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Cell Therapeutics Sinks

The stock slides on an earnings shortfall and clinical setback.

Shares of

Cell Therapeutics


dropped Monday after the company said late-stage clinical trials of a lung cancer drug didn't meet its goals.

The comapny also reported first-quarter financial results that fell below Wall Street's expectations. The double-barreled setback sent shares of the Seattle-based biotechnology company down 13 cents, or 3.4%, to $3.72. The stock fell as low as $3.40.

The company vowed to "continue our ongoing dialogue and work with the FDA" to secure approval of the lung cancer drug Xyotax.

Cell Therapeutics was hoping to show in two late-stage clinical trials that Xyotax led to a longer survival rate among patients with non-small cell lung cancer. This is the most prevalent form of lung cancer as well as the leading cause of cancer death in the U.S. Instead, the tests showed that the survival rates were equivalent.

In one test, patients were given either Xyotax or one of two standard chemotherapy treatments -- gemcitabine or vinorelbine -- as a first-line treatment. In the other test, patients were given Xyotax or another type of chemotherapy -- docetaxel -- as a second-line treatment.

Both clinical trials were phase III trials, the last step in clinical testing before a company submits its product application to health regulators. Both tests also showed certain similar or favorable side-effects comparisons for Xyotax to the standard treatments. In both tests, however, patients taking Xyotax had more nerve pain side effects.

"We are excited by the Xyotax product profile demonstrated in these trials," said Dr. James A. Bianco, president and CEO of Cell Therapeutics. He said a "better tolerated, less toxic" medication "represents a preferable alternative to currently marketed treatments" for lung cancer patients.

Neither the test results nor Bianco's remarks impressed Matt Geller, of CIB World Markets, who cut his rating to sector performer from sector outperform.

"We believe an FDA approval of Xyotax will be challenging, based on failure to show survivor benefits," Geller says in a research note. He doesn't own shares; his firm has had an investment-banking relationship and is a market maker.

Based on these clinical trials and an early trial, "we do not expect Xyotax to gain approval by the FDA," Jim Birchenough of Lehman Brothers said in a Monday note to clients.

Although Cell Therapeutics is touting equivalent efficacy and lower toxicity, Birchenough points out that such an efficacy claim "is typically not accepted by the FDA as the basis for approval."

He also points out that nerve pain, "the most disabling" adverse effect in lung cancer patients, "was actually worse with Xyotax." Although Xyotax showed fewer cases of side effects such as nausea, vomiting and cardiac problems, "overall adverse events were seen to be comparable," he says.

Given these results, and the fact that there are "multiple options" available to lung cancer patients, FDA approval "remains highly unlikely," says Birchenough, who has an equal-weight rating on the stock. He doesn't own shares; his firm is a market maker in the stock.

For the quarter ended March 31, Cell Therapeutics lost $39.1 million, or 62 cents a share, on revenue of $6 million. The consensus among three analysts polled by Thomson First Call was for a loss of $31 million, or 53 cents a share, on revenue of $7.6 million. Except for a small amount of licensing and contract revenue, most of the company's revenue comes from Trisenox for a certain type of leukemia.

For the same period last year, Cell Therapeutics lost $136.4 million, of $2.75 a share, on revenue of $3.9 million. That figure included a one-time charge of $88.5 million, or $1.79 a share, relating to the merger with an Italian drug company.

Cell Therapeutics said the conclusion of the Xyotax clinical trials plus cost-cutting measure would reduce expenses during the year.