Gene Marcial's Inside Wall StreetSpectrum Pharmaceuticals (SPPI) is a small biotech that's been the subject of much buzz about a potential bid by an unidentified major pharmaceutical company. That's likely to get extra attention when the young biotech company makes a presentation at today's opening of the 52nd annual American Society of Hematology (ASH) meeting in Orlando, Fla. Thousands of scientists, medical professionals and investors are expected to attend the meeting, which highlights emerging research trends in the diagnoses, treatment and understanding of blood disorders.

Spectrum's stock in recent days has traded actively and higher, which some pros attribute to the takeover chatter. The stock had slumped to a 52-week low of $3.67 last summer, but by late November it had turned around and climbed to $4.20. On Dec. 3, the shares closed at $4.95, up 22 cents, or a hefty 4.65%. On Nov. 30, Spectrum's board urgently approved a resolution to install a poison pill, or shareholders rights agreement, to prevent any "coercive takeover attempts" that would be unfair to its shareholders. It will replace an existing poison pill that expires on Dec. 30.

Based on Spectrum's fundamentals, some analysts put the stock's worth at $8 to $12.50 a share. Some of the major institutional investors already holding big stakes in Spectrum include BlackRock Institutional Trust, which has accumulated 5.7% of the stock, and Goldman Sachs, which has acquired 2.2%.

Four Drugs Are the Big Attraction

The biotech industry has seen a number of takeovers in the past 12 months, the latest of which included Sanofi-Aventis (SNY) agreeing to buy Genzyme (GENZ), and Celgene's (CELG) $3 billion acquisition of Abraxis BioScience (ABII).

So what's Spectrum's particular allure? For a tiny biotech, it has two oncology drugs approved by the Food and Drug Administration that are already on the market, plus two others that are in late-stage clinical trials.

Spectrum CEO Dr. Rajesh C. Shrotriya declines to comment on the takeover rumors, but he suggests that the more important fundamental issue that investors should focus on is the company's presentation scheduled for Monday's ASH meeting on the latest data on its flagship drug Zevalin. One of the company's two FDA-approved oncology drugs, Zevalin is a monoclonal antibody for the treatment of relapsed or refractory low-grade or follicular non-Hodgkin's lymphoma. The FDA recently approved the expanded use of Zevalin as a first-line consolidation therapy for B-cell follicular non-Hodgkin's lymphoma. Spectrum predicts that with the expanded use, it could generate sales of about $74 million by 2013.

Fewer Harsh Side Effects

At the ASH conference, Spectrum is also scheduled to announce an international clinical trial for Zevalin in the Charlie University Clinic in Berlin, aimed at demonstrating that the drug could be used as a stand-alone therapy without prior chemotherapy treatment. If the trial is successful, Spectrum scientists say the drug would be particularly beneficial to patients with poor tolerance for the abrasive side effects of chemotherapy.

Spectrum's other FDA-approved drug is Fusilev, designed for high-dose methotrexate therapy in patients with osteosarcoma, a form of bone cancer. In late November, the FDA accepted Spectrum's request to review Fusilev for a supplemental new-drug application for treating patients with advanced metastatic colorectal cancer.

In addition, Spectrum has two other drugs that are in late-stage development, along with a diversified pipeline of novel drug candidates. The two drugs are Apaziquone, currently in Phase 3 clinical trials for bladder cancer, and Belinostat, a drug for the treatment of peripheral T-cell lymphoma. Spectrum expects to file a new-drug application for Belinostat in 2011.

Reni Benjamin, biotech analyst at investment firm Rodman & Renshaw, predicts that Zevalin sales in 2010 may exceed the upper limit of management's guidance. Zevalin revenues jumped 12% to $7.7 million in the second quarter from the same period a year ago and climbed in the third quarter to $8.3 million. For the fourth quarter, Benjamin projects Zevalin sales of $8.3 million. His estimated full-year 2010 revenues of $29.3 million exceed management's forecast of $27 million to $29 million.

"Undervalued Oncology Player"

Benjamin rates Spectrum as outpeform/speculative risk with a 12-month price target of $8 a share, based on his revenue and earnings analysis. The potential for the stock's appreciation is anchored on management's ongoing sales effort to boost Zevalin and the potential approval of Fusilev for colorectal cancer. Benjamin expects positive data from the late-stage programs for Belinostat and Apaziquanone.

With Spectrum's $92 million cash on hand and the potential for higher Zevalin revenues, plus its pipeline of products for which the company could form partnerships with Big Pharma, "we believe Spectrum represents an undervalued oncology player with significant upside potential for the long-term investor," says Benjamin.

Jospeh Pantginis, senior research analyst at Roth Capital Partners, who rates Spectrum a buy, carries a higher 12-month target for the stock of $11, based on anticipated revenue growth of Zevalin and Fusilev, and positive trial results from Belinostat and Apaziquanone, as well as Spectrum's strong balance sheet. That sturdy financial position should help Spectrum not only in expanding its product franchise but also in allowing it to continue being opportunistic in searching for potential licensing or acquisitions of new products, says Pantginis.

Takeover Target? It May Not Matter

The analyst projects Spectrum's total sales of $53.7 million in 2010, rising to $57.5 million in 2011, and then jumping to $123.9 million in 2012. However, Spectrum is expected to continue to be in the red through 2012.

The analyst with the highest 12-month stock price target is George B. Zavoico of investment firm MLV. He expects the stock, which he rates a buy, to hit $12.50 in a year, "The key short-term drivers are continued growth in Zevalin sales, a decision by the FDA to OK a suppplemntal new-drug application [NDA)] for Fusilev in colorectal cancer by mid-2011 and an NDA for Belinostat for peripheral T-cell lymphoma in 2011," says Zavoico.

Whether or not Spectrum ends up a takeover target is anybody's guess. But it appears to be an attractive biotech investment bet anyway -- with all that's going on with its two drugs now on the market and the potential of its promising drug pipeline.


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