The Big Bet on Cell Therapeutics

Last week Cell Therapeutics (Nasdaq: CTIC  ) submitted its marketing application for its non-Hodgkin's lymphoma drug pixantrone to the Food and Drug Administration. Again.

You'll recall the FDA advisory committee panned the drug, which was subsequently turned down by the FDA. Cell Therapeutics appealed the decision to the higher-ups at the agency, which didn't reverse the decision, but did give Cell Therapeutics a road map to potentially gaining FDA approval.

At least, that's Cell Therapeutics' side of the story. The other side -- the FDA's side -- is a big black box because the FDA doesn't discuss unapproved products.

A bet on Cell Therapeutics is basically a bet on the company's management. If you trust that they haven't presented a rosy picture of the situation, an approval seems pretty likely.

But knowing the FDA, I have a hard time seeing the agency just suddenly reverse their decision. The advisory panel of outside experts voted unanimously against the drug, and saying the FDA's comments during the meeting were negative would be an understatement. An approval remains a long shot in my eyes.

How the bet wins and how it loses
Like any biotech facing an FDA decision, Cell Therapeutics wins if the FDA says yes and loses if the FDA turns down pixantrone again. That's pretty obvious.

Figuring out how much the stock might move is more difficult. Any way you look at it, though, there's a lot more upside than downside.

Cell Therapeutics is currently valued at about $250 million. At the end of last quarter, the company had $45 million in cash and equivalents and received another $8 million in connection with the settlement of a lawsuit since then. Over the last two quarters, it's burned through about $15 million per quarter in cash from operations. Let's call the bottom $23 million, although I can't possibly see it getting that low. The company has other pipeline assets, and Cell Therapeutics' investors are eternal optimists.

The upside is hard to call since it's a difficult to know how much doctors would really take to prescribing pixantrone. Data that's only able to convince the FDA to approve the drug on a second look is going to have a hard time swaying doctors to use the product. Suffice to say it's hard to see pixantrone hitting the level of Dendreon's (Nasdaq: DNDN  ) Provenge or Onyx Pharmaceuticals' (Nasdaq: ONXX  ) Nexavar at their prospective peaks. The application for pixantrone is to use it as a third-line therapy after all, which will limit its use. I'd say a valuation in the billions -- with an s -- is asking a little much. Spectrum Pharmaceuticals (Nasdaq: SPPI  ) , a specialty pharma with cancer drugs that are far from blockbusters, sports a valuation of about $550 million. Based on that, there's certainly room for a double from here -- and potentially considerably more, given investors' infatuation with the stock.

Money where your mouth is?
I wouldn't suggest shorting Cell Therapeutics though even though I see the chance of approval as fairly slim. The potential to lose your shirt is too great if the FDA decides to make a Vanda Pharmaceuticals-like (Nasdaq: VNDA  ) long-shot approval.

Options aren't much help here. Buying a put would limit your loss to the cost of the bearish bet, but the options are so thinly traded, the only person likely to make money on the deal is the market maker.

Through two well-timed picks on Cell Therapeutics, I'm currently one of the score leaders in the Fool's CAPS game. I've had a red thumb -- betting that it'll fail to match the S&P 500 -- since Aug. of 2009 and I don't have any plans to remove it prior to the FDA's decision next year.

Agree with me? Think I'm wrong? Add your call to CAPS. You can get a free account here.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.


Read/Post Comments (4) | Recommend This Article (1)

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 31, 2011, at 7:11 PM, jonesnj00 wrote:

    Wow Back To Bashing again,

    How short are you and your Buddies?

    How Many times is this 10-15 times in the last six months?

    So when is a kidney mistaken for a Tumor?

    When Pazdur runs the ODAC!

    All those DRs and none including Dr Death Looked at the Scans!

    Amazing!

    Now you Sight a half complete trial as if its the truth from the FDA did you site how the FDA reversed itself?

    No! You DID not!

    You are no better then common message Board Basher!

    Do you have any credibility at all left?

    You and your "Basher Rag" are why we have protesters on W.S.

    Phase 1, 2, 3 Trials all show the drug works with a 24% Complete Remission rate!

    And a 63% Survival rate 2 years Pixantrone is a remarkable drug!

    Lets not forget (CHOP) a Whopping 48% Complete remission rate!

    96% Survival rate 3 Years!

    This is all on Patients that only have a few months at best to live using any other drug available to date!

    All confirmed and verified!

    Remember one thing there were "16 Survivors" on the PIX arms!

    There were "Zero Survivors" on the non Pix control arms!

    Why is that?

    The "Drug works" Better than any drug currently available so Bash, Steal, Manipulate, Do anything you can to Bash Away!

    EU Approval May come as soon as Christmas!

    Motley fools better prey the drug "gets approved" because some day you May be Screaming for it!

    Amazing!

  • Report this Comment On November 01, 2011, at 1:39 PM, Hufington wrote:

    Just a minor correction to the Jones post.

    It was the National Institute of Health radiologist who misidentified a women’s OVARY for a non responsive tumor. It was unfortunate that Dr. Pazdur defended this radiologist.

    This blatant error was the motivating factor behind the OND recommendation to conduct the independent radiological review.

  • Report this Comment On November 02, 2011, at 9:12 AM, jonesnj0 wrote:

    It was unfortunate that Dr. Pazdur defended this radiologist.......

    Was it really unfortunate?

    Or was it "a setup by Big money shorts" to steal!

    There were 100 Million short shares in that stock at the time!

    Stock dropped and they made well over 100 million!

    Lets also not forget Pazdur the crook was not even supposed to be at the meeting!

    Why was he there?

    To make sure he sabotaged the drug for His Short Buddies!

    Also remember he has been implicated in other shady dealing. Google IT!

    I feel "sorry for the Patients" that have and are dying right this second because of this Thing!

    I sure would hate to have 24,000 Deaths on my conscience if the "sub human" being even has one!

  • Report this Comment On November 04, 2011, at 5:54 PM, TMFSpiffyPop wrote:

    Jones, where is your green thumb up for CTIC in CAPS? You're criticizing a writer who has been transparent, ranked, and scored on his past calls on Cell. In fact, he is one of the highest-rated analysts on CTIC in the world -- let me know if you see anyone else making better transparent, ranked, and scored calls. Go to Brian's CAPS page and check out what he's doing.

    Better yet, stand up and be counted -- all are invited to back up their statements with real actions and real scores on CAPS. We would value your input, and we would count your opinion as more valuable with that input. --DG

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