Spectrum Pharma: The Labor Day Catalyst (NASDAQ:SPPI) Print E-mail
Thursday, 20 August 2009 17:20

This Labor Day, September 7, Spectrum Pharmaceuticals (NASDAQ:SPPI) expects an FDA decision for their non-Hodgkin’s lymphoma (NHL) radio-immunotherapeutic (RIT), Zevalin®.

The consensus held by most investors, analysts and commentators is that Zevalin will be approved as a first-line consolidation therapy for patients with NHL. It is important to note that Zevalin is already approved for use in the US for refractory NHL. Unfortunately, Zevalin is usually only administered as a last resort treatment.

FIRST-LINE CONSOLIDATION THERAPY

Upon filing a supplemental Biologic License Application (sBLA) in late 2008, SPPI’s aim is to obtain regulatory approval for Zevalin
in a first-line consolidation setting. Under this setting, Zevalin would be approved for first-line use and administered in consolidation with induction therapy.

Induction therapy generally includes a combination of (1) a chemotherapeutic, such as doxorubicin and (2) rituximab. Consolidation
therapy follows induction therapy and is designed to induce remission. Under the consolidation setting, Zevalin would be
administered after induction therapy to those patients who obtain either a partial response (PR) or complete response (CR).

In April 2008, Zevalin was approved in the EU as a first-line consolidation therapy for patients with NHL. Here, it should be noted that outside the US, Zevalin is marketed by Bayer Schering (BYERF.PK).

THE FIT STUDY

In the Phase 3 FIT trial, patients, who received Zevalin following induction therapy, (1) received a progression free survival (PFS)
benefit of three years (an improvement from two years as previously reported here) and (2) regardless if the patient had received
either PR or CR to induction therapy.

During the company’s August 13 conference call Dr. Andrew Sandler, SPPI’s Chief Medical Officer, pointed out, “[A] three year
progression free survival advantage is very significant in this patient population.”

Importantly, 77% of the patients, who received a PR following induction therapy, converted to a CR. Here, FIT researchers
noted, “[T]his is one of the highest PR-to-CR conversion rates reported in [all] Phase 3 randomized studies in first-line follicular
lymphoma.”

Based on these significant findings, the Phase 3 FIT trial was characterized as a “landmark study” by Dr. Oliver W. Press, chair
for lymphoma research at FredHutchinsonCancerResearchCenter. (Source: NCI Cancer Bulletin, vol.5/no. 21, Oct. 21, 2008.)


ZEVALIN DISUSE
During last week’s conference call, Dr. Sandler touched on Zevalin’s prior disuse:

“Although Zevalin is currently FDA approved in the relapse or refractory setting, for a number of reasons it is unfortunately
currently only used in a salvage setting. Many patients, who should be receiving Zevalin, are not. We hope to change that.
If Zevalin is approved in the first-line setting, we believe it will be an important first step bringing the treatment of
non-Hodgkin’s lymphoma in line with the standard of care in other hematological malignancies.”

Consolidation Therapy in Other Cancers

Consolidation therapy is used often to treat other forms of cancers. In the conference call, Dr. Sandler explained how consolidation therapy is used to treat a related cancer, acute leukemia.

 

“For decades, doctors have been treating acute leukemias with (1) induction therapy to wipe out as much bulky disease as possible; (2) followed by consolidation therapy to further reduce any minimal residual disease and to provide the patient with the best quality of response possible; and (3) maintenance therapy to sustain the consolidation response, thus improving the duration of the response.”


Issues Surrounding Zevalin Disuse


Dr. Sandler further highlighted the three main issues that led to Zevalin’s disuse. In the table below, a brief summary of each issue has been provided along with SPPI’s solution for each.

 

Type

Description

Solution

Clinical

It was previously and incorrectly believed that Zevalin might cause damage to patient bone marrow if used in a consolidation setting.

As evidenced by the FIT study, this is obviously false.

The FIT study clearly shows that Zevalin offers significant benefits for NHL patients in the first-line consolidation setting.

Results fro the FIT study indicate that Zevalin is both a very safe and effective treatment for patients in each of the age groups evaluated in the study.

SPPI is working to educate treating physicians. In time, the company expects such education will lead to increased use of Zevalin in BOTH the [pending] first-line and [existing] refractory settings.

Logistical

“Cumbersome” bio-scan requirement in US.

In most EU countries, the bio-scan is NO longer required.

Without the bio-scan, Zevalin could be administered in a couple of hours as opposed to 7+ days with the bio-scan included.

Now, this is would be a great way to cut healthcare costs!

SPPI is also conducting an analysis of the bio-scan upon the FDA's request. The company hopes the results from this analysis will enable the regulators to drop or discontinue the bio-scan requirement.

Financial

Complicated reimbursement for Zevalin policies that differ by state.

SPPI is working with CMS (Medicare) to alleviate reimbursement complications resulting from differing reimbursement policies in various states.

 

ZEVALIN SALES INCREASED 25% IN Q2 2009


On July 14, 2009, I indicated that, “. . . investors should not be shocked to see an up-tick in Zevalin sales during Q2 2009.” In Q2, SPPI did, in fact, report an increase of 25% in quarter over quarter sales for Zevalin.

 

During the recent conference call, Amar Singh, SPPI’s Chief Commercial Officer, provided some insight on the upside surprise achieved with Zevalin sales.

 

“We are encouraged by the strong signal that we have received from the market after just one full quarter of marketing and sales under Spectrum’s leadership.

 

(1) Average growth in unit sales over the prior three years when we compare only the first and second quarters, the rates were a -12%. Despite the fact that two out of these three years, the drug was previously sold by a company (Biogen Idec (BIIB)) much larger than Spectrum.

 

(2) This improvement from a decrease of -12% to an increase of over 20% was achieved in the first full quarter since Spectrum acquired 100% of the rights to Zevalin.

 

(3) Importantly, we accomplished this at a time of heightened competition from the launch of Treanda® (marketed in the US by Cephalon (CEPH)) in the refractory NHL setting last fall.

 

(4) We accomplished this in the absence of receiving regulatory approval of Zevalin in the front-line setting.”

 

Singh concluded, “It appears that we are well on our way to achieving our . . . goal of stabilizing [Zevalin] sales.”

 

Since SPPI acquired the rights to Zevalin from Cell Therapeutics (CTIC) in mid March 2009, I agree with Mr. Singh’s sentiment. That Zevalin sales actually rose for the first time in the past three years is very compelling. From my view, the 25% increase is a meaningful improvement and strongly suggests that Zevalin may finally have a promising future.

SALES FORCE MATTERS


In response to my June 29, 2009 article, Michael Becker commented, “[I]t is naive to believe that Zevalin has simply been marketed incorrectly.”

 

In the conference call, Dr. Rajesh Shrotriya, SPPI’s chairman and CEO, revealed that the company’s sales force, responsible for marketing Zevalin, consisted of 40 executives. Dr. Shrotriya also pointed out that the past sales teams from both Biogen Idec (BIIB) and Cell Therapeutics (CTIC), who had previously held the rights to and were responsible for marketing Zevalin, consisted of no more than seven, (7), executives.

 

One could reasonably argue that the size of SPPI’s sales force may be having an impact on current Zevalin sales and responsible for the respective 25% increase.


CONCLUSION


The recent up-tick in Zevalin sales appears to be much more than a stroke of good luck. Clearly, SPPI appears to be executing a well-designed plan with a right-sized sales force.

 

· It looks like SPPI may have very well identified the correct issues and mistakes made by others in the past. With an early increase in sales, SPPI’s plan seems to be working and the company does not appear to be repeating mistakes made in the past.

 

· This increase implies either: (1) SPPI has assembled the kind of sales force necessary to market Zevalin appropriately; (2) more physicians are beginning to adopt Zevalin; or (3) all of the above. Nevertheless, it's very telling. The previous sentiment may finally be changing in Zevalin’s favor.

 

For these reasons, I anticipate sales of the drug will likely continue to grow in the coming quarters - especially if it's approved for the first-line consolidation setting by the FDA on (or before) September 7, Labor Day.

 

Since institutional investors and hedge funds have been slow to catch on, SPPI still remains a hidden gem and an excellent investment opportunity.

· With a current price of $6.32 and a market cap of a mere $263 million, I anticipate shares of SPPI will likely see a dramatic rise in the coming weeks and months.


·
Over the next 6 to 12 months, my price target for SPPI ranges between $23.80 and $26.67 with a market cap from $1.0 to $1.12 billion.


·
If Zevalin sales continue to improve, then I anticipate that SPPI could likely be acquired within 12 to 18 months.

 


To learn more about RITs, Zevalin® and Bexxar®, take a minute and check out the resources listed below. It should be noted that Bexxar is marketed worldwide by GlaxoSmithKline (GSK)

 

· SNM 2009 Image of the Year

· Betsy de Parry’s Story

· New York Times, July 14, 2007 Article

· Must-See Zevalin Video

 

Interested investors might also consider reviewing my past coverage of SPPI.

 

· Buy Out Rumors Persist

· SPPI: Outlook Remains Very Promising

· Zevalin: The Importance of FDA Approval

· 17 Reasons Bayer Might Acquire Spectrum Pharmaceuticals

· Strong Late-Stage Pipeline

Disclosure: Long SPPI.




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