Eight months ago, Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) was a train wreck. Shares had plunged from $12.43 to $7.79 on the heels of bad news, and SPPI wouldn't stop bleeding until it hit a low of $6.92 a few days after the big selloff. That bad news? A warning that its full-year sales (and particularly sales of its cancer drug Fusilev) would be well short of expectations.
As they say though, nothing lasts forever. Not only are Spectrum Pharmaceuticals no longer losing ground, they're making forward progress. Indeed, today's technical leap from SPPI has cleared a huge technical hurdle, leading traders to believe a big rally is inevitable... a rally all the way up from the current price of $9.08 back to the $12.00 area.
That technical hurdle is the 200-day moving average line (green). After a string of higher highs, higher lows, and a recent battle right at it, SPPI has finally made its way above that key long-term average line, signaling that the undertow has decidedly shifted towards bullishness. And as far as a target around $12.00 goes, that's where the upper end of March's gap range can be found. The market hates to leave gaps unfilled, to odds are good that traders will pressure Spectrum Pharmaceuticals, Inc. upward to fill in that span.
Of course, the odds of these technical clues panning out will at least partially be fueled by what the company is doing. Has Spectrum Pharmaceuticals actually become a much better stock than it was in March of this year? Yes, and no.
First and foremost, would-be investors should know that the current price of $9.09 for SPPI makes reasonable sense. The trailing P/S ratio is at 2.43, which is right in line with the market's norm. The trailing P/E ratio is 33.2, which is frothier than the market's average, but not an uncommon valuation within the biotech arena. And, it should be noted that these trailing valuation measures largely incorporate the waning revenue numbers. In other words, the March plunge "right-sized" the stock relative to earnings and revenue.
It's not just a right-sizing that removes the risk of owning Spectrum Pharmaceuticals, Inc. at its current price, however. What investors may want to factor in is the recent launch of Marqibo, for acute lymphoblastic leukemia. It's only approved for a small sliver of that market, mind you, but then again, SPPI is a small company. Winning market share in the ALL market could still be a relative windfall for the $537 million company. Zacks believes Marqibo could generate more than $100 million in annual revenue. Even though Spectrum must split some of that cash with the drug's licensor Hana Biosciences, there's still some revenue at hand, and it's not like Fusilev isn't selling at all. The recent announcement of a new trail - multiple myeloma drug Melphalan - should give the company and traders plenty of fodder to work with too.
Bottom line? This is a case where onlookers may want to trust the market's collective hint via the chart's move above the key 200-day moving average line. Traders are done testing the waters. Now they're starting to pile in, for good reasons.
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