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Cell Therapeutics: 45 Days Until Bankruptcy?


Cell Therapeutics, despite spending $1.4 billion in shareholder money, has provided no indication it can get a drug approved or competently marketed.


The weekend was full of news for Cell Therapeutics (CTIC). Late Friday, the company announced it still couldn't get enough of its shareholders interested in a critical shareholders meeting to get a quorum. How critical is this meeting? Without a positive shareholder vote to increase the total number of shares Cell Therapeutics can issue from 800 million to 1.2 billion, the company can't raise the money it needs to fund operations and make its debt payments. I note it takes only one-third of shares for a quorum, but one-half (plus one) of shares to actually approve the share increase.

Late Sunday night (Pacific Daylight Time), the company issued another press release stating it reached an agreement with certain July 1, 2010 convertible debt holders to convert up to $30 million of that debt to shares. A few things are worth noting about this release:

1. To get all $30 million in debt converted, the exchange would have to occur at a premium to Friday's close. That would be very unusual. To clear all $30 million, the conversion price cannot be below $0.55/share because the company has less than 53.7 million shares available under the current cap. The stock closed Friday at $0.50/share.

2. The company didn't state whether convertible holders representing $30 million of the debt had entered into this agreement, only that up to $30 million could be converted. This is an important distinction.

3. The deal isn't done. The company could get zero convertible debt converted.

4. Even if $30 million is converted, the total debt due July 1 is $40 million. Bankruptcy risk is still real.

In this space a little over a month ago, I wrote about the company in greater detail in Cell Therapeutics' Last 80 Days? I argued then the company was about 80 days from bankruptcy. The news Friday of another failed shareholders meeting increased the risk. The news released Sunday night doesn't eliminate the risk.

Rational people can argue whether pixantrone or Cell Therapeutics' other cancer drugs work. Frankly, I think pixantrone probably does, though it will take another clinical trial to prove it to the FDA. Approval in the EU is another 10-12 months away (best case and assuming the EU doesn't also ask for more trial data). Any meaningful sales are months beyond that.

If you're worried about pixantrone and the cancer patients it could help, seeing another team take over the drug's development via bankruptcy might be the best thing. Cell Therapeutics' management, despite spending a staggering $1.4 billion in shareholder money, certainly has provided no indication it can get a drug approved or competently marketed.

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