McCamant's New Biotech Buy

11/12/2004 12:00 am EST

Focus:

John McCamant

Editor, Medical Technology Stock Letter

In my view, there is no better source in the financial advisory world on biotechnology stocks, than  Medical Technology Stock Letter. Here, editor John McCamant discusses the latest addition to his model portfolio-Cell Therapeutics.

"Cell Therapeutics (CTIC NASDAQ) is focused on delivering oncology products to the market. It currently sells one FDA-approved drug, Trisenox, for the treatment of relapsed/refractory acute promyelocytic leukemia. It has two drug candidates in Phase III development-Xyotax and Pixantrone- and a pipeline based on polyglutamate (PG) drug delivery technology. CTIC has used an aggressive in-licensing and acquisition strategy to build the company. Last year, CTIC acquired NovusPharma, establishing a beachhead into the European oncology market.

"Despite an approved drug and a full pipeline, the majority of biotech watchers are focused on CTIC's Xyotax and the pending results of its Phase III trials in non-small cell lung cancer (NSCLC). Xyotax is paclitaxel (the active ingredient in Taxol) linked to a PG polymer, which allows the drug to be taken up by tumors where the drug is released. Thus, the drug is delivered directly into tumor cells, avoiding much of the systemic toxicity associated with freely circulating Taxol. The lower toxicity allows Xyotax to be dosed more often than conventional Taxol and should translate into improved outcomes.

"The next catalyst for CTIC will be the release of Phase III data, which compares Xyotax plus carboplatin to conventional Taxol plus carboplatin, which is expected in early 2005. The timelines on this trial have been pushed back twice, causing some concern among investors. There are two possible reasons for this: either patients in the control arm are living much longer than expected, or Xyotax is having a strong impact and lengthening the survival of patients. We believe that the odds significantly favor Xyotax having a strong effect versus the odds of NSCLC patients living much longer than historical controls.

"Why is CTIC's stock so inexpensive? Biotechnology is full of controversies and CTIC is controversial. A recent financing was not handled well. In addition, the CEO had an outstanding loan from the company that has raised some questions. All of this combined with the Phase III data release being pushed back twice has led to much skepticism regarding the company's outlook. We believe that these issues will be resolved (indeed, the CEO has just repaid the loan). Importantly, this controversy has provided investors with a very attractive entry point. Thus, we are initiating coverage of CTIC with a buy under $7 and a target of $15."

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