By Mary Welch

Staff Writer

After several failed trials, including the most recent Phase III test for patients with acute myeloid leukemia (AML), Cell Therapeutics Inc. essentially has pulled the plug on lisofylline.

The company, based in Seattle, will "wind down" expenditures on the compound and maintain a "cash neutral" position with respect to any future funding.

The decision caused the stock to tumble 33 percent, closing Monday at $1.75, down 88 cents over Friday's closing of $2.63.

"We're talking about the final chapter and in some ways it's a refreshing experience - getting the news out," said James Bianco, president and chief executive officer. "Lisofylline has been a cap on this company and it's good that it's behind us. We have been very straightforward and said that we weren't setting high expectations for this trial. Now we can more forward with our other two products that have great clinical and commercial potential. If lisofyllin were our only product, it would be a different story."

Jeffrey Davis, president of Small Caps Online LLC, of New York, agreed. "Lisofylline has been on life support . . . it's good the company's putting it behind them. There's a sense of closure. The decision lets Cell Therapeutics make better use of their resources and gets Wall Street's focus away from the failures onto the pipeline, which looks very good."

Lisofylline (LSF) is a small-molecule anti-inflammatory compound that works by modulating selective stress-activated cell signaling pathways that respond to chemotherapy, radiation and trauma. It is designed to inhibit phosphatidic acid and reduce oxidative damage to tissues.

Cell Therapeutics said that the compound failed to meet its primary endpoint, which was reduction in the incidence of serious neutropenia-associated infections. However, as in Phase II studies in AML, the compound showed a lower incidence of fungal infections, higher complete response rates and longer median survival among LSF recipients compared to placebo recipients.

"We've seen consistent results of activity in serious fungal infections, some bordered on statistical significance," Bianco said.

There are some housekeeping duties still left. The company completed its enrollment in a bone marrow transplant trial among unrelated donors.

"We have essentially completed the final trial in bone marrow transplant. We will clean up the data and finish the trial. We have an obligation to do that. We'll also meet with the FDA to get their thoughts. That doesn't mean we'll get answers."

Lisofylline certainly has had a checkered past. In 1996, Cell Therapeutics and Johnson & Johnson, of New Brunswick, N.J., agreed to develop the compound, with J&J paying 60 percent of U.S. development costs for a bone marrow transplant indication. In addition, J&J made a $5 million equity investment along with paying $5 million up-front. In 1997, the AML indication was added to the deal, on the same terms. (See BioWorld Today, Nov. 12, 1996, p. 1.)

In February 1998, Cell Therapeutics beat out more than half a dozen companies to win National Institutes of Health support for a pivotal trial to treat acute lung injury (ALI), the precursor to acute respiratory distress syndrome. However, this June a data safety monitoring board recommended stopping the Phase II/III study for ALI and acute respiratory distress syndrome (ARDS) after seeing no positive trends toward improvement in survival 28 days after treatment. (See BioWorld Today, Feb. 23, 1998, p. 1, and BioWorld Today, June 1, 1999, p. 1.)

The collaboration soured after a Phase III trial for bone-marrow transplant patients failed to meet its primary endpoints: reductions in neutropenia-related infections and in mortality associated with the transplants. J&J suspended payments and restructured the deal. Cell Therapeutics took back the development of lisofylline, with J&J paying its agreed-to costs through the end of the year. After that, J&J had an option to resume funding in order to keep the drug going, but has not exercised that option to date. (See BioWorld Today, March 26, 1998, p. 1, and BioWorld Today, July 17, 1998, p. 1.)

However, Cell Therapeutics will submit its final report to J&J. "We will send them a complete analysis of all the data and give them an opportunity to look it over and review it," Bianco said. "They have the option to take it from there. But we're assuming that since we're dropping it, they will too."

He does not believe the final book for lisofylline has been written, only his company's chapter. "We have a general sense that this drug may work. There is activity here," he said. "We have seen very dramatic increases in complete response rates and reduction in infection rates. I think lisofylline could be an asset for another company like a pharmaceutical company. It's going to take different trials with the right endpoints. But maybe another company can unlock the value."

Bianco met with employees and told them some layoffs may be necessary due to the dropped program. "If it happens, I don't see it as a significant portion of the [overall] head count. But two layoffs are significant if you're one of the two. But it's a reality in this business. If your product is shut down, you may or may not have a job."

For the future, Cell Therapeutics will concentrate on PG-TXL (polyglutamate paclitaxel), a less toxic and potentially more effective version of Taxol, the anti-cancer wonder drug manufactured by Bristol-Myers Squibb Co., of Whitehouse Station, N.J. PG-TXL, which binds paclitaxel to the polymer polyglutamate, will start Phase I trials this year.

"The risk of technical failure is so much lower because we know the safety issues with paclitaxel," Bianco said. "So bringing 600 percent more drug to the tumor safely can be very attractive."

The company's second drug, Apra, a small-molecule, anti-cancer drug, is in Phase II trials for patients with refractory prostate cancer as well as patients with soft tissue sarcomas.

The early data on both look "very promising," Davis said. "We still like the stock and management. Now that lisofylline is behind them, they can go forward."

"It can only go up from here," said Bianco.

Cell Therapeutics' stock (NASDAQ:CTIC) closed Tuesday at $1.718, down 3.12 cents.