Cell Therapeutics: Sell Now, Ask Questions Later... Again

Sep.29.13 | About: CTI BioPharma (CTIC)

Cell Therapeutics (NASDAQ:CTIC) is at it again, selling equity to stay alive and diluting shareholders once again.

The company recently announced the closing of its previously announced sale of 15,000 shares of its Series 18 Preferred Stock for gross proceeds of approximately $15 million. On September 18, 2013, all of the shares of Series 18 Preferred Stock were converted into 15,000,000 shares of common stock issuable upon conversion. The net proceeds from the Offering, after deducting estimated offering expenses, were approximately $14.8 million.

The last time I wrote about Cell Therapeutics, I said sell now and ask quotations later. Well I am saying the same thing again. The company has hardly any equity left (about $1.7 million before the offering), and also has a very predictable pattern of losing money on a quarterly basis.

CTIC Net Income Quarterly Chart

CTIC Net Income Quarterly data by YCharts

At this rate, I think that the company will be shopping for capital once again in several quarters and diluting shareholders once again, as it has done for many years now. The stock currently has 107 million shares outstanding, so 15 million additional shares is only about a 14% dilution. However if you look at the long-term picture, the company has issued stock numerous times and has done several reverse stocks splits.

Please note the company has done the following reverse stock splits:

  • 4-1 reverse split on April 15, 2007
  • 10-1 reverse split on September 2, 2008
  • 6-1 reverse split on May 15, 2011
  • 5-1 reverse split on September 4, 2012

In addition, the last time the company raised money was back in October 5, 2012, when the company raised $55.6 million, increasing the float by 42.9 million shares.

And if you want to know what the float looks like, the chart below shows the increase in the number of share over the years on an adjusted basis.

CTIC Shares Outstanding Chart

CTIC Shares Outstanding data by YCharts

And if you want to know what the long-term consequences of such dilutive policies look like on an adjusted basis, the chart below is worth a thousand words. If you by any chance bought this stock over a decade ago at around $90,000 (that was not a typo), today your investment is worth $1.67.

Click to enlarge

Dilution aside, is this stock a buy?

Putting aside the product pipeline of the company and searching for an answer based on management's guidance, as per the company's Q2 report, management expects the loss for 2013 be $60 to $65 million.

On a 12 month forward basis, starting from Q2, I expect about the same loss given the company's loss history. The company currently has about $28 million in cash. If we add the proceeds from the current offering, the company will have about $43 million in cash. This money is not enough to last the company for the next twelve months.

My guess is that the company will burn at about $30 million by the end of the year, leaving it with about $13 million. If I am correct about this, I think the company will also preemptively raise money once again by the end of the year. However, the next time the offering will be a lot more than the current $15 million. I think it will be at least $30 million. Chances are that this will add another 30 million shares to the float.

So shareholders can expect more dilution by the end of the year. As far as I'm concerned, this is a very strong headwind for the stock, even assuming we get some sort of revenue guidance figures from the company (which we do not have so far).

As to why the stock has been going up lately, it probably has to do with the completion of the offering. Maybe the market thought the company would not pull it off.

Bottom line

This stock has a very long history of diluting shareholders to death (literally). I expect more of the same over the next twelve months. Unless the company is able to come up with significant revenue over this period, I think that shareholders will be significantly diluted once again.

As per the current offering, the shares were issued at $1. So I expect that those who participated in the offering to sell very soon (or as soon as possible). This is another headwind.

Currently the stock is rising. My advice is to wait until you see technical weakness on the charts and sell. The risk of holding or buying this stock, compared to the dilution that shareholders will once again endure over the next 12 months is not worth it yet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.