We are downgrading Cell Therapeutics, Inc. (CTIC) to Underperform from Neutral with a price target of $0.25 primarily due to the uncertainty surrounding the US approval of its lead candidate, pixantrone. Pixantrone (proposed trade name: Pixuvri), is currently under development for the treatment of relapsed or refractory aggressive non-Hodgkin’s lymphoma (NHL) in patients who have not responded to other treatment options.
Cell Therapeutics Inc., based in Seattle, Washington, is focused on developing drugs for cancer. The company received a setback in April 2010, when the US Food and Drug Administration (FDA) denied approval to pixantrone and issued a complete response letter (CRL) based on issues related to the study design. The FDA asked Cell Therapeutics to conduct an additional trial to determine the safety and efficacy of pixantrone.
In August 2010, the company submitted a proposal for a new study, to compare the efficacy of pixantrone in combination with rituximab against the current standard of care in aggressive NHL, to the US regulatory agency. Cell Therapeutics intends to initiate the study later in the year following the feedback from the FDA on the study design and endpoints. Following the receipt of the CRL, Cell Therapeutics reduced its workforce by 36 employees.
Although the company is looking to conduct an additional trial for pixantrone, Cell Therapeutics announced in September 2010 that it will appeal the decision of the FDA to deny approval to pixantrone. A response from the regulatory body is expected by year end.
Cell Therapeutics’ future is dependent on pixantrone since it does not have any other candidate, apart from cancer candidate Opaxio, to fall back on, if the company’s lead candidates are not approved.
Even if pixantrone manages to get approved, it willface tough competition from several established products in the market. One of the top-selling drugs for the treatment of NHL is Rituxan, co-promoted by Biogen Idec (BIIB) and Genentech (a part of Roche (RHHBY)) in the US. Competition is quite tough in this therapeutic area with the presence of Genzyme’s (GENZ) Campath, Millennium’s (a part of Takeda) Velcade and Cephalon’s (CEPH) Treanda among others. We believe that the tough competition awaiting pixantrone on approval is another challenge the company will have to face.
We are also concerned about Cell Therapeutics’ liquidity position. Cash and cash equivalents at the end of the second quarter of 2010 were $64.5 million prior to the payment of $39.3 million for retiring the convertible debt in 2010 and the receipt of a gross amount of $4.1 million from the equity financing in July 2010. We note that the company also raised $18.5 million in April 2010 through the issuance of preferred stock and warrants. We believe that if the company conducts additional trials for pixantrone as directed by the FDA then it will lead to higher operating expenses. Additionally, the practice of reducing the debt burden by converting it to common stock is fraught with danger since it will lead to dilution in shareholder value.
Given these headwinds, we expect Cell Therapeutics to under perform the overall US equity market. With the outlook bleak for the company, we see little reason for investors to own the stock.