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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 000-28782

Spectrum Pharmaceuticals, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2003 was $15,398,054 based on the closing sale price of such common equity on such date.

     As of March 19, 2004, there were 10,003,670 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant’s 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

      Spectrum Pharmaceuticals, Inc.’s Annual Report on Form 10-K contains predictions, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers should not put undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Spectrum Pharmaceuticals, Inc.’s actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this Report, including the “Risk Factors” in “ITEM 1 – Business”, and in “ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in PART II.

      Unless the context otherwise requires, all references to the “Company”, “we”, “us”, “our”, “Spectrum” and “Spectrum Pharmaceuticals” refer to Spectrum Pharmaceuticals, Inc. and its subsidiaries, as a consolidated entity. We primarily conduct all our activities as Spectrum Pharmaceuticals.

PART I

Corporate Background and Business Strategy

      Spectrum Pharmaceuticals, Inc. is a Delaware corporation which was originally incorporated in Colorado as Americus Funding Corporation in December 1987, became NeoTherapeutics, Inc. in August 1996, was reincorporated in Delaware in June 1997, and was renamed Spectrum Pharmaceuticals, Inc. in December 2002. We are a pharmaceutical company engaged in the business of acquiring, developing and commercializing proprietary and generic drug products which have a primary focus on the treatment of cancer and related disorders.

      Our business strategy since August 2002 has two principal components: first, what we refer to as our Oncology Strategy, to acquire rights to clinical-stage oncology drug candidates and either alone, or through alliances with other companies, develop and eventually commercialize those drugs; and second, what we refer to as our Generic Drug Strategy, to seek to generate revenues from the sale of generic versions of drugs whose patent protection expires in the near term. Prior to August 2002, when we announced a shift in our strategic focus, we were primarily engaged in the discovery and development of neurology drugs as well as functional genomics research.

      Our Oncology Strategy focuses on the acquisition, or in-licensing, and continued development of clinical-stage, novel drugs for the treatment and supportive care of cancer patients. We currently have three drug candidates in clinical development: satraplatin, EOquin™ and elsamitrucin. Of these product candidates, satraplatin is being co-developed by a third-party pharmaceutical company under an exclusive license, and the others are being developed by us. We also plan to continue to pursue acquisitions, or in-licensing, of additional clinical-stage cancer drugs from other companies and institutions. We believe that this method of drug development is a cost effective business strategy. However, to date our Oncology Strategy has not produced any marketable products. We intend, either alone, or through alliances with other companies, to market our oncology drug candidates if our clinical trials are successful and we obtain regulatory approval of our drug candidates.

      The strategic focus on clinical stage drug candidates (those eligible for human trials) is designed to address certain risks of drug development by shortening the timeline to marketability, and reducing the risk of failure, both of which are higher with an early stage product. Further, in order to reduce our future financing needs to fund our oncology research and development, our plan is to generate revenues from the sale of generic versions of drugs coming off-patent over the next several years.

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      Our Generic Drug Strategy is to identify and acquire distribution rights for selected generic drugs both directly and through alliances with third party companies, apply our expertise and experience to further develop and pursue regulatory approval for those drugs, then either directly or through third party alliances, market and distribute those generic drugs into retail and institutional channels. During 2003, we filed with the United States Food and Drug Administration (FDA) three Abbreviated New Drug Applications (ANDA) for the generic drugs ciprofloxacin, carboplatin and fluconazole. We intend to file several additional ANDAs during 2004 and beyond. We have entered into product supply and distribution alliances in order to manufacture and sell our generic drug candidates and intend to enter into additional alliances in the future.

      We also have several neurology drug compounds that we intend to out-license for further development because we are not pursuing internally, and do not presently intend to pursue internally, further development of these drug compounds, which include: AIT-034 for dementia, SPPI-339 for attention deficit disorders, SPPI-356 for psychosis, schizophrenia and other mood disorders and Neotrofin™ for neurodegenerative (degeneration of the nervous system) diseases.

Drug Candidates

      Our drug candidates, their target indications, and status of development are summarized in the following table:

      While other indications have not yet been identified, some of our drug candidates may prove to be beneficial in additional disease indications as we continue to study and develop these drug candidates.

Oncology Strategy

      Cancer is the second leading cause of death in the United States, accounting for approximately 25% of all deaths. In the United States, approximately 1.4 million new cancer cases are expected to be diagnosed in 2004 and over 563,000 persons are expected to die from the disease in 2004. Accordingly, demand for improved and novel cancer treatments is very high.

      Cancer occurs when abnormal cells divide without control. These cells can invade nearby tissues or spread through the bloodstream and lymphatic system to other parts of the body. 5 to 10 percent of all cancers are believed to be due to inheriting a faulty gene. The remaining 90 to 95 percent are believed to be caused by damage to the genes during a person’s lifetime. These damaging agents can be internal, such as hormones or an altered immune system, or external, such as viruses, tobacco, and exposure to chemicals or harmful ultraviolet sunrays. Sometimes ten or more years may pass between exposure and cancer detection. Cancer is treated by surgery, chemotherapy, radiation therapy, hormonal therapy and immunotherapy.

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      We believe that traditional chemotherapeutic agents are likely to remain the mainstay therapy for cancer for the foreseeable future. However, we continue to seek additional novel drugs, delivery methods and combination therapies that address cancer or cancer related indications with significant unmet medical need. Accordingly, we are actively seeking novel and proprietary oncology drug candidates that:

	•	have demonstrated initial safety and efficacy in clinical trials;
	•	target oncology, or cancer, indications with significant unmet medical need, where current treatments either do not exist or are not effective; and
	•	we believe are acquirable at a fair value based on our judgment of clinical and commercial potential.

      We believe that our strategy of in-licensing late-stage oncology drug candidates (with prior test data) rather than developing early-stage oncology drugs, enables us to better select drug candidates with promising potential. Since these drug candidates are further along the typical drug development timeline, we are better positioned to potentially generate product revenues earlier, if our clinical trials are successful and we obtain regulatory approval of our drug candidates.

      To date, we have in-licensed three clinical-stage oncology drug candidates discussed below. We believe these drug candidates have the potential to be effective therapeutic agents with less adverse side-effects than drugs currently on the market for the same indication. Our goal is to develop and, if successful, commercialize these drugs in the United States and worldwide.

      Satraplatin: Satraplatin, a third generation (the first and second generation being cisplatin and carboplatin, respectively) orally administered platinum-derived chemotherapy agent, is being developed by our co-development partner GPC Biotech AG (Frankfurt Stock Exchange: GPC) as a second-line chemotherapy treatment for its initial indication, hormone-refractory prostate cancer (HRPC). Cancer is referred to as refractory when it has not responded or is no longer responding to previous treatment.

      Prostate cancer is the second leading cause of cancer deaths in men. According to figures released by the American Cancer Society, approximately 230,110 new cases and 29,990 deaths will occur in the U.S. during 2004. The initial treatment of prostate cancer includes surgery along with radiation therapy and hormonal therapy. Although hormonal therapy is generally very effective, and produces a response in most patients, it is non-curative. The average duration of response to initial hormonal treatment is eighteen months. Once the disease progresses after the initial hormonal treatment, it is considered hormone refractory. For those patients failing hormone therapy, treatment currently involves chemotherapy which is also non-curative and is limited to improvement of symptoms of cancer without any significant prolongation of survival.

      Platinum compounds, like satraplatin, continue to represent one of the most widely used classes of chemotherapeutic agents in modern cancer therapy and are typically used in combination with other chemotherapeutic agents for the treatment of various types of cancer including prostate cancer.

      While the platinum compounds currently on the market are intravenously administered, satraplatin is an orally administered compound. We believe an orally administered platinum-derived chemotherapeutic agent may offer important clinical and commercial advantages over platinum drugs that need to be intravenously administered in a hospital setting, including ease of administration and patient convenience. These advantages, in turn, could potentially lead to improved patient compliance as well as potential cost savings to patients and the healthcare system.

      A pivotal Phase 3 trial, the SPARC (Satraplatin and Prednisone Against Refractory Cancer) trial for satraplatin in HRPC, was initiated by GPC Biotech in September 2003, following completion of an assessment by a special committee of the FDA. Also in September 2003, the FDA granted fast track designation to satraplatin as a second-line chemotherapy for patients with HRPC. In February 2004, GPC Biotech announced the receipt of a Scientific Advice Letter from the European Agency for the Evaluation of Medicinal Products (EMEA) enabling the Phase 3 pivotal trial on satraplatin to proceed in Europe using the SPARC protocol.

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      The decision to pursue HRPC as the initial indication for satraplatin was based, among other things, on results from a randomized, 50-patient study initiated in June 1998 in first-line chemotherapy for HRPC sponsored by Bristol-Myers Squibb that were presented at the American Society of Clinical Oncology Annual Meeting in June 2003. The data demonstrated statistically significant improvement in time to disease progression and doubling of progression-free survival in the satraplatin-treated group compared to the control group

      In addition to HRPC, satraplatin has shown initial indication of anti-tumor activity in ovarian and small cell lung cancer, among others, in Phase 2 trials conducted to date.

      In August 2001, we in-licensed satraplatin from its developer, Johnson Matthey PLC, in exchange for an upfront fee, additional payments to be made based upon achievement of certain milestones and royalties based on any net sales, if and when a commercial drug is approved and sales are initiated.

      In September 2002, we entered into a co-development and license agreement with GPC Biotech for further development and commercialization of satraplatin. Under the terms of this agreement, GPC Biotech agreed to fully fund the development expenses for satraplatin, and to pay us an initial license fee of $4 million, including $2 million received upon signing, and $1 million in cash and $1 million as an equity investment in shares of our common stock received in the fourth quarter of 2003, following the initial dosing of the first patient treated in the ongoing Phase 3 study. We may receive additional payments based upon achievement of certain regulatory and commercialization milestones, as well as royalties on any future sales. The development plans for satraplatin are established by a joint development committee with members from both Spectrum and GPC Biotech, however, members from GPC Biotech represent a majority of the committee and the final procedures are effectively decided and implemented by GPC Biotech. We have the ability to perform additional studies, if so desired, at our expense.

      EOquin™: EOquin (EO9, apaziquone), a synthetic prodrug (an inactive drug compound) which is activated by certain enzymes present in higher amounts in cancer cells than in normal tissues, is currently being developed for its initial indication, superficial bladder cancer, or cancer which has not invaded the muscle of the bladder wall.

      The American Cancer Society estimates that there will be 60,240 new cases and 12,710 deaths from bladder cancer in 2004 in the U.S. Superficial bladder cancer accounts for 75 to 80 percent of all cases of bladder cancer at first diagnosis. The initial treatment of this cancer is surgical removal of the tumor. Because of the high frequency of early recurrences of the tumor, patients are usually prescribed additional therapy to prevent or delay such recurrences. This additional therapy generally consists of immunotherapy or chemotherapy drugs instilled directly into the bladder.

      Since EOquin is activated preferentially within tumor cells, we believe it carries a lesser risk of killing or harming normal body cells. During the fourth quarter of 2003, we initiated a multi-national, multi-center Phase 2 clinical trial. The decision to initiate Phase 2 trials in this indication was based, among other things, on results from Phase 1 trials that demonstrated that EOquin was safe, with no systemic toxicity, and was well tolerated at the dose level chosen for the Phase 2 trials. More importantly, EOquin demonstrated an initial indication of anti-tumor activity against superficial bladder cancer, as evidenced by six of eight patients showing a complete response (complete disappearance of the tumor as confirmed by biopsy) after receiving six treatments with EOquin over a period of six weeks. Of these six patients, none has experienced a recurrence, and two were free of tumor recurrence at the end of 12 months. One of the purposes of the ongoing Phase 2 trials is to determine the level of anti-tumor activity in a larger number of patients.

      We have also initiated an investigation of whether EOquin may have potential utility as a radiation sensitizer in the treatment of certain cancers. Radiotherapy along with chemotherapy has been the primary treatment for a number of cancers. Certain types of cancer cells can be primed through pre-treatment by a radiation sensitizer to respond better to radiation therapy.

      In 2001, we in-licensed EOquin and numerous related derivates from the NDDO Research Foundation in the Netherlands, in exchange for an up front fee, additional payments based upon achievement of certain milestones and a royalty based on net sales, if and when a commercial drug is approved and sales are initiated.

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      Elsamitrucin: Elsamitrucin, an anti-tumor antibiotic that acts as a dual inhibitor of two key enzymes involved in DNA replication, topoisomerase I and II, is currently being developed for its initial indication, refractory non-Hodgkin’s lymphoma.

      Non-Hodgkin’s lymphoma is a tumor arising from the lymph nodes. According to the American Cancer Society, an estimated 54,370 new cases and 20,730 deaths will occur from non-Hodgkin’s lymphoma in 2004 in the U.S. In early stages, localized diseased lymph nodes can be treated with radiation therapy. Later stages of this disease are treated with chemotherapy or with chemotherapy plus radiation and highly specific monoclonal antibodies depending on the type of non-Hodgkin’s lymphoma. We believe elsamitrucin may prove to be an important addition in treating refractory non-Hodgkin’s lymphoma patients because it has shown some activity when used alone and it has exhibited a relatively low level of associated toxicity.

      By inhibiting the activity of the two key enzymes involved in DNA replication, elsamitrucin is thought to lead to DNA breaks that prevent the correct replication of DNA and ultimately result in cancer cell death. We plan to initiate an approximately 80 patient, Phase 2 trial in patients with refractory non-Hodgkin’s lymphoma, during the second quarter of 2004. In clinical trials conducted to date, elsamitrucin has also demonstrated a favorable side effect profile, notably, minimal toxicity to bone marrow.

      We in-licensed elsamitrucin from its developer, Bristol-Myers Squibb, in 2001, in exchange for an upfront fee, additional payments based upon achievement of milestones and a royalty based on net sales, if and when a commercial drug is approved and sales are initiated.

Generic Drug Strategy

      As a result of the number of branded pharmaceutical products coming off patent over the next decade, combined with the aging U.S. population and cost-containment efforts by the U.S. Federal Government and private insurance payors, we believe the U.S. market for generic drugs will display continued growth. We hope to capitalize on that growth and generate revenues to help fund our oncology research and development.

      Once we identify a generic drug candidate and secure a possible supplier of either the active pharmaceutical ingredient of the drug or the dosage form, we begin our own development and initiate regulatory approval processes. For generic drugs, the regulatory approval process includes preparation and submission to the U.S. Food and Drug Administration (FDA) of an Abbreviated New Drug Application (ANDA).

      The ANDA is a process created by the Drug Price Competition and Patent Term Restoration Act of 1984 for the accelerated approval of generic drugs. Among the many topics that must be covered in an ANDA is a demonstration that the generic drug has both bio-equivalence, which means that the rate and extent of absorption of the generic drug in the body is substantially equivalent to the previously approved branded drug, and chemical equivalence to the reference listed brand-name product, and that distribution of the generic drug will not infringe any existing patent(s) or is otherwise lawful.

      During 2003, we filed ANDAs for ciprofloxacin, carboplatin and fluconazole. We have identified additional generic drugs that we believe represent desirable market opportunities and we intend to file several additional ANDAs during 2004 and beyond. Future ANDA filings may be prepared directly through our internal development program, or jointly with current or new business alliance partners. The success of our Generic Drug Strategy depends significantly upon our relationships with our active pharmaceutical ingredient or dosage form suppliers based in India and other countries and our ability to develop and expand distribution channel relationships in the United States because we currently have no internal manufacturing or distribution capabilities. We believe our relations with our existing partners to be good, and we believe those relationships provide a good foundation for launching our Generic Drug Strategy. The long term success of our Generic Drug Strategy, however, depends in significant part on our ability to continue to improve and expand our existing relationships and establish new relationships with additional drug source and distribution partners, and otherwise enlarge and enhance our generic drug distribution capability, particularly in the United States.

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      In seeking business alliances in connection with our Generic Drug Strategy, we have focused, in particular, on seeking alliances with active pharmaceutical ingredient and dosage form companies based in India that have demonstrated expertise and capability to produce high quality products cost effectively with sufficient production capability to supply a distribution program in the United States. In addition, we have focused on seeking alliances with distribution companies with the necessary experience and expertise to market and distribute our generic drug candidates. During 2004 we will continue to seek new alliances (in India and elsewhere) to expand the portfolio of generic drug candidates available to us and advance our overall Generic Drug Strategy.

      The following are our current business alliance partners:

      J.B. Chemicals & Pharmaceuticals Ltd. (JBCPL) operates 11 manufacturing facilities in India, which produce active pharmaceutical ingredients, intermediates (“building blocks” in chemical compounds), finished dosage form pharmaceuticals and herbal remedies. JBCPL’s products are marketed in over 50 countries. JBCPL has been a participant in the pharmaceutical industry for more than 25 years.

      In 2002, Spectrum and JBCPL formed a joint venture named NeoJB LLC, a Delaware limited liability company. NeoJB is 80% and 20% owned by Spectrum and a subsidiary of JBCPL, respectively. In conjunction with the formation of NeoJB, we granted a five-year warrant to JBCPL to purchase up to 4,000 shares of our common stock at an exercise price of $11.25 per share, equal to the market price of our common stock on the date of grant. Through NeoJB, we intend to utilize JBCPL’s drug manufacturing capabilities to produce selected generic drug products and to market those generic drugs in the United States.

      In 2002, NeoJB entered into an agreement with JBCPL under which JBCPL granted NeoJB an exclusive license to obtain regulatory approval for market and distribute certain products, including ciprofloxacin and fluconazole, within the United States. The agreement contemplates, and the parties expect, that additional products may be added to the agreement from time to time. The agreement provides that we, or NeoJB, will bear all costs of regulatory approvals for the products and that JBCPL will manufacture and supply to NeoJB the products in such quantities as NeoJB may require at prices reasonably acceptable to both parties. The agreement provides that JBCPL shall not enter into any distribution or sale arrangement or grant any license with respect to any product covered by the agreement in the United States unless it first offers to enter into a supply agreement with NeoJB pursuant to certain procedures and conditions. In addition, the agreement provides that NeoJB shall not, for 5 years from the later of the termination of the agreement or expiration of the applicable patents, market in the United States any products which would compete with the distribution, marketing or sale of the products covered by the agreement. The agreement continues so long as JBCPL or any of its affiliates is a member of NeoJB or until jointly terminated by the parties.

      Under our alliance agreement with JBCPL, an entity affiliated with JBCPL agreed to invest $1 million in our common stock. The first $250,000 was invested in 2003 following acceptance by the FDA of our ANDA filing for ciprofloxacin, for 125,565 shares of our common stock at a price per share of $1.99 (equal to the closing price of our common stock on the date immediately prior to the date of acceptance of the ANDA by the FDA), and the remaining $750,000 will be invested if and when the ANDA is approved, at a price per share equal to the closing price of our common stock on the date immediately prior to the date of approval of the ANDA by the FDA.

      FDC Limited, based in Mumbai, India, has been manufacturing pharmaceuticals for over 60 years. FDC Limited manufactures, among other products, active pharmaceutical ingredients and certain oral, ophthalmic and otic drugs at their manufacturing facilities, and is actively selling certain active pharmaceutical ingredients produced at their FDA approved facilities in India into the United States market.

      In 2003, Spectrum and FDC Limited entered into an agreement under which Spectrum, on behalf of FDC Limited, will prepare and file with the FDA one or more ANDAs for certain ophthalmic drugs manufactured by FDC, and thereafter, if the ANDA is approved by the FDA, market those products in the United States as FDC’s exclusive distributor either directly or through third parties. The agreement

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      Lannett Company, Inc., based in Philadelphia, is a pharmaceutical manufacturing and distribution company that markets and distributes generic drugs. In August 2003, we entered into an agreement with Lannett under which it will be our exclusive distributor for ciprofloxacin in the United States. The agreement provides that the parties shall mutually agree on an annual minimum amount of ciprofloxacin that Lannett must use its commercially reasonable efforts to market and sell in the United States. The agreement contemplates, and the parties expect, that additional products may be added to the agreement from time to time. Lannett agrees that if it decides to distribute any products other than ciprofloxacin under this agreement, that it will not, without our prior written consent, market, distribute or sell any product that competes with such additional products. The agreement continues for 18 months after the date upon which we are first allowed to sell ciprofloxacin in the United States, unless renewed by mutual agreement.

     Generic Products

      The following are our current generic drug candidates:

      Ciprofloxacin. Ciprofloxacin is a synthetic, broad-spectrum anti-bacterial agent that is indicated for the treatment of infections caused by susceptible strains of microorganisms in certain diseases. Ciprofloxacin is available in multiple dosage forms including tablets, oral suspension, otic, intravenous infusion and ophthalmic preparations. In March 2003, through our affiliate NeoJB and on behalf of JBCPL (our joint venture partner in NeoJB), we filed an ANDA for ciprofloxacin tablets. Although no assurance can be given, we hope to receive FDA approval during 2004. Our ciprofloxacin tablets will be manufactured by JBCPL utilizing its FDA approved facility in India.

      The total U.S. market size for the branded form of ciprofloxacin, Cipro®, is estimated at over $1 billion dollars. However, because the brand name company retains some portion of the unit market for the branded product post-patent expiration and may introduce innovative dosage forms of the branded product such as extended release forms before or immediately following patent expiration of the branded drug, the market size for the generic drug is usually smaller than the market for the branded form of the drug. The U.S. patent for Cipro®, held by Bayer Pharmaceuticals Corp. expired in December 2003. The FDA granted pediatric exclusivity (discussed below under “Patents and Proprietary Rights”) to Bayer which expires in June 2004. We intend to begin marketing and selling the tablet dosage form of ciprofloxacin through our alliance with Lannett if and when ANDA approval is given by the FDA and following the expiration of the pediatric exclusivity period.

      Carboplatin. Carboplatin is an anti-cancer drug indicated for the initial treatment of advanced ovarian cancer in combination with other approved chemotherapeutic agents and for the palliative treatment of patients with ovarian cancer recurrent after prior chemotherapy, including patients treated with cisplatin, another chemotherapeutic agent. In October 2003, we filed an ANDA for an injectable form of carboplatin.

      The total U.S. market size for the branded form of carboplatin, Paraplatin®, is estimated at over $700 million. The U.S. patent for Paraplatin®, held by Bristol-Myers Squibb Co., expires in April 2004. If FDA approval for our ANDA is obtained, we intend to begin marketing and sales of carboplatin immediately following such approval and the expiration of the patent. We will likely use one or more third party distributors with particular experience distributing injectable oncology drugs to carry out our distribution plan. We cannot at this time, however, provide any assurance that we either will establish distributor arrangements with third party distributors or will be able to acquire the necessary quantities of the drug from our supply sources on commercially feasible terms or terms otherwise acceptable to us.

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      Fluconazole. Fluconazole is a synthetic anti-fungal agent indicated for the treatment of localized and systemic fungal infections. Fluconazole is available in multiple dosage forms including tablets, oral suspension and intravenous infusion. In December 2003, through NeoJB, we filed an ANDA for fluconazole tablets on behalf of JBCPL. We have entered into a supply agreement with JBCPL pursuant to which JBCPL will manufacture fluconazole for NeoJB utilizing JBCPL’s FDA approved facility in India.

      The total U.S. market size for the branded form of fluconazole, Diflucan®, is estimated at over $600 million. The original patent for Diflucan®, held by Pfizer Inc., expired on January 29, 2004. The FDA granted pediatric exclusivity to Pfizer until July 29, 2004. Following the expiration of the pediatric exclusivity period and subject to FDA approval of our ANDA, we intend to begin marketing and selling fluconazole using one or more third-party distributors with experience selling generic drug products into retail and institutional channels. We cannot provide assurance at this time that we will successfully establish distributor arrangements with a qualified third party distributor for this generic drug product.

Patents and Proprietary Rights

      The United States Constitution provides Congress with the authority to secure for limited times to inventors the exclusive right to their discoveries. Congress codified this right in United States Code Title 35 which gave the patent office the right to grant patents to inventors and defined the process for securing a U.S. patent. This process involves the filing of a patent application that teaches a person having ordinary skill in the respective art how to make and use the invention in clear and concise terms. The invention must be novel (not previously known) and non-obvious (not an obvious extension of what is already known). The patent application concludes with a series of claims that specifically describe the subject matter that the patent applicant considers his invention.

      The patent office undertakes an examination process that can take from one to five years depending on the complexity of the patent and the problems encountered during examination. Generally, the less novel an invention is, the longer the examination process will last.

      In exchange for disclosing the invention to the public, the successful patent applicant is provided a right to exclude others from making, using or selling the claimed invention for a period of 20 years from the filing date of the patent application.

      Under certain circumstances a patent term may be extended. Patent extensions are most frequently granted in the pharmaceutical and medical device industries under the Drug Price Competition and Pricing Term Restoration Act of 1984, to recover some of the time lost during the FDA regulatory process, subject to a number of limitations and exceptions. The patient term may be extended up to a maximum of five years, however, as a general rule, the average extension period granted for a new drug is approximately three years and approximately 18 months for a new medical device. Only one patent can be extended per FDA approved product and a patent can only be extended once.

      As an incentive for pharmaceutical companies to research the safety and efficacy of their brand name drugs for use in pediatric populations, Congress enacted the Food & Drug Administration Modernization Act of 1997 which included a pediatric exclusivity for brand name drugs. This pediatric exclusivity protects drug products from generic competition for six months after their patents expire in exchange for research on children. For example, if a pharmaceutical company owns a patent covering a brand name drug they can only exclude third parties from selling generic versions of that drug until that patent expires. However, if the FDA grants a brand named drug pediatric exclusivity the FDA will not approve of the sale of any generic drugs for six months beyond the patent term covering the brand name drug. Thus, the pediatric exclusivity effectively extends the brand named company’s patent protection for six months. This extension applies to all dosage forms and uses that the original patent(s) covered.

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      We in-license from third parties certain patent and related intellectual property rights. In particular, we have licensed rights with respect to satraplatin, EOquin and elsamitrucin from Johnson Matthey PLC, the NDDO Research Foundation (in the Netherlands) and Bristol-Myers Squibb, respectively, in each case for the remaining life of the applicable patents. Our agreements provide us with exclusive worldwide rights to, among other things, develop, sublicense, and sell the drug candidates. We are responsible for all development, patent filing and maintenance costs (except with regard to patent filing and maintenance costs for satraplatin), sales, marketing and liability insurance costs. Our protection, preservation and infringement-free commercial exploitation of these patents and related intellectual property rights is very important to the successful execution of our Oncology Strategy.

      In connection with our Generic Drug Strategy, we have filed ANDAs for ciprofloxacin and fluconazole on behalf of JBCPL. JBCPL will own the ANDAs and we will have the exclusive license to market and distribute those drugs within the United States. We filed our own ANDA for carboplatin and we plan to file other ANDAs in the future for our own account and on behalf of others.

      We also hold U.S. and foreign patent rights related to our neurology drug candidates. All neurology patents were assigned to us by the inventors, including Dr. Alvin Glasky (a former Chairman and CEO of the Company) and McMaster University, for certain royalty payments. We intend to out-license these patent rights for further development because we are not pursuing internally, and do not presently intend to pursue internally, further development of any products based on the neurology patents.

      In addition to the specific intellectual property subjects discussed above, we have filed for certain trademark protections. In conducting our business generally, we rely upon trade secrets, know-how, licensing arrangements and appropriate and customary practices for the protection of our confidential and proprietary information.

      Please also read our discussion of patent and intellectual property matters in the “RISK FACTORS” section of this report.

Competition

      The pharmaceutical industry is characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including a number of large pharmaceutical companies as well as many specialized pharmaceutical companies, engage in drug development activities and generic drug marketing activities similar to ours.

      Our Oncology Strategy competitors that have products on the market or in research and development that are in the same clinical focus as us include Amgen, Inc., Bayer AG, Eli Lilly and Co., Novartis Pharmaceuticals Corporation, Bristol-Myers Squibb Company, Glaxo SmithKline, Biogen-IDEC Pharmaceuticals, Inc., Guilford Pharmaceuticals, Inc., Cephalon, Inc., Aventis Pharmaceuticals Inc., Pfizer, Inc., AVI Biopharma, Inc., Chiron Corp., Corixa Corp., Genta Inc., Imclone Systems Incorporated, MGI Pharma, Inc. and SuperGen, Inc., among others. Many of our competitors are large and well capitalized companies such as Eli Lilly and Co. and Bristol-Myers Squibb focusing on a wide range of diseases and drug indications, and have substantially greater financial, research and development, human and other resources than we do. Furthermore, large pharmaceutical companies have significantly more experience than we do in pre-clinical testing, human clinical trials and regulatory approval procedures, among other things.

      Technologies under development by these and other pharmaceutical companies could result in treatments for diseases and disorders for which we are developing our own treatments. Several other companies are engaged in research and development of compounds that are similar to our research. In the event that one or more of these programs is successful, the market for some of our drug candidates could be reduced or eliminated.

      Companies that have a significant generic presence include American Pharmaceutical Partners, Bedford Laboratories, Barr Laboratories, Sicor, Inc., Teva Pharmaceuticals and Watson Pharmaceuticals, Inc. Some

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      Any product for which we obtain FDA approval must also compete for market acceptance and market share. For example, cisplatin and carboplatin are the most prevalent platinum-based derivatives used in chemotherapy and are the primary treatment for many of the cancer types we are pursuing. Our drug candidate, satraplatin, if the FDA approves it for sale, would likely compete against these drugs directly. Unless satraplatin is shown to have better efficacy and is as cost effective, if not more cost effective, than cisplatin and carboplatin, it may not gain acceptance by the medical field and therefore never be successful commercially. Competition for branded drugs is less driven by price and is more focused on innovation in treatment of disease, advanced drug delivery and specific clinical benefits over competitive drug therapies.

      We expect technological developments and improvements in the fields of our business to continue to occur at a rapid rate and, as a result, expect competition to remain intense. Please also read our discussion of competition matters in the “RISK FACTORS” section of this report.

Sales and Marketing

      In previous years we did not have any products or services to market, and therefore, had no marketing, sales, or distribution organization. In anticipation of FDA approval of our ANDAs for our generic drugs, in 2003 we entered into an agreement with Lannett Company to market and distribute our first generic drug, ciprofloxacin, if and when our ANDA is approved by the FDA. We also intend to seek alliances with other third parties to assist us in the marketing and sale of our other drug candidates. In addition, in 2003 we hired a vice president of marketing and sales and intend to hire additional sales and marketing personnel in the future, as needs dictate.

Research and Development

      From our inception through September 2002, we devoted substantially all of our resources and efforts to early stage drug research and development. Commencing with the launch of our new business strategy in August 2002, we eliminated early stage drug research and development and focused our research and development efforts on development of later stage drug product candidates that are already in or about to enter human clinical trials. Research and development expenditures are expensed as we incur them and were approximately $4 million in 2003, $12 million in 2002, and $21 million in 2001.

Governmental Regulation

      The production and marketing of our oncology and generic drug products are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation. The Federal Food, Drug and Cosmetics Act, as amended from time to time, and the regulations promulgated thereunder, as well as other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our proposed products. Product development and approval within this regulatory framework, including for drugs already at a clinical stage of development, can take many years and require the expenditure of substantial resources. In addition to obtaining FDA approval for each product, each drug manufacturing establishment must be registered with, and approved by, the FDA. Domestic manufacturing establishments are subject to regular inspections by the FDA and must comply with Good Manufacturing Practices. To supply products for use in the United States, foreign

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      The United States system of new drug approval is one of the most rigorous in the world. Only a small percentage of compounds that enter the pre-clinical testing stage are ever approved for commercialization. Our Oncology Strategy focuses on in-licensing clinical stage drug candidates that are already in or about to enter human clinical trials. This strategic focus on clinical stage drug candidates (those eligible for human trials) is designed to address certain risks of drug development by shortening the timeline to marketability and reducing the risk of failure, both of which are higher with an early stage product.

      The following general comments about the drug approval process are relevant to the development activities we are undertaking with our Oncology drugs.

      Pre-clinical Testing: During the pre-clinical testing stage, laboratory and animal studies are conducted to show biological activity of a drug compound against the targeted disease and the compound is evaluated for safety.

      Investigational New Drug Application: After pre-clinical testing, an Investigation New Drug Application is submitted to the FDA to begin human testing of the drug.

      Phase 1 Clinical Trials: After an Investigational New Drug Application becomes effective, Phase 1 human clinical trials can begin. These trials, involving small numbers of healthy volunteers or patients usually define a drug candidate’s safety profile, including the safe dosage range.

      Phase 2 Clinical Trials: In Phase 2 clinical trials, controlled studies of volunteer human patients with the targeted disease are conducted to assess the drug’s effectiveness. These studies are designed primarily to determine the appropriate dose levels and to evaluate the effectiveness of the drug on humans, as well as to determine if there are any side effects on humans.

      Phase 3 Clinical Trials: This Phase usually involves large numbers of patients with the targeted disease. During the Phase 3 clinical trials, physicians monitor the patients to determine the drug candidate’s efficacy and to observe and report any adverse reactions that may result from long-term use of the drug on a large, more widespread, patient population. During the Phase 3 clinical trials, the drug candidate is compared to either a placebo or a standard treatment for the target disease.

      New Drug Application: After completion of all three clinical trial phases, if the data indicates that the drug is safe and effective, a New Drug Application is filed with the FDA. We estimate that approval of a New Drug Application for a cancer drug generally takes six months to three years.

      Fast Track Review: The FDA has established procedures for accelerating the approval of drugs to be marketed for serious diseases for which the manufacturer can demonstrate the potential to address unmet medical needs. One of our drug candidates, satraplatin, has been given a fast track designation for the hormone refractory prostate cancer indication.

      Abbreviated New Drug Application (ANDA): The Abbreviated New Drug Application is particularly relevant for our Generic Drug Strategy. An ANDA is the abbreviated review and approval process created by the Drug Price Competition and Patent Term Restoration Act of 1984 for the accelerated approval of generic drugs. An ANDA applicant must certify that the generic drug does not infringe on existing patent(s), that the relevant patents have expired and no further patent protection is afforded to the innovator, or that the relevant patent(s) for the brand name product is invalid. The ANDA must also demonstrate both chemical equivalence and bio-equivalence (the rate and extent of absorption of the generic drug in the body is substantially equivalent to the previously approved brand name drug), unless a bio-equivalence waiver is granted by the FDA in the case of an injectable generic drug to the brand name product. The ANDA drug development and approval process generally takes less time than the NDA drug development and approval

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      Approval: If the FDA approves the New Drug Application, the drug becomes available for physicians to prescribe to patients for treatment. The marketing of a drug after FDA approval is subject to substantial continuing regulation by the FDA, including regulation of manufacturing practices and the advertising and promotion of the drug.

      Failure to comply with FDA and other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs, ANDAs or other product applications enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have internal compliance programs, if these programs do not meet regulatory agency standards or if our compliance is deemed deficient in any significant way, it could have a material adverse effect on us. See “Risks Factors – Any failure to comply with extensive governmental regulation could prevent or delay product approval or cause governmental authorities to disallow our products after approval and subject us to criminal or civil liabilities.”

      The Generic Drug Enforcement Act of 1992 established penalties for wrongdoing in connection with the development or submission of an ANDA. Under this Act, the FDA has the authority to permanently or temporarily bar companies or individuals from submitting or assisting in the submission of an ANDA, and to temporarily deny approval and suspend applications to market generic drugs. The FDA may also suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct and/or withdraw approval of an ANDA and seek civil penalties. The FDA can also significantly delay the approval of any pending NDA, ANDA or other regulatory submissions under its Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities Policy.

      As part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, companies are now required to file with the Federal Trade Commission and the Department of Justice certain types of agreements entered into between branded and generic pharmaceutical companies related to the manufacture, marketing and sale of generic versions of branded drugs. This new requirement could affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with branded pharmaceutical companies, and could result generally in an increase in private-party litigation against pharmaceutical companies. The impact of this new requirement, and the potential private-party lawsuits associated with arrangements between brand name and generic drug manufacturers, is uncertain and could adversely affect our business.

      Continuing studies of the proper utilization, safety and efficacy of pharmaceuticals and other health care products are being conducted by industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of their marketing.

Employees

      As of December 31, 2003, we had sixteen full-time employees, of which four hold M.D. degrees and one holds a Ph.D. degree. We anticipate hiring additional personnel as needs dictate to implement our growth strategy. We cannot assure you that we will be able to attract and retain qualified personnel in sufficient numbers to meet our needs. Our employees are not subject to any collective bargaining agreements, and we regard our relations with our employees to be good.

Available Information

      We file with the Securities and Exchange Commission (SEC) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, proxy statements

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      We also maintain a website located at http://www.spectrumpharm.com, and electronic copies of our periodic and current reports, and any amendments to those reports, are available, free of charge, under the “Investor Relations” link on our website as soon as practicable after such material is filed with, or furnished to, the SEC.

      For financial information regarding our business activities, please see “Item 8 – Financial Statements.”

RISK FACTORS

      An investment in our common stock involves a high degree of risk. Our business, financial condition, operating results and prospects can be impacted by a number of factors, including, but not limited to those set forth below and elsewhere in this report, any one of which could cause our actual results to differ materially from recent results or from our anticipated future results. As a result, the trading price of our common stock could decline, and you could lose a part or all of your investment. You should consider these risks carefully before deciding to invest in our common stock. Factors that may affect our business, financial condition, operating results, and prospects include:

Our losses will continue to increase as we expand our development efforts, and our efforts may never result in profitability.

      Our cumulative losses since our inception in 1987 through December 31, 2003 were in excess of $150 million, almost all of which consisted of research and development and general and administrative expenses. We lost approximately $10 million in 2003, $18 million in 2002 and $28 million in 2001. We expect to continue to incur losses in the future, particularly as we continue to invest in the development of our oncology drug candidates, and expand the scope of our generics operations. We currently do not sell any products or services and we may never achieve revenues from sales of products or become profitable. Even if we eventually generate revenues from sales, we nevertheless may continue to incur operating losses over the next several years.

Our business does not generate the cash needed to finance our ongoing operations and therefore, we will need to raise additional capital.

      Our business does not generate cash from operations needed to finance our ongoing operations. We have relied primarily on raising capital through the sale of our securities, and/or out-licensing our drug candidates and technology, to meet our financial needs. Our existing cash and investment securities are sufficient to fund our current planned pharmaceutical operations for the next two years based upon our current operating expenses. Therefore, we expect that we may need to seek additional capital within the next two years, through public or private financings, including equity financings, and through other arrangements to continue operating our businesses and to support the research and development of our potential products long-term. In addition, if we choose to expand our operations beyond what is currently planned, or should our anticipated operating expenses increase, we will have to raise capital sooner.

      We may not be able to raise additional capital on favorable terms, if at all. Accordingly, we may be forced to significantly change our business plans and restructure our operations to conserve cash, which would likely involve out-licensing or selling some or all of our intellectual, technological and/or tangible property not presently contemplated and at terms that we believe would not be favorable to us and/or reducing the scope and nature of our currently planned research and drug development activities. An inability to raise additional capital would also impact our ability to expand operations.

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Our existing oncology drug candidates may not prove safe or effective.

      Each of our existing three oncology drug candidates, satraplatin, EOquin and elsamitrucin, are in various stages of clinical trials. The principal purpose of such trials is to research and, hopefully, verify the safety and efficacy of the drug candidates in treating a particular disease or symptom. Clinical trial data may indicate that any or all of our drug candidates either are not sufficiently safe for human use or do not have a meaningful beneficial effect in the treatment of a particular disease or symptom. If we, or a regulatory body such as the FDA, conclude that any of our drug candidates either are not safe or have no beneficial effect, then the value of that drug candidate will be materially diminished or lost entirely. If and when we acquire additional oncology drug candidates, they also will be subject to these same risks and uncertainties.

Our oncology drug candidates may not be more effective, safer or more cost efficient than competing drugs and otherwise may not have any competitive advantage.

      Oncology drugs produced by other companies are currently on the market for each cancer type we are pursuing. Even if one or more of our oncology drug candidates ultimately received FDA approval, we cannot provide any assurance that our drug candidates will have better efficacy in treating the target indication than a competing drug, have a more favorable side-effect profile than a competing drug, be more cost efficient to manufacture or apply, or otherwise demonstrate a competitive advantage over competing therapies. Accordingly, even if FDA approval is obtained for one or more of our drug candidates, we can provide no assurance that it will gain acceptance by the medical field or become commercially successful.

The development of our lead drug candidate, satraplatin, depends on the efforts of a third party.

      In September 2002, we entered into a co-development and license agreement with GPC Biotech AG for the development and commercialization of our lead drug candidate, satraplatin. GPC Biotech has agreed to fully fund development and commercialization expenses for satraplatin. We will not have control over the drug development process and therefore, the success of our lead drug candidate will depend upon the efforts of GPC Biotech. There is no assurance that GPC Biotech will be successful in the clinical development of the drug, the achievement of any milestones such as the acceptance of a NDA filing by the FDA or the eventual commercialization of satraplatin.

Our efforts to acquire or in-license and develop additional oncology drug candidates may fail.

      The long-term success of our Oncology Strategy depends in part on obtaining clinical stage drug candidates in addition to our existing portfolio of satraplatin, EOquin and elsamitrucin. We are actively seeking to acquire or in-license additional clinical stage oncology drug candidates. We can give no assurance, however, that we will be successful in locating and acquiring or in-licensing additional desirable drug candidates on acceptable terms.

Price and other competitive pressures may make the marketing and sale of our generic drugs not commercially feasible and not profitable.

      We have not yet successfully obtained regulatory approval of any of our drug candidates. Even if we obtain regulatory approval to market one or more generic drug products in the United States, we cannot provide any assurance that we will be able to complete a transfer price arrangement with the manufacturer of the drug product that will allow us to market the drug(s) in the United States on terms favorable to us, or at all. In addition, the generic drug market in the United States is extremely competitive, characterized by many participants and constant downward price pressure on generic drug products. Consequently, margins are continually reduced and it is necessary to continually introduce new products to achieve and maintain profitability.

      If we obtain regulatory approval to market one or more generic drug products in the United States, then we may face opposition from the producers of the branded versions of these drugs. Branded pharmaceutical companies have aggressively sought to prevent generic competition, including the extensive use of litigation.

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      In addition, many branded pharmaceutical companies increasingly have used state and Federal legislative and regulatory means to delay generic competition. These efforts have included:

	•	Pursuing new patents for existing products which may be granted just before the expiration of one patent, which could extend patent protection for a number of years or otherwise delay the launch of generics;
	•	Using the Citizen Petition process to request amendments to FDA standards;
	•	Seeking changes to the United States Pharmacopoeia, an organization which publishes industry recognized compendia of drug standards; and
	•	Attaching patent extension amendments to non-related federal legislation.

      In addition, some branded pharmaceutical companies have engaged in state-by-state initiatives to enact legislation that restricts the substitution of some generic drugs. Some of these initiatives could have an impact on products that we will seek to introduce into the United States. We have limited resources, and may not be able to effectively respond to these or other measures that may be taken by pharmaceutical companies that produce the branded version of our generic products.

We may not be successful in establishing additional generic drug supply relationships.

      Long-term success of our Generic Drug Strategy depends in part on our ability to expand and enhance our existing relationships and establish new relationships for supplying generic drug products. We do not presently intend to focus our research and development efforts on developing active pharmaceutical ingredients or the dosage form for generic drugs. In addition, we currently have no capacity to manufacture generic drug products and do not intend to spend our capital resources to develop the capacity to do so. Therefore, we must rely on relationships with other companies to supply our generic drug products. We cannot provide any assurance that we will be successful in expanding or enhancing our existing relationships or in securing new relationships. If we fail to expand relationships, our ability to expand our generic drug business will be harmed.

We may not be successful in expanding our generic drug distribution capabilities in the United States.

      Many of our competitors have substantial, established direct and indirect distribution channels. We have not yet undertaken the marketing and distribution of a generic drug product and we currently have no direct sales and marketing organization and our limited sales and marketing resources our devoted to establishing and enhancing our third party distribution relationships. The long-term success of our Generic Drug Strategy depends in part on our ability to enlarge and enhance our generic drug distribution capability in the U.S. We cannot provide any assurance that we will be successful in expanding or enhancing our existing distribution channel relationships, establishing new, additional distribution channel relationships or establishing a direct generic drug marketing capability sufficient to effectively and successfully compete.

Once approved, our supply of a generic drug product is dependent upon the production capabilities of our supply sources.

      We have no internal manufacturing capacity for our drug product candidates, and therefore, we will be dependent on our manufacturing partners for our supply of products. The manufacture of certain generic drug products, including the acquisition of compounds used in the manufacture of the finished generic drug product, may require considerable lead times. Further, sales of a new generic drug product may be difficult to forecast. Also, we will have no control over the production process. Accordingly, there could arise circumstances in which market demand for a particular generic product could outstrip the ability of our supply source to timely manufacture and deliver the product, thereby causing us to lose sales.

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We are dependent on third parties for clinical testing, manufacturing and marketing our proposed products.

      We may not conduct some clinical trials ourselves, and we will not manufacture any of our proposed products for commercial sale nor do we have the resources necessary to do so. In addition, we do not have the capability to market our drug products ourselves. We intend to contract with larger pharmaceutical companies or contract research organizations to conduct such activities. In connection with our efforts to secure corporate partners, we may seek to retain certain co-marketing rights to certain of our drug candidates, so that we may promote our products to selected medical specialists while our corporate partner promotes these products to the medical market generally. We cannot be certain that we will be able to enter into any partnering arrangements on this or any other basis. If we are not able to secure adequate partnering arrangements, we will have to hire additional employees or consultants with expertise in marketing, since our current employees have no experience in these areas. We cannot be certain that sufficient employees with relevant skills will be available to us. Any increase in the number of our employees would increase our expense level, and could have an adverse effect on our financial position.

      In addition, we cannot be certain that we or our potential corporate partners can successfully introduce our proposed products or that such proposed products will achieve acceptance by patients, health care providers and insurance companies. Further, it is possible that we may not be able to secure arrangements to manufacture and market our proposed products at prices that would permit us to make a profit. To the extent that clinical trials are conducted by corporate partners, we may not be able to control the design and conduct of these clinical trials.

Our limited experience at managing and conducting clinical trials ourselves may delay the trials and increase our costs.

      We may manage and conduct some future clinical trials ourselves rather than hiring outside clinical trial contractors. While some of our management has had experience at conducting clinical trials, we have limited experience in doing so as a company. If we move forward with self-conducted clinical trials, our limited experience may delay the completion of our clinical trials and increase our costs.

Rapid technological advancement may render our drug candidates obsolete.

      The pharmaceutical industry is characterized by rapidly evolving technology. We cannot provide any assurance that a competitor may not develop a new technology, product or therapy that has better efficacy, a more favorable side-effect profile or is more cost effective than one or more of our drug candidates or generic products and thereby cause our drug candidate or generic product to become commercially obsolete.

Competition for patients in conducting clinical trials may prevent or delay approval of a drug candidate and strain our limited financial resources.

      Many pharmaceutical companies are conducting clinical trials in patients with the cancer types that our drug candidates target. As a result, we must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements for participation in clinical trials. Also, due to the confidential nature of clinical trials, we cannot be certain how many of the eligible cancer patients may be enrolled in competing studies and consequently not available to us. This competition may increase costs of our clinical trials and delay the introduction of our potential products.

We are a small company relative to our principal competitors and our limited financial resources may limit our ability to develop and market our oncology drug candidates and our Generic Strategy drug products.

      Many companies, both public and private, including well-known pharmaceutical companies and smaller niche-focused companies, are developing products to treat all of the diseases we are pursuing, or distribute generic drug products directly competitive to the generic drugs we intend to market and distribute. Many of these companies have substantially greater financial, research and development, manufacturing, marketing

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We may need additional expertise in marketing and other areas in order to achieve our business objectives and we may not be able to attract additional skilled personnel.

      Competition for qualified personnel among pharmaceutical companies is intense, and the loss of key personnel, or the inability to attract and retain the additional skilled personnel required for the expansion of our business, could significantly damage our business.

We may not be successful in obtaining regulatory approval to market and sell any of our oncology or generic drugs.

      Before our drug candidates can be marketed and sold in the United States, regulatory approval must be obtained from the FDA and comparable foreign regulatory agencies. Following successful completion of Phase 3 clinical trials, a comprehensive New Drug Application (NDA) must be filed with the FDA. The review and approval, or denial, process for an application can take years. We can give no assurance that the FDA, and comparable foreign regulatory agencies, will timely, or ever, approve an application. Among the many possibilities, the FDA may require substantial additional testing or clinical trials or find our drug candidate is not sufficiently safe or effective in treating the targeted disease. Further, we cannot provide any assurance that a competitor may not develop a competing drug or therapy that impairs or eliminates the commercial feasibility of our drug candidates.

      We plan to use our management’s experience with the regulatory approval process in the United States to prepare, file and prosecute appropriate Abbreviated New Drug Applications (ANDAs) for our current and future generic drug candidates. During 2003 we filed three ANDAs for ciprofloxacin, carboplatin and fluconazole. We intend to file additional ANDAs during 2004 and beyond. We cannot provide any assurance that the FDA will approve all, or any, of our ANDAs. Generic drugs generally have a relatively short window in which they can be profitable before other manufacturers introduce competing products that impose downward pressure on prices and reduce market share for other versions of the generic drug. Consequently, delays in obtaining FDA approval may also significantly impair our ability to compete.

Any failure to comply with extensive governmental regulation could prevent or delay product approval or cause governmental authorities to disallow our products after approval and subject us to criminal or civil liabilities.

      The FDA and comparable agencies in foreign countries impose many requirements on the introduction of new drugs through lengthy and detailed clinical testing and data collection procedures, and other costly and time consuming compliance procedures. These requirements apply to every stage of the clinical trial process and make it difficult to estimate when any of our drug candidates will be available commercially, if at all. While we believe that we are currently in compliance with applicable FDA regulations, if we fail to comply with the regulations applicable to our clinical testing, the FDA may delay, suspend or cancel our clinical trials, or the FDA might not accept the test results. The FDA, or any comparable regulatory agency in another country, may suspend clinical trials at any time if it concludes that the trials expose subjects participating in such trials to unacceptable health risks. Further, human clinical testing may not show any current or future product candidate to be safe and effective to the satisfaction of the FDA or comparable regulatory agencies or the data derived from the clinical tests may be unsuitable for submission to the FDA or other regulatory agencies.

      Once we submit a drug candidate for commercial sale approval, the FDA or other regulatory agencies may not issue their approvals on a timely basis, if at all. If we are delayed or fail to obtain these approvals, our business and prospects may be significantly damaged. If we fail to comply with regulatory requirements, either

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	•	product recalls or seizures;
	•	injunctions;
	•	civil penalties;
	•	criminal prosecution;
	•	refusals to approve new products and withdrawal of existing approvals; and
	•	enhanced exposure to product liabilities.

Intellectual property rights are complex and uncertain and therefore may subject us to infringement claims.

      The patent positions related to our drug portfolio candidates that we have in-licensed from third parties and those related to our Generic Strategy drug candidate portfolio are inherently uncertain and involve complex legal and factual issues. Although we are not aware of any infringement by any of our drug candidates on the rights of any third party, there may be third party patents or other intellectual property rights relevant to our drug candidates of which we are not aware. Third parties may assert patent or other intellectual property infringement claims against us with respect to our drug candidates or our generic drug products. This could draw us into costly litigation as well as result in the loss of our use of the intellectual property that is critical to our business strategy.

Intellectual property litigation is increasingly common and increasingly expensive.

      Patent and other intellectual property litigation is becoming more common in the pharmaceutical industry. Litigation is sometimes necessary to defend against or assert claims of infringement, to enforce our patent rights, to protect trade secrets or to determine the scope and validity of proprietary rights of third parties. No third party has asserted that we are infringing upon their patent rights or other intellectual property, nor are we aware that we are infringing upon any third party’s patent rights or other intellectual property. We may, however, be infringing upon a third party’s patent rights or other intellectual property, and litigation asserting such claims might be initiated in which we would not prevail or we would not be able to obtain the necessary licenses on reasonable terms, if at all. All such litigation, whether meritorious or not, as well as litigation initiated by us against third parties, is time consuming and very expensive to defend or prosecute and to resolve.

      If our competitors prepare and file patent applications in the United States that claim technology we also claim, we may have to participate in interference proceedings required by the Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if we ultimately prevail. Results of interference proceedings are highly unpredictable and may result in us having to try to obtain licenses in order to continue to develop or market certain of our drug candidates.

      We also rely on trade secret protection and contractual protections for our un-patented, confidential and proprietary technology. Trade secrets are difficult to protect. While we enter into proprietary information agreements with our employees, consultants and others, these agreements may not successfully protect our trade secrets or other confidential and proprietary information.

We may be subject to product liability claims, and may not have sufficient product liability insurance to cover any such claims, which may expose us to substantial liabilities.

      We may be exposed to product liability claims from patients who participate in our clinical trials, or, if we are able to obtain FDA approval for one or more of our potential products, from consumers of our products. Although we currently carry product liability insurance in the amount of $5 million per occurrence and in the aggregate, it is possible that the amounts of this coverage will be insufficient to protect us from future claims.

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The loss of key personnel could significantly hinder our growth strategy and might cause our business to fail.

      Our success depends upon the contributions of our key management and scientific personnel, especially Dr. Rajesh C. Shrotriya, our Chairman, President and Chief Executive Officer and Dr. Luigi Lenaz, the President of our Oncology division. Dr. Shrotriya has been President since 2000 and Chief Executive Officer since 2002, and has spearheaded the major changes in our business strategy and coordinated structural reorganization. Dr. Lenaz has been President of our Oncology Division since 2000 and has played a key role in the identification and development of our oncology drug candidates. The loss of the services of Dr. Shrotriya, Dr. Lenaz or any other key personnel could delay or preclude us from achieving our business objectives. Dr. Shrotriya has an employment agreement with us that will expire on December 31, 2004, with automatic one-year renewals thereafter unless we, or Dr. Shrotriya, gives notice of intent not to renew at least 90 days in advance of the renewal date. Dr. Lenaz has an employment agreement with us that will expire on July 1, 2004, with automatic one year renewals thereafter unless Dr. Lenaz or we give notice of intent not to renew at least 90 days in advance of the renewal date.

      We also may need substantial additional expertise in marketing and other areas in order to achieve our business objectives. Competition for qualified personnel among pharmaceutical companies is intense, and the loss of key personnel, or the delay or inability to attract and retain the additional skilled personnel required for the expansion of our business, could significantly damage our business.

There are a substantial number of shares of our common stock eligible for future sale in the public market. The sale of these shares could cause the market price of our common stock to fall. Any future equity issuances by us may have dilutive and other effects on our existing stockholders.

      As of March 19, 2004, there were approximately 10 million shares of our common stock outstanding, and in addition, security holders held options, warrants and preferred stock which, if exercised or converted, would obligate us to issue up to approximately 9 million additional shares of common stock. A substantial number of those shares, when we issue them upon conversion or exercise, will be available for immediate resale in the public market. The market price of our common stock could fall as a result of such resales due to the increased number of shares available for sale in the market.

      We have financed our operations, and for the foreseeable future we expect to continue to finance a substantial portion of our operating cash requirements, primarily by issuing and selling our common stock or securities convertible into or exercisable for shares of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and may have a dilutive impact on our other stockholders. These issuances would also cause our net income, if any, to decrease or our loss per share to decrease in future periods. As a result, the market price of our common stock could drop.

The market price and volume of our common stock fluctuate significantly and could result in substantial losses for individual investors.

      The stock market from time to time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price and volume of our common stock to decrease. In addition, the market price and volume of our common stock is highly volatile. Factors that may cause the market price and volume of our common stock to decrease include fluctuations in our results of operations, timing and announcements of our technological innovations or new products or those of our competitors, FDA and foreign regulatory actions, developments with respect to patents and proprietary rights, public concern as to the safety of products

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Certain charter and bylaws provisions and our stockholder rights plan may make it more difficult for someone to acquire control of us or replace current management.

      Certain provisions of our Certificate of Incorporation, as amended, and Bylaws may make it more difficult for someone to acquire control of us or replace our current management. These provisions may make it more difficult for stockholders to take certain corporate actions and could delay, discourage or prevent someone from acquiring our business or replacing our current management, even if doing so would benefit our stockholders. These provisions could limit the price that certain investors might be willing to pay for shares of our common stock.

      In December 2000, we adopted a Stockholder Rights Plan pursuant to which we distributed rights to purchase units of our Series B Junior Participating Preferred Stock. The rights become exercisable upon the earlier of ten days after a person or group of affiliated or associated persons has acquired 20% or more of the outstanding shares of our common stock or ten business days after a tender offer has commenced that would result in a person or group beneficially owning 20% or more of our outstanding common stock. These rights could delay or discourage someone from acquiring our business, even if doing so would benefit our stockholders.

The use of hazardous materials in our research and development efforts imposes certain compliance costs on us and may subject us to liability for claims arising from the use or misuse of these materials.

      Our research and development efforts involved and may involve the use of hazardous materials, including biological materials, chemicals and radioactive materials. We are subject to federal, state and local laws and regulations governing the storage, use and disposal of these materials and some waste products. We believe that our safety procedures for the storage, use and disposal of these materials comply with the standards prescribed by federal, state and local regulations. However, we cannot completely eliminate the risk of accidental contamination or injury from these materials. If there were to be an accident, we could be held liable for any damages that result, which could exceed our financial resources. We currently maintain insurance coverage of up to $1,000,000 per occurrence for injuries resulting from the hazardous materials we use, and up to $25,000 per occurrence for pollution clean up and removal, however, future claims may exceed these amounts. Currently the costs of complying with federal, state and local regulations are not significant, and consist primarily of waste disposal expenses.

      Our corporate administrative offices are located in a two-story 34,320 square foot facility containing office and laboratory space, constructed for us in Irvine, California. The base monthly rent for the facility is currently $42,862 plus taxes, insurance and common area maintenance. The lease on this facility expires on June 30, 2004 at which time we anticipate renewing the lease for a five-year period, at a cost equal to or better than our current lease rate. This facility is suitable and adequate to undertake our current and anticipated future operations; however, at this time, we are currently utilizing only half of the facility. For the foreseeable future we expect to continue sub-leasing the laboratory space to one or more third parties

      We lease a small administrative office in Zurich, Switzerland on an expense-sharing basis. The financial and other terms of this lease are not material to our business.

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      As of December 31, 2003, we were also committed through September 2006 under a non-cancelable lease entered into in 2001 with the Regents of the University of California, Irvine (UCI), in order to conduct our functional genomics research at a laboratory administrative facility adjacent to the University. In March 2004, we reached a settlement, subject to completion of definitive documentation, with UCI, pursuant to which the future lease obligations have been terminated.

      We are sometimes involved in matters of litigation that we consider ordinary routine litigation incidental to our business. We are not aware of any pending litigation matters that will materially affect our financial statements.

      No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

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PART II

      As of March 19, 2004, there were 10,003,670 shares of common stock outstanding and 387 shareholders of record. On March 19, 2004, the closing sale price of our common stock was $8.18 per share.

      Our common stock is traded on the Nasdaq SmallCap Market under the symbol “SPPI.” The high and low sale prices of our common stock reported by Nasdaq during each quarter ended in 2003 and 2002 were as follows:

      The high and low sales prices of our common stock reported by Nasdaq reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions, and may not represent actual transactions. Common stock prices have been restated to reflect the 25-for-1 reverse split of our outstanding common stock on September 6, 2002.

      We have never paid cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable future. We currently intend to retain our earnings, if any, to finance future growth.

      The following table presents our selected financial data. Financial data for the years ended December 31, 2003, 2002 and 2001 and as of December 31, 2003 and 2002 has been derived from our audited financial statements included elsewhere in this Form 10-K and should be read in conjunction with those financial statements and accompanying notes and with “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Financial data for the years ended December 31, 2000 and 1999 and as

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CONSOLIDATED FINANCIAL INFORMATION

      You should read the following discussion of the financial condition, changes in financial condition and results of our operations in conjunction with the financial statements and the notes to those statements included elsewhere in this report. The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” as well as those discussed elsewhere.

Financial Condition

      Since inception in 1987 through August 2002, we devoted our resources primarily to fund research on early stage, or novel, drug products and functional genomics discovery, and recorded significant losses. Our operations have historically been financed by the issuance of capital stock because it is generally difficult to

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      In August 2002, we adopted a new business model, with a primary focus on conducting development research on late-stage oncology products. This strategy is designed to address the risks of drug development by shortening the timeline to marketability, and reducing the risk of failure, which is higher with an early stage product. Further, in order to mitigate our future financing needs to fund such research, our plan is to generate revenues from the sale of generic versions of drugs coming off-patent over the next several years. If successful, we believe this strategy may provide revenues as early as 2004.

      Our cumulative losses through December 31, 2003 have exceeded $150 million. Our operating expenses, excluding stock-based compensation and restructuring expenses, were reduced from approximately $6 million per quarter during the first half of 2002 to an average of less than $2.5 million per quarter during 2003. Such reduction in expenses was principally due to reductions in personnel, occupancy, drug product and formulation costs, associated with the discontinued neurology and functional genomics activities. Our anticipated average operating expenses (excluding stock-based compensation and restructuring charges, if any) for 2004 is expected to increase to approximately $3 million per quarter, reflecting the increase in our scope of activities, which include development of our oncology drug candidates and investigation and development of new generic drug candidates. We expect to continue to incur additional losses as we implement our growth strategy of developing marketable drug products. Such significant additional operating losses are likely to be incurred for at least the next several years unless they are offset, if at all, by licensing revenues under our agreement with GPC Biotech AG and any revenue from our generic products.

      Since August 2002 we have secured over $32 million in financing, entered into strategic alliances, and filed three ANDAs with the FDA. These actions are designed to position us to capitalize on growth opportunities.

      Our business does not generate enough cash from operations needed to finance our ongoing operations. However, we believe that the approximately $26 million in cash and marketable securities on hand as of December 31, 2003 will be sufficient to fund our current planned operations for approximately two years, based on our current operating expenses (excluding stock-based compensation and restructuring charges, if any).

      In addition, as of December 31, 2003, security holders held options and warrants which, if exercised, would obligate us to issue up to approximately an additional 7 million shares of common stock for potential aggregate proceeds of approximately $32 million.

      Over the long-term, we will likely need to continue to raise funds through public or private financings, including equity financings and through other arrangements, to continue operating our business. However, if we are successful in generating revenues and profits from the sale of generic drugs, we expect to use such resources to help to reduce this reliance on raising funds through the sale of our securities.

      During the years ended December 31, 2003 and 2002, the net cash used in operations, for research and development and general and administrative expenses, was approximately $6.2 million and $15.3 million respectively, after recording revenues of $1.0 million and $2.4 million respectively. The decrease in cash used in operations in 2003 was primarily due to reduced spending for activities related to functional genomics and neurology that were not consistent with our new business focus.

      Cash provided by financing activities was $31.0 million and $9.1 million, for the years ended December 31, 2003 and 2002, respectively. The increase in cash from financing sources of $21.9 million from the

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      We have no debt except capital lease obligations; capital lease payments amounted to $320,000 and $653,000 during the years ended December 31, 2003 and 2002, respectively.

Critical Accounting Polices and Estimates

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including cash requirements, from assessing: planned research and development activities and general and administrative requirements, the retention of key personnel, required clinical trial activity, market need for our drug candidates and other major business assumptions.

      Our significant accounting policies are described in Note 2 to the consolidated financial statements. The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. We consider the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows.

      We carry property and equipment at historical cost, less accumulated depreciation and amortization. Equipment is depreciated on a straight line basis over their estimated lives (generally 5 to 7 years). Leasehold improvements are amortized over the shorter of the estimated useful life or lease term.

      We review long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If impairment is indicated, we reduce the carrying value of the asset to fair value.

      We own or license all the intellectual property that forms the basis of our intellectual property. To date we have adopted the practice of expensing all licensing and patent application costs.

      License fees comprise initial fees and milestone payments derived from collaborative licensing arrangements. We defer revenue recognition for milestone events which are reasonably assured and recognize them ratably over the minimum remaining period of our performance obligations. Milestones which are not reasonably assured are treated as the culmination of a separate earnings process and are recognized as revenue when the milestones are achieved.

      Research and development expenses are comprised of the following types of costs incurred in performing research and development activities: personnel expenses, facility costs, contract services, costs of clinical trials, laboratory supplies and drugs, and allocations of corporate costs. We expense all research and development activity costs in the period incurred.

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      We account for all of our stock based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Accordingly, we recognize non-employee stock based compensation or payments using a fair market value methodology promulgated by SFAS 123, which standard also permits continued use of accounting for employee stock-based compensation using the intrinsic value methodology of accounting promulgated by Accounting Principles Board (or APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). Under the intrinsic value method, stock-based compensation is measured as the excess, if any, of the quoted market price of our common stock at the measurement date over the exercise price. We recognize employee stock-based compensation using the intrinsic value methodology promulgated by APB 25.

Results of Operations

      Revenue for 2003 of $1 million decreased by approximately $1.4 million as compared to 2002, and was derived from the second licensing fee of $1 million under the co-development and licensing agreement with GPC Biotech AG, which became due in September 2003 upon dosing of the first patient in a registrationial study. Future GPC revenues are dependant upon the occurrence of milestones specified in the agreement.

      Research and development expenses decreased by approximately $8.0 million, from $11.7 million in 2002 to $3.7 million in 2003 primarily as a result of the restructuring, initiated in August 2002, whereby all research activities related to Neotrofin, functional genomics and neurology were eliminated. In 2003, research and development expenses included our ongoing clinical trial for EOquin™ in the treatment of patients with superficial bladder cancer, procurement of elsamitrucin supplies for an upcoming clinical trial in patients with non-Hodgkin’s lymphoma and expenses incurred in connection with the filing of our ANDAs for ciprofloxacin, carboplatin and fluconazole. As a result of the increasing scope of our activities, which include development of our oncology drug candidates and investigation and development of new generic drug candidates, we expect increases in research and development expenses in 2004 and beyond.

      General and administrative expenses increased by approximately $1.3 million, from $3.7 million in 2002 to $5.0 million in 2003 due primarily to the following factors:

	•	Legal and professional fees increased by approximately $900,000 in 2003 due to the changes in our organization, expenses incurred in successfully addressing the NASDAQ delisting notice we received in March 2003, additional expenses for compliance with California and other state securities laws due to our listing on the NASDAQ SmallCap Market, compliance with new SEC and Sarbanes-Oxley Act rules and regulations, and evaluation of business alliances and opportunities in conjunction with our generic drug strategy;
	•	Employee severance costs included in general and administrative in 2003 of approximately $500,000;
	•	As a result of the 2002 change in our business plan, and a dramatic reduction in the scope of our research and development activities, the allocation of general and administrative costs to research and development was $1.4 million lower in 2003 as compared to 2002; and
	•	Offsetting the foregoing increases was an aggregate decrease of approximately $1.5 million in payroll and occupancy costs, depreciation and other miscellaneous corporate overhead.

      Stock-based compensation expense of $2,573,000 for 2003 represents non-cash charges as a result of stock awards and stock options granted to employees and consultants. The use of options as a means to compensate and retain employees is crucial for a company like ours. The increase of approximately $1.2 million in stock-based compensation from $2.6 million in 2003 as compared to $1.4 million in 2002 was primarily due to timing delays in 2003 in awarding stock options as a result of compliance with state securities laws during a period where our stock price was rising rapidly.

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	•	Stock awards and options granted to employees are accounted for under APB 25. All of the options granted by us have been made at fair market values on the dates originally authorized by the Board of Directors or our Compensation Committee. However, as described in Note 10 to the consolidated financial statements, certain grants to employees contemplated by the Board had later effective grant dates. Accordingly, we recorded a non-cash stock-based employee compensation expense of $2,297,000 during 2003.
	•	In accordance with SFAS 123, we expense the “fair value” of options granted to consultants. During 2003, we agreed to issue, to a consultant engaged to generate retail interest in our stock, a warrant to purchase 130,000 shares of our common stock. The Black-Scholes value of the warrant, $480,000, is being amortized over the service period and $276,000 was charged to expense in 2003.

      During 2002, approximately $1 million of stock-based compensation was charged in connection with the issuance of common stock and warrants to purchase common stock in settlement of accounts payable to certain vendors. In addition, during 2002, we recorded compensation expense of $411,000, as a result of the amortization of deferred compensation costs which were recorded in 2001 and prior years, when we granted stock options to employees with exercise prices less than the fair value of our common stock at the measurement date. The intrinsic values of the option grants were recorded as deferred compensation and were amortized to expense over the vesting period, in accordance with APB 25.

      The restructuring charge of $163,000 in 2003 is related to an adjustment of the realizable value of assets held for sale as of December 31, 2003.

      Other income for 2003 compared to 2002 increased approximately $200,000 due primarily to the elimination of miscellaneous expenses associated with the activities related to functional genomics and neurology.

      Revenue for 2002 of $2,371,000 resulted from the recognition of the first licensing fee of $2 million from the co-development and licensing agreement with GPC Biotech AG, and $371,000 from technology out-licensing agreements with Pfizer Inc. The Pfizer license fees were recognized in 2002 upon the termination of all research activities at NeoGene, our functional genomics subsidiary, and the completion of all further commitments under those license agreements.

      Research and development expenses decreased by approximately $8.9 million from $20.6 million in 2001 to $11.7 million in 2002 primarily due to the conclusion of clinical trials for Neotrofin, a previous neurology drug candidate, causing decreases in outside clinical research site costs, product manufacturing costs, and payroll costs of research personnel. In addition, as a result of a restructuring initiated in August 2002, all research activities related to Neotrofin, functional genomics and neurology were eliminated.

      General and administrative expenses decreased by approximately $1.8 million from $5.5 million in 2001 to $3.7 million in 2002 due to the decline in our scope of activity. The principal components of the decrease were reductions in costs for administrative personnel, consulting, travel and lodging expenses, and officer relocation expenses. These decreases were partially offset by an increase in corporate business expenses related to the development of our oncology related drug candidates.

      Stock-based compensation expense decreased by approximately $0.7 million from $2.1 million in 2001 to $1.4 million in 2002. As a result of the work-force reductions in 2002 and the cancellation of stock options granted below fair market value in earlier years, the amortization of deferred compensation decreased by approximately $1.1 million to approximately $0.4 million. Offsetting such decrease was a $0.4 million increase to approximately $1.0 million in the issuance of common stock and warrants to purchase common stock in settlement of accounts payable to certain vendors.

      The restructuring charge of $3,050,000 recorded in 2002 related to the termination of all research efforts related to neurology and functional genomics research and development, and consisted of:

	•	A fixed asset impairment charge of $1,669,000 resulting from the review of the carrying value of our laboratory equipment;

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	•	Severance costs of $763,000 related to termination agreements with two senior executives, and 21 research and administration employees;
	•	A $312,000 loss on exchange of certain assets in connection with the settlement of certain payment obligations to the University of California, Irvine, in connection with the former functional genomics operations; and
	•	Other restructuring related administrative and legal expenses of $306,000.

      Other income for 2002 compared to 2001 decreased by $442,000 due primarily to a $533,000 decrease in interest income resulting from lower average marketable securities balances and lower interest rates.

Related Party Transactions

      As of January 1, 2002, certain of our directors and officers owed us $616,000 previously loaned to them for the exercise of stock options or the purchase of stock. During 2002, we were repaid $391,000, which included all loans to officers. In February 2003, we agreed to forgive and terminate the remaining $225,000 and in return, the directors agreed to return the shares of common stock originally purchased under the loans. For accounting purposes, this arrangement was considered to be an uncompleted transaction and therefore, the common stock and related notes receivable were eliminated as of December 31, 2002.

      Between November 2002 and November 2003, we had outsourced the administration, accounting and human resources functions, and SEC report preparation to McManus Financial Consulting (MFC) for a monthly fee of $15,000 and all investor relations activities to McManus & Co. (M&C) for a monthly fee of $12,000. Between January and June 2002, MFC also provided services to us at hourly rates, subject to a minimum annual retainer of $24,000. During the years ended December 31, 2003 and 2002, MFC and M&C received total fees and payments under severance arrangements amounting to $539,000 and $106,000, respectively. MFC and M&C are co-owned by two of our former officers, John and Michael McManus, who are also brothers. John McManus received direct compensation from us as Vice President Finance and Strategic Planning and Assistant Corporate Secretary, however, Michael McManus received no direct compensation from us for his services as Controller. In November 2003, John and Michael McManus resigned their positions with the Company to return to their consulting business to pursue other opportunities. The consulting agreement with M&C will remain in effect through its expiration on July 31, 2004.

Off-Balance Sheet Arrangements

      There are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have a current or future material effect on our financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Contractual and Commercial Obligations

      The following table summarizes our contractual and other commitments, including obligations under facilities leases and operating equipment leases, as of December 31, 2003:

      Excluded from the above table of minimum lease requirements, as of December 31, 2003, was $456,000 of minimum lease obligation related to 50% of a facility leased in 2001 by our subsidiary, NeoGene, from the University of California, Irvine (UCI Lease). Under the terms of the UCI Lease, we were potentially liable for approximately double such amount, if UCI is unable to use the remaining 50% of the facility. Since inception of the UCI Lease, we have been charged approximately 83% of the facility cost. In March 2004, we reached a settlement, subject to completion of definitive documentation, with UCI, pursuant to which the future lease obligations have been terminated. The full amount of the settlement has been accrued in the accompanying financial statements.

      We have acquired licenses to further develop certain therapeutic compounds, and are contingently liable for certain milestone payments to the licensor if we reach certain development milestones. We have not reached any milestones and cannot determine when or if ever a milestone will be reached. If we reach a milestone, it will likely occur prior to revenues being generated from the related compound.

      We have entered into employment agreements with certain of our key executive personnel. The agreements provide for, among other things, potential severance payments equal to up to twice the officer’s annual base salary upon the termination of employment without cause or upon a change in control under certain circumstances.

Business Outlook

      You should read the following discussion of our business outlook together with the financial statements and the notes to financial statements included elsewhere in this report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

      Our primary business focus in 2004 and beyond will be to develop marketable drug products, focused on the development of oncology drugs and supplemented by marketable generic drugs.

      Our current product candidates are: satraplatin, elsamitrucin, EOquin™, ciprofloxacin, carboplatin and fluconazole. We are currently developing our oncology drug candidates for the treatment of prostate cancer, bladder cancer, non-Hodgkin’s lymphoma, and radiation sensitization as it relates to radiation treatment for cancer. Currently, each of our oncology drug candidates relates to life threatening diseases and we believe each is novel in its treatment or indication, therefore, we hope for expedited regulatory approval, whenever appropriate. We believe that all of our proposed drug candidates, if approved by the FDA, with sufficient funding, will eventually be marketed by us or with the assistance and leadership of a co-development partner.

	•	Funding for satraplatin clinical trials is being borne entirely by our co-development partner GPC Biotech.

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	•	We are funding the Phase 2 clinical trials of EOquin and elsamitrucin.
	•	In addition to the three generic drug ANDAs filed in 2003, we plan to file several new ANDAs in 2004 and beyond. In this regard we are evaluating several drug candidates for feasibility. The evaluation of feasibility includes many factors, including, but not limited to, evaluation of market potential, competitive scenario, assessment of patent extensions, and availability of active pharmaceutical ingredients, etc.

      We believe that our present cash resources are sufficient to support these clinical trials and the filing of the planned ANDAs over approximately the next two years, based on our current operating expenses (excluding stock-based compensation and restructuring charges, if any).

      In addition, we also have several neurology drug compounds that we intend to out-license for further development because we are not pursuing internally, and do not presently intend to pursue internally, further development of these drug compounds which include: AIT-034 for dementia, SPPI-339 for attention deficit disorders, SPPI-356 for psychosis, schizophrenia and other mood disorders and Neotrofin™ for neurodegenerative diseases.

      We expect to begin marketing ciprofloxacin, our first generic drug, through our partner in 2004, if approved by the FDA. We view the potential for generic drug marketing and sales in the United States with the assistance of low-cost, high quality manufacturers as a revenue opportunity which we believe will provide us with a source of funding for our research activities, thereby reducing our need to rely exclusively on the capital markets to fund our development activities.

      While we intend to continue to expand the number of our drug candidates and targeted indications, we may need to access the capital markets if we are to expand our scope beyond the plans described above. The availability of financing at reasonable terms is dependent upon many factors, including, but not limited to the performance of the stock price of our common stock. Therefore, our attempts to raise additional capital may be unsuccessful.

      If we are able to secure sufficient new funds and are able to develop strategic alliances with other pharmaceutical businesses for co-development opportunities, we expect that our operating expenses would increase over the next several years as we expand our research and development and commercialization activities and operations. We expect to incur significant additional operating losses for at least the next several years. We also expect that research and development expenses will increase as we expand our clinical trials on all of our drug candidates. Depending on the results of our ongoing and planned clinical trials for our drug candidates and the outcome of the regulatory approval process, we will expand our marketing and third party manufacturing capabilities as we approach the commercialization of each of our product candidates.

      We are exposed to certain market risks associated with interest rate fluctuations and credit risk on our marketable securities and short-term investments, which investments are entered into for purposes other than trading. The primary objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. We do not utilize hedging contracts or similar instruments.

      Our primary exposures relate to (1) interest rate risk on our investment portfolio, and (2) credit risk of the companies’ bonds in which we invest. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with our cash requirements.

      Our investments as of December 31, 2003 are fixed rate, short-term corporate and government notes and bonds, which are available for sale. Because the interest rates are fixed, changes in interest rates affect the fair value of these investments but do not affect the interest earnings. If a 10% change in interest rates were to have occurred on December 31, 2003, any decline in the fair value of our investments would not be material. In addition, we are exposed to certain market risks associated with corporations’ credit ratings of which we have purchased corporate bonds (or paper). If these companies were to experience a significant detrimental

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      Our annual consolidated financial statements are included in Item 15 of this report.

      None.

      We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Vice President Finance (our senior financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives.

      As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Vice President Finance, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Vice President Finance concluded that our disclosure controls and procedures were effective and were operating at the reasonable assurance level.

      There has been no change in our internal controls over financial reporting during our most recent fiscal quarter or fiscal year that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART III

      The information concerning our directors and executive officers required under this item is incorporated by reference from our definitive proxy statement related to our 2004 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, on or before April 29, 2004 (“2004 Proxy Statement”).

      The information required under this item is incorporated by reference from our 2004 Proxy Statement.

      The information required under this item is incorporated by reference from our 2004 Proxy Statement.

      The information required under this item is incorporated by reference from our 2004 Proxy Statement.

      The information required under this item is incorporated by reference from our 2004 Proxy Statement.

PART IV

      (a)(1) Consolidated Financial Statements:

      (a)(2) Financial Statement Schedules: All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.

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      (a)(3) Exhibits.

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*	Indicates a management contract or compensatory plan or arrangement.

+ Filed herewith

#	Confidential portions omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

      (b) Reports on Form 8-K.

      On October 2, 2003, we filed a Form 8-K current report regarding our withdrawal from a bankruptcy court supervised action to purchase certain assets of Protarga, Inc. (Item 5).

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	SPECTRUM PHARMACEUTICALS, INC.

	By:	/s/ RAJESH C. SHROTRIYA, M.D.

	Rajesh C. Shrotriya, M.D.
	Chief Executive Officer and President

      Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

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SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2003 and 2002 and

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SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders

      We have audited the accompanying consolidated balance sheets of NeoTherapeutics, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NeoTherapeutics, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of its consolidated operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

      The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments relating to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

	/s/ ARTHUR ANDERSON LLP

Orange County, California

      This is a copy of the audit report previously issued by Arthur Anderson LLP in connection with Spectrum Pharmaceuticals, Inc.’s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Anderson LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

      We have audited the accompanying consolidated balance sheets of Spectrum Pharmaceuticals, Inc. (formerly NeoTherapeutics, Inc.) (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company as of December 31, 2001 and the year then ended were audited by other auditors who have ceased operations, and whose report dated March 27, 2002 on those statements included an explanatory paragraph that described the Company’s recurring losses from operations and its net capital deficiency discussed in Note 1 to those financial statements.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the financial position of Spectrum Pharmaceuticals, Inc. (formerly NeoTherapeutics, Inc.) as of December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.

	/s/ KELLY & COMPANY

Kelly & Company

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Table of Contents

SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the financial statements.

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Table of Contents

SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS