Spectrum takes a hit

Double negatives on SPPI this morning pre-market. The company announced that they are acquiring Allos Therapeutics (ALTH) for ~$200M. ALTH has a drug on the market (Folotyn) for the treatment of lymphoma so it seems like a good fit for SPPI. One would expect the acquirer’s share price to take a hit on news of an acquisition. Compounding this is the news that SPPI’s developmental candidate, apaziquone, failed to meet its endpoints (statistically significant difference in the rate of bladder tumor recurrence at 2 years) in two trials. As a result of these two developments, the stock price is currently down 12% – the portfolio is down 3.5%.

I have held SPPI for a long time and am continuing to hold. I have managed the risk differently compared to my other positions – and this is probably a learning point. On my other, catalyst driven, positions I have a very defined point of maximum pain. I move my stops (mental) when certain gains are achieved. With SPPI I did not follow this approach. Had I done so I would have exited somewhere in the mid $14’s. I would also not have held through the announcement of trial results.

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2 thoughts on “Spectrum takes a hit

  1. I noticed you are still in cash, and over at biorunup.com they seem to be floundering a bit. Do you think playing the run-up to these catalyst events is no longer an effective strategy?

  2. Hi David,

    Thanks for the comment. I have been away from the portfolio for a couple of weeks and in the past I have found that it is best to go to cash when I am not giving things my full attention. I will be deploying my cash again in the next few days. The time away has certainly had an opportunity cost – I would probably have re-entered PLX at $6.60ish and enjoyed a ride into the $7’s.

    WRT your question, no, I don’t think the catalyst strategy has become ineffective. All approaches are cyclical but it does not even seem to me that this approach is in a valley at the moment. I cannot speak biorunup.com, as I do not follow them, but looking at the ten most recent (or immediate) FDA decisions most have had significant advances ahead of the PDUFA. Using a simplistic entry and exit approach trading CTIC, PGNX, PLX, ALXA and even TLON would all have potentially resulted in very reasonable gains (in the 10-20% range).

    After the overall market gains (and the very strong biotech market in Dec/Jan) it was hard to find attractive entry points for some of the catalyst candidates but it turns out that the strategy has been working pretty well despite this. I have about 4 years of data with this strategy and if anything 2012 is currently tracking slightly ahead of expectations.

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