Is Cell Therapeutics In Remission?

The battered biotech's controversial CEO has won over Novartis, but investors are wary

On a tense August day in 2005, Cell Therapeutics' (CTIC ) chief executive sat in a conference room while the company's board of directors met next door and debated whether or not to fire him. The Seattle biotech's lead drug candidate, a lung cancer treatment called Xyotax, had failed a key clinical trial. To make matters worse, the CEO, Dr. James A. Bianco, had decided to sell off Cell Therapeutics Inc.'s only moneymaking drug. Throughout that gut-wrenching day, he was introspective but resolute. "I didn't question my vision and values," says Bianco, an oncologist who left clinical practice 15 years ago to develop cancer treatments that would be less punishing than chemotherapy and radiation.

Bianco survived the coup attempt and has been struggling ever since to regain his stride. Some days are pretty good. This year he persuaded the U.S. Food & Drug Administration to consider Xyotax as a drug just for treating women. Several studies, including four released on Nov. 8, show that Xyotax interacts with the female hormone estrogen to slow the growth of some tumors. If it's approved, Xyotax--a reengineered form of the chemo drug paclitaxel--could usher in a new treatment paradigm. The approval would bolster the idea that certain tumors behave differently in men and in women and give doctors a new weapon in the fight.

DOGGED BY SHORT SELLERS

FDA approval would be a victory for Bianco, a controversial character whose reputation for scientific ingenuity is offset at times by his excessive enthusiasm. For example, Bianco estimates that Xyotax could be worth $500 million a year, and he even won the confidence of Novartis, which signed a co-development deal that could bring $285 million in much needed capital to CTI. But Bianco has a long history of making similar grand claims for the drug. Xyotax is still years away from the market--and short sellers who bet on CTI's continuing disappointments have made a killing.

Bianco hasn't shaken the black cloud that has hovered over him since he co-founded CTI in 1992. Xyotax, which was initially tested in both men and women, logged so many research disappointments that investors pounded the stock from 70 in 2000 to a recent 1.50. Clearly, the market is wary of Bianco's perennially sunny predictions. "He's not everybody's favorite CEO," notes CTI Chairman Phillip M. Nudelman. Even the Novartis milestone seems to have set pessimists sniffing for blood. Short interest in CTI's stock jumped 44% from August to September. Bianco is unlikely to regain investors' confidence until the FDA weighs in on the lung cancer approval in 2008.

Nonetheless, when the board considered who might make a worthy successor to Bianco, they couldn't think of anyone who matched his prowess in both medicine and finance, Nudelman says. Bianco has engineered 20 financing rounds, raising a cumulative $1 billion for CTI--a feat he lists on his résumé alongside his medical training and his penchant for collecting electric guitars and 16th century ceramics. "He always has more than one ball in the air," says George Bickerstaff, managing director of CRT Capital Group, a Stamford (Conn.) investment bank that has worked with CTI. "He's extraordinarily flexible in dealing with almost insurmountable challenges."

Bianco's toughest decisions were rooted in two acquisitions. In 2000, CTI bought a New York biotech and succeeded in getting its leukemia drug on the market. But by 2005 the product was generating just $22 million a year in sales while costing CTI $53 million a year. The company needed cash to support trials of Xyotax and another cancer drug, Pixantrone, which it picked up in its 2004 acquisition of Italian biotech Novuspharma. So Bianco sold the leukemia drug for $68.8 million and announced plans to cut staff in the U.S. and Italy by more than half. For the dissenting board members, recalls Bianco, "it was very emotional that I had the chutzpah to take this company back to a development-stage organization." (The four dissenters have left the company. Three didn't return calls; the fourth declined to comment.)

CTI has dodged so many bullets on Wall Street that it seems miraculous the company is still standing. Once, one of the physicians managing a trial of Xyotax was asked to participate in a conference call for investors, most of whom managed hedge funds. The call was supposed to be about two other cancer drugs, but the analyst threw in a question about Xyotax. The physician answered by expressing concern that some of the clinical trials were being done in Eastern Europe. "Boom! Our stock went down," Bianco recalls. More recently, investors blanched when NASDAQ threatened to delist CTI's shares. Regulators told Bianco that CTI's stock offering in September violated NASD rules. So he quickly bought back $3 million in shares and warrants from investors and escaped delisting.

Just when Bianco thought it was safe to crow about Xyotax again, more trouble arrived. On Nov. 3 the company announced it was suspending enrollment in Xyotax trials for six months so it could analyze patient mortality patterns. CTI also redesigned the study to focus on women with normal estrogen levels, including post-menopausal women who take hormone supplements. The changes were made based on guidance from the FDA. While the company does not believe the deaths signal safety issues, the suspension will push potential approval back by as much as six months.

Meanwhile, competitors have beaten Bianco to his goal of developing less toxic chemo drugs. An archrival, Los Angeles-based Abraxis Oncology, had its reengineered paclitaxel approved to treat breast cancer in 2005.

Bianco rarely gets rattled--a trait he honed while attending Mount Sinai School of Medicine in New York. While still in his third year, the faculty invited him to be chief resident. "He was very thorough and compulsive, which are qualities that made for an excellent role model," recalls Dr. Richard M. Stein, who directed the residency program at the time. Bianco put himself through college by managing three discount retail drugstores, so the administrative part of the job didn't faze him. His biggest challenge was soothing the psyches of residents who cracked under pressure. Diagnosing disease, Bianco says, "is about learning to connect the dots real fast. I loved it. I counseled them on how to get there."

Bianco hopes Cell Therapeutics is finally entering the last leg of its excruciating Xyotax marathon. Initial trials show that 40% of women on the drug survive for a year, vs. 25% of patients in control groups. And the Xyotax patients suffer fewer side effects, such as hair loss and anemia. CTI's other lead drug, Pixantrone, which is designed to be a safer version of a chemo treatment that causes heart trouble, has proven so promising in trials that Novartis optioned the rights to develop it as well.

CTI isn't out of the woods, yet Bianco permits himself to feel vindicated. At least on good days.

By Arlene Weintraub

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