[[Update with corrected Zevalin sale price]] Cell Therapeutics is trying to get rid of a major load of debt. The Seattle biotech company said today it has sold $20 million worth of common stock and warrants to buy stock to a single unnamed institutional investor. It hopes to swap some of that money, along with the $17.8 million in cash it currently has, along with some of its common stock, to wipe out about $89.2 million of its debt that starts coming due as early as next year.
The company (NASDAQ: CTIC) has been carrying around more than that, about $120 million of debt, on its balance sheet for years. It borrowed the money back in the days when it had high hopes that its modified form of paclitaxel, a chemotherapy drug, would succeed in clinical trials, and become a big seller. That was supposed to allow the debt to convert into shares, so that the company would never have to pay back the principal. But that drug failed in pivotal clinical trials, driving down Cell Therapeutics stock, and leaving the company on the hook to make debt payments without a blockbuster moneymaking product.
Back in February, CEO James Bianco said it would take a “high-wire act” over the next six months to keep the company moving ahead, and that’s apparently what he’s been doing. The company closed down an Italian research center, eliminating more than 60 jobs, sold off its stake in its lone marketed product, ibritumomab tiuxetan (Zevalin) to Spectrum Pharmaceuticals for $31.5 million, and then sold shares to Cranshire Capital for an offering that grossed $23.8 million. All those maneuvers have enabled the company to stretch out its cash reserves to operate into August, to buy some time while it whips up an application to the FDA for another experimental cancer that has sparked high hopes—pixantrone for non-Hodgkin’s lymphoma.
Today’s deal is evidently one of several moves the company needs to execute to start building more value from the progress of pixantrone. The drug showed an ability in a clinical trial of 140 patients to completely eliminate tumors in about 20 percent of patients, compared with 5.7 percent who did that well in a control group, although there were more instances of “severe cardiac events” in the group who got pixantrone. Full details will be presented at the American Society of Clinical Oncology meeting in Orlando, FL, later this month, the company has said.
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. That could lead to a total of $40 million in milestone payments in 2009, Bianco said earlier this year in an investor presentation. Novartis could pay the bills for commercializing the product, and leave Cell Therapeutics with a double-digit percentage royalty on sales, he said.
Cell Therapeutics said it currently has about $118.9 million in debt outstanding, and that it hopes to exchange cash to get rid of $89.2 million in the near future. The company expects to offer investors cash and stock in the range of $250 to $300 for every $1,000 increment of debt securities they hold.
“The company believes that reducing its outstanding indebtedness is necessary in order for its business to operate in light of the current asset base and revenue projections,” the company said in a statement.
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