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Wait for a Pullback Before Rolling the Dice on SPPI Stock

Will Healy

Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) again finds itself in the news after a successful drug trial. The Henderson, Nevada-based biotech company achieved promising results in a phase 2 drug trial a few months after it reported similar success in phase 1 trials. However, trials remain far from complete. And with company revenues falling on its current approved drugs, SPPI stock needs a new product to continue its growth. Given the company’s current financials and the fact that much of the promise of its new drugs has been priced into SPPI, interested parties should likely avoid the stock for now.

Why SPPI Stock Is Soaring

Spectrum is engaged in drug development, licensing agreements and work with other pharma companies. Its six currently approved drugs fight diseases such as cancer. In fact, the reason why SPPI is soaring relates to a cancer drug. Progress with one of its cancer drugs sent the stock up almost 42% in Tuesday’s trading session. Like with earlier sudden spikes, the increase centered around progress with poziotinib, its non-small cell lung cancer treatment.

The MD Anderson Cancer Center conducted a phase 2 trial on poziotinib with 11 patients. The study resulted in a 64% objective response rate. Researchers had expected that rate to come in at 20-30%. CEO Joe Turgeon said the trials offered “additional insight into just how meaningful poziotinib may be in this area of high unmet need.”

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If these positive signs lead to a game-changing drug in treating non-small cell lung cancer, naturally SPPI stock would receive a considerable boost. Doctors diagnose more than 200,000 cases per year in the United States alone. Combine that with cases outside of the U.S., and Spectrum Pharmaceuticals stock stands to gain a benefit that analysts cannot yet quantify.

Investing in SPPI Stock Is a Gamble on Its New Drug for Now

However, researchers have to conduct more trials. Since so many factors cannot yet be determined, SPPI faces a great deal of uncertainty, especially when compared to the likes of Amgen, Inc. (NASDAQ:AMGN), Gilead Sciences, Inc. (NASDAQ:GILD) and Celgene Corporation (NASDAQ:CELG). If something goes wrong in future trials, or if regulators deny approval, SPPI stock will again fall back. The stock traded below $10 per share before earlier successful trials with poziotinib sent the stock soaring.

In determining the worst-case scenario, one needs to look at the company without poziotinib. If trials fail, the company makes and sells other approved drugs such as Fusilev, Folotyn, and Zevalin. Still, revenues have fallen every year since 2014. The company has also sustained annual net losses for several years. This leaves SPPI completely dependent on poziotinib and other drugs in development to drive SPPI stock higher. Hence, SPPI has become a bet on poziotinib.

However, those who want to “gamble” on SPPI stock should probably wait. The successful poziotinib trials announced last fall sent the stock to almost $20 per share. After that move, the stock remained largely flat for several months before falling from the $21 per share range in early March to around $14 per share before this latest announcement.

The Bottom Line on SPPI Stock

SPPI stock has become a gamble on its latest drug in development, poziotinib. Its current financials and the behavior of the stock mean those interested in the stock should wait. Both phase 1 and phase 2 trials on poziotinib have shown promise in fighting a form of lung cancer. If this drug gains approval by regulators, it could help millions of lung cancer patients throughout the world.

However, trials remain far from completion. And with the reduced revenue performance of SPPI based on its current drugs, SPPI stock will likely not rise without a new drug.

Given the current conditions, even those who want to bet on the success of Spectrum’s next cancer drug should avoid the stock at this time.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

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