I'm not sure setting up a global presence is the best move for Spectrum Pharmaceuticals (NAS: SPPI) , but if management is hell-bent on it, then licensing the right to Zevalin outside the U.S. seems like the least-risky, most-effective way to do it.
Spectrum already owns the U.S. rights to the lymphoma treatment, so it has plenty of experience with the drug. Having the full rights also makes developing clinical trials to expand the Zevalin's indications more productive. Spectrum acquired the U.S. rights a few years ago from Cell Therapeutics (NAS: CTIC) , which got them from Biogen Idec (NAS: BIIB) . It's done more with the drug than either of those two, reversing the downward sales trend and nearly tripling 2008 sales.
It's hard to know whether Spectrum got a good deal. It'll pay Bayer (OTC: BAYRY) about $25 million for the rights to the drug, but didn't say how well it's been selling outside the U.S., and Zevalin is small enough that Bayer doesn't break out sales of the drug. Spectrum did say the market outside the U.S. is several times larger than in the U.S., where Spectrum is on pace for annual sales of less than $30 million. There's also an undisclosed royalty for Bayer that complicates the analysis of the deal.
Not that the financial details matters all that much. Spectrum had over $200 million in the bank at the end of the third quarter, and the company is cash-flow positive. As long as the terms are good enough that Spectrum is making a profit on the drug, it'll add to earnings.
The bigger question is whether Spectrum should be setting up shop outside the border. It won't require a large presence -- marketing to hematologists is on the smaller side of things -- but it's still resources that could be deployed elsewhere. Amgen (NAS: AMGN) , for instance, realized its limitations and struck a deal to let GlaxoSmithKline market its osteoporosis drug Prolia. Amgen is considerably larger than Spectrum, but so is the osteoporosis market relative to lymphoma's.
Whether the global expansion turns out to be a good move will likely depend not on the success of Zevalin outside the U.S., but whether Spectrum can develop or license other drugs that can also use their international expansion. If you're going to have a global presence, it has to be done on a global scale.
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