CTI BioPharma is a bad company with good product

A month ago, CTI BioPharma (NASDAQ: CTIC) announced several anticipated key objectives for 2015. The company expects to report top-line data from the PERSIST-1 trial of pacritinib in patients with myelofibrosis in 2015Q1. I expect CTI to be the first company to break the Feuerstein-Ratain rule that no company with a market cap less than $300 million managed to conduct a positive phase III oncology clinical trial.

Pacritinib (SB1518) is a dual JAK2/FLT3 inhibitor (IC50=23 nM, 22 nM) discovered by Singapore-based S*BIO Pte Ltd. In April 2012, CTI acquired this compound for $30 million. In November 2013, Baxter acquired exclusive rights to pacritinib outside the U.S. for $112 million. The companies will share U.S. profits equally and CTI will receive royalties on net sales outside the U.S.

The FDA approved Incyte’ (NASDAQ: INCY) JAK1/2 inhibitor Jakafi (ruxolitinib) for the treatment of myelofibrosis in November 2011. Incyte expects Jakafi to generate sales of $350-360 million in the U.S. in 2014.

According to the phase II data presented at ASH2013 (abstract #395), pacritinib appears to be less effective than ruxolitinib but could be better tolerated. Spleen response (≥35% reduction in spleen size by MRI at week 24) were observed in 27% of patients. There were no grade 3 or 4 hematologic adverse events.

Spleen response Grade 3/4 hematologic AEs
pacritinib (400 mg, once daily) 27% none
ruxolitinib (15-20 mg, twice daily) 42% thrombocytopenia (12.9%), anemia (42.5%), neutropenia (7.1%)

Because of significant hematologic side effects, only patients with a platelet count above 100,000/uL are recommended to take Jakafi at dose of 15-20 mg/day. For patients with platelet count below 100,000/uL, the dosage has to be reduced to 5 mg/day.

There are 18,000 patients with myelofibrosis in the U.S., and 26% of patients are thrombocytopenic with platelet count below 100,000/uL. Pacritinib has the potential to treat patients with low platelets or who are intolerant to Jakafi.

CTI is conducting two phase III studies of pacritinib in myelofibrosis: PERSIST-1 in a broad set of patients without limitations on blood platelet counts and PERSIST-2 in patients with low platelet counts. In October 2013, CTI reached an SPA agreement with the FDA for PERSIST-2.

Because the control arm is the “best available therapy” excluding Jakafi, it shouldn’t be too difficult for pacritinib to beat the control arm which never yielded higher than 2% spleen response rate in historical clinical trials.

If all goes well, CTI will report positive results soon and launch in 2017. Assuming $300 million annual sales (half of Jakafi) two years post approval, pacritinib alone would be worth about $3.5 per share. Moreover, CTI has three other candidates in the pipeline and around $90 million in cash. However, CTI’s market cap is just about $320 million ($2.2 per share).

Many investors are not willing to own CTI because of the extremely negative history. CEO James Bianco even won the Worst Biotech CEO Award of 2012 with 37% of the record-breaking 30,239 total votes cast. Here is James Bianco’s big story reported by Adam Feuerstein. Since 2005, the company’s shares have lost 99.9% of their value.

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