Two months ago, there were only two kinds of traders.... those who had left Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) for dead, and those who had never heard of it. A funny thing happened on the way to the grave, though. SPPI started to recover, and has since become a hot pick again.
SPPI is, as the name suggests, a biopharma maker and developer. It produces Zevalin, Folotyn, and Fusilev, and actually turned those three drugs into $38 million worth of revenue last quarter (and $267 million worth of revenue last year). That's not what's driving the market nuts - in good as well as bad ways - right now, however. All eyes are on Spectrum Pharmaceuticals' Apaziquone and Belinostat, which are in the latter stages of development. Belinostat is targeting peripheral T-Cell lymphoma, while Apaziquone is being developed as a bladder cancer treatment. Both are in Phase 3 testing.
Great, but what about the mid-March plunge? That was in response to the company's lowered guidance for 2013; revenue was expected to fall by 40% this year, as hospitals opted to use lower-priced colon cancer drugs. That switch to a cheaper colon cancer therapy was a big blow to Fusilev, which drives about 80% of Spectrum Pharmaceuticals' sales.
Yes, the response to the news was understandable. As is so often the case though, it may also have been an over-reaction. SPPI shares plunged 35% on the day after the news was released, and ultimately fell 41% before the bleeding stopped. But, given what else the company had on the market on top of what it's got in the pipeline, a 41% hit is simply too much.
The market finally started to figure this out beginning in May. After cultivating a floor at $7.00 over the course of April, SPPI pushed off of that support in May, and has since moved above the high seen on the day of the plunge. This technical progress speaks volumes. Yet, there's still room for a lot more. The bearish gap from March still isn't close to being filled in, and as long as that space is unfilled, it will act like gravity, pulling the stock higher. Meanwhile, the company has plenty of PR fodder in the lineup for its two Phase 3 projects.
The near-term momentum makes for a great trade, but even long-term investors should view this as an opportunity.
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