After disappointing Phase III data for the lung cancer drug Xyotax, Cell Therapeutics Inc. has sold its one marketed product - Trisenox - to Cephalon Inc. for up to $170 million.

Through the deal, Cephalon gains its first approved oncology product, as well as a sales force that could support two other cancer products in its pipeline. Cell Therapeutics (CTI) gets $70 million in cash up front and a potential $100 million in milestone payments, money it could use to submit a new drug application for Xyotax and to advance another pipeline product, pixantrone, through Phase III trials in non-Hodgkin's lymphoma. The transaction, expected to close in the third quarter, is part of a larger reorganization plan in which CTI will reduce its work force by 130 people.

"We had planned on selling Trisenox, irrespective of the outcome of our Xyotax studies," said James Bianco, CTI's president and CEO. The decision had to do with Xyotax "being much more commercially attractive," he said, and having a "much higher return on investment."

CTI first announced its plans to sell Trisenox in December, and after taking several bids, it chose Cephalon, Bianco told BioWorld Today. Not only was the Frazer, Pa.-based company looking for ways to build its oncology franchise, but it was partnered with CTI on preclinical proteasome inhibitors - a situation that arose from CTI's 2003 merger with Milan, Italy-based Novuspharma SpA.

As part of the agreement, Cephalon will take over development of those inhibitors, initially targeting multiple myeloma, and pay CTI a royalty if any reach the market.

That pushes another responsibility off CTI's plate, allowing it to focus on Xyotax, a drug that has stumbled in recent months by missing its primary endpoint in three Phase III trials in non-small-cell lung cancer (NSCLC) patients. The product has shown only equivalent survival, instead of an average 30 percent improvement, when compared with paclitaxel/carboplatin, docetaxel or gemcitabine/vinorelbine. CTI's stock plunged 47.5 percent after the first trial failure. (See BioWorld Today, March 8, 2005, and May 3, 2005.)

But the Seattle-based company still intends to submit an NDA in the first half of 2006 based on evidence that Xyotax has the same effectiveness but is significantly less toxic and better tolerated.

"That's it in a nutshell," Bianco said. "There are serious and potentially fatal toxicities" with current treatments, and "that is a clinical argument benefit" for Xyotax.

Of the $70 million up-front payment from Cephalon, CTI will realize only $30 million in gross proceeds. The rest will be used to repay PharmaBio Development, a unit of Research Triangle Park, N.C.-based Quintiles Transnational Corp. CTI and PharmaBio signed a $25 million financing and $5 million clinical services agreement for Trisenox last year.

In addition to the $30 million up front, CTI may realize another $100 million in milestone payments.

"It's based on hitting sales targets," said Sheryl Williams, a spokeswoman for Cephalon. "So as we increase the sales in the marketplace, there are milestones attached to particular points in time, and if we should get expanded labels for the product."

Trisenox was approved in the U.S. in 2000 and in Europe in 2002 as a second-line treatment for relapsed or refractory acute promyelocytic leukemia (APL). CTI has completed studies for Trisenox as a first-line treatment of these patients, and Cephalon intends to conduct additional studies in order to expand the label. Based on some early clinical studies, there also is a potential application in myelodysplastic syndromes.

While Xyotax is not partnered, CTI is in discussions with pharmaceutical companies, some of which estimate that Xyotax could bring in "well over $500 million" in U.S. net sales five years post-launch, Bianco said.

In contrast, Trisenox had sales of $26.6 million in 2004. CTI bought the product for $31 million by acquiring New York-based PolaRx Biopharmaceuticals Inc. in 2000. The cumulative net sales since October 2000 through the end of 2004 was $67 million - not a staggering figure, considering it cost CTI about $100 million to commercialize the product. Yet the product has given CTI the ability to "transition into a larger commercial entity," Bianco said.

The lung cancer market represents a much larger opportunity for CTI. The 178,000 people with lung cancer dwarf the 400 to 500 people in the U.S. with APL. Xyotax will target non-small-cell lung cancer patients with poor performance status, representing about 55,000 people in the U.S. each year. There are no drugs currently approved for the subgroup of NSCLC patients.

Another reason to sell Trisenox: "The market in the hematology space got very crowded very quickly," Bianco said, citing Velcade, clofarabine and Revlimid as examples.

Millennium Pharmaceuticals Inc., of Cambridge, Mass., received approval in 2003 and expanded approval earlier this year for Velcade to treat multiple myeloma patients. Genzyme Corp., also of Cambridge, received approval of Clolar (clofarabine) in December to treat children with leukemia. In April, Celgene Corp., of Summit, N.J., filed a rolling NDA for Revlimid to treat myelodysplastic syndromes in transfusion-dependent patients with a 5q-deletion chromosomal abnormality.

By assuming control of the worldwide marketing, sales and development of Trisenox, Cephalon will build an oncology sales force, offering employment to all of CTI's commercial employees focused on Trisenox.

CTI is reducing its work force by 130 people in the U.S., which includes 52 from sales and marketing, and the rest from research, development and other departments. The move will lower the company's operating expenses. CTI, which is retaining about 10 sales and marketing employees, will pay $1.4 million in the third quarter as a result of the reductions.

Cephalon expects its new sales force will be able to support two other up-and-coming oncology products, Treanda for non-Hodgkin's lymphoma and CEP-701 for acute myeloid leukemia. The former, which will come to Cephalon through its $200 million acquisition of San Diego-based Salmedix Inc. - announced last month - is headed for a Phase III trial this fall. CEP-701 currently is in Phase II testing. (See BioWorld Today, May 16, 2005.)

Cephalon is best known for its marketed central nervous system products, such as Provigil for sleep disorders, Gabitril for epilepsy and Actiq for pain.

The stocks of both companies moved little on Monday. Cephalon's (NASDAQ:CEPH) dropped 5 cents to close at $38.80, and CTI's (NASDAQ:CTIC) rose 5 cents to close at $2.61.