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Why Spectrum Pharmaceuticals Stock Soared in October

What happened

Spectrum Pharmaceuticals (NASDAQ: SPPI), a small-cap oncology company, saw its shares gain a whopping 39.2% in October, according to S&P Global Market Intelligence. The drugmaker's stock took flight after the company announced positive interim results from a midstage study assessing poziotinib in patients with EGFR-positive non-small cell lung cancer (NSCLC). Poziotinib's preliminary NSCLC data were presented at the World Conference on Lung Cancer in Japan in mid-October. 

Image source: Getty Images.

So what

Because lung cancer remains the most common malignancy in the world, poziotinib should be able to rack up several hundred million in annual sales even as a niche product (patients that express this particular subtype of NSCLC). And that's certainly a big deal for a company that's projected to generate only $131 million in revenue next year. 

Now what

Before investors get too excited, though, it's important to remember that these are preliminary results, and poziotinib still has a long ways to go before a regulatory filing is a real possibility. The company's newly initiated multicenter midstage trial for poziotinib, after all, won't read out until late 2020, according to clinicaltrials.gov. 

Spectrum's decision to explore poziotinib's anti-cancer properties in multiple trials at once should also result in a substantial rise in costs moving forward, and that could trigger a sizable secondary offering soon. While the biotech did exit the most recent quarter with a respectable $248 million in cash and cash equivalents, Spectrum's cash runway doesn't appear to extend beyond 2019 at this point based on its current cash burn rate and near-term growth prospects. 

In sum, Spectrum is definitely an intriguing watchlist candidate following this unexpected clinical development, but the company still has a lot of work to do before its stock is a compelling buy from a fundamental perspective.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.