Here's Why Spectrum Pharmaceuticals, Inc. Is Getting Beaten Down Today

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What happened

Shares of Spectrum Pharmaceuticals (NASDAQ: SPPI), a biopharmaceutical company focused on oncology treatments, are sliding after the Food and Drug Administration refused to designate the company's lung cancer candidate a Breakthrough Therapy. Disappointed investors have hammered the stock 38% lower as of 3:23 p.m. EST on Thursday.

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So what

Spectrum Pharmaceuticals had already told investors that it submitted a Breakthrough Therapy designation request for poziotinib, so the company couldn't keep the FDA's unusual decision to decline that request a secret. The company's been exciting investors with the hope of accelerated approval for poziotinib as a treatment for relapsed non-small cell lung cancer (NSCLC) patients with a specific mutation, but if it can't earn a simple breakthrough designation, that probably won't happen.

The news is especially upsetting because management told investors it expected to submit an application before the end of the year, following a positive pre-BLA (BLA is "biologics license application") meeting with the FDA. Since these meetings are considered confidential, the regulators could have told Spectrum there's no chance they'd look at an application without survival data that beats standard care -- and we'd never know.

Now what

Although Spectrum intends to keep trying with its single-arm study, investors aren't buying it. Earning a breakthrough designation usually isn't hard: You simply need to show signs that your drug can outperform available options. Spectrum reported an impressive 40% response rate among 30 lung cancer patients who had relapsed multiple times, which should be enough for the designation. With this in mind, it almost looks like the FDA is punishing Spectrum for misinterpreting the discussion during their pre-BLA meeting.

We'll find out more about poziotinib when the Zenith20 study reads out in the second half of 2019. The single-arm study is evaluating 300 patients with NSCLC, and Spectrum intends to submit an application supported by just 87 patients in a group with EGFR exon 20 mutations. Whether the FDA will accept it for review is still anybody's guess.

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Cory Renauer 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.