The bladder cancer drug aqaziquone blew up Thursday after two late-stage clinical trials failed. Spectrum was counting on seeking U.S. approval for apaziquone later this year. That plan now seems dead, as is the $200-300 million in peak annual revenue Spectrum hoped to generate from the drug.
Spectrum is trying to pivot from the apaziquone disaster by acquiring Allos Therapeutics (ALTH) for $108 million, net of Allos' cash on hand. With the Allos deal, Spectrum gains control of the lymphoma drug Folotyn for a decent price. But Folotyn sales of just $50 million in 2011 (the drug's third year on the market) won't fill the hole left by apaziquone.Shares of Spectrum fell 9% to $11.42 Thursday and are now down 24% for the year. The biotech sector as a whole has been on fire in 2012 but Spectrum isn't keeping pace because very quickly and ominously, the company has become a growth stock without the growth. Sales of Spectrums' colon cancer drug Fusilev grew more than four-fold last year to $153 million, assisted by persistent supply shortages in leucovorin, a cheaper generic alternative. But Fusilev sales will be lucky to grow 10-15% in 2012 and may actually fall if leucovorin becomes more readily available later this year. Sales of Spectrum's non-Hodgkin's lymphoma drug Zevalin did fall last year to $28 million from $29 million in 2010, despite a significant investment in marketing to re-launch the drug in the U.S. The removal of a requirement for a pre-treatment scan late last year may help Spectrum boost Zevalin sales, but only time will tell by how much. On a conference call Thursday, Spectrum CEO Raj Shrotriya said Folotyn sales under his watch could double to $100 million. How? Shrotriya offered no details. Why investors should believe that Spectrum can double sales of a drug Allos has been selling exclusively for three years with little success was not explained. Shrotriya emphasized Folotyn's commercial potential in Europe but failed to mention that European regulators rejected the drug earlier this year. Allos was seeking an appeal of the negative decision but the drug's fate is still uncertain. Without taking into account apaziquone's blowup or the addition of Folotyn, Spectrum was expected to boost 2012 sales by about 11% and earnings by 6%, according to analyst consensus estimates. Folotyn may bolster Spectrum's year-over-year revenue growth but 2012 earnings will probably fall due to the added expense of the Allos acquisition. At Thursday's closing price of $11.06, Spectrum trades for 12 times 2012 earnings, a price-to-earnings ration that seems rich for a company without much growth or an exciting late-stage pipeline. [And that includes belinostat, an HDAC inhibitor for the same type of lymphoma that Folotyn treats.] If investors want to pay 11-12 times forward earnings for a biotech company, they'd do better by investing in Gilead Sciences (GILD) or Amgen (AMGN). For even more growth, look at Celgene (CELG), Biogen Idec (BIIB) or Alexion Pharmaceuticals (ALXN). Spectrum might have been the life of the party last year -- this year, not so much. --Written by Adam Feuerstein in Boston.
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