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Cancer Drugs from Spectrum

Little-known Spectrum Pharmaceuticals (SPPI) has been one of the market's big winners, climbing to 5.47 on May 26, up from 55 cents in mid-October. It has since eased to 4.74. But don't think the party's over. "Despite the run-up, we recommend buying Spectrum, our top pick among small-cap biotechs," says Shiv Kapoor of investment firm Morgan Joseph, whose 12-month target is 7. Goldman Sachs (GS) is the biggest shareholder, with 3.6%.

Spectrum has two anti-cancer drugs on the market: One targets non-Hodgkin's lymphoma, and the other treats osteogenic sarcoma. Spectrum has teamed up with Allergan for its drug for bladder cancer. In November, Allergan invested $41.5 million, plus 65% of the compound's R&D expenses. Royalties and milestone payments could total $400 million, says Raj Shrotriya, Spectrum's CEO. Rodman & Renshaw's Reni Benjamin rates Spectrum outperform.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.

—Gene Marcial

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