Hedge fund Armistice Capital has taken a 5.4% stake in Spectrum Pharmaceuticals, agitating for sweeping changes in how the biotech does business and demanding it find a buyer on the quick.
Armistice, led by founder Steve Boyd, contends that Spectrum is bloated, poorly managed and in desperate need of change after years of broken promises. In a letter to Spectrum’s board, Boyd disclosed his firm’s 3.6 million-share stake and asked the company to dump its “money-losing” R&D activities and recruit a “top-tier investment bank” to find a buyer. In the meantime, CEO Rajesh Shrotriya should either resign or “adjust (his) compensation to better align with the interests of shareholders,” Boyd wrote.
The last straw, according to Armistice, came in February when Spectrum’s shares plunged after a federal court invalidated some patents tied to the cancer drug Fusilev, clearing the way of Novartis’ Sandoz to launch a generic. That very night, with half of Spectrum’s revenue suddenly imperiled, the company awarded $2 million in cash bonuses to its top four execs, according to Boyd, typifying the “dysfunctional culture” that has marred shareholder value.
To groom Spectrum for an acquisition, Boyd proposes “a combination of reducing management compensation and employee headcount, significantly curtailing research and development, eliminating excessive corporate offices, and focusing on in-licensing and co-promotion opportunities.” He mentions the research-averse Valeant Pharmaceuticals as a potential model, recommending Spectrum spin out some of its riskier pipeline assets into a standalone biotech company.
In making his case, Boyd lays out a long list of failings and misguided projections from Shrotriya and Spectrum’s management, including promises that Fusilev was safe through 2022 and that the bladder cancer treatment apaziquone would be submitted to the FDA in 2013. It remains unfiled.
“I will be the first to acknowledge that the business of forecasting is a thankless profession,” Boyd wrote. “Nonetheless, the disconnect between your statements and reality have created distrust in the investment community, employee turnover, shareholder lawsuit expense and an SEC investigation that is on-going.”
Spectrum’s shares rose more than 7% before the market opened on Tuesday.
By Damian Garde