CTIC Chart

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What: Shares of CTI BioPharma (NASDAQ:CTIC), a biopharmaceutical company focused on developing therapies to treat cancer, tumbled 10% in November, based on data from S&P Capital IQ, following its issuance of convertible preferred stock.

So what: Although I believe some third-quarter earnings carryover also assisted CTI BioPharma to the downside, let's first have a look at the company's convertible preferred stock announcement on Nov. 7 which wrecked CTI's share price.

Under the terms of the issuance, CTI BioPharma offered 35,000 shares at $1,000 each with the option to convert one of these shares at any time into 500 shares of CTI BioPharma stock at $2 per share. In other words, CTI BioPharma issued convertible stock that could at some point be turned into 17.5 million shares, thus boosting its outstanding share count by as much as 12%. For its part, CTI BioPharma expects its $32.8 million in proceeds after expenses will be used to help commercialize Pixuvri, advance the pre-commercial activities for myelofibrosis drug candidate pacritinib, extend the scope of investigator-sponsored trials looking into the use of pacritinib, and for general corporate purposes.

Source: CTI BioPharma.

As I mentioned above, there may also be some negative carryover from the company's third-quarter results reported in late October. Total revenue for the quarter seemingly looks amazing at $39.5 million, but $20 million came from Baxter International in association with completing its first patient enrollment in the PERSIST-1 phase 3 trial with pacritinib. Another $17.3 million came from its collaboration with Servier concerning Pixuvri. Actual Pixuvri product sales (the only recurring revenue here) totaled a meager $2 million.

Now what: CTI BioPharma may have changed its name, finally brought a drug to market in Pixuvri, and latched onto a few well-known collaborative partners, but it continues to treat its shareholders like ATMs. I personally can't recall a company that's diluted shareholders through offerings so many times within the biotech sector. Not to mention that through its latest quarter CTI BioPharma has an accumulated deficit (basically the addition of all of its net losses since inception) of $1.93 billion! In other words, it's a black hole of shareholder wealth.  

On the bright side, having Pixuvri approved overseas is finally allowing some cash flow to come in (albeit a very small amount), and pacritinib, if approved, could generate anywhere from $750 million to $1 billion in peak annual sales. The potential is certainly there for CTI BioPharma. However, it remains to be seen if the company can actually turn a profit and/or stop diluting its shareholders for additional funding. Personally, I plan to keep a very safe distance between myself and CTI BioPharma's stock.

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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