Spectrum Pharmaceuticals (SPPI) is a small cap biotech company that focuses on developing drugs in oncology and urology. Spectrum fits my investment criteria and warrants a thorough analysis. The company currently trades at a technology value (see previous posts on tech value) lower than any company I’ve come across over the past 8 years. In the case of Spectrum, their tech value is actually a negative number of $20 million or so, meaning investors are not only assigning zero value to the company’s pipeline, but even $20 million less.

Let’s take a look at some key statistics:

Current stock price $1.41
Market cap $44.36 million
Available cash $60 million
Cash per share $1.93
2008 burn rate $35 million
Quarters cash 7.5
Shares outstanding 31.5 million
Total debt $0



Spectrum has encountered some recently tough times as the company’s valuation indicates. Their phase-3 trial with Satraplatin for the treatment of hormone refractory prostate cancer (HRPC) failed to show an overall survival advantage last October. Then in April of this year, their phase-2 product Ozarelix for benign prostatic hyperplasia (BPH) or enlarged prostate, produced disappointing clinical data. Although Ozarelix is by no means a dead drug, the company will have to conduct another phase-2 before moving forward. On the brighter side, Spectrum was able to gain approval in March of this year for Levoleucovorin (Fusilev) as a therapy for osteosarcoma and expects sales to begin sometime this month. Additionally, Spectrum collected $20 million in cash from Par Pharmaceutical by selling their royalty stream on Sumatriptan, an injectable generic migraine drug.

Despite the negative events the company has encountered, Spectrum still has a pipeline of other products in development worth considering. The company will also start booking revenue on sales of Fusilev, albeit small. Although the osteosarcoma market is small, the company plans on filing a supplemental New Drug Application (sNDA) this year for treating colorectal cancer (CRC) which would give the company a significant boost in Fusilev sales if approved for this indication.

To get a better grasp on Spectrum’s valuation in order to determine the risk-reward profile for investing, we need to conduct additional research on the company’s individual programs and the markets they are serving. Having said that, I think it’s best to review only their most significant programs as these are the ones that will matter to the company’s valuation, at least over the next couple of years.

In my next post, I will review Spectrum’s drug programs individually and then provide a commentary to sum up my thoughts on the company’s valuation.

Disclosure:

I own shares of Spectrum Pharmaceuticals.