|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Spectrum: Allos Acquisition Means Huge Upside Potential
Posted by: Vatalyst.com (IP Logged)
Date: May 4, 2012 10:09PM
The National Cancer Institute estimates in its Cancer Statistics Review that over 1.5 million individuals will be diagnosed with cancer in 2012. The number of people who will die of the disease this year totals over .5 million. On Jan. 1, 2009, there were over 12 million individuals alive with a history of cancer, either past or present. Based on rates from 2007 to 2009, the probability of cancer is just over 41%. Diseases featuring malignant tumors are becoming a leading cause of death. Actually, deaths from malignant tumors are in second place after cardiovascular disease.
The statistics are really shocking and could get worse. As cancer incidences generally occur at a mature age, and life expectancy gets longer, the number of tumor diseases may increase, which may make oncology even more vital.
The high relevance of oncology and cancer treatment is something investors also need to keep in mind. There is a wide selection of pharmaceutical companies that are engaged in the development and commercialization of products for patients suffering from cancer. A promising player in this industry is Spectrum Pharmaceuticals (SPPI), an innovative biotechnology company.
The company focuses on oncology and hematology. It commercializes two drugs indicated for cancer treatment, FUSILEV and ZEVALIN. Its flagship is ZEVALIN (ibritumomab tiuxetan), a CD20-directed radiotherapeutic antibody. The ZEVALIN therapeutic regimen is an intravenous injection for patients with certain types of follicular non-Hodgkins lymphoma (fNHL). The therapy includes two medications: rituximab, which reduces the number of B-cells in the blood, and Yttrium-90 radiolabeled ZEVALIN, which treats fNHL. ZEVALIN isapproved in more than 40 countries including America and many others throughout Europe and Asia. The other drug, FUSILEV is a folate analog indicated in combination with 5-fluorouracil (a chemotherapy agent) for patients diagnosed with advanced metastatic colorectal cancer. In response to increased demand for this drug, Spectrum has built abundant inventory reserves and expanded its manufacturing capacity.
Spectrum has two medications in the late-stage development phase. Spectrum is studying Apaziquone for the treatment of non-muscle invasive bladder cancer, and developing belinostat for use in patients with carcinoma of unknown primary, non-small cell lung cancer, peripheral T-Cell Lymphoma and solid tumors. The latter shows promise for hematological malignancies, as well. In addition, Spectrum has a diversified portfolio of drugs in various stages of development.
Unfortunately for Spectrum, Apaziquone has failed on recent phase 3 clinical trials, which caused its share price to fall back. However, the analysis of the pooled data from studies demonstrates a statistically convincing treatment effect in favor of the drug in two endpoints - rate of tumor recurrence at two years and time to recurrence. This means that Spectrum won't give up that easily and it's most likely that it will request a meeting with the FDA to review its future options for Apaziquone. Since there hasn't been a new drug approved and marketed for non-muscle invasive bladder cancer in over 20 years, Spectrum being akin to proceed on this path is a good sign in my eyes.
The business model of Spectrum is characterized by acquisitions and building partnerships. In-house drug discovery is not typical. The company selects promising drug candidates, brings them through the development process, and after approval, distributes them through its sales organization.
Its strategic partners include renowned biotechnology and pharmaceutical companies like Allergan (AGN), Biogen Idec (BIIB),Bristol-Myers Squibb (BMY), Handok Pharmaceuticals, Nippon Kayaku, Topotarget and Hanmi Pharmaceuticals. The knowledge and expertise of Spectrum's worldwide partners are a significant force in helping to carry out its dynamic development strategy. The cooperation with leading companies decreases the risks of costly drug development and speeds up the process.
Spectrum has recently hit the headlines with a new announcement: it will acquire all of the outstanding shares of the biopharmaceutical company Allos Therapeutics (ALTH), which develops and commercializes novel therapeutics for cancer. Its FOLOTYN (pralatrexate injection) has been approved by the FDA for patients suffering from relapsed/ refractory peripheral T-cell lymphoma. The folate analogue metabolic inhibitor also shows promise for treatment of other solid tumors and hematologic malignancies. Sales data of FOLOTYN in the U.S. looks convincing: over $35 million in 2010 and around $50 million in 2011.
Rajesh C. Shrotriya, MD, President and Chief Executive Officer at Spectrum Pharmaceuticals stated that this acquisition will not only add a new source of revenue to
Spectrum's portfolio, but it is also expected to speed up the development of the company's hematology franchise. As ZEVALIN and FOLOTYN are both indicated for the treatment of lymphoma, Spectrum may become a leader in this area.
The company's stock is currently trading around $10 per share with a 52-week range of approximately $7 to $16, a current market value of over $600 million and a volume of over 2 million. The company's revenues equaled $193 million in 2011. This exceeded 2010 revenue by over 160%. The average analyst's rating of the stock is that of a "moderate buy", with quite a few recommendations of a "strong buy." There are no recommendations to sell the stock.
Let's take a quick look at some of Spectrum's rivals in the pharmaceutical industry.
Biogen Idec develops and commercializes therapies for patients suffering from autoimmune disorders, hemophilia and neurodegenerative diseases. The company, which is not only a competitor, but also a strategic partner of Spectrum, shows a significant growth in sales and income. I recommend buying its stock.
The global healthcare group GlaxoSmithKline (GSK) is among the leaders of the pharmaceutical industry. Its wide range of products includes oncology therapies as well. The company is streamlining its operations. It divested its entire interest in Quest Diagnostics (DGX) in February 2011, and sold brands to Prestige Brands Holdings in 2012. Due to the recent changes, its sales have slightly decreased, but its income has doubled. I would also recommend its stock.
The Japanese Eisai, ranking among the top pharmaceutical companies in the world by revenue, operates in two segments, one with a focus on pharmaceuticals, including cancer treatment. Its other segment produces chemicals and food additives, as well as medicine manufacturing equipment. Analysts don't generally recommend buying Eisai stock for now. Although it is traded over the counter, there seems to be not enough data for thorough analysis.
Endo Pharmaceuticals Holdings (ENDP) might be a good investment, however. The specialty healthcare solutions company deals with pharmaceuticals, medical devices and services in therapeutic areas. The company has made several acquisitions in order to change its business mix.
In 2010, Endo Pharmaceuticals completed three significant acquisitions - Qualitest Pharmaceuticals, HealthTronics and Penwest Pharmaceuticals and in 2011, it completed acquisition of American Medical Systems. In January 2012, the company signed a licensing agreement with BioDelivery Sciences International (BDSI) for BEMA Buprenorphine and in March 2012, the company announced collaboration with Mersana Therapeutics and has acquired Johnson Matthey's (JMAT.L) oxymorphone patent. I think that in time, this diversification strategy could prove to be fruitful for Endo Pharmaceuticals.
Although Endo is a good possibility, let's not forget about our target, Spectrum. As it has competitive business development and sales teams, carries out a strong drug development program, and will take advantage of merging two strong brands of the oncology market through the recent acquisition of Allos Therapeutics, its stock may be a good investment.
Stocks Discussed: SPPI, ALTH, BIIB, AGN, BMY, GSK, ENDP, BDSI,