Buy Spectrum Pharmaceuticals For Exposure To Assertio Holdings

Spectrum Pharmaceuticals (NASDAQ:SPPI) is a small ($200 million) commercial stage biopharmaceutical company focused on oncology therapies. They market ROLVEDON (eflapegrastim-xnst), an attractive and possibly best-in-class product. On April 25, they entered into a definitive agreement to be acquired by Assertio Holdings (ASRT) in an all-stock and contingent value rights (“CVR”) transaction. Spectrum stockholders will receive 0.1783 shares of Assertio stock for each share of Spectrum stock they own, an upfront value of $1.14 and an initial 65% premium to Spectrum’s closing price. This is in addition to one CVR per Spectrum share entitling them to receive up to a total $0.20 per share; $0.10 per share are payable upon ROLVEDON net sales achieving $175 million during 2024, and another $0.10 on net sales of $225 million during 2025. Without considering the CVR, investors may still have to calculate in real time which among the two is the better deal.

ROLVEDON (eflapegrastim-xnst) is a long-acting granulocyte colony-stimulating factor (G-CSF) subcutaneously injection. It is indicated to decrease the incidence of infection, manifested as febrile neutropenia (‘FN’), in adult patients receiving myelosuppressive anti-cancer drugs with significant FN risk. The drug directly competes with G-CSFs recommended in the National Comprehensive Cancer Network (NCCN) guidelines: Amgen’s (AMGN) NEUPOGEN and Neulasta, as well as their biosimilars. As discussed in previous Assertio coverage, ROLVEDON is administered once per chemo cycle, which is one major advantage over daily NEUPOGEN, while Neulasta shouldn’t be used for regimens that have weekly cycles. The Neulasta Onpro device, applied the same day as chemo and delivering the full dose the following day, is an option for patients who can’t return to the clinic. A rat study in which ROLVEDON decreased the duration of FN when given at the same time as chemo, or up to 5 hours after, supports the ongoing Phase 1 same-day dosing trial in breast cancer.

A pooled analysis ROLVEDON’s two pivotal Phase 3 studies, ADVANCE and RECOVER, demonstrated superiority of ROLVEDON in the duration of severe neutropenia (“DSN”) compared to Neulasta, with a similar safety profile. In these trials, SN was defined as absolute neutrophil count <0.5 × 10⁹/L, a Grade 4 Adverse Event (Life-threatening consequences; urgent intervention indicated) per the National Cancer Institute. ROLVEDON significantly reduced DSN by 0.120 days (95% confidence interval: -0.227, -0.016; superiority p = 0.029), and the relative risk reduction in the incidence of SN in cycle 1 versus Neulasta was 27.1% (17.5% vs. 24.0%, p = 0.043). Neulasta averaged $500 million in U.S. quarterly sales in 2020. ROLVEDON will likely take over the $87 million share earned in 2022 by NEUPOGEN.

My Assertio article spelled out that a conservative $6 million quarterly increase (i.e., 16-22-28-34) would put ROLVEDON’s 2023 revenues at $100 million. Carrying this extremely conservative LINEAR projection into 2024 (40-46-52-58) indicates $196 million, while 2025 shows that 64-70-76-82 = $246 million in the drug’s third full year. And all this without the benefit of the permanent Centers for Medicare & Medicaid Services J-Code J1449 that went into effect on April 1. The unique J-Code simplifies claim submissions, documentation, and reimbursement. Jefferies estimated peak sales at $550 million before the pooled analysis was out.

Risks and Takeaways

The worst disaster is if ROLVEDON is unable to take market share from the slightly inferior G-CSF products. This is a greater possibility if Spectrum goes it alone than if working with Assertio’s more-proven business model. However, Spectrum did its part, selling nearly $16 million (+54% over Q4) of ROLVEDON to 172 targeted accounts (+145% over 70 accounts in Q4). It had $56.1 million as of March 31, 2023. Getting to the next target of $22 million (+41% QOQ) with the J-Code in play for Q2 is very doable. The Q1 net loss was only $5 million, meaning Spectrum is likely to be profitable this year if the deal doesn’t close by Q3.

The next worst might be if the merger falls through; however, these aren’t Big Pharma M&A moves, so any legal drama is unlikely to arise. Furthermore, the leading independent proxy advisory firms, Institutional Shareholder Services, and Glass Lewis & Co., both recommended that Spectrum stockholders vote “FOR” the proposal. If Longs hadn’t taken profits during the recent runup after Q1 earnings to $1.36, they might as well lock in their fortunes with Assertio.

Assertio Q1 revenues beat Wall Street estimates for the 11^th straight quarter. With INDOCIN at $65 million after two quarters, Management will likely have their two $100-million earners. They raised 2023 outlook by $7 million to a range of $157-$167 million, which doesn’t consider the recent American Society for Gastrointestinal Endoscopy (ASGE) guideline change on INDOCIN or the Spectrum deal. ASRT was added to the Russell 3000 Index on June 23. ASRT still boasts an A+ in Valuation from Seeking Alpha’s Quant system, an A in Momentum, and will likely rally at Q2 earnings due to Wall Street analysts' pessimistic estimates.

To conclude, Spectrum is the better long-term deal as long as ASRT is above 5.61x SPPI price. At last week’s closing share price of $5.35, ASRT is more of a bargain than SPPI, which last traded at $1 but should be at $0.954 per share. That condition could change day-to-day. Whichever of the two stocks they invest in, the important thing is that buyers will eventually end up with ASRT. At the current price, Assertio is again a deep-value play. And with Assertio's expertise, Spectrum Longs will likely get the CVR rewards as icing on the cake.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.