CTIC Stays Neutral - Analyst Blog

We are maintaining our Neutral recommendation on Cell Therapeutics Inc. (CTIC) with a target price of $0.25.
 
Cell Therapeutics, based in Seattle, Washington, is focused on developing drugs for cancer.  The company's lead pipeline candidate, pixantrone (proposed trade name: Pixuvri), is being developed for the treatment of relapsed or refractory aggressive non-Hodgkin's lymphoma (NHL) in patients who have not responded to other treatment options. The company recently initiated a mid-stage study of pixantrone in patients suffering from metastatic breast cancer.
 
The company's pipeline also consists of Opaxio (paclitaxel poliglumex) under phase III development for the treatment of ovarian cancer and brostallicin under phase II development for the treatment of breast cancer.
 
Recently Cell Therapeutics, which does not have any product in the market, delivered disappointing second quarter 2010 results whereby its year over year loss widened.
 
(Read our full coverage on this earnings report: Cell Therapeutics)

 
The company, which is banking heavily on the success of pixantrone, 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 for the candidate 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, it announced in September 2010, that it will appeal the decision of the FDA to deny approval to pixantrone. A response on the appeal from the regulatory body is expected by year end.
 
However, we are pleased to note that Cell Therapeutics' plan of getting the drug approved in Europe remains on track. The Marketing Authorization Application (MAA) is expected to be filed later this year. Meanwhile, although the company has brought down its debt burden by converting it to common stock, we remain concerned about the significant dilution in shareholder value.
 
Currently, we have a Zacks #4 Rank (Sell) on the stock. The near-term pressure arises from the uncertainty regarding pixantrone approval. However, we have a Neutral outlook on the stock in the long-run. The lack of directional pressure on the stock due to the lack of estimate revisions justifies our Neutral recommendation on Cell Therapeutics. Moreover, we believe that the risk/reward profile is balanced at Cell Therapeutics based on its fundamentals. Consequently, we see limited upside from current levels.