CEO Gaffe of the Week: Cell Therapeutics

This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I want to highlight perhaps the biggest disappointment in the history of all biotechnology companies, Cell Therapeutics (Nasdaq: CTIC  ) , and it's CEO and founder, James Bianco.

The dunce cap
I know what you're thinking: "Does this guy ever stop ripping on Cell Therapeutics and James Bianco?" The answer to that question is more or less "no," because there's never a shortage of bad news streaming from the company.

Before I get into the meat and potatoes of why Cell Therapeutics is this week's dubious honoree, I'll start by mentioning that it did finally get Pixuvri approved and launched in the European Union for the treatment of multiple relapsed or refractory aggressive B-cell non-Hodgkins lymphoma, or NHL. According to the company's press release, there are about 37,000 new cases diagnosed annually. Cell Therapeutics also acquired a JAK 2 inhibitor, known as pacritinib, from Singapore's S*BIO in April that demonstrated good tolerability and cancer-fighting activity in early stage trials. The company also received orphan drug status for brain cancer drug Opaxio last week.

That should give you a brief round-up on the potential catalysts for Cell Therapeutics.

Now, here's the roundup on how things have actually gone for Cell Therapeutics. Pixantrone (the common name for Pixuvri in the U.S.), has failed to get by the Food and Drug Administration on two separate occasions due to Cell Therapeutics' failure to enroll enough patients in its phase 3 study, and the FDA's unwillingness to declare pixantrone an effective treatment for NHL. The back and forth action here has been better than watching John McEnroe and a line judge go at it on the tennis court.

There's also the fact that alternative NHL treatments have existed for a while, including Rituxan from Biogen Idec (Nasdaq: BIIB  ) and Genetech, Zevalin from Spectrum Pharmaceuticals (Nasdaq: SPPI  ) (which it ironically acquired from Cell Therapeutics), and a radioimmunotherapy drug, Bexxar, made by GlaxoSmithKline (NYSE: GSK  ) . Though these aren't targeted at multiple relapsed NHL like Pixuvri is, they still present a competitive challenge to the currently partnerless Cell Therapeutics.

What really set me off was yet another stock offering from Cell Therapeutics, which was announced one week ago. Keep in mind that this came just weeks after the company's reverse split to stay compliant with Nasdaq's listing rules. The offering of $60 million worth of preferred shares, each priced at $1,000 and convertible to common shares at a "bargain price" of $1.40, should ultimately help the company raise just over $55 million after expenses to help launch Pixuvri and continue its study of pacritinib.

There's just one problem with these offerings and reverse splits -- they just keep happening! The sad truth is that if you made an investment in Cell Therapeutics on Oct 20, 2000, you've seen the per-share price decline from a split-adjusted closing value of $87,847.20 to yesterday's closing value of $1.41. That's right -- one dollar and forty-one cents! Each share you previously owned prior to its first reverse split in 2006 has been diluted to just 0.000833 shares.

To the corner Mr. Bianco...
But wait ... there's more!

Somehow, there always seems to be more when it comes to Cell Therapeutics. After examining Cell Therapeutics' performance, I think it only prudent that we take a look at what its leader is doing to rein in expenses.

According to Forbes, Bianco brought in total compensation of $4.6 million in 2011, consisting of a $650,000 salary, a bonus of $767,500, and $2.9 million in restricted stock awards! Did I mention that Cell Therapeutics' share price fell 48% in 2011? What's more, that's not even the biggest checkmark against Bianco when it comes to his compensation package. In 2009, with his stock trading for as much as the change in your pocket, Bianco took home $12.6 million in pay – all while his company had yet to turn a dime in profit ... ever!

As a final slap in the face, I direct your attention to a recent interview conducted by James Bianco and the Puget Sound Business Journal. In that interview, Bianco answered two questions in a way that completely stopped my thought process and had me saying "No... he didn't actually just say that, did he?"

The first question, "When do you expect to see a significant turnaround for the stock?" was answered by Bianco with this following tidbit: "We saw a reversal. I mean we were down to $0.38, $0.39, we're up 25 percent off the low [$0.46]." Keep in mind that this is pre-split, but that's right folks, you've seen a 25% pop. Move along ... nothing to see here!

The second question, "So you don't have a clear timeframe in which you anticipate a major uptick and relief for shareholders?" was actually the question I was immediately attracted to. I give you Bianco's answer: "I don't have that crystal ball. Let's put it that way." Clearly...

Perhaps I should grab my magic-8 ball and see if it will give me an answer as to where Cell Therapeutics is headed in the future. *Shakes magic-8 ball*... Outlook not so good. Shocking!

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

Just as Cell Therapeutics has tried and tried again to develop the next breakthrough drug in the biotech sector, our analysts at Motley Fool Stock Advisor are always on the lookout for game-changing technologies. In our latest special report, our analysts highlight three companies that are using an exciting new technology to transform the tech landscape. Find out their identity, for free, by clicking here to get your very own copy of this report.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 13, 2012, at 3:05 AM, oracleatdelphi66 wrote:

    Fool continues its ad hominem attacks. Fool righly points out all (almost all) that is the potential value opportunities for CTI shareholder opportunities with the launch of Pixuvri in the EU, acquistion of Jak2 pacritinib which maybe in phase 3 this quarter, opaxio for a potential brain cancer treatment though fails to mention opaxio phase 3 trial for ovarian cancer and also skips another late stage drug for AML, tosedostat. But Fool then fails to point out that the $12.6 M figure in pay to the CEO never happened. And even Fool knows no CEO can predict when a stock will rise.--Dan Eramian CTI

  • Report this Comment On October 13, 2012, at 12:17 PM, recordstraight wrote:

    Seems to me this particular author hasn't done his

    homework. The CEO did not get $12.6 M from the company. That figure represents possible bonus targets in the past if certain milestones were met. But thats in the past. I would think investors might want to hear more about future prospects of the

    company,

  • Report this Comment On October 13, 2012, at 12:31 PM, recordstraight wrote:

    The author is wrong on CEO's pay. The $12.6 M he refers to is not salary and was never paid. Check the facts. Company exceutives are given bonus incentive targets if milestones are reached, by the company. This aligns management with shareholders.

  • Report this Comment On October 13, 2012, at 2:19 PM, TMFUltraLong wrote:

    According to the Seattle Times he was paid $12.6 million in 2009. My source for the article:

    http://o.seattletimes.nwsource.com/html/businesstechnology/2...

    TMFUltraLong

  • Report this Comment On October 13, 2012, at 4:48 PM, oracleatdelphi66 wrote:

    If Fool read CTI's filings he would see that compensation figure is incorrect.Stock based compensation is based on the company achieveing milestones. If the company doesn't achieve them the shares do not vest and can return to the company. If you read the Times story even they point that out.

  • Report this Comment On October 14, 2012, at 9:54 AM, Emperor2 wrote:

    It is interesting that Bianco has so many defenders. Defending him is like defending a serial killer when the police find that one of the murders was comitted by someone else. A serial killer, with one less murder to his credit, is still a killer. And Bianco has proven himself to be a serial killer of the companies stock. I wonder if any of his defenders work for CTI? If they were stockholders I doubt if they would be in such a hurry to come to his defense.

  • Report this Comment On October 14, 2012, at 12:33 PM, jdigeree wrote:

    Emperor2, Mr. Eramian is listed as the EVP, Corporate Communications for CTI. Being a brand new private investor I am curious as to why Mr. Eramian and the other executives have been selling their shares over the past few months. Mr. Eramian 15k on 9/20/12 and another 95k on 8/24/12. Mr Bianco has been selling multiple times those numbers including his wifes holdings according to the SEC filings. Im confused....i thought a good indicator of how a company is doing is by watching how its executives treat their stock.

  • Report this Comment On October 15, 2012, at 6:40 AM, bonifax wrote:

    Results Reported in the Journal of Immunology

    SEATTLE, Oct. 15, 2012 /PRNewswire/ -- Cell Therapeutics, Inc. ("CTI") (Nasdaq and MTA: CTIC) announced today that CT-1578's (previously known as SB-1578) unique kinase spectrum that selectively inhibits JAK2 over JAK1 or JAK3, coupled with its inhibition of FLT-3 and c-Fms, produced potency in not only preventing the development of rheumatoid arthritis ("RA"), but also in its treatment and reversal of bone and joint destruction after the onset of RA in preclinical models according to results published in the October 15, 2012 issue of the Journal of Immunology.

    The authors concluded that CT-1578's selective inhibition of JAK2, FLT-3 and c-Fms, which are the three kinases that are critical to the pathogenesis of RA, is unprecedented in the current stable of kinase inhibitors.

    "These results support the hypothesis that inhibition of JAK1 and JAK3 is not mandatory for therapeutic benefit in RA," noted Jack W. Singer, M.D., EVP Global Medical Affairs and Translational Medicine at CTI. "The results demonstrate that CT-1578's unique kinase spectrum not only blocks the inflammatory response, but prevents the infiltration of macrophages and neutrophils into affected joints, while inhibiting antigen presenting dendritic cells and the autoimmune component of the disease. These attributes resulted in prevention of joint synovial hyperplasia and bone destruction, that was sufficiently impressive that the Journal of Immunology chose to use images of the results on the cover of the October 15th issue."

    About the Study

    In the study, when SB1578 was orally administered in a preclinical model of RA, it demonstrated a reduction of the level of proinflammatory cytokines, which was accompanied by a reduction in joint inflammation. In RA patients, the increase in cytokines correlates with disease progression and joint destruction. In the preclinical model, SB1578 was also effective in reversing an elevation in neutrophils, which play an essential role in the initiation of joint inflammation and damage to bone and cartilage resulting in a mitigation of damage to the joints. Additionally, SB1578 showed the ability to modulate the autoimmune component of RA that is involved in the early development of RA by inhibiting a pathway that leads to the initiation of an inflammatory response. The authors state, "The activities against these three kinases [JAK2, FLT-3 and c-Fms], which play crucial roles in the pathogenesis of arthritis, differentiates SB1578 from other less selective JAK family kinase inhibitors that are in clinical development for rheumatoid arthritis and provides a novel and attractive therapeutic alternative."

    The publication by Madan, et al. titled "SB1578, a Novel Inhibitor of JAK2, FLT3, and c-Fms for the Treatment of Rheumatoid Arthritis," is available at http://www.jimmunol.org/.

    About Janus Associated Kinase (JAK)

    The JAK family of enzymes are a central component in signal transduction pathways, which are critical to normal blood cell growth and development as well as inflammatory cytokine expression and immune responses. When dysregulated by activating mutations, uncontrolled blood cell growth can occur accompanied by inflammation and immune system activation contributing to disease manifestations in myeloproliferative neoplasms. Autoimmune diseases such as psoriasis and rheumatoid arthritis also have activation of this pathway.

    About FLT-3

    FLT-3 is a tyrosine kinase that is important for RA pathogenesis as FLT-3 mediated signaling is essential in the differentiation of dendritic cells leading to the to the amplification of systemic arthritogenic immune responses. FLT-3 has also been shown to contribute to the bone erosion in arthritic joints.

    About c-Fms

    c-Fms is a tyrosine kinase receptor that is increased in several diseases that involve chronic activation of tissue macrophages, including RA. Elevate levels of its ligand M-CSF are observed in the joints of RA patients, contributing to the development of macrophages and osteoclasts, which are the mediators of bone erosion. Inhibition of c-Fms has been shown to inhibit the progression of arthritis in preclinical models indicating that it may play a pivotal role in the pathogenesis of RA.

  • Report this Comment On October 20, 2012, at 9:51 PM, HugoChazev wrote:

    Dan Eramian, Bianco's lackey, is lying.

    Per the SEC filings, the 2009 executive compensation totaled $33M as follows:

    J. Bianco > $12,000,000

    L. Bianco > $5,000,000

    D. Eramian > $4,000,000

    C. Philips > $7,000,000

    J. Singer > $5,000,000

    Shameless CTIC management have been filling their pockets for years while shareholders have been impoverished. The stock has had four reverse splits and is down over 99%. Management continually award themselves millions of FREE shares and then dump them on the market and push the pps down with their endless sales.

    Pix is a sham. There are only 12K patients in the EU for the third-line approved use. Pix has been available in the EU since 2009 under the named patient program and sales since then have come to a grand total of ZERO. The Pix patent in the US expires in 2014. Pax has failed in three separate trials. Bianco is peddling recycled failed drugs to keep the executive gravy train flowing while $2.8 Billion of shareholder funds have gone POOF!.

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