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Biotech Stock Mailbag: Cell Therapeutics

Readers have their say on a recent bearish column about Cell Therapeutics.

The Biotech Mailbag is making a comeback! I've been delinquent with this column lately, so please accept my apologies.

The important thing is that the Mailbag has returned, and I promise to be better about delivery. My column Tuesday that took a

bearish stance


Cell Therapeutics

(CTIC) - Get CTI BioPharma Corp. Report

, CEO Jim Bianco and the company's cancer drug pixantrone generated a ton of email from readers, most of it angry stuff, so I want to devote this entire space to the topic.

Tomorrow, I'll post a bonus Mailbag tackling other reader email.

Let's get started with a response to my column from Dan Eramian, Cell Therapeutics' public relations chieftain:

"It's hard to respond to your Tuesday tirade against Cell Therapeutics since (CTI) it was mostly opinion, and crystal ball pieces don't need facts. Your personal views about CTI and its management did come through loud and clear. As for your business acumen, I don't know any investor who doesn't think it's a good idea to reduce company debt, and I don't know what medical background you have to pronounce pixantrone's medical benefits.

"I do know that CTI bought Trisenox for $12 million in stock and sold it for $70 millon. I do know CTI bought Zevalin for $10 million and sold it for $31 million. Both drugs continue to help cancer patients. The company also raised $64 million in the first five months of 2009 when most small biotechs are starving for resources. That spells investor confidence. Just the facts man, just the facts."

I had my say Tuesday so Eramian deserves his without additional comment on my part. Time will determine who's right and who's wrong about Cell Therapeutics and pixantrone.

But Dan, thanks for your viewpoint.

Moving on to reader email. First up is a note from Cesar, who asks:

"Could you explain very briefly, what is your math to reach $50-$100 million a year for Pixantrone sales?? I have read your article about Cell Therapeutics and I'm very concerned about misleading from management. They say Pixantrone sales could be $1 billion a year."

A bunch of people emailed with similar questions. Before I get into some numbers, let me say that my general rule for estimating peak sales of any drug is to start by giving a 50% haircut to whatever management tells me.

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Drug company CEOs are like butchers with heavy thumbs when it comes to forecasting sales of unapproved drugs.

To pixantrone: If approved, the drug's label will carry an indication for use as monotherapy in patients with aggressive non-Hodgkin's lymphoma who have already been treated with three or more prior lines of chemotherapy.

Cell Therapeutics estimates that population to be about 5,300 patients in the United States and further forecasts 25% market penetration at peak. If the company prices pixantrone at $40,000 (again, a Cell Therapeutics estimate), peak sales pencil out to $53 million.

For your information, Cell Therapeutics has a slide presentation containing all this information, which it uses for investor pitches. I, of course, have a copy.

What makes up the vast difference between $50 million and $600 million, or even $1 billion in pixantrone sales? The answer: lots of off-label use in less advanced aggressive non-Hodgkin's lymphoma patients as well as use in patients with indolent (slow-growing) NHL.

According to Cell Therapeutics' projections, doctors are going to fall all over themselves to prescribe pixantrone to their NHL patients, presumably passing over other anthracyclines, including cheaper generics. Pixantrone belongs to the class of commonly used chemotherapy drugs called anthracyclines.

Like I said Tuesday, it's a nice story, but wildly exaggerated. Pixantrone is not a novel drug. There is no medical breakthrough here. Pixantrone is an anthracycline that


-- and I emphasis "may" because we haven't seen any data yet -- have a better cardiac toxicity profile. But it's still an anthracycline, which means the excitement level for a drug like this is probably around the level of finding a shiny penny on the sidewalk.

Here's another clue that pixantrone is a niche drug. Back in June 2003 when Cell Therapeutics acquired pixantrone through the acquisition of Milan-based


(another disastrous, shareholder-crushing move by Bianco & Co. by the way), the company itself

estimated pixantrone peak sales in the U.S. at $150 million

(subscription required).

Remember my butcher's rule for roughly estimating real peak drug sales? I'll let you do the math.

Most of the email I received about the Cell Therapeutics column was from folks just angry and wanting to vent. Very few people had substantive arguments to counter anything I wrote.

But hey, hate email is fun email, right. Like this note from Bryan:

"You were so transparent with your article. Everyone on the message boards I'm visiting believes it's standard practice for you Wall Street slime to engage in your criminal media slamming of companies so the big boys can scoop up shares for cheap... You people are the lowest slime out there. You are parasites living off of other decent hardworking people. The sooner this system changes the better. We've all had enough of your type."

Hey Bryan: Perhaps you should be spending a bit less time trawling through message boards and more time doing fundamental stock research.

Paul P. writes, "This article smacks of market manipulation. The recent news of Cell Therapeutics' financial restructuring is viewed by most analysts as responsible management. The drug is actually less toxic than chemo. Why the bias? This article does not serve the public well. Writing negative news to manipulate stock prices can't be legal!"

I'll brush off Paul's ignorance of the First Amendment but concede his point that it's a positive if Cell Therapeutics can reduce a good portion of its $118 million in debt. Eramian made the same point above, so let it not be said that I reject as untrue everything coming out of the company's Seattle headquarters.

However, this restructuring is far from a sure thing. In fact, if what I hear is correct, debt holders are very likely to balk at the debt tender offer, which proposes to pay them just 25-30 cents for every $1 of debt they hold.

And why shouldn't they hold out for more money, or even par value, for their debt? Cell Therapeutics' bonds traded for 58 cents on Wednesday. And if Cell Therapeutics can't raise the money, perhaps debt holders force a sale of pixantrone. That would leave the company -- and shareholders -- with nothing.

But get this, even if Cell Therapeutics buys back all its debt, the company is still overloaded with hundreds of millions of outstanding shares. Retail investors tend to look at the stock price as the arbiter of a company's value. They see a stock trading at pennies, perhaps even a buck and change like Cell Therapeutics and they say, "Wow, it's really cheap!"

Institutional investors, on the other hand, look past the stock price and examine the company's balance sheet. And when they see a money-losing, cash-burning company with debt and 462 million shares outstanding (growing by the month as more and more money is raised), they say, "Wow, it's really expensive!"

Not everyone was ticked off by my column. A few of you liked it.

Jim O. writes, "Nice job. You couldn't have written the Cell Therapeutics story any better, especially your last line. I've watched the Bianco brothers ... take lavish trips for board meetings on their expensive private jet. Each of them has pulled millions out in stock options and shareholders have received nothing in return. The board is totally asleep at the helm. And these two Seattle sailors ride off into the sunset on their expensive sloops."

For the record, Cell Therapeutics got rid of the expensive private jet. I wonder if Bianco flies coach now?

Stephen H. writes, "Nice article. I can't believe the stock price has been bid up so high. In search of a bigger sucker, I guess. As for Bianco, he deserves every stone heaved his way. No wonder he hired personal security at shareholders expense."

Let's end with an email from Mike, "Do you really believe that Cell Therapeutics has no chance?"I believe pixantrone is a niche cancer drug, if it even gets approved, which is not a sure bet. And I think Cell Therapeutics, with an enterprise value of $800 million, is entirely overvalued, even with a stock price of $1.22.

This is what I believe, which is why I wrote my column Tuesday. I'm offering my opinion as a columnist who writes about biotech stocks. You can agree with me or not.

More Biotech Mailbag coming tomorrow -- Cell Therapeutics free.

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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