved Fusilev as a viable alternative (reimbursed) during 2008 shortage.

Suddenly, the FDA has just discovered that Fusilev, a previously approved drug that benefits patients over the existing generic treatment, is now Non-Inferior to the generic treatment.  Huh?

WHERE DO WE GO NEXT?  
Here, I am totally stumped.  The worst case is a trial, but to me that is highly unlikely.  I suppose that if SPPI is able to make the case for Fusilev during their meeting with the FDA, the company will be required to resubmit their application with additional data collected by WYE in the EU.  If so, then the resubmission would likely take the agency another 6 months to review following the date of the resubmission. 

This is the beauty of red tape and trying to conduct business in the US.  It is all very mind-numbing and very much part of the game. 

If you do not like the game, then you should consider getting out.  It's likely not for you.  Contact a financial advisor and pay them to help you. 

If you find yourself reacting to today's action with intense emotion, then you have a problem.  I encourage you to either work on it or get out now and save yourself the pain and agony.


Disclosure: Long SPPI.
Stocks: SPPI