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Spectrum Pharmaceuticals, undervalued cancerresearch

|Includes: Spectrum Pharmaceuticals, Inc. (SPPI)

 When the small Danish biotech TopoTarget announced its BUSD-agreement for the cancerdrug (HDACi) Belinostat with Spectrum Pharmaceuticals (NASDAQ:SPPI) a few months ago, the CEO Peter Buhl was euphoric having found such a dedicated partner and expressed it in terms such as "love at first sight". After the conclusion of the agreement I have taken a look at Spectrum and it is clear that there are great similarities and synergies between the two companies despite the fact that Spectrum is a bigger player with already established drugs on the market. 

The SPECTRUM share is currently in a strong negative recoil after having flagged for increased losses in q4 due to increased costs associated with marketing efforts. These costs are inherently linked to the launch of the company's cancer drug Zevalin and Fusilev. Spectrum is, in proportion to its marketcap of about 240 MUSD, a highly undervalued biotech/pharmaceutical company currently, and in my opinion there are several reasons to believe that this will not last very much longer. 

 SPECTRUM is a very well managed, fast growing (no 22 in the U.S.) company with approximately 160 employees (of which half in marketing) and the company's pipeline consists of; 

# Two approved drugs in the market (Zevalin and Fusilev) 

# Two blockbuster candidates (potential sales of at least 1BUSD) in Phase III (EOquin and Belinostat) 

# Strong additional pipeline in different stages of development

ZEVALIN is approved for a broader indication but within the same indication as the companys candidate drug belinostat (PTCL-lymphoma) is developed for initially; NHL (PTCL lymphoma is a sub-type). Zevalin is a very potent compound with great potential but which seem to be difficult to penetrate the market in line with their capabilities. The reasons may, among other things related to the fact it is a combination of antibody/radioactive substance (yttrium-90), where the combination with yttrium-90 requires more resources at the clinics to administer the medicine, only about 10% of patients suitable for this treatment receive it. (See also GSK's Bexxar antibody using iodine-131 radioactive substance). The market is great for the NHL and in the the end of last year there was expanded approval for the drug (for first line treatment) which increases the salespotential significant, maybe up to 500MUSD.

 The background to the company's now aggressive investments in marketing are likely a result of the description above, but also as a preparation for future launches, including Belinostat and EOquin in North America. A series of recent events linked to increased costs and some additional NDA data to be generated to the FDA regarding Fusilev for expanded indication colorectalcancer, also serves as causes to the weak shareprogress due to my opinion. 

Marketing efforts cost money. That is obvious, but it also should be interesting to see what they generate. Zevalin was acquired in a joint venture with Cell Therapeutics as recently as in December 2008 and was granted expanded approval from FDA only for a few months ago. Spectrum acquired 100% of the the rights to the drug last yaer for the price of 16MUSD which must be related to the sale of 4.7 million only in Q3 last year. The extension strengthens previous market potential maybe up to 40 times, Generally there are huge patient needs for these indications and today's treatmentoptions is very weak. 

FUSILEV is a drug that protects healthy cells in overdose of chemotherapy in  treatment of cancer in bone marrow, but the company also currently filed an NDA for an expanded indication against coloncancer. Phase III data for the latter indication so far looks extremely good and FDA will make decision next year. The market for an expanded indication makes significant possibilities in salesgrowt, when this cancer is the fifth most common in the US, and the 3rd most common cause of death due to cancer in the western world. 

EOquin, is tested in two Phase III trials granted fast track status under an SPA (Special Protocol) for the indication of bladder cancer, which is one of the most expensive cancers to treat, and the 6th most common form of cancer. The study includes 1600 patients and is demonstrating the company's capacity to execute large global registration based studies. The project is a joint venture with Allergan Inc. and also generates royalties from Allergan for sales outside the US. EOquin has so far demonstrated a significant improvement in response rate compared with current standard treatment.

Belinostat, is licensed from Topotarget and the drug is a novel HDAC-inhibitor in late stage clinical development with more than 600 patients treated so far. Belinostat is very well tolerated which allows combination with traditional chemotherapy without causing further bone marrow toxicity. Belinostat has been tested in a number of Phase I/II clinical trials in haematological cancers and solid tumors. The drug is tested in apr 20 different clinical trials and apr half of these are sponsored by NCI. Initially, attention is to the indications of PTCL (pivotal study) and the CUP. Belinostat has great potential and are addressed to a multi-BUSD market. 

Summary; Spectrum Pharmaceuticals represents an interesting undervalued investment option in the biotechnology/pharmaceutical sector. The business is complex, but to see easily on the matter, it has two approved drugs in the market addresses of a very high potential, and a series interesting drugcandidates close to market approval. The Company's management consists of highly experienced individuals with backgrounds from several of the largest global pharmaceutical companies and the company also has a very solid financial position with a strong reserve with no liabilities.

Disclosure: Long SPPI