Biotech signs Novartis deal

Cell Therapeutics gained a little breathing room Monday by signing a deal that gives pharmaceutical giant Novartis the development and marketing rights to its most valuable cancer drug.

The Seattle biotech company has been running low on cash since last year, when its drug Xyotax failed in pivotal clinical trials for lung cancer. The company finished June with $48 million in cash and investments, roughly the same amount of cash it consumed in the first six months, meaning it had just enough money to last until year's end.

Something had to be done fast, because clinical-trial results that could boost its stock are not expected until the first half of 2007.

Under the deal, Cell Therapeutics agreed to give Novartis worldwide exclusive rights to develop and commercialize Xyotax.

If the drug meets all its goals, such as winning regulatory approvals and reaching sales goals, Novartis could owe Cell Therapeutics up to $270 million. Novartis is also paying $15 million to Cell Therapeutics to purchase 8.7 million shares of the company's stock at $1.73 a share, a 13 percent discount to Friday's close of $1.95.

News of the deal drove the stock up 6.7 percent to close at $2.08 a share. Novartis, the world's No. 4 drug company, is now the largest shareholder in Cell Therapeutics with an 8 percent stake.

Cell Therapeutics still will be responsible for the full costs of developing Xyotax, unless Novartis decides to exercise its right to co-develop and market the drug, a right it can hold up until 30 days after the drug wins regulatory approval. In that case, Novartis will pay the vast majority of future development expenses.

Cell Therapeutics is now enrolling 600 patients in another pivotal study with women, to see whether Xyotax works better than standard therapy.

Cell Therapeutics also stands to get undisclosed royalties on sales. Chief Executive James Bianco said the royalty's percentage rate is in the "double digits."

Novartis also grabbed an option for Pixantrone, a drug in clinical testing for non-Hodgkin's lymphoma. If it picks up that option, it could owe Cell Therapeutics a $7.5 million fee and future regulatory and sales milestones worth $104 million.

Bianco said on a conference call that he was excited about the agreement, because of Novartis' track record with cancer drugs such as Gleevec. In an interview, he said the terms were similar to what another drug company had offered before last year's Xyotax failure, but with less upfront cash.

The partnership, Bianco said, enables Cell Therapeutics to "rebuild" its commercial presence in Seattle after last year's cuts, when it sold its lone marketed drug and laid off or transferred nearly 200 employees. Bianco said he's hopeful the deal will boost the company's stock, giving it currency it can use to buy other companies or products. By signing the deal before Sept. 30, Bianco will personally receive a $170,000 bonus, according to a filing with the Securities & Exchange Commission.

Although the $15 million cash infusion from Novartis does not extend the company's finances for more than a couple of months, Bianco said the company still has access to a $70 million line of credit through Société Générale and can raise cash on short notice.

"Obviously, we will not be standing still," Bianco said.

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com