The therapy can be applied only when a particular genetic translocation (rearrangement) that is found in non-small cell lung cancer (NSCLC) tumors and several other cancers but not in normal cells should be detected. Abbott’s molecular diagnostic test will screen NSCLC tumors for the presence of the gene rearrangements.

The test will determine a patient's genetic status and will be used in patient selection for Pfizer’s clinical trials in future. NSCLC is the most common type of lung cancer and usually grows and spreads more slowly than small cell lung cancer.

Last month, Abbott entered into a similar agreement with GlaxoSmithKline (GSK). Under that contract, Abbott will develop an automated molecular diagnostic test based on polymerase chain reaction technology to screen NSCLC tumors for MAGE-A3 antigen. Glaxo’s MAGE-A3 ASCI (Antigen Specific Cancer Immunotherapy) candidate is currently in a phase III clinical study.

The development of companion diagnostic tests will help personalize medical treatment. In our view, the ability to predict patient response to therapy would be a major positive for both physicians and patients and help increase success rate of the treatment. The tests will ensure identification of patients most likely to benefit from the treatment.

Earlier in June, Cell Therapeutics presented encouraging results from a phase III trial of pixantrone. Although the efficacy data for pixantrone were encouraging, we are concerned about its side effects. While, neutropenia was 41.2% for pixantrone versus 19.4% for comparator, leukopenia was 23.5% for pixantrone versus 4.5% for comparator.

Although the grade 3, 4 cardiac disorder was similar among the two treatment groups (1.5% vs. 1.5%), there was a higher incidence of serious cardiac disorders in patients treated with pixantrone than among patients who received comparator agents (8.8% vs. 4.5%). The higher than expected side effects may limit the utility of pixantrone in NHL patients.
 
Pixantrone belongs to a class of cancer medicines known as anthracylines. Although, dosing of anthracyclines is limited due to severe cardiac toxicity, pixantrone scores here compared to the rest of the group as it has been designed to be less toxic to the heart. The drug is available in Europe on a named patient basis.
 
In the best case scenario, pixantrone could be approved in early 2010. Even if pixantrone is approved, the company will have to invest significantly in the commercialization and marketing of the product. Meanwhile, Cell Therapeutics is yet to submit an NDA for another late-stage candidate, Xyotax for the treatment of women with lung cancer.
 
Although the picture is not so gloomy on the product development front, we remain concerned about the company’s liquidity position. The company is under great pressure to raise additional cash to fund its operations. Though the situation recovered a bit with the sale of Zevalin, it cannot continue for long without a proper revenue stream. With a positive outlook for pixantrone, any successful partnership with a cash rich entity will solve the liquidity issue.

With the acquisition of Medarex, Bristol-Myers will get the UltiMAb Human Antibody Development System, which produces high affinity, human antibodies for use in a broad range of therapeutic areas, including immunology and oncology. It will also obtain Medarex’s next-generation Antibody-Drug Conjugate (ADC) technology, which is a novel and proprietary platform that could open new fields in cancer treatment.

Medarex’s has seven antibodies in clinical trials under its sole funding and is developing three other antibodies under partnership contracts. Importantly, Bristol-Myers will acquire full ownership and rights to ipilimumab, which, if approved, could be a major contributor to the company’s future growth.

Ipilimumab, a novel immunotherapy, is currently in phase III development for metastatic melanoma. It is also undergoing phase II study for lung cancer and other late-stage studies for adjuvant melanoma and hormone-refractory prostate cancer.

The Medarex acquisition should help Bristol-Myers offset the loss of revenue after its key product Plavix loses exclusivity in 2011. The company is building a strong pipeline of candidates to boost sales in the coming years. Additionally, management is working on reducing costs and shedding less profitable and non-core businesses.

We currently have an Outperform rating on the stock. We believe that the current price represents an attractive entry point for long-term investors.

The FDA has not yet accepted the NDA submission, which we expect to be decided by the FDA in the next couple of months. Pixantrone is currently available in Europe on a named-patient basis.

The NDA submission is a major event for the company but still we doubt its ability to challenge the dominance of Biogen Idec's (BIIB) Rituxan in this field. Though Pixantrone belongs to a class of cancer medicines known anthracylines, its molecular structure is different.

In spite of the effectiveness of anthracyclines especially for the treatment of NHL and breast cancer, its usage is however limited, due to severe cardiac toxicity. Since the company does not have any marketable product at present, FDA approval is quite crucial in respect of its future operations

Cash position of the company is not at all comfortable. Though the management expects to break even by fourth quarter this year, we have our doubts. Its financials present a different picture altogether. The company posted a net operating loss of $11 million in April and May, more than the company's guidance of $9.5 million. Cell Therapeutics has undertaken several cost cutting initiatives reducing the operating expenses by 72%. The company sold its rights to its only marketed product Zevalin to Spectrum Pharmaceuticals (SPPI).

Cell Therapeutics is in a very tight liquidity position, though it recovered a bit due to the issuance of preferred stock and Zevalin rights sale. But this cannot continue for long and without a proper revenue stream, survival will become difficult for the company. The company is under great pressure to raise additional cash to fund its operations, which seems to be quite difficult at current financial conditions.

The company has yet to submit NDA for another candidate under development, Opaxio for the treatment of women with lung cancer. Any successful partnership related to these two programs (pixantrone and Opaxio) with a cash rich entity should be able to solve the liquidity crunch for the company. We continue to maintain our Hold rating.

Shares of Medarex Inc. (MEDX) soared the most in nearly a year after a mid-stage trial of its prostate cancer drug candidate was said to have cured two patients.

The Mayo Clinic in Minnesota reported that the drug, ipilimumab, when administered along with a hormone treatment and radiation therapy, was able to reduce the size of tumors to operable standards. Both patients had tumors deemed inoperable by surgeons since they expanded beyond the prostate into abdominal areas.

Medarex is developing the drug for treating melanoma, lung cancer and prostate cancer in collaboration with Bristol-Myers Squibb Co. (BMY). The mid-stage study for prostrate cancer involves 108 patients.

Medarex was trading up nearly 16% to $8.51 at noon on the NASDAQ after touching an intraday high of $9.01 earlier in the session. The shares had set a 52-week high of $10.12 in August last year.

The company bolstered its oncology/hematology program with the acquisition of Align in October 2007. The acquisition provides Cyclacel with three marketed drugs and a revenue stream. Although we believe the development of CYC202 presents a significant commercial opportunity for the company, it is still several years away from reaching the market.

Upcoming catalysts in the coming months include the announcement of clinical results from the phase II study of sapacitabine in cutaneous T-cell lymphoma and the phase IIb APPRAISE trial for CYC202 (seliciclib). Positive data from one or more of these trials could provide a boost to the company s shares and enable the company to strike an attractive development agreement with a major pharma company for one or more of its clinical candidates. As such, we maintain our target price of $2.50 which corresponds to a market cap of $51 million.

Maharathi Basu contributed to the report.

Read the full analyst report on CYCC

Bayer’s future growth should be mainly driven by its healthcare segment. However, we are concerned about the slowdown in this segment, especially in the fourth quarter of 2007 and in the first quarter of 2008. Sales in the healthcare segment only grew by 0.9% in 4Q07 and 3.4% in 1Q08.

The failure of Nexavar for lung cancer and the U.S. court ruling against Yasmin will have negative impact for the growth of the segment. Therefore, we are lowering our estimates for 2008 and beyond.

The CropScience and Material Science segments should stabilize in the coming quarters.  Currently, Bayer stock is trading at 11.7x our 2009 EPS estimate of $6.71 per ADR. Based on the business outlook we mentioned above, we believe the risk/reward profile is balance for Bayer stocks.

Using our fiscal year 2009 earnings estimate of $6.71 per share, and a forward multiple of 15x, discounted at 20% for one year, we arrive at our price target of $85. The P/E ratio of 15 is between big pharma industry P/E of 18.6 and chemical industry P/E of 13.6. We choose this hybrid P/E because Bay operates in these two industries and each segment accounts for about 50% of its total revenue.

Read the full analyst report on BAYRY