Spectrum Pharmaceutecals Inc (SPPI)

[antihama]

Ziggy, a realistic near future stock price is… way above where we are now. Here’s my rationale. Pretend that SPPIs current drugs on the market don’t sell a penny more or less than the current quarter which is 34.3M – 1.9M (subtracting end of Eagle Pharma sales agreement revenue stream) = 32.4M/Q or 130M/yr. Looking at the Price to Sales Ratio determined by NYU Stern School of Business which was updated in Jan 2017, it is 5.86 for all Biotechs (it used to be ~8 last I checked a year or so ago). So 130M * 5.86 = 762M which should be the market cap for Spectrum. So even with the huge SP rise on Friday, the current MC for Spectrum is $708M, or 7% less. At $762M MC with a weighted average of 78.6M shares as shown on the quarterly, the MC should be at $9.70

So at this moment in time, based on P/S ratio, we are 7% undervalued. But hold the phone, this MC doesn’t price in any expectations of future potential of drugs in clinical development. We can take look at this 2 ways.

Let’s look at it, unrealistically, and say SPPI management is aware that their SP doesn’t value the future potential of their promising drugs in Phase 3 (Rolontis, Poziotinib, and Qapzola). And they cut off all future development of these drugs. That means their R&D expenses will go to nearly zero. R&D this Q was 15M, multiply that by 4 quarters and you get 60M. How would you value this 60M/ yr of pure profit? For the sake of argument let’s multiple it by the 5.86 P/S ratio. That’s another 352M in MC, if you divide that by the weighted average # of shares, or 78.6M, you get another $4.50 that the SP should go up. As I said this is unrealistic but you get the idea.

So what happens if we price in the future value of Rolontis and Poziotinib. Several months ago, I posted that EvaluatePharma forecast sales of CHS-1701 (biosimilar to Neulasta) are to reach $648m by 2022. As a FYI, CHS-1701 got a CRL, so won’t be on the market till next year or later. For the sake of argument, let say Rolontis, will capture the same or 648M. A couple of posts ago, I provided some thoughts on Poziotinib, just in Exon 20 insertion mutations in NSCLC can easily attain 500M in sales. So between these 2 drugs, $1150M in additional sales by some future date. If you multiple $1150M plus the existing 129M in sales that’s a total of $1279M in sales and you multiple that by a P/S ratio of 6 you get 7.6B in MC. Let’s say by then that the # of shares goes up to 100M then 1270M *6/100M sh = 77$.

So to answer your Q, at this point in time, a realistic near future stock price should be at least $14.20 ($9.70 + 4.50 if did w/o R&D) and less than the future value of $77 once Rolontis and Poziotinib get approved. This is all IMHO and as you know the future price will be dictated by the potential of poziotinib in other cancers like Breast cancer, or potential CRLs or disapprovals, potential licensing agreements etc. Hope this helps.

what do you think a realistic near future stock price is? What do you think if everything goes well a long term stock price could be?

Edit - Here's the NYU Stern School of Business link
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.html