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Cell Therapeutics (NASDAQ:CTIC)

Presentation at Piper Jaffray Healthcare Conference

December 4, 2013, 9:00 a.m. ET

Executives

James Bianco - President and CEO

Analysts

None

Unidentified Speaker

Our next presentation today will be from Cell Therapeutics. Presenting from Cell Therapeutics is President and CEO Dr. James Bianco.

James Bianco

Good morning. Before I get started, let me remind you, as is common with presentations of this type, I will be making forward looking statements, and as such we refer you to our SEC filings for more information on the company and its programs.

As you may know, CTI is a Seattle-based company that is focused on acquiring, developing, and bringing to market less toxic, more effective ways to treat and cure a variety of blood-related cancers. Our most advanced development stage candidate is a selective JAK2/FLT3 inhibitor that, unlike other JAK2 inhibitors, lacks treatment related myelosuppression.

Our first Phase III trial is on target to complete its enrollment in the first half of next year, with the second Phase III trial set to go this month.

Based on the product profile, and the potential emerging market market opportunity, Baxter entered into a world licensing agreement with us for pactritinib. And we’ll talk a little bit about the terms of that agreement, but suffice it to say that the financial aspects provide us adequate capital to see pactritinib through its registration filings in 2015, without the need to raise additional equity capital.

In addition to pactritinib, we have a commercial product, PIXUVRI. I’ll update you on its commercial launch in the E.U. As you saw this morning from our press release, we were successful and now receiving reimbursement from the statutory health funds in Germany. PIXUVRI is the only product approved for aggressive B-cell lymphoma for patients who have failed two or more prior treatments.

Given the financial resources that the Baxter agreement provides us, the potential for PIXUVRI to reach to a net product margin contribution, positive product margin contribution, late next year, we continue to maintain focus on expense control and the ability to reach cash flow breakeven sometime in the not too distant future.

I’ll talk a little bit about the Baxter agreement. This is an exclusive worldwide agreement where Baxter essentially develops the product ex-U.S. at 100% of its cost and we receive a tiered royalty starting in the mid-single digits to the mid double digit teens. In the U.S., we will codevelop and copromote, on a 50-50 profit sharing basis.

The total “deal value” is $362 million, but the most important aspect of that deal, in addition to the $60 million up front, they’ve committed an additional $67 million in progress payments between 2014 and 2015.

Let me tell you what they saw in the asset for pactritinib. As you may know, myelofibrosis is a malignant disease of the bone marrow that causes a reduction in the bone marrow’s ability to make blood cells. And this leads to other organs taking over that process, the liver and the spleen.

As the disease progresses, the patient’s liver and spleen are no longer able to compensate for the marrow’s lack of ability to keep blood cell counts normal, and as a result, the counts fall. In fact, about 35% to 40% of patients with myelofibrosis have low levels of platelets called thrombocytopenia, or platelet counts below 100,000.

And that becomes a very important negative or poor prognostic marker for patients with that disease. And interestingly enough, most of the JAK2 inhibitors that have been studied in clinical trials excluded patients who had platelet counts of 100,000 or less, or below 50,000 in one instance.

And I think what we’ve seen over the last two years, while JAK2 inhibitors have revolutionized the treatment of myelofibrosis, there still remains a significant unmet medical need, and that is a JAK2 inhibitor that doesn’t cause treatment emergent thrombocytopenia or anemia.

And I think if you look at low dose of JAK2 therapy as a result of the side effects of the therapy, having to reduce the dose, it’s really suboptimal, what we call subtherapeutic treatment. And so a JAK2 inhibitor that you can administer to patients without causing thrombocytopenia and anemia, keep them on therapy longer, we think would be an improvement in what is an emerging field for treating these patients with myelofibrosis.

This is just a snapshot of some data that we presented at the European Hematology Association meeting, and this is looking at the 65 patients in our Phase II studies. And this is data that you won’t see from other JAK2 agents that have been studied in clinical trials. And this looks at spleen response by physical exam in patients who are severely thrombocytopenic, less than 50,000, patients who are moderately thrombocytopenic, between 50,000 and 100,000, or patients who have platelet counts above 100,000.

And you can see that irrespective of their platelet count, there was the same degree of splenomegaly reduction across the cohort. And the same is true, if you look at patients who are thrombocytopenic in terms of their symptom control.

This is the typical waterfall chart, looking at the symptom assessment form for myelofibrosis, with the symptoms on the bottom, abdominal pain through pruritus, which is itching. And then the red, dark blue, and light blue bars representing four months of therapy, seven months of therapy, and 10 months of therapy.

And you can see that the change from baseline, negatives over positive in this case, so patients having a significant reduction across their symptom scores, as long as the 10 months up here that they’re on therapy. And again, irrespective of the fact that they are thrombocytopenic, including severely thrombocytopenic, at study entry.

And so that’s what we saw as the opportunity for pactritinib with regards to the unmet need in the marketplace. We have two Phase III trials. The first study, as I mentioned, should complete its enrollment early in the first half of next year. This is essentially equivalent to what the COMFORT-II study looked like, with the exception of there’s no exclusion for patients who have low platelets.

It’s a two in one randomization, 270 patients, pactritinib versus best available therapy. In the best available therapy arm, there will be no JAK2 inhibitors. And the primary and secondary endpoints are comparable to what the FDA has required, which is spleen size reduction by volumetric measurements by MRI, and then of course total symptom score reduction.

The second study for which we received a special protocol agreement with the FDA is specifically for patients who have myelofibrosis and are thrombocytopenic, and that thrombocytopenic can be a result of their disease, or it can be the result of the treatment emergent side effect of another JAK2 therapy.

It is a one to one to one randomization, pactritinib at 400 a day or 200 bid versus best available therapy, and best available therapy here will include ruxolitanib at its current dose and schedule per the label for the product, in patients who are thrombocytopenic. And again, with the same primary endpoints of volumetric reduction in spleen size and in total symptom score reduction. And that study, we expect to begin by the end of this year, and current forecasts would be approximately 12 months for enrollment.

So I think the key takeaways are clear, that having a JAK2 inhibitor that lacks treatment emergent myelosuppression is an unmet medical need, even in the post ruxolitanib approval era, that provides not only the ability to give patients therapeutic doses of a JAK2 inhibitor for long periods of time, but can be used in combination with other agents that may, in and of themselves, have overlapping myelosuppression.

The potential for longer duration of therapy is important in this disease. As you know, these patients can live for 10 to 12 years, depending on the stage of their illness, and so chronic therapy is important for disease control and potentially for disease modification as well.

Lastly, the FLT3 component has become a very interesting target for other tyrosine kinase inhibitors. It’s been shown that up regulation of JAK2 is the primary mechanism in AML for overcoming FLT3 inhibition. And so the JAK2/FLT3 combination looks very appealing for treating patients who are FLT3 positive AML, and we have a series of what we call investigator sponsored studies that will get underway this month and into next year, looking at pactritinib in patients with FLT3 positive AML.

Let me just talk a little bit about PIXUVRI. While this may belong to a family of drugs called anthracene diones, its mechanism is distinctly different. It’s not a [unintelligible] isomerase inhibitor, not a DNA [interpolator]. However, it has a very unique mechanism of action that was described at the ACR meeting last month. It works in anthracycline resistant disease, and importantly, we have no label warnings for cardiotoxicity, and no restrictions on cumulative doses like other anthracyclines or anthracene diones do.

It has predictable and manageable toxicity, predominantly uncomplicated neutropenia, and importantly, we don’t see severe nausea, vomiting, or hair loss. The primary study was PIXUVRI versus physician’s choice of active single agent in patients who had failed two or more prior lines of therapy with aggressive B-cell lymphoma.

This is our label according to our marketing authorization in the E.U. You can see that we had a very high percentage of patients who achieved a complete remission, overall response rate. And that is actually very unique, as it turns out, in this patient population. The ability to reintroduce a remission in patients who have failed two or three prior lines of therapy is uncommon with prior existing agents, and now with the first approved drug, we see a lot of interest in the medical community in the E.U., specifically the ability to offer a second salvage, or second chance at a cure.

If you failed second line therapy in stem cell transplant prior to PIXUVRI, most of the options were either being in an investigational study or palliative care. And what we’ve been seeing throughout the E.U. community, where physicians have begun to adopt the use of PIXUVRI, that they can now offer patients another chance at remission, which means they now have chemosensitive disease and therefore they can offer them another shot at a cure, taking them to stem cell transplant.

If the patients aren’t transplant eligible, it then provides them the ability to be in remission for as long as nine months. Median duration was nine months. And if you had a CR in that trial, 67% of those patients were alive at two years. And so while we’re early in the launch process, as market size just in the E.U. alone for the current indication, about 21,000 patients available, market research suggests that at peak we should penetrate about 8,000 of those patients would be on product every year.

Now, we’ve been successful in achieving market access in Italy, in France. We announced this morning that we’ve come to agreement with the statutory health funds in Germany, so now the product is now reimbursable in the German market. And as you may know, that is certainly the most robust market among the Western European nations.

The price quota that we talked about, that EUR500 to EUR550 per vial, we anticipate about 30 vials per patient per year, so an average revenue of about EUR16,500 per patient per year.

Outside of the 10 countries in the E.U. where we have a contract sales force in place, we have been having active discussions with other potential partners to expand the global reach for PIXUVRI outside of those territories.

Let me just close by summarizing a little bit on our financial status. Market capital, $280 million give or take, depending on which day of the week we’re looking at it, 145 million shares outstanding. Pro forma cash as of October 31, taking into consideration the recent Baxter upfront payments and the second tranche of the $5 million from the Hercules loan that’s available to us, about $85.6 million. We’ve got about $10 million of debt on the balance sheet.

We said that our operating expenses would be $60 million to $65 million this year. About $5.2 million to $5.5 million a month. We’ve stayed within that expense guidance, and we will continue to stay within that expense guidance through year-end. And when we report our fourth quarter financials, we’ll provide guidance on what our burn rate will be in 2014, but I think we said on our call, when we announced the Baxter transaction, that the progress payments and the upfront payments from that transaction make us capital market independent through the regulatory submission of pactritinib.

So at this point, I’d be happy to take any questions from those of you who are here this morning. I think if you look at our milestones for 2013, we’ve been pretty dead on on delivering what we had set out for expectations in this year.

Question-and-Answer Session

James Bianco

Questions? All right. Thank you very much for your time this morning.

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