Small-Cap Stock on Watch: Cell Therapeutics Inc. (CTIC)
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    Biotech on Watch; Cell Terapeutics plunges on another Dilutive Offering

    Shares of Cell Therapeutics Inc. (Nasdaq: CTIC) slipped this morning after sinking more than 19% on June 30. The plunge was caused by the management’s decision to dilute the existing shareholders ownership by 10% and issue convertible preferred shares worth $30 million. Each preferred share is convertible into approximately 588 shares of common stock at a conversion price of $1.70 per common share, for a total of approximately 17,647,059 shares of common stock. Investors buying the shares also got a warrant for every two shares they bought that allows them to buy up to 8.82 million shares of common stock at $2.15 each.

    The company said that it will use the proceeds from equity offering for general corporate purposes, as well as repaying nearly $11 million in convertible notes that come due in December and funding the research and development program. In addition, CTIC could consider licensing or acquiring a new drug candidate from a third party to enhance its pipeline.

    The stock has bounced up and down significantly over the last years driven by the news related with approval of drug candidate pixantrone for the treatment of non-Hodgkin’s lymphoma (NHL). CTIC’s shares plunged after the company announced that the U.S. Food and Drug Administration (FDA) refused to approve pixantrone for the treatment of non-Hodgkin’s lymphoma in 2010. The FDA said that there was not enough evidence showing the drug is effective as a treatment for NHL.  However, CTIC recovered for a short period last March, after securing a deal with Chroma Therapeutics to develop and license its cancer therapy tosedostat.

    CTIC had no revenue in Q1 2011 and reported that it lost $51.0 million, compared to $44.2 million in the Q1 2010. The company relied heavily on equity issuances to finance the operating deficits, diluting significantly the ownership of existing shareholders. The company burned nearly $1.6 billion for research and development, issued more than 1 billion of shares of common stock and still has nothing approved. Consequently, CTIC has performed three reverse splits, over the past four years, to bring share price above $1.00 and remain in compliance with Nasdaq listing requirements.

    CTIC is a biopharmaceutical company committed to developing an integrated portfolio of oncology products aimed at making cancer more treatable. The company’s leading drug candidate, pixantrone, is a novel anthracycline derivative for the treatment of non-Hodgkin’s lymphoma and various other hematologic malignancies and solid tumors. The phase III study results on drug achieved the primary efficacy endpoints, which made the company to submit a New Drug Application with the FDA. However, the application was rejected, making CTIC to file an appeal last December and schedule additional clinical trials for 2011 and 2012.

    Last May, the FDA responded to CTIC’s appeal recommending the company to conduct an additional review of radiographs utilizing a new independent panel of radiologists to confirm the response and progression events noted in the pixantrone application. In addition, CTIC had a meeting with the FDA representatives in June and obtained the guidance on how to resubmit pixantrone’s new drug application.

    Following the last month meeting with the FDA, CTIC said it plans to file the additional information later this year and resubmit the New Drug Application for potential accelerated approval of pixantrone in patients with multiple relapsed or refractory aggressive NHL. The company has further estimated that it could obtain FDA approval for the drug in the first half of 2012.

    CTIC has already announced a new clinical trial, referred to as the PIX-R or PIX 306 trial, to compare a combination of pixantrone plus rituximab to a combination of gemcitabine plus rituximab in patients with relapsed or refractory diffuse large B-cell lymphoma who have received one to three prior lines of therapy, utilizing progression free survival and Overall Survival as co-primary endpoints of the study. The trial is targeting to enroll approximately 350 patients over a period of 18 months.

    Meanwhile, the company plans to promote pixantrone in Europe, where the Marketing Authorization Application for the drug as monotherapy for patients with relapsed or refractory aggressive non-Hodgkin’s lymphoma was validated and is currently under review by the European Medicines Agency based on the pixantrone phase III study results.

    The company’s current capitalization of nearly $280 million leaves significant room for growth and appreciation, given the blockbuster potential of pixantrone in a huge and underserved market. Analysts following CTIC expect the drug to peak at annual sales in the range of $1 billion, in less than three years after the launch. However, risks of further dilution and failure to demonstrate statistically significant results following pixantrone resubmission are pertinent.

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