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Small Cap Drug Makers and Volatility 2 comments
SPECTRUM PHARMACEUTICALS (SPPI)
Underappreciated small cap drug maker, Spectrum Pharmaceuticals (SPPI), is financially sound and possesses two revenue generating, FDA approved cancer drugs. Sales of SPPI’s drugs along with a milestone from a collaboration agreement are responsible for the $20 million+ in revenue generated by the company so far in 2009. Following four stock offerings over the past four months, SPPI is armed with plenty of cash, about $156 million. With 48.7 million shares outstanding, the company is currently valued at or near $214 million as of the October 15 close. Compared to all of its competitors, SPPI’s common stock is very cheap right now, trading at 1.37 X cash and 1.223 X book.
Zevalin®
On September 4, 2009, SPPI obtained FDA approval for Zevalin as a first-line consolidation treatment for [all] patients with non-Hodgkin’s lymphoma (NHL). Because Zevalin is a safe and very effective treatment for NHL and that it has been widely ignored for various reasons, the recent approval for first-line use should help SPPI to (1) generate more revenue with increased use as well as (2) significantly grow their earnings over the next 12 to 18 months.
In November, the Centers for Medicare and Medicade Services (CMS), a component of the US Department of Health and Human Services, will decide whether SPPI can sell Zevalin at the average sales price (ASP) like competitive chemotherapeutics. A favorable decision would allow SPPI to compete with other drug makers, who enjoy the privilege of being able to sell their drugs at ASP. Right now, Zevalin is being sold at (1) invoice or (2) the average wholesale price (AWP) and costs between $24,000 and $31,000 per treatment. Unlike most chemotherapy regimens that can last six months or longer, Zevalin is a one time treatment that takes about three to five hours to administer.
Fusilev®
On October 9, 2009, SPPI announced receipt of a complete response letter (CRL) from the FDA regarding the company’s supplemental drug application for Fusliev which is indicated for colorectal cancer. The FDA indicated that the company failed to demonstrate that Fusilev (levoleucovorin) was non-inferior to racemic leucovorin, a generic version of the treatment. The company was, however, invited to meet with regulators to find a path forward.
The FDA's decision was not anticipated. Here’s why:
Since trials comparing the two drugs have already been conducted, the FDA should be able to reach some sort of an agreement with SPPI and allow Fusilev (as well as the company) to compete in the market without requiring yet another expensive and unnecessary trial. Whether the FDA and SPPI will actually find some common ground is unknown at this time. Until there is more clarity, uncertainty and speculation will continue to loom.
Pipeline
For a small cap drug maker, SPPI has a deep pipeline that primarily consists of cancer drugs. SPPI’s promising bladder cancer drug Eoquin® is currently being studied in a Phase 3 clinical trial. Results from this trial are expected to be available by early 2012. Notably, SPPI has partnered up with Allergan (AGN) to develop Eoquin. For SPPI, the AGN collaboration could bring in a total $300 million. To date, SPPI has received $45 million from the company.
Under the current political conditions, risk taking isn’t en vogue and institutional investors appear far less likely to assume it. This could give independent investors an edge where good opportunities exist.
Looking back in 12 months or so, I suspect that investors will realize that SPPI, while trading under five bucks, was one of those opportunities.
Disclosure: Long SPPI.
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This post has 2 comments:
FDA has a lot to explain according to me...a lot..
1: Clin Colorectal Cancer. 2009 Oct;8(4):200-6.Related Articles, Links
Is levoleucovorin an alternative to racemic leucovorin? A literature review.
Kovoor PA, Karim SM, Marshall JL.
Division of Hematology, Developmental Therapeutics and GI Oncology, Georgetown University, Washington, DC.
Purpose: Our purpose is to perform a comprehensive literature review of the use of levoleucovorin in gastrointestinal malignancies and to assess whether levoleucovorin is a reasonable alternative to racemic leucovorin. Design: This is an extensive literature review of levoleucovorin use in patients with gastrointestinal tract malignancies. Our review revealed 125 citations with abstracts in the English language, including 16 randomized, controlled trials; 40 case studies; and 69 nonrandomized, controlled trials that included 6 pharmacokinetic (PK)/pharmacodynamic studies with 1 population PK study. Results: Upon our review, there were 2 randomized controlled trials that directly compared racemic leucovorin with levoleucovorin. Goldberg et al noted that there was no statistically significant difference between time to progression (P = .78) and time to death (P = .57). Furthermore, Scheithauer et al again noted no significant difference in terms of response rates (25% vs. 32%; P = .25), median survival time (15 months vs. 14.5 months; P = .28), overall survival at 1 year (58.3% vs. 60.6%; P = .72), and probability of survival at 2 years (15.3% vs. 23%; P = .16). In addition, multiple other studies, including randomized, controlled; nonrandomized, controlled; and case studies, demonstrate similar efficacy and tolerability between the use of racemic leucovorin or levoleucovorin as a modulator of 5-FU. Conclusion: In many studies of patients with gastrointestinal malignancies, levoleucovorin has been used interchangeably and solely for racemic leucovorin for 5-FU modulation. Our literature review demonstrates that levoleucovorin has similar efficacy and tolerability when compared with racemic leucovorin, whether used in combination with other chemotherapeutic agents or alone.
PMID: 19822510 [PubMed - in process]
Thank you for posting the above review.
If nothing less, doctors and their patients should have the choice to decide for themselves.
In the most recent Phase 3 study, SPPI's Fusilev (levoleucovorin) was shown to provide colorectal cancer patients with less toxicity. The difference between Fusilev and racemic or generic leucovorin was statistically significant.
As I understand the facts:
While both Fusilev and generic leucovorin are taken by colorectal cancer patients to prolong survival, the primary function of the two drugs is to decrease or mitigate the effects of toxicity from chemotherapy.
Since the objective of both drugs is to reduce toxicity and that Fusilev offers patients an alternative with a superior risk profile or less toxicity as evidenced by most recent Phase 3 data, then Fusilev should be approved.
The Bottom Line:
PROVIDE PATIENTS WITH MORE CHOICES
With their treating physician's help, patients should be allowed to decide which drug they would prefer (Fusilev or generic)
ALLOW COMPETITION: EXISTING TREATMENTS
Fusilev should be allowed to compete with generic leucovorin in the market.
ALLOW COMPETITION: BETWEEN OTHER DRUG MAKERS
SPPI should be allowed to compete with other drug makers and market a safer alternative to oncologists.
Justin
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