The Many Reasons To Consider Spectrum

Posted: May 30, 2012 at 6:12 pm

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By Jordo Bivona - May 30, 2012 | Tickers: ALTH, GSK, SPPI | 0 Comments

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Would you buy a biopharmaceutical company that recentlyreported recordyearly sales, earnings and cash flow and yet sells at a relatively low price to earnings ratio (for a biotech company) of 12, and a price-to-sales ratio and price-to-book ratio of only about 3? Revenues of $193 million were up 160% from the previous year revenues of $74 million.

Spectrum Pharmaceuticals (NASDAQ: SPPI)describes itself "a biotechnology company with fully integrated commercial and drug development operations." With a market cap of about $600 million, it is relatively small but is included in a number of stock market indices, among them the NASDAQ Biotechnology Index, the Russell 3000, Russell 2000, Russell Global and most recently theS&P SmallCap 600.The company currently markets two oncology drugs, Zevalin and Fusilev, and for a small company, has an impressive pipeline of drug candidates in various stages of development. The company's latest potential blockbuster for bladder cancer, apaziquone,failedin late-stage trials. On a valuation basis, however, Zevalin and Fusilev are worth more than the current market price for shares.

Zevalin is a monoclonal antibody to B-cell antigen p20 fused to a radioactive element Yttrium-90. It is used treat low grade or follicular non-Hodgkin's lymphoma. Treatment regimens include two doses of another monoclonal antibody, rituximab, marketed byBiogen IDEC andRoche Holding, to reduce circulating B-cells, followed by one dose of Zevalin, which actively attacks the lymphoma. Because the antibody is radioactively labeled, it kills neighboring cells, most of which are also tumor cells, in addition to the cell to which the antibody binds.

The drug that competes most directly with Zevalin is Bexxar, a similar p20 monoclonal antibody that is complexed with radioactive Iodine-131. Bexxar is marketed by pharmaceutical giantGlaxoSmithKline (NYSE: GSK). There is little to differentiate the two drugs, other than the choice of radioactive agent.

The company's other drug, Fusilev, is used to treat advanced metastatic colorectal cancer in combination with chemotherapy involving methotrexate or 5-fluoro-uracil. The active ingredient of Fusilev is l-leucuovorin (aka folinic acid), a folate analogue, which has been purified to remove the inactive d isomer of the racemic mixture, so that patients only need half the dose. While not pharmaceutically useful, the d isomer may cause side effects. Leucovorin is used to "rescue" bone marrow after methotrexate treatments, but enhances the activity of the chemotherapy agent 5-fluoro-uracil. The main competition to Fusilev is Wellcovorin, which contains the inactive d-isomer. Wellcovorin is also marketed by GlaxoSmithKline. Fusilev seems to have the edge: Spectrum has recentlyexpandedits capacity to manufacture the drug in response to increased demand.

Besides apaziquone, Spectrum has one other key drug in late stage development under the FDA's Special Protocol Assessment, belinostat.

First, Apaziquone was being investigated as anintravesicle instillationfor non-muscle invasive bladder cancer. This type of cancer is recurrent in 80% of patients after the tumor is surgically removed. "Intravesicle instillation" means that it is introduced directly into the bladder. It is really a pro-drug that is converted into an active cytotoxic alkylating drug by reductase enzymes expressed preferentially by tumor cells. The company has conducted two multi-center phase 3 trials of Apaziquone used after tumor resection, but the drugfailedto meet its primary endpoint of statistically significant reduced tumor recurrence at two years, analyzed individually. Trials with multiple instillations of the drug are likely to continue in some form.

Belinostat is a histone deacetylase (HDAC) inhibitor under investigation for the treatment of peripheral T-cell lymphoma (PCTL), non-small-cell lung cancer, and other solid tumors. Belinostat causes increased acetylation of Listor proteins, resulting in cell cycle arrest and cell death. Currently, Spectrum is testing Belinostat in a pivotal trial for PCTL. Currently, PCTL is commonly treated with anthracycline chemotherapy drugs, like daunomycin, marketed by as Cerubidine by Ben Venue Laboratories, a subsidiary of the German firm, Boehringer Ingelheim (not publicly traded).

The Many Reasons To Consider Spectrum

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May 30th, 2012 at 6:12 pm