The suspense has been building for months about whether Cell Therapeutics has an important new drug for lung-cancer patients, but when some...

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The suspense has been building for months about whether Cell Therapeutics has an important new drug for lung-cancer patients, but when some key clinical results finally came out, they were a major letdown.

The Seattle biotech company announced yesterday that a combination of its experimental drug, Xyotax, and a conventional chemotherapy drug failed to extend lives any longer than did a standard twin-drug chemotherapy regimen.

The news ignited a sell-off of Cell Therapeutics shares, sending them down $4.75, or nearly 48 percent, yesterday to $5.25. Trading volume was an extraordinary 33.6 million shares.

Shareholders lost more than $300 million of shareholder value; Chief Executive James Bianco lost about $6 million.

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“On the surface, this is obviously somewhat disappointing,” he said in a conference call.

Detailed statistics from the Xyotax trial, dubbed Stellar 3, were not released publicly because the company wants to release them at a medical meeting in May. But Cell Therapeutics said the trial of 400 terminally ill patients missed its main goal of showing the drug extends lives.

Cell Therapeutics


Headquarters: Seattle

CEO: James Bianco

Employees: 402

What it does: Develops cancer drugs with fewer side effects than standard treatments

2004 net loss: $165 million

Cash and investments: $116 million at end of 2004

Source: Cell Therapeutics

The drug’s ability to prolong lives was roughly equal to that of the study’s control arm, the company said.

However, the Xyotax combination did show fewer side effects — less hair loss, nerve damage, heart trouble and muscle pain.

Xyotax, which the company licensed in 1998 from the M.D. Anderson Cancer Center in Houston, was expected to show fewer side effects. It takes the active ingredient in Taxol, a successful chemotherapy drug, and combines it with a polymer to make it stable and soluble in the blood.

Once the Xyotax molecule penetrates tumors, the polymer is designed to break down, depositing the chemotherapy inside tumors, where it stays to fight the disease.

The trial results, while disappointing, do not spell the end for Xyotax.

It has two other large, final-stage trials in lung cancer that are due to release results in the first half of this year. One measures the drug’s effectiveness alone in newly diagnosed patients; the other tests it in relapsed patients.

Bianco said the company is having ongoing talks with the Food and Drug Administration about the results from the Stellar 3 trial and the other trials. About 1,700 patients are enrolled in the trials.

Cell Therapeutics Chief Executive James Bianco

Hopes were high the first trial would be successful. According to the American Cancer Society, lung cancer was expected to kill about 160,000 Americans in 2004, making it the nation’s No. 1 cancer killer.

The company enrolled the last of 400 patients in November 2003 and expected to release comparative survival results by mid-to-late 2004 because patients were expected to live only a few months.

But the timelines were pushed back because patients were living much longer than expected.

Cell Therapeutics made bullish comments to investors last week, reminding them the trial showed a median survival rate of 8.1 months when blending both arms of the trial, significantly better than expected.

The company had hoped to release banner results in May at the American Society of Clinical Oncology conference.

Critics doubted whether the patients enrolling in the trial were as ill as once thought, and they speculated that patients may have benefited by receiving more cycles of treatment than usual.

Quynh Pham, an analyst with Delafield Hambrecht, said she downgraded the company’s stock to “hold.” She said the company may have to persuade the FDA to modify the goals for the following two trials, a difficult task.

Yesterday’s announcement will not make or break the company, she said, but it increases pressure.

“The risks are higher now,” Pham said. “This first trial has lowered their prospects.”

Pham does not own the stock, but her firm has done investment banking for the company.

If all the trials fail, Cell Therapeutics could fall back on another drug in development, Pixantrone for non-Hodgkin’s lymphoma. That drug is in the final stage of clinical testing, and the company plans to take an early look at clinical results late this year.

Cell Therapeutics ended 2004 with a net loss of $165 million and $116 million in cash and investments. Without compelling evidence that Xyotax prolongs lives, it will be more difficult for the company to partner with a pharmaceutical company to bring in much-needed cash.

Bianco said the company still plans to spend $95 million to $105 million this year. That leaves it with enough cash for a little more than a year.

Luke Timmerman: 206-515-5644 or