Intrinsic value of Spectrum Pharmaceuticals - SPPI

Previous Close

$19.50

  Intrinsic Value

$0.58

stock screener

  Rating & Target

str. sell

-97%

Previous close

$19.50

 
Intrinsic value

$0.58

 
Up/down potential

-97%

 
Rating

str. sell

We calculate the intrinsic value of SPPI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.43
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  146
  149
  152
  156
  161
  166
  171
  177
  183
  190
  197
  205
  213
  222
  231
  241
  252
  263
  275
  288
  301
  315
  329
  345
  361
  378
  397
  416
  436
  457
  479
Variable operating expenses, $m
 
  186
  190
  195
  200
  206
  213
  220
  228
  236
  245
  253
  263
  274
  286
  298
  311
  325
  340
  355
  371
  389
  407
  426
  446
  467
  490
  513
  538
  564
  591
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  208
  186
  190
  195
  200
  206
  213
  220
  228
  236
  245
  253
  263
  274
  286
  298
  311
  325
  340
  355
  371
  389
  407
  426
  446
  467
  490
  513
  538
  564
  591
Operating income, $m
  -62
  -37
  -38
  -38
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -102
  -107
  -112
EBITDA, $m
  -36
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
Interest expense (income), $m
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  -71
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -51
  -53
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
Tax expense, $m
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -69
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -51
  -53
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  158
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  429
  276
  283
  290
  298
  307
  317
  328
  339
  352
  366
  380
  395
  412
  429
  448
  468
  488
  510
  533
  558
  584
  611
  640
  670
  702
  736
  771
  808
  847
  889
Adjusted assets (=assets-cash), $m
  271
  276
  283
  290
  298
  307
  317
  328
  339
  352
  366
  380
  395
  412
  429
  448
  468
  488
  510
  533
  558
  584
  611
  640
  670
  702
  736
  771
  808
  847
  889
Revenue / Adjusted assets
  0.539
  0.540
  0.537
  0.538
  0.540
  0.541
  0.539
  0.540
  0.540
  0.540
  0.538
  0.539
  0.539
  0.539
  0.538
  0.538
  0.538
  0.539
  0.539
  0.540
  0.539
  0.539
  0.538
  0.539
  0.539
  0.538
  0.539
  0.540
  0.540
  0.540
  0.539
Average production assets, $m
  178
  181
  185
  190
  195
  201
  208
  215
  223
  231
  240
  249
  259
  270
  281
  294
  306
  320
  334
  350
  366
  383
  401
  419
  439
  460
  482
  505
  530
  555
  582
Working capital, $m
  151
  -7
  -7
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Total debt, $m
  97
  101
  105
  110
  116
  123
  130
  137
  146
  155
  164
  175
  186
  197
  210
  223
  237
  252
  267
  284
  301
  320
  339
  360
  381
  404
  428
  453
  479
  507
  537
Total liabilities, $m
  193
  197
  201
  206
  212
  219
  226
  233
  242
  251
  260
  271
  282
  293
  306
  319
  333
  348
  363
  380
  397
  416
  435
  456
  477
  500
  524
  549
  575
  603
  633
Total equity, $m
  236
  80
  81
  83
  86
  88
  91
  94
  98
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
Total liabilities and equity, $m
  429
  277
  282
  289
  298
  307
  317
  327
  340
  352
  365
  380
  396
  412
  430
  448
  468
  489
  510
  534
  558
  584
  611
  640
  670
  702
  736
  771
  808
  847
  889
Debt-to-equity ratio
  0.411
  1.270
  1.290
  1.320
  1.350
  1.390
  1.420
  1.460
  1.490
  1.530
  1.560
  1.600
  1.630
  1.660
  1.700
  1.730
  1.760
  1.790
  1.820
  1.850
  1.870
  1.900
  1.930
  1.950
  1.970
  2.000
  2.020
  2.040
  2.060
  2.080
  2.100
Adjusted equity ratio
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -69
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -51
  -53
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
Depreciation, amort., depletion, $m
  26
  26
  27
  27
  28
  29
  30
  30
  31
  33
  34
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  59
  61
  64
  67
  71
  74
  78
Funds from operations, $m
  -57
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
Change in working capital, $m
  -17
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  -40
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
Maintenance CAPEX, $m
  0
  -24
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -71
  -74
New CAPEX, $m
  0
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
Cash from investing activities, $m
  -1
  -28
  -28
  -30
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -41
  -43
  -46
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -83
  -87
  -91
  -97
  -101
Free cash flow, $m
  -41
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -62
  -64
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -138
  -145
  -152
Issuance/(repayment) of debt, $m
  -9
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
Issuance/(repurchase) of shares, $m
  73
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  58
  61
  63
  66
  69
  73
  76
  80
  84
  88
  92
  96
  101
  106
  111
  117
  123
  129
  135
  142
Cash from financing (excl. dividends), $m  
  60
  46
  48
  49
  52
  53
  56
  59
  61
  64
  67
  68
  72
  75
  78
  82
  87
  91
  96
  101
  105
  110
  115
  121
  128
  134
  141
  148
  155
  163
  171
Total cash flow (excl. dividends), $m
  18
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  7
  7
  8
  8
  8
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
Retained Cash Flow (-), $m
  -23
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -57
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -135
  -142
Prev. year cash balance distribution, $m
 
  158
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  120
  -38
  -39
  -40
  -41
  -43
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -112
  -117
  -123
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  115
  -35
  -34
  -33
  -32
  -31
  -30
  -29
  -27
  -26
  -24
  -23
  -21
  -20
  -18
  -16
  -14
  -13
  -11
  -10
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  93.6
  87.5
  81.8
  76.4
  71.3
  66.6
  62.1
  57.9
  54.0
  50.3
  47.0
  43.9
  40.9
  38.2
  35.6
  33.2
  31.0
  28.9
  26.9
  25.0
  23.3
  21.7
  20.2
  18.8
  17.5
  16.3
  15.2
  14.1
  13.1
  12.2

Spectrum Pharmaceuticals, Inc. is a biotechnology company. The Company operates through developing and commercializing oncology and hematology drug products segment. It has a product portfolio consisting of both commercial stage and development stage products that address various cancer types. The Company has six approved oncology/hematology products that target different types of cancer, including non-Hodgkin's lymphoma (NHL), advanced metastatic colorectal cancer (mCRC), acute lymphoblastic leukemia (ALL) and multiple myeloma (MM). It also has three drugs in mid-to-late stage development, which include ROLONTIS for chemotherapy-induced neutropenia; QAPZOLA for immediate intravesical instillation in post-transurethral resection of bladder tumors in patients with non-muscle invasive bladder cancer (NMIBC), and POZIOTINIB, a pan-human epidermal growth factor receptor (HER) inhibitor used in the treatment of patients with a range of solid tumors, including breast and lung cancer.

FINANCIAL RATIOS  of  Spectrum Pharmaceuticals (SPPI)

Valuation Ratios
P/E Ratio -22.7
Price to Sales 10.7
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow -39.2
Price to Free Cash Flow -39.2
Growth Rates
Sales Growth Rate -10.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 41.1%
Total Debt to Equity 41.1%
Interest Coverage -23
Management Effectiveness
Return On Assets -15.6%
Ret/ On Assets - 3 Yr. Avg. -11.6%
Return On Total Capital -21.4%
Ret/ On T. Cap. - 3 Yr. Avg. -16.5%
Return On Equity -30.7%
Return On Equity - 3 Yr. Avg. -23.2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 76%
Gross Margin - 3 Yr. Avg. 81.5%
EBITDA Margin -28.8%
EBITDA Margin - 3 Yr. Avg. -15.5%
Operating Margin -42.5%
Oper. Margin - 3 Yr. Avg. -27.9%
Pre-Tax Margin -48.6%
Pre-Tax Margin - 3 Yr. Avg. -34.3%
Net Profit Margin -47.3%
Net Profit Margin - 3 Yr. Avg. -34.4%
Effective Tax Rate 2.8%
Eff/ Tax Rate - 3 Yr. Avg. -1.2%
Payout Ratio 0%

SPPI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPPI stock intrinsic value calculation we used $146 million for the last fiscal year's total revenue generated by Spectrum Pharmaceuticals. The default revenue input number comes from 2016 income statement of Spectrum Pharmaceuticals. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SPPI stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SPPI is calculated based on our internal credit rating of Spectrum Pharmaceuticals, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Spectrum Pharmaceuticals.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SPPI stock the variable cost ratio is equal to 124.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SPPI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Spectrum Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Spectrum Pharmaceuticals. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SPPI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SPPI are equal to 121.6%.

Life of production assets of 7.5 years is the average useful life of capital assets used in Spectrum Pharmaceuticals operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SPPI is equal to -4.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $236 million for Spectrum Pharmaceuticals - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 93.96 million for Spectrum Pharmaceuticals is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Spectrum Pharmaceuticals at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ Top 4 Small-Cap Stocks for 2017   [Nov-06-17 11:59AM  Investopedia]
▶ Spectrum Pharma reports 3Q loss   [Nov-02-17 05:33PM  Associated Press]
▶ Harry Boxers three biotech-stock breakouts to watch   [Oct-26-17 04:15PM  MarketWatch]
▶ What Happened in the Stock Market Today   [Oct-18-17 05:04PM  Motley Fool]
▶ 3 Biotech Stocks That Soared This Week: Are They Buys?   [Sep-30-17 10:34AM  Motley Fool]
▶ Evomelas Market Share Is Increasing in 2017   [Sep-01-17 10:38AM  Market Realist]
▶ Why Spectrum Pharmaceuticals Stock Is Sinking Today   [May-03-17 01:04PM  Motley Fool]
▶ Spectrum Pharma reports 1Q loss   [May-02-17 06:06PM  Associated Press]
▶ Spectrum Pharma reports 4Q loss   [Mar-08-17 04:32PM  Associated Press]
Financial statements of SPPI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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