Here's Why Spectrum Pharmaceuticals' Stock Plunged Today

What: Spectrum Pharmaceuticals , abiotech company that develops and commercializes oncology and hematology drug products, saw its shares crater by as much as 26% today on exceptionally high volume. This drop was triggered by the announcement that the U.S. Food and Drug Administration issued a Complete Response Letter in response to Spectrum's New Drug Application, or NDA, forEvomela.

Evomela is a novel melphalan formulation that demonstrated bioequivalence to the standard formulation of the drug in a mid-study when used as aconditioning treatment prior to autologous stem cell transplant in patients with multiple myeloma. Spectrum signed a worldwide commercialization and development agreement with Ligand Pharmaceuticals for Evomela in 2013.

The company noted in its press release that the FDA didn't identify any clinical deficiencies in Evomela's NDA, suggesting that further clinical studies may not be necessary in order to refile the drug's regulatory application.

So what: According to Spectrum, the present formulation of melphalan generates sales of around $100 million per year. While Evomela wouldn't have been able to compete for the entire melphalan market based on the scope of this initial NDA, the market appears convinced that it would have been an important new revenue source for the company. Backing up this assertion, some of the analysts covering the stock have estimated that Evomela's peak sales could have ranged from $100 to $200 million, according to S&P Capital IQ.

Now what: Although the exact problem with Evomela's NDA wasn't disclosed in today's press release, the company did state that it plans on working with the FDA to remedy any outstanding issues. Having said that, I'm not entirely convinced that this drug would have made a huge impact on Spectrum's bottom-line regardless. After all, the market for this indication isn't particularly large, and Spectrum is on the hook to Ligand for bothregulatory milestone payments and royalties as high as 20% on any future net sales of the drug.

The article Here's Why Spectrum Pharmaceuticals' Stock Plunged Today originally appeared on Fool.com.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.