Will Cell Therapeutics Innovate or Die?

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Running a business is all about innovation. Whether it's a biotechnology upstart, a cutting-edge technology company, or a large-scale retailer, innovation is paramount to a business' success. Without innovation, companies run the risk of getting complacent, falling behind their competitors, or, even worse, folding up shop altogether, the way Circuit City did a few years ago.

No company gets a free pass, so when push comes to shove we need to ask ourselves: Will this company innovate or die?

Today, let's take a closer look at Cell Therapeutics (Nasdaq: CTIC  ) to determine whether the company can adapt its product pipeline or whether it will be pushed into the background.

What's wrong with Cell Therapeutics?
It's not uncommon for biotechnology companies to have deep-reaching pipelines, because the failure rate of pre-clinical and phase 1 candidates are extraordinarily high. And then there's Cell Therapeutics. This company has essentially been running with the idea that crossing its fingers and praying for the best might save its anemic pipeline. Under development for more than half a decade, Cell Therapeutics' lead cancer drug, pixantrone, recently failed to woo the FDA and was denied approval based on company's inability of the company to meet its own clinical testing guidelines. This decision left the company with the choice of either running another clinical trial or resubmitting. Cell Therapeutics has chosen the latter.

In a research field dominated by Sanofi-Aventis (NYSE: SNY  ) , Bristol-Myers Squibb (NYSE: BMY  ) , and Roche, to name a few, Cell Therapeutics currently has zero marketed drugs and a $1.5 billion deficit since inception.

Getting Cell Therapeutics back on track
I'm not the CEO of Cell Therapeutics, but for a moment let's pretend I am. As I see it, the company needs to focus on these three things to turn its business around:

  • Pitch Opaxio: One of the very few other drug candidates aside from pixantrone, Opaxio may show promise in extending the quality of life for ovarian-cancer patients. Unfortunately for Cell Therapeutics, it's running low on cash, so it's not exactly the best idea for the company to be running multiple phase 2/phase 3 trials. Instead, the company should do its best to pitch Opaxio to rivals and either sell the drug outright or form a joint venture that gets Cell Therapeutics an upfront payment.
  • Ditch unnecessary expenses: It's always a dirty thought to wish for a company to lay off its employees, but Cell Therapeutics needs to find new and creative ways to reduce its burn rate. After burning $65 million over the trailing 12 months, it needs to do something quickly.
  • Switch the game plan: Developing pixantrone has cost hundreds of millions and may not pay off in the end. The company would be wise to use any cash it generates from pitching Opaxio or issuing shares to purchase a stake in, or form a joint venture with, its rivals. Clearly, Cell Therapeutics needs cash now, and it may need to sacrifice its immediate drugs to secure its survival.

What's the verdict?
I can't say with any certainty whether my "pitch, ditch, and switch" game plan will work, but I feel pretty confident in saying that what Cell Therapeutics has done so far has not. Cell Therapeutics' primary method of generating cash has been through multiple dilutive share offerings. The company has burned through so much investor money already that I'd be extremely leery here. Barring a sudden turnaround in the FDA's opinion on pixantrone, I don’t see a very bright future for shareholders.

What's your view on Cell Therapeutics? Will pixantrone be its saving grace, or is it time to cut the cord? Share your thoughts in the comments section below and consider adding Cell Therapeutics to your watchlist to keep up with the latest news on the company.

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. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that doesn't draw blood.

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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 June 22, 2011, at 5:59 PM, oracleatdelphi66 wrote:

    Let's bring more facts to this piece's history of CTI drug development and pipeline for the benefit of your readers. You say CTI's pixantrone has been under development for more than half a decade. So? In fact, most new drugs take over a full decade to develop and costs may reach over a billion dollars per drug. During its history CTI has already had two other drugs on the market, Trisonex and Zevalin. Patients still benefit from these drugs today.

    You say the FDA has denied approval of pixantrone. That's not the whole story. Recently in its response to CTI's appeal of the pixantrone 301 CRL, the agency said it could NOT conclude that the trial had actually failed. Based on the appeal decision, the FDA also said CTI could re-submit its application and could still win accelerated approval based on the 301 trial. CTI met with the FDA recently and agreed on a pathway forward that could win approval without a new registration trial.

    Pixantrone could also be approved in the EU with a favorable opinion coming before the end of this year.

    As far as the pipeline goes, in addition to the ovarian clinical trial you mention, opaxio results from from a brain cancer trial were recently showcased at the recent ASCO meeting in an oral session.

    Earlier this year CTI entered into agreement with Chroma Therapeutics for tosedostat, a first in class, oral drug for relapsed refractory AML. The results of the most recent clinical trial were also showcased at an ASCO oral session. Both these drugs are poised for later stage development.

    All this sound like innovation to me.

    Dan Eramian, CTI

  • Report this Comment On June 22, 2011, at 8:03 PM, HugoChazev wrote:

    Let's bring some truth to this piece of crap's history. CTIC management have squandered $1.6 billion of shareholder funds and gotten nothing approved in two decades, except pay raises for the grossly overcompensated management team. In 2009 alone, executive compensation totaled over $32 million.

    In addition to filling their pockets with shareholder funds, the executives also granted themselves tens of millions of free shares (at zero cost) and tons of incentive options for accomplishing nothing.They then periodically dump the free shares on the market, thereby, pushing the stock price lower for the poor saps holding the stock. The price per share has sunk from some $2,000 to $2 in the past decade.

    To fund this operation, the CEO endlessly prints shares (dilution). A billion shares were printed since 2008. That massive dilution in such a short period of time could be a Guiness Book World Record.

    It's curious that the CTIC executives get lavshly richer while their shareholders get miserably poorer.

    Anytime facts are written about this two decades long debacle, management dredges out Zevalin and Trisonex. Zevalin was developed by IDEC, Trisonex was developed by PolaRx. Perhaps Dan Eramian can elucidate the $10.5M payment to the US Attorney General when CTIC marketed the acquired drug,Trisonex.

    Let's look at two drugs that CTIC is touting now, Pix and Pax. Pix was voted down by a 9-0 unanimous vote of the FDA expert panel of oncologists. The FDA issued a CRL citing the shoddy trial which disregarded the SPA and recruited an insufficeient number of patients with only a handful in the US and the remainder in the hither lands of Uzbekistan. The Pax EMEA was withrawn after the European authorities questioned that trial.

    Fleecing your own shareholders is not innovation, Dan.

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