Spectrum Pharmaceuticals SPPI has room to run

9 Feb

April 29th is quickly approaching for the FDA to review the CRL for the sNDA of FUSILEV for the treatment of advanced metastatic colorectal cancer.  See below link:

http://finance.yahoo.com/news/FDA-Accepts-for-Review-bw-4153148534.html?x=0&.v=1

The CRL was originally issued during Oct 2009 knocking the stock down from $9 to a low of approx $4 after the dust settled.  The stock has begun to break out to new highs in anticipation of the approval of FUSILEV.  Other products in their pipeline:

The chart looks beautiful so far and I am very excited about playing this.  I will be waiting to buy on a dip back down to around 6.15-6.25.  I would anticipate that this time around the chance of approval should be high so we could see a run back up to $9.  The market cap is pretty low at 330k and cash and securities were 86M as of 9/30/10 so they should not need to issue additional securities for quite some time.

A quick calculation of value of SPPI

Number of people in the U.S. diagnosed with colorectal cancer in 2007 as per article below was 153k..  Usually I would factor in an increase based on increase in population, but for these purposes lets just use the 153k.

http://www.fascrs.org/physicians/education/core_subjects/2007/advanced_colon_rectal_cancer/

Lets say year 1 SPPI penetrates a conservative 5% of the market.  5% of 153k would be 7,650 patients.  Assuming a $40k per year per patient would yield $306,000,000.  In some cases, a cancer drug can run up to $100,000 per year depending on its status.  For this example, IMO 40k is conservative.  Assuming yet another 75% haircut for cost of goods and selling expenses would yield 76M in income before taxes.  40% taxes gets you 45.9M net income or at current outstanding shares eps of $0.90 and at the current share price of 6.65 a pe of 7.38.

In year 2 if we are able to raise that penetration to 10% we can double year 1, but even still make half a billion even if the company trims the price tag for the drug a little.  Assuming 70% for cogs and selling expenses and the same 40% net income, you get a net income of 90M or eps of $1.78 and a pe of 3.74.

To measure pps at time of approval lets figure an average pe between 12-16.   Based on the above analysis, we should see a share price between $10.81 and $14.41 during the first year after approval.  After approval depending on the variables above could be “sky’s the limit”.

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Disclosure:  Long SPPI

Disclaimer: I have never ever been paid or compensated by anyone for any stock I trade or discuss. None of the information posted on this site is to be construed as financial or investment advice. This information is not to be construed as an offer to buy or sell any security mentioned on this board. The creator of this board is not a licensed broker or financial advisor of any kind. The information on this site is gathered from sources available to the public. As consideration in using this board, all users agree, understand, and acknowledge the creator of the board is not liable or responsible for the accuracy or use of the information provided on this site and agree to indemnify and hold the creator of this board harmless from any liability resulting from the accuracy or inaccuracy of the information and from use of the information on this board. All of the information that I post on this board is public information available to anyone! You are responsible for your own trades and not the creator of this board.  Please be aware that investing in securities carries the risk of losing some or all of your money.

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5 Responses to “Spectrum Pharmaceuticals SPPI has room to run”

  1. pokerexpress February 15, 2011 at 9:20 am #

    Just pre announced record earnings. See link

    http://finance.yahoo.com/news/Spectrum-Pharmaceuticals-bw-3084948676.html?x=0&.v=1

  2. pokerexpress March 11, 2011 at 11:29 am #

    Yesterday, SPPI recorded record revenue for the year ended 12/31/10. See link below. I believe this stock has the potential to act like JAZZ did going into its pdufa last year due to the fact that this company is already growing revenues. If approved the stock could take off towards the low teens by end of this year and towards the 20’s by next year.

    http://finance.yahoo.com/news/Spectrum-Pharmaceuticals-bw-1450917997.html?x=0&.v=1

  3. pokerexpress March 25, 2011 at 10:39 am #

    RBC Capital initiated coverage on Spectrum today with an Outperform and price target of $12. This stock continues to gain good news and the price continutes its upward momentum. My initial $9 target for run has almost been reached. I will sell half my holdings if it reaches $9 and make a decision on the other half about halfway through April.

  4. pokerexpress April 21, 2011 at 11:36 am #

    Just sold the second half of my holdings today at 9.11 locking in a solid 36.2% gain on one half and making 29.6% on the other half. SPPI seems to be stuck in a range and as it is getting closer to the PDUFA, it seems reasonable to lock up the profit here. Awesome run-up and the best trade of the year so far. You rock SPPI!!

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