Adams Biotech Stock Mailbag

[econcom]

CTIC
Adam Feuerstein

Cell Therapeutics(CTIC Quote) is working overtime to push its stock price and trading volume higher so that holders of almost $119 million in the company's debt will accept more stock and less cash in exchange for their notes.

The only way the plan works, however, is if debt holders can quickly and easily sell their stock into the open market. For that to happen, Cell Therapeutics needs to create liquidity and lots of stock price momentum.
This helps explain Monday's dramatic midday stock halt as well as Wednesday's press release on a small and inconsequential study of the company's cancer drug Opaxio. Opaxio, by the way, is the company's rebranding of a failed cancer drug previously known as Xyotax, for those investors new to the Cell Therapeutics story.

Tuesday night, Cell Therapeutics raised the exchange rate of its current debt tender offer significantly, but with a catch: Bondholders have to accept almost twice as much stock and relatively little cash this time around.

Cell Therapeutics is offering $134.50 in cash and 458 shares of common stock for each $1,000 in convertible debt. This works out to a total exchange offer of just over 92 cents on the dollar, based on the company's closing stock price Tuesday.

That's a significant raise from the prior exchange offer of 55 cents to 60 cents on the dollar and may just get debt holders to go along with the deal.

However, the higher offer requires debt holders to accept 85% of the exchange offer in Cell Therapeutics common stock and only 15% in cash. The previous offer gave bondholders 35% cash and 65% stock

If holders of the company's $118.9 million in debt agree to the tender offer, they will receive about $16 million in cash and $93 million in Cell Therapeutics' common stock.

At Tuesday's closing price, that equals more than 54 million shares.

Bondholders are not like investors. They bought the company's debt because they want cash, not the risk that comes from owning stock, especially one as volatile as Cell Therapeutics. Therefore, a majority of the bondholders will probably try to quickly sell their newly exchanged common stock in order for the safer haven of cash.

But how do you create a market environment that convinces risk-averse bondholders they can quickly dump 50 million shares of stock into the market without cratering the stock price and causing them to lose money?

Unnecessary but highly visible trading halts in front of pedestrian clinical data presentations help, which is what Cell Therapeutics did Monday right before well-trod data on its chemotherapy drug pixantrone were presented at the American Society of Clinical Oncology annual meeting.

Not one, but two press releases in successive days covering the same pixantrone data also do the trick.

And when more stock oomph is needed, try another press release. Wednesday, Cell Therapeutics highlighted results from 11 patients in a tiny phase II study of its other cancer drug Opaxio in patients with esophageal cancer.

The results from this study were published in the ASCO Proceedings, the research abstract book that accompanies the ASCO conference. In other words, the Opaxio phase II study wasn't deemed important enough by ASCO to even be represented by a poster presentation at the meeting. ASCO just stuck the data in its book.

But based on these data, Cell Therapeutics said it wants to "explore" with the Food and Drug Administration a "potential" phase III registration study of Opaxio in esophageal cancer, according to Wednesday's press release.

So far, Cell Therapeutics' plan seems to be working. The stock price is higher than it was before the ASCO meeting, and volume has picked up considerably. More than 106 million shares traded Monday and 77 million shares traded Tuesday, well above the stock's average volume of 28 million shares.

Whether bondholders go along with the new tender offer will be known by the expiration date on June 16. If successful, look for a lot of stock to be sold.

On a related note, let's discuss Opaxio in a bit more detail, especially since the drug is probably new to many of Cell Therapeutics' recent investors. While pixantrone takes center stage, Opaxio is actually under review for approval in lung cancer by European drug regulators.

But Opaxio is just the new brand name for Xyotax, a reformulation of the chemotherapy drug paclitaxel that failed to meet primary endpoints in a series of phase III lung cancer studies in 2005. Cell Therapeutics' stock price tanked on the negative data, despite claims from the company that the results showed Xyotax's equivalence to standard paclitaxel.

Later in 2005, the company performed some post-hoc subgroup analysis from the failed Xyotax studies, claiming the drug actually worked for women with lung cancer who had poor performance status.

Cell Therapeutics pushed ahead with Xyotax's development as the first gender-specific cancer drug. A new phase III study was started to confirm the drug's benefit in female lung cancer patients, but in 2006, that study was shut down early because women treated with Xyotax were dying more quickly than women treated with ordinary paclitaxel.

Despite four failed phase III studies of Xyotax, Cell Therapeutics pushes on doggedly with the drug's development. Xyotax was renamed Opaxio and filed for approval in Europe on the basis of equivalency data from the first set of failed phase III studies. And the company continues to conduct a study of Opaxio/Xyotax in women with ovarian cancer, with results expected later this year.


http://www.thestreet.com/story/10516...cm_ven=GOOGLEN

Cell Therapeutics: Deadline Nears for Debt Tender Offer

06/16/09 - 09:47 AM EDT

Cell Therapeutics(CTIC Quote) is expected to disclose soon whether holders of $119 million of the company's debt have accepted a tender offer to exchange cash and company stock for their notes.

The amended debt tender offer expires at 5 p.m. EDT Tuesday.

Just more than half of Cell Therapeutics' debt comes due next year, placing the company in a precarious financial position. The company has been trying to convince holders to accept less than par value for their notes but has been forced to sweeten its offer a couple of times already.

On June 2, Cell Therapeutics raised the exchange rate of its current debt tender offer significantly, but with a catch: Bondholders have to accept almost twice as much stock and relatively little cash this time around.

Cell Therapeutics is offering $134.50 in cash and 458 shares of common stock for each $1,000 in convertible debt.

At Monday's closing stock price of $1.61 a share, the total exchange offer was worth about 87 cents on the dollar. However, that is down from a total exchange offer of just over 92 cents on the dollar on June 2 when the new deal was announced because Cell Therapeutics' stock price has fallen.

Bondholders have to sell the stock Cell Therapeutics gives them in order to recoup their investment. This means the actual value of the exchange offer will likely be even lower because bondholders will assume that Cell Therapeutics' stock price will fall as a result of heavy selling pressure.
The other complicating issue is the declining volume of Cell Therapeutics' shares trading hands each day. This makes it harder for bondholders to liquidate the stock they receive in the exchange offer.

Trading volume in Cell Therapeutics shares on June 2 was more than 77 million shares, but it dropped to as low as 13 million shares on June 10 and was only 37 million shares Monday.

At Monday's stock price, Cell Therapeutics would be issuing slightly fewer than 50 million shares to bondholders.

If Cell Therapeutics is successful with its debt tender offer, the company still has money problems to solve. The company's cash reserve is set to run dry in August, according to a recent filing with the Securities and Exchange Commission. Cell Therapeutics has taken further cost-cutting steps to make its cash last longer, but that didn't prevent management from accepting deferred cash bonuses from 2008 last week.

Cell Therapeutics will need to raise more cash -- perhaps by selling even more stock -- if it wants to continue the development of its cancer drug pixantrone, among other projects. The company already has more than 452 million shares outstanding as of the end of April.

[econcom]

Biotech Stock Mailbag: Spectrum

Adam Feuerstein
07/02/09 - 09:42 AM EDT
The Biotech Stock Mailbag is open a day ahead of schedule so everyone can enjoy the long holiday weekend.

Tory K. kicks things off with this email:

"Spectrum Pharmaceuticals(SPPI Quote) raised $21 million right before the FDA is supposed to decide on the approval of Zevalin. That's a bad sign, right?"

Normally, I'd agree, but in this case, I'd say that Spectrum's management was taking rightful advantage of what has been a lucky, albeit fundamentally unjustified, run-up in the company's stock price since May.

In that time, the stock has jumped from $2.50 to almost $8. Management would be criminally negligent if it didn't pounce on the opportunity to sell stock and raise cash. So, I say bravo, Spectrum.

The FDA is expected to issue an approval decision tonight on a label expansion for Zevalin that should allow the drug to be used by a much larger number of patients with non-Hodgkin's lymphoma. A full FDA approval seems like a no-brainer based on my read of the Zevalin data supporting the label expansion filing.

But let's not forget that Zevalin is a very effective cancer drug today that almost no one uses. (I wrote about some of the reasons why back in March.) Sales last year were only $12 million, down from sales of $17 million and $18 million in 2007 and 2006, respectively. Three different companies have tried to make Zevalin a commercial success but failed.

The expanded label should help Spectrum put Zevalin on a firmer commercial footing and perhaps even start to grow sales again. I've talked to management previously about their marketing plans for the drug, and I walked away impressed.

But it's still a long way from $12 million in annual sales to the roughly $80 million in annual sales baked into Spectrum's current valuation. That's why I think the run in the stock these past few months is a bit premature. (I didn't touch on Spectrum's other cancer drug, Fusilev, but I feel the same way about it, too.)

Given the frothiness in Spectrum's stock price of late, I won't be surprised to see a significant sell-on-the-news reaction if/when a positive FDA decision is announced.

If that happens, I'd be interested in taking another look at the stock.

Israel S. writes, "Could you please explain how the one-year price target of $50 for Cell Therapeutics(CTIC Quote) is calculated? Going back to your writing, which I agree with 100%, but I still see the $50 target. Does this mean that I should not take this parameter into consideration?"

At first I didn't know where Israel was getting a $50 price target for Cell Therapeutics, but then I scrolled through the company's Yahoo! Finance page and found it -- a $50 price target from one unnamed analyst.

That has to be a typo because a $50 price target for Cell Therapeutics implies a $24 billion valuation. To put that in perspective, a $24 billion market cap would rank Cell Therapeutics third in the entire biotech sector, ahead of Celgene(CELG Quote) ($22 billion market cap), Genzyme(GENZ Quote) ($15 billion market cap) and Biogen Idec(BIIB Quote) ($13 billion market cap.)

Sorry, but no one in their right minds would have a $50 price target for Cell Therapeutics.

My price target for Cell Therapeutics: 20 to 30 cents a share.

Keith S. writes, "I would greatly appreciate it and it would lend more to your credibility as a financial journalist if you disclosed your position and TheStreet.com's positions on these companies you like to slam. Would you care to comment on that?"

I've gone over this many times in the past, but once more won't hurt. I don't own individual stocks. I don't short individual stocks. I'm not invested in any investment partnerships or funds that own or short individual stocks.

You can read TheStreet.com's conflict of interest policy for employees (of which I am one) right here.

I've received many emails from people claiming that because traders like Tim Sykes appear on our site talking about shorting stocks like Hemispherx Biopharma(HEB Quote) or Cell Therapeutics, this proves either TheStreet.com or I am purposefully manipulating stocks for personal gain.

Not true. TheStreet.com, as a company, doesn't take positions in stocks. Sykes is an outside columnist, or contributor, to TheStreet.com, which means he is not employed by the company and is therefore not covered under our conflict of interest rules. What all outside contributors to TheStreet.com must do, including Sykes, is disclose his stock holdings, long or short, whenever he writes for us, or appears in a video.

And for the record, I've never met Sykes, never spoken with him, never exchanged emails with him. The only way Sykes and I are collaborating is if he's teleporting his thoughts and stock recommendations into my head while I sleep.

These disclosures may disappoint the conspiracy theorists out there, but the truth is the truth.

This week's column concerning the stem-cell infrastructure deal between Geron(GERN Quote) and the health care unit of General Electric(GE Quote) sparked a heavy dose of email.

From Mick M.:

"You must be willing to commit career suicide. GE owns CNBC who your boss works for. GE and Geron are now partners. You just bashed the company your parent company is working with. Best of luck with that."

And John C. writes, "You are certainly clear in your bias to be short Geron. I guess you have not been a student of the biotech industry too long. I have over 20 years covering the biotech industry and it is utterly irresponsible to make such erroneous and inflammatory statements about a company. You should know better."

To address Mick's point, my boss works for TheStreet.com, which has nothing to do with GE. The chairman of TheStreet.com, Jim Cramer, also works for CNBC, which is owned by GE. If you think Cramer is going to worry about me writing skeptically about a partner of a unit of GE, then you clearly don't know Cramer.

As for John, perhaps he's been covering biotech too long because he sounds like a homer. I've been following Geron for a long time, too, but I've never actually witnessed the company accomplish much of anything. That's certainly true when it comes to creating shareholder value (relative to the hundreds of millions of dollars of investor cash spent so far).

If and when Geron produces real clinical data instead of hyped-up nonsense, I'll change my tune. Until that time, I consider the company a stock to avoid or short, depending on circumstances.

[redwench]

I made a bundle off Geron. Didn't short......don't know how.

[agapaga]

My guess on the $50 price target (which is listed on both Yahoo and the Nasdaq website) is that it was an actual target price, and not terribly unreasonable, posted onto those two websites before the CTIC reverse stock split awhile back, which was a 10:1 split. So after the split if the "analyst" or whoever enters this information was interested in being prudent, he could have re-aligned the target to, let's say, five dollars. That would make sense? I think these sites, Google, Yahoo, Nasdaq, are all pretty slow to update information (they probably have all kinds of qualifications and delays just to change a small thing), that is, even if anyone ever requested to have it changed. But previous to the 10:1 split maybe the $50 target wasn't unrealistic. I also believe a lot of folks see that number ($50) and think CTIC is a goldmine just waiting to happen. Imagine! That's combined with the fact that several years back this stock was trading at multiples of thousands of dollars per share. Well, even if the thing goes to five sometime this year it's still a darned good profit. And maybe it'll go to fifty, that would be wonderful, but if if feels like something is wrong with that number maybe that stock split, combined with the slow (or complete lack of) updating that number, makes some sense. Five, I like it. And with a little bit of irrational exhuberance, I'm in!