Cell Therapeutics has gotten itself into some kind of jam. Just as the Seattle-based biotech company has gotten its hands on two cancer drugs proven to be effective in clinical trials, it may never be able to reap the rewards of bringing them to patients. The company has only enough cash to operate through the next two weeks, and it’s suffocating under a debt load of $124 million.
Cell Therapeutics (NASDAQ: CTIC) has a long history of controversy that probably requires book-length treatment. There was CTI’s corporate jet; the loan of company funds to the CEO; the failed boardroom coup against Bianco; the U.S. Attorney’s Office investigation into accusations of the company’s off-label drug marketing; and the inability to get a quorum for its annual shareholder meeting. All told, the company has spent more than $1.2 billion of shareholder money since its founding in 1991 and has never become consistently profitable. Yet even today, it has about 195 employees (125 of them in Seattle) still working, as the company motto states, on “making cancer more treatable.”
But now Cell Therapeutics’ troubles are catching up to it. Italian regulators halted trading of the stock earlier this week, triggering a rule for a similar shutdown on the Nasdaq. The last trade on Tuesday put the company’s stock at 8 cents, assigning the company a market valuation of less than $35 million—the minimum required to stay listed on the U.S. exchange. The company disclosed earlier this week in a regulatory filing that it has only enough cash to operate through the end of February.
This isn’t really all that unusual in the biotech industry, where lots of companies are running out of cash. What’s striking is that Cell Therapeutics is sitting on two drugs for non-Hodgkin’s lymphoma that are on the cusp of critical milestones that could turn them into moneymaking products.
The first drug, ibritumomab tiuxetan (Zevalin), was a pioneering innovation that involved using a targeted antibody to precisely hit cancer cells, combined with a small dose of radiation to give it extra tumor-killing punch. But it has been a commercial dud since introduction by Biogen Idec in 2002, largely because it is complicated for doctors to give the drug and tricky to get insurers to pay for it. But Cell Therapeutics bought it anyway, in December 2007, right after researchers presented data from a new study of 400 patients. These patients had a less-advanced form of the disease. The study showed Zevalin was able to keep patients’ tumors from spreading for a startling 37 months, compared to just 13 months for those on a placebo.
Thinking this information could pump new life into the product, the company has submitted that application to the FDA, asking it to approve the expanded use. The agency’s deadline for making a decision is April 2. If the answer is yes, the drug’s sales could quadruple from $15 million in 2008 to more than $60 million in 2010, the company says.
The second drug, pixantrone, has been a source of almost constant headaches for Cell Therapeutics since it bought its developer, Milan, Italy-based Novuspharma, in 2003. Besides the barriers of language, culture, and geographic distance, the company has had difficulty getting Italian shareholders to turn in their annual votes required to do perfunctory things like elect new members to the board of directors. But after five years, the hassle appeared to pay off in November, when the company unveiled data from a pivotal study of 140 patients. The drug, designed to work like other anthracycline chemotherapy drugs but with a modification to make it less toxic on the heart, was shown to work. In patients who failed to respond to all previous rounds of chemotherapy, about 20 percent on pixantrone went into complete remission, compared with 5.7 percent who did that well on another round of chemo. The effect was verified by a second measurement, which showed patients on pixantrone were able to keep their tumors from spreading for 4.7 months, compared with 2.6 months for those in the control group.
Cell Therapeutics is now racing to put together an application to the FDA in the first part of this year, and is hoping the FDA will assign it a six-month expedited review time that it sometimes gives to potential lifesaving therapies, Bianco told investors earlier this week. While the company assembles its application, the Swiss drug giant Novartis is doing its due diligence on the drug. If Novartis decides to exercise an option to co-market the product, it could pay Cell Therapeutics a $7.5 million fee by the end of this month, Bianco said. That could lead to a total of $40 million in milestone payments in 2009, require Novartis to pay the bills for commercializing the product, and leave Cell Therapeutics with a double-digit percentage royalty on sales, he said.
Even assuming Cell Therapeutics gets every possible break from the FDA, and Novartis throws the company a life-preserver, the company will still need to escape from its debt, which amounts to $124 million and is due in 2010 and 2011, according to regulatory filings. This debt load was supposed to convert into equity shares for investors, leaving the company debt-free, so long as Cell Therapeutics was successful with its former lead compound, paclitaxel poliglumex (Opaxio). That drug ended up failing to reach its goals for lung cancer patients in three consecutive pivotal trials in the first half of 2005, which devastated the company’s stock price, and left it on the hook to pay that debt. The company now hopes shareholders will approve a transaction at a Feb. 27 meeting that will clear much of the debt off its books, Bianco says.
Even though he acknowledged that the company is on a “tight-wire” at this week’s investment conference, Bianco makes it sound like he has no doubt the company will survive. He said the company expects to reach the break even point in its cash flow by the fourth quarter of 2009, adding, “We’re clearly on our way to turn into a profitable company in 2010.”
Last week, in an op-ed piece in The Seattle Times, he insisted that his company remains on track: “I have always followed a single principle—walk by faith, not by sight—to guide me and CTI, through both good and tough times,” Bianco wrote. “Those companies with lasting vision and/or noble missions, whether they be Starbucks or Nordstrom, even when they stray, find their way back to enduring success.” We’ll find out soon if the company’s vision will endure, or whether someone else with more resources will pick up CTI’s drugs off the bargain rack to bring them to patients in need.
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