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Armistice Capital Raising the Stakes Against Spectrum Pharmaceuticals, Inc. (SPPI) In Its First Activist Campaign

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Steven Boyd‘s Armistice Capital has further increased its activist stake in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) to 4.24 million shares from 3.60 million shares that it reported in a filing on May 12, which itself was an increase from the 2.70 million shares it reported ownership of in its latest 13F filing. The fund’s current holding the $435.80 million healthcare company represents 6.6% of its outstanding common stock. Along with the latest transactions, Armistice also sent a letter to the company’s board on June 2, its second such letter in the past month.

Boyd launched his New York-based fund in July 2012 and was named one of the best new hedge funds in 2013 at Americas Awards owing to its 48% returns in its first year. The long/short equity fund targets small companies that usually escape the attention of most analysts and investors. The market value of Armistice’s public equity portfolio stood at $225.63 million at the end of the first quarter, up from $208.09 million at the end of 2014. The healthcare and technology sectors are the largest components of the fund’s holdings.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

As part of his first activist campaign, Boyd sent a letter to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)’s CEO Rajesh Shrotriya on May 11, one day before its 5.4% activist position was revealed in a filing. The fund’s first letter drew attention to the blatant mismanagement and failed promises that Shrotriya has been making to shareholders for three years. The icing on the cake was when, after losing a battle in court which opened Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)’s most prominent drug, Fusilev, to generic competition, the company handed out $2 million in bonuses and salary increments to its top four executives. This came from a company whose stock has slumped by 50% over the last three years, while Shrotriya’s own compensation for the period stands at more than $20 million. Moreover, the top executive had assured the shareholders time and again that Fusilev was protected by patents until 2022.

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