Let’s continue with our analysis of Spectrum Pharmaceuticals (SPPI), specifically reviewing their pipeline of drugs in development for readers that are interested in biotech stock investing.

Levoleucovorin (Fusilev):

Fusilev was approved in March 2008 as rescue therapy for osteosarcoma patients after receiving high-dose methotrexate (chemotherapy). Osteosarcoma is a malignant bone cancer afflicting individuals under the age of 30. High-dose methotrexate is the most commonly used regimen in treating osteosarcoma. Fusilev neutralizes the toxic effects from methotrexate therapy in order to prevent serious side effects. Although the osteosarcoma market is small at 900 new cases a year, approximately 1/3 of these patients die each year.

Spectrum plans to file a supplemental New Drug Application (sNDA) with the FDA for treating colorectal cancer (CRC) with patients receiving 5-fluorouracil (5-FU) regimens (another chemotherapeutic agent) by October of this year.

Unlike Fusilev’s indication for osteosarcoma patients, in CRC patients Fusilev enhances the effectiveness and binding of 5-FU to an enzyme inside cancer cells called Thymidilate Synthetase, thereby prolonging the life span of 5-FU within cancer cells. Note that the life span of 5-FU in tissue cells is normally very short therefore limiting it’s anti cancer effects.

The company does not anticipate conducting additional clinical trials for the indication in CRC. Approval timeline for this indication would be about a year which would be October 2009. Approximately 150,000 patients are diagnosed each year with CRC and the estimated market for Fusilev is in the range of $100 million.

Management is hesitant in responding to any questions pertaining to revenue projections from sales of Fusilev until the FDA responds to their sNDA filing for CRC. I suspect this is because any sales generated from the osteosarcoma market would be miniscule, at most helping to reduce the company’s burn rate and preserving their cash position.

EOquin:

EOquin is a novel chemotherapy drug that represents a therapeutic advancement in treating superficial bladder cancer (SBC) in an important area in which there’s an unmet medical need. EOquin is currently being tested in two phase-3 double-blinded, placebo controlled, randomized trials. The majority of all bladder cancers are of the SBC type, or tumors which have not yet invaded the mucous membrane of the muscle tissue of the bladder. The recurrence rate in SBC is high resulting in the need for additional surgeries for patients.

EOquin is considered a more selective or targeted treatment approach because it’s a prodrug that is not activated until a certain enzyme found within bladder cancer cells activates EOquin. Since EOquin is a large molecule, it cannot pass through the bladder lining, therefore no detectable levels are found in systemic circulation. Because this is a targeted therapy, the side effect profile is much more favorable relative to other chemotherapeutic agents. EOquin is administered immediately following a surgical procedure called “transurethral resection” or TUR in which the tumor is first removed.

Current treatment for SBC consists of surgical removal of the tumor followed by the administration of mitomycin C or bacillus Calmette-Guerin, an immunotherapeutic vaccine. Recurrence rates are expected in 50%-70% of cases in which tumors flare up again after a short period of time so this is considered nothing more than a maintenance therapy to delay the next recurrence. So, there is a great need for new therapies that prolong the recurrence of tumors.

The prevalence of bladder cancer in the U.S. is 50,000-60,000new cases per year in which 70-80% are non-invasive or of the type superficial tumors. Internationally, the incidence varies substantially with the highest rates in Europe and North America. Smoking is the strongest risk factor associated with the development of bladder cancer.

EOquin trials should be fully enrolled by the end of 2009 and Spectrum should be announcing some form of partnership for by the end of this year. According to management, there are several potential partners interested in this drug.

Ozarelix:

Ozarelix is being developed for the treatment of benign prostatic hypertrophy (BPH) or enlarged prostate. As mentioned earlier, their phase-2 clinical trial released disappointing data from their U.S. trial. The previous Eastern Europe trial results were more favorable as the data point called IPSS (measures strength and frequency of urination) produced a score of 8. Spectrum states that some irregularities in the conduct of the trial resulted in removing various clinical trial sites therefore leaving the number of patients in the protocol group at a total of 44, which is a number totally meaningless as it’s too small of a number to draw any conclusions from. Spectrum will now have to conduct another phase-2 trial and is currently writing a new protocol before starting which is expected to commence again before the end of this year.

The market for BPH is huge at approximately $4 billion per year. Current treatments are once-a-day pills such as Flomax or Avodart. Ozarelix is an injection that is administered twice a year which offers freedom from having to take a daily oral medication. Although the time-lines on this program have been delayed, the potential is still there.

Stock catalysts over the next 12 months:

  • FDA review of Spectrum’s sNDA for Fusilev in treatment of CRC
  • Any meaningful revenue from sales of Fusilev in osteosarcoma market
  • Signing of partnership for EOquin
  • No need for raising capital in the near future

There are additional early stage programs that Spectrum is developing as well, but the ones I’ve mentioned are the ones that will impact the company’s valuation over the next couple of years. For investors that aren’t patient enough to allow the company to move forward and develop their programs, you may want to move on to another company.

My thesis for investing in Spectrum is twofold. First being that the company has several mid to late stage programs in development in significantly unmet markets, and secondly because the technology value of the company has zero value assigned to it by investors. I like the fact that no expectations are priced into the stock. This provides a relatively low risk profile for investors while providing significant upside potential on any positive news for any of the company’s various drug programs. Any revenue generated from Fusilev will significantly impact the company’s valuation as the current market cap of the company is only $53 million (the stock has increased over 20% since the first post). A partnership announcement for EOquin in SBC would probably amount to more than the entire value of the company today.

Closing comments:
Valuations such as this are not commonly found even with small cap biotechs that burn millions of dollars per year. Future companies I write about will doubtfully have a profile like Spectrum. I will continue to update and give you my thoughts on Spectrum as developments unfold.

Disclosure:

I hold shares of Spectrum Pharmaceuticals.