$1 Target on Cell Therapeutics
Cell Therapeutics, Inc. (LMT) develops, acquires, and commercializes novel treatments for cancer. The recent acquisition of Zevalin will generate revenue for the company and prepare the company for the future launch of other cancer products. Two pipeline products, Xyotax and Pixantrone, account for the late-stage oncology focus.
We are optimistic about Cell Therapeutics' future, however we are concerned with the company's cash position. We believe the risk/reward file for the company is balanced right now. Therefore, we downgrade the company's shares to Hold from Buy with revised price target of $1 per share.
Although Zevalin sales may pick up steam in 2008, it will only breakeven in 2008. However, with the expansion of sales and marketing forces for Zevalin, the company's cash position will further deteriorate. Even with close of some of the key clinical programs, the company is still under great pressure to raise additional funds to fund its operations.
We believe either Xyotax or Pixantrone may not receive outright approval from EMEA or the FDA. We set our price target of $1 which corresponds to a market cap of $60 million. We believe current risk/reward file is balanced for CTIC. Its shares will trade sideways until additional catalysts kick in which will not happen until 2009.
Adjusting CastlePoint, Still A Buy
CastlePoint Holdings' (CPHL) 4Q07 results were $0.32 per share, three cents below our expectation. The company continues to experience increase in profit as a result of higher net premiums and strong product demand. As a result of its strategic relationship with Tower Group (TWGP), CPHL has access to lucrative US markets, without having had to incur significant costs associated with establishing a primary insurance company infrastructure.
Based on 4Q07 results and company guidance we have lowered our FY08E and six-month price target. In addition, we have installed our early FY09E. We maintain our current rating on the shares of CPHL.
As a result of the 4Q07 results and company guidance, we have lowered our FY08E to $1.80 per share from $1.90 per share, and have installed our early FY09E at $2.10 per share. We would expect current profitability and operation efficiency measures to be sustainable, if not exhibiting some improvement over the coming quarters, as the company continues to expand into the U.S. In addition, we would anticipate the tax rate to increase to 7-9% range.
At the current level, the shares of CastlePoint trade at 0.91x the 4Q07 book value of $11.02 per share. We envision the price-to-book value multiple 1.05x (the second lowest peer price-to-book value) over the next six-months.
