On the surface, it looks like Cell Therapeutics (Nasdaq: CTIC) got a great deal licensing myelofibrosis treatment pacritinib from S*BIO. The biotech paid just $30 million upfront, and only half of the payment was in cash, with the other $15 million in convertible stock. That's a pretty good price for a phase 3-ready drug, especially in a decent sized market like myelofibrosis.

Cell Therapeutics is also on the hook for up to $132 million in regulatory and sales milestones, but that's a minor concern. If the drug passes clinical trials and is approved by regulatory authorities, Cell Therapeutics stock will rise and it'll be able to raise capital by selling shares.

Let's ignore the fact that there's a likely reason Cell Therapeutics got pacritinib so cheaply. Onyx Pharmaceuticals (Nasdaq: ONXX) didn't exercise its option from S*BIO to develop the drug further, perhaps because the side-effect profile didn't look too hot. Maybe pacritinib can find a niche in patients with low platelet counts and compete with Incyte (Nasdaq: INCY) and Novartis' (NYSE: NVS) Jakafi, which is already on the market, and YM Biosciences' (AMEX: YMI) CYT387 that's coming up behind.

The big question is why Cell Therapeutics is licensing a drug at this point. As far as I can tell, Cell Therapeutics' plan goes something like this:

  1. License drug.
  2. Make gobs of money.

It's Step Two I'm concerned with. Or, more specifically, the cost of Step Two.

Cell Therapeutics had only $27.4 million at the end of the first quarter, and that's before the $15 million it just spent. If the biotech was cash flow-positive, perhaps living on $12 million in the bank for a bit would be OK, but the company burned through nearly $20 million in the first quarter.

And now it wants to run a pair of phase 3 trials for 200 to 250 patients in addition to the phase 3 trial it's running on Pixuvri. Where exactly is this cash going to come from?

Not from drug sales. Pixuvri is essentially approved in the EU, but it might take until October to launch the drug there. And then there's no guarantee that the marketing expenses won't exceed revenue; that's actually pretty standard in the beginning of a launch. In the U.S., it doesn't look as if it'll get another FDA decision until next year.

The cash will have to come from selling shares at these pitiful prices. With the company at a market cap around $220 million, we're looking at a dilution of nearly 30% just to stay afloat this year, assuming the current burn rate continues. That's 30% less of the profits shareholders will retain -- assuming, of course, that Cell Therapeutics ever actually gets into the black.

Having ridden the shares down twice, I'm the score leader in Motley Fool CAPS for Cell Therapeutics and have no intention of ending my underperform CAPScall after these shenanigans. Investors are well advised to stay away from the shares and may perhaps want to look instead at this high-growth health-care company that's already profitable. Fool analysts see more growth in its future.