For the last five years, Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) CEO Rajesh Shrotriya has always insisted that Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) was an acquisitive company, rather than “for sale”. But after a rough 2013, and many investors doubting the company’s future, the company might be exploring a sale.
The Run-Down
Before you Spectrum bulls get too excited, I’m not suggesting a $1 billion buyout or a 100% premium. Instead, I’d predict a small buyout premium – like what Spectrum paid for Allos Therapeutics – due to little support for its long-term plan of building through acquisitions.
Shrotriya has always said that he would rather lead a company with several small drugs in the market, rather than having one blockbuster product. The 18 years he spent at Bristol-Myers as an Executive Director of Worldwide CNS Clinical Research, during a period of substantial acquisitions, gave him great industry contacts and prepared him to execute the growth strategy he had envisioned.
The problem for Shrotriya, as seen with many companies, is that the plan to be diversified with several product offerings – Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) has three marketed products and 10 in clinical development – has backfired. Indirectly, the company’s colorectal cancer drug Fusilev became its primary source of revenue; contributing $204.3 million of its $267.7 million in revenue during 2012.
Its other drug, Zevalin, a blood cancer drug, is very efficient but has been a disappointment commercially. The company’s third drug, another blood cancer product, Folotyn, is growing, but most analysts don’t expect more than $100 million in peak sales.
Due to the company’s dependence on Fusilev, its shares were crushed when 2013 revenue guidance was lowered to just $170 million following new generic introductions.
Bringing new manpower to the table
Now, the company appears as though it may be trying something a little different. In the past, Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) acquired all of its products/pipeline and kept individuals on its board of directors who had a great deal of success at operating high-growth biotech companies. But on Monday, the company announced two new board members: Dr. Dolatrai Vyas and Raymond Cohen.
Dr. Vyas was at Bristol-Myers for more than 30 years as leading researcher and developer. This addition strengthens Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)’s connection to Bristol-Myers, a team that has a history of being acquisitive.
Mr. Cohen was the CEO of Vessix Vascular, a company that was acquired by Boston Scientific for $425 million.
These two new board members alone do not add value to Spectrum’s growth plan. But they might indicate that the company is bringing on new board members that have experience in marketing the sale of a company/product. These two additions could at least help to create an alternative business strategy.
Who Would Buy Spectrum?
Bristol-Myers is always a thought, thanks to the number of Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) directors, board members, employees, and also the CEO who began their career at the major pharma company. Yet strategically, such a buyout makes more sense for two other companies.
Eli Lilly & Co. (NYSE:LLY) is going to be hit among the hardest by the patent cliff over the next few years. The company is losing patents on two of its top-selling drugs: Cymbalta and Humalog. Already, the company has been hit by generic versions of Zyprexa. Combined, this could create a $5 billion hit to the company’s top line, or 10% of its revenue.
Eli Lilly & Co. (NYSE:LLY) is prepared to tackle the patent cliff by raising prices and cutting costs, and it has not been active in acquisitions. However, the company faces additional patent expirations in 2014 and 2015. Moreover, the company has among the weakest pipeline among big pharma.
