Cell Therapeutics Reemerging

Includes: CTIC, NVS, SPPI
by: Bullish Bankers

by Mike Havrilla

I profiled Cell Therapeutics (NASDAQ:CTIC) two months ago as a cancer biotech that was down, but not out. Since then the stock price has more than quadrupled from $0.08 cents to $0.36 cents during intraday trading. CTIC continues to reduce operating expenses, and sold its remaining stake in a joint venture to market the cancer drug Zevalin to Spectrum Pharma (NASDAQ:SPPI) for $16.5M last month (in addition to receiving $15M last December from SPPI for the initial 50% stake).

CTIC reduced operating expenses in 2008 by 33% and provided guidance which included a forecast of slashing net operating expenses by about 50% during 2009. The company expects to complete its pixantrone NDA submission during 2Q09 with a six-month priority review request (for potential approval during 2009) since it is reporting positive Phase 3 results in patients with relapsed, aggressive non-Hodgkin’s lymphoma.

Last November, pixantrone achieved its primary efficacy endpoints in a Phase 3 trial. The new data includes a rapid response time, and a favorable safety profile compared to standard chemo and anthracyclines (a class of cancer drugs which result in chronic toxicities such as heart damage which limits their use).

CTIC has agreements with Novartis (NYSE:NVS) for both pixantrone and Opaxio which provide for $17.5M in potential pixantrone milestone payments ($7.5M licensing option for NVS plus $10M approval milestone payment for pixantrone) and $25M payment for an Opaxio approval milestone in Europe. The company expects to receive an opinion on the Marketing Authorization Application for Opaxio in Europe during 2H09.

As part of its cost cutting initiatives, CTIC will reduce its work force from 194 employees at year-end to 85 during early 2Q09. The downsizing is mostly associated with the company’s plans to close its Italian research center, along with employees associated with Zevalin, which will be transferred to SPPI. CTIC expects to reduce net operating expenses by about $29M, resulting in a monthly level of about $2.1M per month in operating expenses during 2H09.

CTIC ended 2008 with cash and equivalents of about $10.7M, and since closed the deal with SPPI for $16.5M in additional capital. However, additional capital will be required during this year, and CTIC is exploring the potential for partnerships, joint ventures, selling assets, debt or equity financing, or potentially restructuring to meet this need.

In late March, the company announced the results of a special shareholder meeting, which included approvals for the following: increasing the number of authorized shares of common stock, increasing the number of shares available for equity incentive plans, and increasing the number of shares available for employee purchase plans. Shareholders did not approve the proposal which would have allowed the Board to implement a reverse stock split.

The recent resurgence in shares of CTIC is indicative of the company’s potential for major regulatory approval milestones for pixantrone and Opaxio during 2009, which could result in up to $42.5M in milestone payments from Novartis. The cost-cutting measures, and sale of the Zevalin joint venture to Spectrum provide CTIC with time and flexibility to evaluate strategic alternatives to provide funding, and maximize shareholder value as the company awaits major regulatory milestones, which are expected in the latter half of this year.