Looking Before You Leap

Birchenough also cautions against jumping to happy conclusions about the Stellar 3 study simply because Cell Therapeutics executives have pushed back the data timeline. He notes, correctly, that non-small cell lung cancer patients are a notoriously heterogeneous group, which means that other factors could be affecting the study, not the least of which may be that paclitaxel patients in the study's control arm are also living longer.

For Xyotax to succeed in this study, it must prove itself superior to paclitaxel, which as I said above, is well known as an effective cancer drug. By comparison, OSI Pharmaceuticals' Tarceva study had an easier hurdle to vault because the drug was only being compared with a placebo.

A price has yet to be set for Cell Therapeutics' follow-on offer, but the timing of the financing in front of the Stellar 3 study results will cause some investors to worry more, and it will underscore the company's weak balance sheet -- another reason investors have stayed away.

At the end of the first quarter, Cell Therapeutics had $132 million in cash and marketable securities, but $190 million in convertible debt and negative shareholder's equity. Before this most recent financing, the company had enough cash to last though mid-2005.

Lastly, let's not forget that Cell Therapeutics has not exactly been a poster child for pristine corporate governance. The company granted CEO Jim Bianco a $3.5 million loan in 2002, due April 2004. But Bianco, to date, hasn't been able to repay the obligation in full, although he's promised to make good on it. Bianco and the rest of company management also fly in a company-leased corporate jet, a tad expensive and unusual for a company its size.

Don't look for Cell Therapeutics to exit from Wall Street's penalty box until, and if or when, Xyotax delivers.
Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to adam.feuerstein@thestreet.com.

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