Edgar Filing: CELL THERAPEUTICS INC

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-12465

CELL THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Washington		91-1533912
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

501 Elliott Avenue West, Suite 400 Seattle, WA 98119		98119
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (206) 282-7100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, no par value

Preferred Stock Purchase Rights

The NASDAQ Stock Market LLC

None

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨		Accelerated filer x
Non-accelerated filer ¨(Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of June 30, 2011, the aggregate market value of the registrant’s common equity held by non-affiliates was $262,221,235. Shares of common stock held by each executive officer and director and by each person known to the registrant who beneficially owns more than 5% of the outstanding shares of the registrant’s common stock have been excluded in that such persons may under certain circumstances be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes. The registrant has no non-voting common stock outstanding.

The number of outstanding shares of the registrant’s common stock as of March 2, 2012 was 226,608,687.

DOCUMENTS INCORPORATED BY REFERENCE

None.

CELL THERAPEUTICS, INC.

TABLE OF CONTENTS


		Page
	PART I

ITEM 1.	BUSINESS		2
ITEM 1A.	RISK FACTORS		21
ITEM 1B.	UNRESOLVED STAFF COMMENTS		43
ITEM 2.	PROPERTIES		43
ITEM 3.	LEGAL PROCEEDINGS		43
ITEM 4.	MINE SAFETY DISCLOSURES		48

	PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		49
ITEM 6.	SELECTED FINANCIAL DATA		51
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		53
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		69
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		70
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		119
ITEM 9A.	CONTROLS AND PROCEDURES		119
ITEM 9B.	OTHER INFORMATION		119

	PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		120
ITEM 11.	EXECUTIVE COMPENSATION		123
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS		146
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		148
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		151

	PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		152
SIGNATURES			161
CERTIFICATIONS

Forward Looking Statements

This Annual Report on Form 10-K and the documents incorporated by reference may contain, in addition to historical information, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These statements relate to our future plans, objectives, expectations, intentions and financial performance, and assumptions that underlie these statements. All statements other than statements of historical fact are “forward-looking statements” for the purposes of these provisions, including:

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any statements regarding future operations, plans, regulatory filings or approvals;

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any statement regarding the performance, or likely performance, or outcomes or economic benefit of any licensing or other agreement, including any agreement with Novartis International Pharmaceutical Ltd., or Novartis, or its affiliates, including whether or not such partner will elect to participate, terminate or otherwise make elections under any such agreement or whether any regulatory authorizations required to enable such agreement will be obtained;

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any projections of cash resources, revenues, operating expenses or other financial terms;

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any statements of the plans and objectives of management for future operations or programs;

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any statements concerning proposed new products or services;

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any statements on plans regarding proposed or potential clinical trials or new drug filing strategies or timelines;

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any statements regarding compliance with the listing standards of The NASDAQ Stock Market, or NASDAQ;

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any statements regarding pending or future mergers or acquisitions; and

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any statement regarding future economic conditions or performance, and any statement of assumption underlying any of the foregoing.

When used in this Annual Report on Form 10-K, terms such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of those terms or other comparable terms are intended to identify such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause industry trends or actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. These factors include, but are not limited to, those listed under Part I, Item I “Business,” Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K.

We do not intend to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

You may review a copy of this Annual Report on Form 10-K, including exhibits and any schedule filed therewith, and obtain copies of such materials at prescribed rates, at the U.S. Securities and Exchange Commission’s, or the SEC, Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Cell Therapeutics, Inc., that file electronically with the SEC.

PART I

Item 1.

Business

Overview

We develop, acquire and commercialize novel treatments for cancer. Our goal is to build a leading biopharmaceutical company with a diversified portfolio of proprietary oncology drugs. Our research, development, acquisition and in-licensing activities concentrate on identifying and developing new, less toxic and more effective ways to treat cancer. We are currently focusing our efforts on Pixuvri^TM (pixantrone dimaleate), or Pixuvri, OPAXIO™ (paclitaxel poliglumex), or OPAXIO, tosedostat, brostallicin and bisplatinates.

We are developing Pixuvri, a novel anthracycline derivative, for the treatment of hematologic malignancies and solid tumors. Pixuvri was studied in our EXTEND, or PIX301, clinical trial, which is the first randomized, controlled, phase III single-agent clinical trial of Pixuvri for patients with relapsed or refractory aggressive non-Hodgkin’s lymphoma, or NHL, who received two or more prior therapies and who were sensitive to treatment with anthracyclines. In the U.S., we initially completed our new drug application, or NDA, submission with the U.S. Food and Drug Administration, or the FDA, in June 2009. In early April 2010, we received a complete response letter from the FDA regarding our NDA for Pixuvri recommending that we design and conduct an additional trial to demonstrate the safety and efficacy of Pixuvri and other items. We filed an appeal in December 2010 with the FDA’s Center for Drug Evaluation and Research regarding the FDA’s decision in April 2010 to not approve Pixuvri. The appeal was filed under the FDA’s formal dispute resolution process asking the Office of New Drugs, or the OND, to conclude that PIX301 demonstrated efficacy.

The FDA responded allowing us to resubmit the NDA with additional information. Prior to resubmitting the NDA, we initiated an additional Pixuvri clinical trial, PIX-R TRIAL, or PIX306, to study Pixuvri in combination with rituximab in patients with relapsed, aggressive NHL that received at least one prior therapy. On October 25, 2011, we announced the resubmission of the NDA to the FDA’s Division of Oncology Products 1, or DOP1, for accelerated approval to treat relapsed or refractory aggressive NHL in patients who failed two or more lines of prior therapy. On December 6, 2011, we announced that the FDA’s DOP1 had notified us that our resubmitted NDA is considered a complete, Class 2 response to the FDA’s April 2010 complete response letter. The FDA set a Prescription Drug User Fee Act, or PDUFA, goal date of April 24, 2012 for a decision on the NDA.

On January 3, 2012, we announced that the FDA’s Oncologic Drugs Advisory Committee, or ODAC, was scheduled to review our resubmitted NDA for Pixuvri on February 9, 2012. On January 30, 2012, we announced that we had voluntarily withdrawn our NDA for Pixuvri. The NDA was withdrawn because, after communications with the FDA, we needed additional time to prepare for the review of the NDA by the FDA’s ODAC at its February 9, 2012 meeting. Prior to withdrawing the NDA, we requested that the FDA consider rescheduling the review of the NDA to the ODAC meeting to be held in late March. The FDA was unable to accommodate our request to reschedule, and given the April 24, 2012 PDUFA date, the only way to have Pixuvri possibly considered at a later ODAC meeting was to withdraw and later resubmit the NDA. We plan to resubmit the NDA in 2012.

In Europe, we filed a Marketing Authorization Application, or MAA, for commercialization of Pixuvri, which was accepted for review by the European Medicines Agency, or the EMA, in December 2010. On February 17, 2012, Pixuvri was granted a positive opinion for conditional approval from the EMA’s Committee for Medicinal Products for Human Use, or CHMP. The CHMP recommended Pixuvri for conditional approval as monotherapy for the treatment of adult patients with multiple relapsed or refractory aggressive non-Hodgkin B-cell lymphomas. The CHMP positive opinion for Pixuvri will now be reviewed by the European Commission, which has the authority to approve medicines for use in the E.U. If the CHMP’s recommendation is formally adopted by the European Commission, Pixuvri would be approved for marketing in the 27 countries that are members of the E.U., as well as the European Economic Area. We are hopeful that a conditional marketing authorization for Pixuvri should be granted by the European Commission within the first half of 2012.

Similar to accelerated approval regulations in the U.S., conditional marketing authorizations are granted to medicinal products with a positive benefit/risk assessment that address unmet medical needs and whose availability would result in a significant public health benefit. A conditional marketing authorization is renewable annually. Under the provisions of the conditional marketing authorization for Pixuvri, we will be required to complete a post-marketing study aimed at confirming the clinical benefit previously observed. The CHMP has accepted PIX306 study as the study to confirm clinical benefit. As a condition of approval, we have agreed to have available the PIX306 clinical trial results by June 2015. We are working with consultants to develop a go-to-market strategy in Europe, including product messaging, positioning, staffing and resources required for Pixuvri product introduction in the E.U. If the European Commission adopts the positive opinion rendered by the CHMP for Pixuvri and if we successfully implement our go-to-market strategy, we expect to begin product launch on an E.U. country-by-country basis beginning in the second half of 2012.

Another late-stage drug candidate of ours, OPAXIO, is being studied as a potential maintenance therapy for women with advanced stage ovarian cancer who achieve a complete remission following first-line therapy with paclitaxel and carboplatin. This phase III study, the GOG0212 trial, is under the control of the Gynecologic Oncology Group, or GOG, and is expected to enroll 1,100 patients with 843 patients enrolled as of December 31, 2011. OPAXIO is also being studied in follow-on phase II trial for the treatment of metastatic brain cancer based on encouraging results from a prior phase II study in this disease.

We are also developing tosedostat in collaboration with Chroma Therapeutics, Ltd., or Chroma. We entered into a co-development and license agreement with Chroma in March 2011, providing us with exclusive marketing and co-development rights to Chroma’s drug candidate, tosedostat, in North, Central and South America. Tosedostat is an oral, aminopeptidase inhibitor that has demonstrated significant anti-tumor responses in blood related cancers and solid tumors in phase I-II clinical trials. Interim results from the phase II OPAL study of tosedostat in elderly patients with relapsed or refractory acute myeloid leukemia, or AML, were presented in June 2011 at the 2011 Annual Meeting of the American Society of Clinical Oncology, or ASCO. These results showed that once-daily, oral doses of tosedostat had predictable and manageable toxicities and demonstrated encouraging response rates at the interim evaluation time point including a high-response rate among patients who received prior hypomethylating agents, which are used to treat myelodysplastic syndrome, or MDS, a precursor of AML. Based on these results, and pending discussions with the FDA, we, in collaboration with Chroma, anticipate initiating a phase III study for patients with relapsed or refractory MDS in the second half of 2012.

We are also developing brostallicin, which is a new class of cancer drug—a synthetic DNA minor groove binding agent with a unique mechanism of action. Brostallicin is currently in a phase II trial for the treatment of metastatic triple-negative breast cancer. This study is being conducted by the North Central Cancer Treatment Group, or the NCCTG, and is in the process of enrolling patients.

We are also in the early stages of developing a novel dinuclear-platinum complex. There are three platinates currently commercially available (cisplatin, carboplatin, and oxaliplatin), which are first-line agents in ovarian cancer, lung cancer, testicular cancer, and colorectal cancer, as well as a broad variety of other diseases. We are developing the dinuclear-platinum complex CT-47463, which has a different mechanism of action than the platinum compounds currently commercially available and is substantially more active on many preclinical models, including those with resistance to monoplatinates. We have initiated active pharmaceutical ingredient and formulation development as prerequisites to IND enabling activities for bisplatinates. Depending on our resources and priorities, we may choose to discontinue additional pre-IND work or seek to out-license the product to another third party.

We also continue to evaluate additional novel clinical stage compounds to expand our hematologic cancer product pipeline. We are interested in compounds or products that are complementary to our existing pipeline.

Product Candidates

Our products are focused on addressing key unmet medical needs in the area of oncology. The following table summarizes our key clinical and preclinical programs for our lead product candidates.


Product Candidate	Indications/Intended Use	Phase/Enrollment Status

Pixuvri (pixantrone dimaleate)	Aggressive NHL, > 1 relapse, combination with rituximab (PIX306)	III/open

	Aggressive NHL, => 3 relapses, single-agent (PIX301)	III/closed

	Aggressive NHL, front-line, CPOP-R (PIX203)	II/closed

	Metastatic HER2-negative breast cancer (North Central Cancer Treatment Group)	II/closed

OPAXIO (paclitaxel poliglumex)	Ovarian cancer, first-line maintenance (GOG0212-Gynecologic Oncology Group)	III/open

	Metastatic brain cancer (Brown University Oncology Group)	II/open

	Head and neck cancer (SUNY Upstate Medical University)	II/open

	Esophageal cancer (Brown University Oncology Group)	II/closed

Tosedostat	Acute Myeloid Leukemia (HOVON)	II/open

	Acute Myeloid Leukemia, relapsed or refractory (OPAL-Chroma)	II/closed

Brostallicin	Metastatic triple-negative breast cancer (North Central Cancer Treatment Group)	II/open

Bisplatinates	Expected to be solid tumors	Preclinical

Oncology Market Overview and Opportunity

Overview. According to the American Cancer Society, or ACS, cancer is the second leading cause of death in the United States, resulting in close to 577,190 deaths annually, or more than 1,500 people per day and approximately 1.6 million new cases of cancer were expected to be diagnosed in 2012 in the United States. The most commonly used methods for treating patients with cancer are surgery, radiation and chemotherapy. Patients usually receive a combination of these treatments depending upon the type and extent of their disease.

Despite recent advances in sequencing the human genome and the introduction of new biologic therapies for the treatment of cancer, almost all patients with advanced cancer will receive chemotherapy at some point during the treatment of their disease. The cornerstone classes of chemotherapy agents include anthracyclines, camptothecins, platinates and taxanes. Unfortunately, there are significant limitations and complications associated with these agents that result in a high rate of treatment failure. The principal limitations of chemotherapy include:

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treatment-related toxicities,

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inability to selectively target tumor tissue, and

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the development of resistance to the cancer-killing effects of chemotherapy.

Treatment-related toxicities. The majority of current chemotherapy agents kill cancer cells by disrupting the cell division and replication process. Although this mechanism often works in cancer cells, which grow rapidly through cell division, non-cancerous cells are also killed because they too undergo routine cell division. This is especially true for cells that line the mouth, stomach and intestines, hair follicles, blood cells and reproductive cells (sperm and ovum). Because the mechanism by which conventional cancer drugs work is not limited to cancer cells, their use is often accompanied by toxicities. These toxicities limit the effectiveness of cancer drugs and seriously impact the patient’s quality of life.

Inability to selectively target tumor tissue. When administered, chemotherapy circulates through the bloodstream, reaching both tumor and normal tissues. Normally dividing tissues are generally as sensitive as tumor cells to the killing effects of chemotherapy, and toxic side effects limit the treatment doses that can be given to patients with cancer.

Chemotherapy resistance. Resistance to the cancer killing effects of conventional chemotherapy is a major impediment to continued effective treatment of cancer. Many cancer patients undergoing chemotherapy ultimately develop resistance to one or more chemotherapy agents and eventually die from their disease. Because many chemotherapies share similar properties, when a tumor develops resistance to a single drug, it may become resistant to many other drugs as well. Drugs that work differently from existing chemotherapies and are less susceptible to the same mechanisms of resistance have consequently begun to play an important role in treating resistant tumors.

We believe developing agents which improve on the cornerstone chemotherapy classes, in addition to novel drugs designed to treat specific types of cancer and cancer patients, fills a significant unmet medical need for cancer patients. Our cancer drug development pipeline includes a modified anthracycline, a taxane, a DNA minor groove binding agent, and a bisplatinate, each of which has the potential to treat a variety of cancer types.

Drug Candidates

Pixuvri

Anthracyclines are one of the most potent classes of anti-cancer agents used in first-line treatment of aggressive NHL, leukemia and breast cancer. For these diseases, anthracycline-containing regimens can often produce long-term cancer remissions and cures. However, the currently marketed anthracyclines can cause severe, permanent and life-threatening cardiac toxicity when administered beyond widely recognized cumulative lifetime doses. This toxicity often prevents repeat use of anthracyclines in patients who relapse after first-line anthracycline treatment. In addition, the cardiac toxicity of anthracyclines prevents their use in combination with other drugs, such as trastuzumab, that can also cause cardiac toxicity. As a result, chemotherapy regimens that do not include anthracyclines often are used for the second-line treatment of aggressive NHL, leukemia and breast cancer.

We are developing Pixuvri, a novel aza-anthracenedione derivative, for the treatment of NHL, and various other hematologic malignancies, and solid tumors. We believe a next-generation anthracycline with ease of administration, greater anti-tumor activity and less cardiac toxicity could gain a significant share of the anthracycline market. We also believe that such a drug could allow repeat therapy in relapsed patients and could allow combination therapy with a broader range of chemotherapies. Pixuvri is being developed to improve the activity and safety in treating cancers usually treated with the anthracycline family of anti-cancer agents. It is a novel DNA major groove binder with an aza-anthracenedione molecular structure, differentiating it from anthracycline chemotherapy agents. Similar to anthracyclines, Pixuvri inhibits topo-isomerase II, but, unlike anthracyclines, rather than interacalation with DNA, Pixuvri hydrogen bonds to and alkylates DNA, thus forming stable DNA adducts with particular specificity for CpG rich, hypermethylated sites. In addition, the structural motifs on anthracycline-like agents are responsible for the generation of oxygen free radicals and the formation of toxic drug-metal complexes have also been modified in Pixuvri to prevent iron binding and perpetuation of

superoxide production, both of which are the putative mechanism of anthracycline induced acute cardiotoxicity. These novel pharmacologic differences may allow re-introduction of anthracycline-like potency in the treatment of patients who are otherwise at their lifetime recommended doxorubicin exposure.

Pixuvri for relapsed aggressive NHL

NHL is caused by the abnormal proliferation of lymphocytes, which are cells key to the functioning of the immune system. NHL usually originates in lymph nodes and spreads through the lymphatic system. NHL can be broadly classified into two main forms—aggressive NHL is a rapidly growing form of the disease that moves into advanced stages much faster than indolent NHL, which progresses more slowly. NHL is the sixth most common type of cancer. The American Cancer Society’s most recent estimates are that there will be 70,130 people diagnosed with NHL in the United States and approximately 18,949 people will die from this disease in the United States in 2012. In Europe, the World Health Organization’s International Agency for Research on Cancer’s 2008 GLOBOCAN database estimates that in the European Union approximately 74,162 people will be diagnosed with NHL and 31,371 are estimated to die from NHL annually.

There are many subtypes of NHL, but aggressive NHL is one of the more common types of NHL and accounts for about 60% of all NHL cases. Initial therapy for aggressive NHL with anthracycline-based combination therapy cures up to 60% of patients. Of the remaining patients, approximately only half will respond to second-line treatment, but few are cured and there is no effective therapy for patients relapsing after or refractory to second-line treatment. There are no drugs approved in the United States for patients with aggressive NHL that relapse after, or are refractory to, second-line treatment.

Pixuvri was studied in our EXTEND, or PIX301, clinical trial, which was a phase III single-agent trial of Pixuvri for patients with relapsed, refractory aggressive NHL who received two or more prior therapies and who were sensitive to treatment with anthracyclines. In November 2008, we announced that this trial achieved the primary efficacy endpoint. We began a rolling NDA submission to the FDA in April 2009 and completed the submission in June 2009.

In 2010, the FDA completed its inspection of the facilities at NerPharMa DS, S.r.l. and NerPharMa, S.r.l. (two independent pharmaceutical manufacturing companies belonging to Nerviano Medical Sciences S.r.l., in Nerviano, Italy). The FDA found both manufacturing sites in compliance and acceptable for continued manufacturing of the drug in early March 2010. NerPharMa, S.r.l. agreed to manufacture our drug product, Pixuvri, which will be used for clinical and commercial supplies.

On March 22, 2010, the FDA’s ODAC panel voted unanimously that the clinical trial data was not adequate to support approval of Pixuvri for this patient population. In early April 2010, we received a complete response letter from the FDA regarding our NDA for Pixuvri recommending that we design and conduct an additional trial to demonstrate the safety and efficacy of Pixuvri and other items. We met with the FDA in August 2010 at an end of review meeting at which time the FDA informed us that the Pixuvri Investigational New Drug application, or IND, and NDA were being transferred to the newly-formed Division of Hematology Drug Products, or the DHP. We filed an appeal in December 2010 with the FDA’s Center for Drug Evaluation and Research regarding the FDA’s decision in April 2010 to not approve Pixuvri for relapsed/refractory aggressive NHL. The appeal filed under the FDA’s formal dispute resolution process asked the Office of New Drugs, or the OND, to conclude that PIX301 demonstrated efficacy. In March 2011, we announced that we met with officials of the OND and presented our arguments supporting our belief that the data contained in the NDA are consistent with the conclusion that Pixuvri is effective for its planned use. At the meeting, the OND requested additional analyses related to the EXTEND clinical study which we submitted.

On May 3, 2011, we announced that the OND responded to our December 2010 appeal of the FDA’s April 2010 decision to not approve Pixuvri for relapsed or refractory aggressive NHL. In its response, the OND indicated that after considering the data available in the appeal, it does not believe that accelerated approval of

our NDA is necessarily out of reach based on a single controlled clinical trial, provided that two key matters can be resolved satisfactorily. First, the circumstances of stopping the PIX301 trial early must be resolved to assure that ongoing results assessment were not dictating the decision to stop. Second, ascertainment of the primary endpoint in the PIX301 study must be determined to have been sound and not subject to bias.

The OND also indicated that our request that the OND find that the data in our NDA demonstrate efficacy and return the NDA to the Office of Oncology Drug Products for consideration of safety and other issues was denied because the OND was not able to conclude that efficacy had been demonstrated. However, the OND also did not find that it could be concluded that PIX301 was a failed study, which warranted application of interim analysis statistical thresholds.

On June 14, 2011, we announced that we had met with the FDA’s Division of Oncology Drug Products, or DODP, in a meeting that focused on the documents we proposed to provide regarding the circumstances of stopping the enrollment of PIX301 prior to achieving the original planned patient accrual and the make-up of the new radiology expert panel, as well as our plan to address the items noted in the FDA’s complete response letter. The DODP confirmed that our NDA would be reviewed within six months from the resubmission of our NDA. On September 28, 2011, we announced that a second independent radiology assessment of response and progression endpoint data from our PIX301 clinical trial of Pixuvri was achieved with statistical significance. We believe this assessment confirmed the statistical robustness of the PIX301 efficacy data that was previously submitted by us to the FDA in our NDA for Pixuvri.

On October 25, 2011, we announced the resubmission of the NDA to the FDA’s DOP1 for accelerated approval to treat relapsed or refractory aggressive NHL in patients who failed two or more lines of prior therapy. On December 6, 2011, we announced that the DOP1 had notified us that our resubmitted NDA is considered a complete, Class 2 response to the FDA’s April 2010 complete response letter. The FDA set a PDUFA goal date of April 24, 2012 for a decision on our resubmitted NDA.

On January 3, 2012, we announced that ODAC was scheduled to review our resubmitted NDA for Pixuvri on February 9, 2012. On January 30, 2012, we announced that we had voluntarily withdrawn our resubmitted NDA for Pixuvri. The NDA was withdrawn because, after communications with the FDA, we needed additional time to prepare for the review of the NDA by ODAC at its February 9, 2012 meeting. Prior to withdrawing the NDA, we requested that the FDA consider rescheduling the review of the NDA to the ODAC meeting to be held in late March. The FDA was unable to accommodate our request to reschedule, and given the April 24, 2012 PDUFA date, the only way to have Pixuvri possibly considered at a later ODAC meeting was to withdraw and later resubmit the NDA. We plan to resubmit the NDA in 2012.

We believe the results of the EXTEND trial met its primary endpoint and showed that patients randomized to treatment with Pixuvri achieved a significantly higher rate of confirmed and unconfirmed complete response compared to patients treated with standard chemotherapy had a significantly increased overall response rate and experienced a statistically significant improvement in median progression free survival. Pixuvri had predictable and manageable toxicities when administered at the proposed dose and schedule in the EXTEND clinical trial in heavily pre-treated patients. The most common (incidence greater than or equal to 10%) grade 3/4 adverse events reported for Pixuvri-treated subjects across studies were neutropenia and leukopenia. Other common adverse events (any grade) included infection, anemia, thrombocytopenia, asthenia, pyrexia and cough. Overall, the incidence of grade 3 or greater cardiac adverse events was 7% (five patients) on the Pixuvri arm and 2% (one patient) on the comparator arm. There were an equal number of deaths due to an adverse event in both the Pixuvri and comparator arm.

In March 2011, we initiated the PIX-R trial to study Pixuvri in combination with rituximab in patients with relapsed/refractory diffuse large B-cell lymphoma, or DLBCL. The trial will compare a combination of Pixuvri plus rituximab to a combination of gemcitabine plus rituximab in patients with relapsed or refractory DLBCL

who have received one to three prior lines of therapy. The PIX-R trial utilizes overall survival, or OS, as the primary endpoint of the study, with a secondary endpoint of progression free survival, or PFS. The PIX-R trial is targeting to enroll approximately 350 patients and will include patients who have failed at least one line of previous therapy and patients who are not candidates for myeloablative chemotherapy and stem cell transplant. We had discussions with the DHP relating to a Special Protocol Assessment, or SPA, and following these discussions we determined that we would not pursue a SPA. The DHP noted that we could conduct a study utilizing PFS along with OS as co-primary endpoints which would be an acceptable design outside of the formal SPA process. At the initiation of the study, co-primary endpoints of OS and PFS were used. Subsequently, an amendment was made to the study protocol in January 2012, to make OS the sole primary endpoint, and PFS a secondary endpoint. As this study is being conducted without a SPA, regulatory acceptability will depend on the magnitude of the difference between the trial study arms as well as a risk and benefit analysis. This study could serve as either a post-approval confirmatory study, if Pixuvri were to be approved on the basis of an NDA that will be re-submitted later in 2012, or as a registration study for approval in the United States.

In Europe in July 2009, we were notified by the EMA that Pixuvri was eligible to be submitted for an MAA through the EMA’s centralized procedure. The centralized review process provides for a single coordinated review for approval of pharmaceutical products that is conducted by the EMA on behalf of all European Union, or EU, member states. The EMA also designated Pixuvri as a New Active Substance, or NAS; if approved by the EMA, compounds designated as an NAS are eligible to receive a 10-year market exclusivity period in EU member states. In September 2009, we applied to the EMA for orphan drug designation for Pixuvri, which was granted in December 2009. In September 2009, we also submitted a Pediatric Investigation Plan, or PIP, to the EMA as part of the required filing process for approval of Pixuvri for treating relapsed, refractory aggressive NHL in Europe. In April 2010, the EMA recommended that we submit an updated PIP for Pixuvri following discussions with us about the preclinical and clinical Pixuvri data, including EXTEND, and the desire to explore the potential benefits Pixuvri may offer to children with lymphoid malignancies and solid tumors. We submitted an expanded PIP to the Pediatric Committee of the EMA, or PDCO, in July 2010. The expanded PIP was accepted for review by the PDCO in August 2010. On October 19, 2010, we announced that the PDCO had adopted an opinion agreeing to our PIP. The PDCO also recommended deferral of the initiation of the clinical studies until after Pixuvri receives EMA approval. In November 2010, the MAA seeking approval for Pixuvri for the treatment of adult patients with multiple relapsed or refractory aggressive NHL was validated and accepted for review by the EMA. Since Pixuvri was initially granted orphan drug status by the EMA for the treatment of DLBCL, we agreed to withdraw the orphan designation from the EU register in November 2010 based on the expansion of the MAA to the broader aggressive NHL population.

In June 2010, the Italian Medicines Agency, or AIFA, the national authority responsible for drug regulation in Italy, approved the facility at NerPharMa DS, S.r.l. for the production of Pixuvri drug substance. In July 2010, we signed a supply agreement with NerPharMa, S.r.l. for Pixuvri drug product manufacturing. The five-year contract provides for both the commercial and clinical supply of Pixuvri drug product.

In March 2011, we received the Day 120 list of questions from the EMA’s CHMP. In April 2011, we met with the co-rapporteurs and members of the EMA to discuss our proposed responses. Based on feedback and recommendation from the rapporteurs, in order to allow time for preclinical reports to be available, we requested and were granted an extension so that our responses could address the questions in the Day 120 list. In August 2011, we submitted our response to the Day 120 questions. On December 5, 2011, we announced that we had received the Day 180 list of outstanding issues from the EMA’s CHMP which contained only one remaining major clinical objection to our MAA and items not deemed to be major issues. To address the remaining major objection, the CHMP required that we provide a literature review of mechanisms of rituximab resistance and analyses that demonstrate the efficacy of Pixuvri in patients with prior rituximab treatment. In addition, the CHMP required that we provide information to address some additional questions that were not deemed to be major issues and could be addressed by additional analyses of currently available data. On January 18, 2012, we presented to the CHMP an oral explanation to address outstanding questions raised by some of the member states.

On February 17, 2012, Pixuvri was granted a positive opinion for conditional approval from the EMA’s CHMP. The CHMP recommended Pixuvri for conditional approval as monotherapy for the treatment of adult patients with multiple relapsed or refractory aggressive non-Hodgkin B-cell lymphomas. The CHMP positive opinion for Pixuvri will now be reviewed by the European Commission, which has the authority to approve medicines for use in the E.U. If the CHMP’s recommendation is formally adopted by the European Commission, Pixuvri would be approved for marketing in the 27 countries that are members of the E.U., as well as the European Economic Area. We are hopeful that a conditional marketing authorization for Pixuvri should be granted by the European Commission within the first half of 2012.

Pixuvri for metastatic breast cancer

Pixuvri has also been studied in patients with HER2-negative metastatic breast cancer who have tumor progression after at least two, but not more than three, prior chemotherapy regimens. In the second quarter of 2010, the NCCTG opened this phase II study for enrollment. The study is closed to accrual and results are expected to be reported by the NCCTG later in 2012.

OPAXIO

OPAXIO, which we have previously referred to as XYOTAX, is our novel biologically-enhanced chemotherapeutic agent that links paclitaxel to a biodegradable polyglutamate polymer, resulting in a new chemical entity. We are currently focusing our development of OPAXIO on ovarian, brain, esophageal, head and neck cancer.

OPAXIO was designed to improve the delivery of paclitaxel to tumor tissue while protecting normal tissue from toxic side effects. Unlike vessels in healthy tissue, those in tumor tissue have openings that make them porous. Due to the larger size of OPAXIO compared to standard paclitaxel, OPAXIO leaks through the pores in tumor blood vessels and is preferentially trapped and distributed to the tumor tissue. Once in the tumor tissue, OPAXIO is taken up by the tumor cells through a cellular process called endocytosis. Because the biopolymer OPAXIO is made up of biodigestible amino acids, it is slowly metabolized by lysosomal enzymes (principally cathepsin B) inside the lysosome of the tumor cell. This metabolism releases the active chemotherapy agent, which is paclitaxel. The activity of this enzyme, and thus the rate of release of OPAXIO, is increased in the presence of estrogen.

Because the polymer is water-soluble, OPAXIO can be administered without solvents and other routine pre-medications (such as steroids and antihistamines) generally used to prevent severe allergic reactions, and can be infused over an average of 10 to 20 minutes. Treatment does not affect the patient’s ability to drive themselves to and from their treatment centers. OPAXIO remains stable in the bloodstream for several days after administration; this prolonged circulation allows the passive accumulation of OPAXIO in tumor tissue.

Taxanes, including paclitaxel (Taxol^®) and docetaxel (Taxotere^®), currently are widely used for the treatment of various solid tumors, including non-small cell lung, ovarian, breast and prostate cancers. Paclitaxel is considered a standard-of-care in lung and ovarian cancers, where it is most widely used. Because taxanes are small, hydrophobic agents, their therapeutic potential is limited by unfavorable pharmacokinetic properties. Solvents (such as Cremaphor) are needed for administration, and these solvents are often extremely irritating to blood vessels, requiring surgical placement of a large catheter for administration and a minimum of three hours

for infusion. They also can cause severe life threatening allergic reactions that typically require pre-medications with steroids and antihistamines. Patients usually require transportation to and from their treatment location. Taxanes exhibit high peak levels of drug immediately following administration that expose normal tissues to toxic effects. Rapid elimination of the drug from blood limits tumor exposure.

The distribution and metabolism of OPAXIO to tumor tissue and subsequent release of active paclitaxel chemotherapy appears to be enhanced by estrogen, potentially allowing for superior effectiveness in women with pre-menopausal estrogen levels. This gender-targeted benefit could also be exploited in post-menopausal women or men through estrogen supplementation.

OPAXIO for ovarian cancer

We are currently focusing our development of OPAXIO as a potential maintenance therapy for women with advanced stage ovarian cancer who achieve a complete remission following first-line therapy with paclitaxel and carboplatin. In April 2004, we announced that we entered into a clinical trial agreement with the GOG to perform a phase III trial, or the GOG0212 trial. We have been advised that the GOG submitted both an IND, which cross references our IND, and a SPA for the GOG0212 trial to the FDA. As such, the GOG0212 trial is conducted and managed by the GOG. The trial is expected to enroll 1,100 patients with 843 patients enrolled as of December 31, 2011. On February 21, 2012, we were informed that the Data Monitoring Committee for GOG0212 adopted an amendment to the study’s statistical analysis plan, or SAP, to perform four interim analyses instead of the previously-planned single interim analysis allowing for an earlier analysis of survival results than previously noted. The first interim analysis is expected to take place when 109, versus the previously-planned 138, events occur in the control arm. There are early stopping criteria for either success or futility. The final fifth analysis would be conducted when 301, versus the previously-planned 277, events have occurred in the control arm. We understand that the GOG will attempt to amend its SPA following a discussion with the FDA. Based on feedback from the GOG, the GOG Data Monitoring Committee currently plans to conduct its first interim analysis of overall survival in 2013. If successful, we could utilize those results to form the basis of an NDA for OPAXIO.

OPAXIO for brain cancer

In November 2010, results were presented by the Brown University Oncology Group from a phase II trial of OPAXIO combined with temozolomide, or TMZ, and radiotherapy in patients with newly-diagnosed, high-grade gliomas, a type of brain cancer. The trial demonstrated a high rate of complete and partial responses and an encouragingly high rate of six month PFS. Based on these results, the Brown University Oncology Group has initiated a randomized, multicenter, phase II study of OPAXIO and standard radiotherapy versus TMZ and radiotherapy for newly diagnosed patients with glioblastoma with an active gene termed MGMT that reduces responsiveness to TMZ. The trial goals are to estimate disease free and overall survival for the two study arms.

OPAXIO for esophageal cancer

In June 2009, we announced that, in a study released from Brown University at the 2009 ASCO Annual Meeting, patients with cancer of the lower esophagus had evidence of a high pathological complete response rate when given OPAXIO in addition to cisplatin and full-course radiotherapy. In this phase II clinical trial study, data suggests that OPAXIO may provide enhanced radiation sensitization as compared to standard therapy.

OPAXIO for head and neck cancer

A phase I/II study of OPAXIO combined with radiotherapy and cisplatin was initiated by SUNY Upstate Medical University, in patients with locally advanced head and neck cancer. The results are expected to be presented in late 2012.

Tosedostat

In March 2011, we entered into a co-development and license agreement with Chroma, providing us with exclusive marketing and co-development rights to Chroma’s drug candidate, tosedostat, in North, Central and South America. Tosedostat is an oral, aminopeptidase inhibitor that has demonstrated significant anti-tumor responses in blood related cancers and solid tumors in phase I-II clinical trials. Interim results from the phase II OPAL study of tosedostat in elderly patients with relapsed or refractory AML were presented in June 2011 at the 2011 ASCO Annual Meeting. These results showed that once-daily, oral doses of tosedostat had predictable and manageable toxicities and results demonstrated encouraging response rates including a high-response rate among patients who received prior hypomethylating agents, which are used to treat myelodysplastic syndrome, or MDS, a precursor of AML. Based on these results, and pending discussions with the FDA, we, in collaboration with Chroma, anticipate initiating a phase III study for patients with relapsed or refractory MDS in the second half of 2012.

Brostallicin

We are developing brostallicin through our wholly-owned subsidiary, Systems Medicine LLC, which holds worldwide rights to use, develop, import and export brostallicin. Brostallicin is a synthetic DNA minor groove binding agent that has demonstrated anti-tumor activity and a favorable safety profile in clinical trials in which more than 230 patients have been treated to date. We use a genomic-based platform to guide the development of brostallicin.

In the second quarter of 2010, the NCCTG opened for enrollment a phase II study of brostallicin in combination with cisplatin in patients with metastatic triple-negative breast cancer, or mTNBC. mTNBC is defined by tumors lacking expression of estrogen, progesterone receptors and without over-expression of HER2. Women with mTNBC have very limited effective treatments and, based on the novel mechanism of action of brostallicin and the recognized activity of cisplatin in this disease, the combination of the two agents will be explored by the NCCTG. In addition to standard clinical efficacy measures, biological endpoints will also be evaluated to assist in understanding the specific activity of brostallicin in this disease.

A phase II study of brostallicin in relapsed, refractory soft tissue sarcoma met its predefined activity and safety hurdles and resulted in a first-line phase II clinical trial study that was conducted by the European Organization for Research and Treatment of Cancer, or EORTC. Planned enrollment for this study was completed in August 2008 and the EORTC conducted final data analysis in 2009. The data was reported at the ASCO Annual Meeting in June 2010. The EORTC trial demonstrated, in this hard-to-treat patient group, a modest level of clinical activity with an acceptable level of toxicity. No further development is planned in this indication.

Research and Preclinical Development

Platinates are an important class of chemotherapy agents used to treat a wide variety of cancers. There are three platinates currently commercially available (cisplatin, carboplatin, and oxaliplatin), which are first-line agents in ovarian cancer, lung cancer, testicular cancer, and colorectal cancer, as well as a broad variety of other diseases. We are developing the dinuclear-platinum complex CT-47463. CT-47463 has a different mechanism of action than the commercially available platinum compounds and is substantially more active on many preclinical models including those with resistance to monoplatinates. We have initiated active pharmaceutical ingredient and formulation development as prerequisites to IND enabling activities for bisplatinates. Depending on our resources and priorities, we may choose to discontinue additional pre-IND work or seek to out-license the product to another third party.

Zevalin (Ibritumomab Tiuxetan)

In March 2009, we divested our interest in the radiopharmaceutical product Zevalin^® (ibritumomab tiuxetan), or Zevalin, by selling our 50% interest in the Zevalin joint venture, RIT Oncology, LLC, or RIT Oncology, to Spectrum Pharmaceuticals, Inc., or Spectrum, for $16.5 million. Previously, in December 2008, we closed our transaction with Spectrum to form RIT Oncology, to commercialize and develop Zevalin in the United States. We originally acquired the U.S. rights to develop, market and sell Zevalin from Biogen Idec Inc., or Biogen, in December 2007. We received an initial payment of $6.5 million in gross proceeds from Spectrum in March 2009, $0.8 million of which was used to pay a consent fee to Biogen, and an additional $6.5 million in gross proceeds in April 2009. The remaining $3.5 million we expected to receive from Spectrum, subject to certain adjustments, was disputed and was ultimately released to Spectrum based on the outcome of an arbitration hearing held in May 2009. In addition, as part of the divestiture transaction, we agreed to forego the right to receive up to $15 million in product sales milestone payments in connection with the original transaction establishing the joint venture.

Research and Development Costs

Research and development is essential to our business. We spent $34.9 million, $27.0 million and $30.2 million in 2011, 2010, and 2009, respectively, on company-sponsored research and development activities. Because of the risks and uncertainties associated with the development of a product candidate, we cannot accurately predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost. Specific comments for individual product candidates are below.

Pixuvri. Pixuvri is an aza-anthracenedione that has distinct structural and physiochemical properties that make its anti-tumor unique in this class of agents. The novel pharmacologic differences between Pixuvri and the other agents in the class may allow re-introduction of anthracycline-like potency in the treatment of patients who are otherwise at their lifetime recommended doxorubicin exposure. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of Pixuvri because, among other reasons, we cannot predict with any certainty the pace of enrollment of our clinical trials. Even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of Pixuvri will be completed or when we will be able to begin commercializing Pixuvri to generate material net cash inflows.

OPAXIO. OPAXIO is our novel biologically enhanced chemotherapeutic agent that links paclitaxel to a biodegradable polyglutamate polymer, resulting in a new chemical entity. We are currently focusing our development of OPAXIO on ovarian, brain, esophageal, head and neck cancer. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of OPAXIO because, among other reasons, a third party is conducting the key clinical trial of OPAXIO and even after a clinical trial has been enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of OPAXIO will be completed or when we will be able to begin commercializing OPAXIO to generate material net cash inflows.

Tosedostat. Tosedostat is an oral, aminopeptidase inhibitor that has demonstrated significant anti-tumor responses in blood related cancers and solid tumors in phase I-II clinical trials. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of tosedostat because, among other reasons, we cannot predict with any certainty the pace of enrollment of our clinical trials. Even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of tosedostat will be completed or when we will be able to begin commercializing tosedostat to generate material net cash inflows.

Brostallicin. Brostallicin is a synthetic DNA minor groove binding agent that has demonstrated anti-tumor activity. The NCCTG is conducting a phase II study of brostallicin in combination with cisplatin in patients with mTNBC. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of brostallicin because, among other reasons, a third party is conducting the clinical trial of brostallicin for which enrollment is subject to their control and even after a clinical trial has been enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of brostallicin will be completed or when we will be able to begin commercializing brostallicin to generate material net cash inflows.

Bisplatinates (CT-47463). Cisplatin is a platinum-based chemotherapy drug used to treat a wide variety of cancers. We are developing new analogues of the dinuclear-platinum complex, or CT-47463, that we expect may be more potent than cisplatin. CT-47463 is endowed with a unique mechanism of action, active in preclinical studies on a large panel of tumor models, sensitive and refractory to cisplatin, and has a safety profile comparable to that of cisplatin. The novel bisplatinum analogues are rationally designed and synthesized to have improved biopharmaceutical properties that reduce the intrinsic reactivity of the molecule and that demonstrate preclinical anti-tumor efficacy in solid tumor models. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of CT-47463 because, among other reasons, a third party is conducting the preclinical trial for CT-47463, no clinical trial design for CT-47463 has been developed yet and even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of CT-47463 will be completed or when we will be able to begin commercializing CT-47463 to generate material net cash inflows.

The risks and uncertainties associated with completing development on schedule and the consequences to operations, financial position and liquidity if the project is not completed timely are discussed in more detail in the following risk factors, which begin on page 21 of this Form 10-K: “Our financial condition may be harmed if third parties default in the performance of contractual obligations.”; “We may be delayed, limited or precluded from obtaining regulatory approval of OPAXIO as a maintenance therapy for advanced-stage ovarian cancer and as a radiation sensitizer.”; “We are subject to extensive government regulation.”; “Even if our drug candidates are successful in clinical trials, we may not be able to successfully commercialize them.”; “If we do not successfully develop our product candidates into marketable products, we may be unable to generate significant revenue or become profitable.”; and “We may take longer to complete our clinical trials than we expect, or we may not be able to complete them at all.”

License Agreements and Additional Milestone Activities

Chroma Therapeutics, Ltd.

We have an agreement with Chroma, or the Chroma Agreement, under which we have an exclusive license to certain technology and intellectual property controlled by Chroma to develop and commercialize the drug candidate, tosedostat, in North, Central and South America, or the Licensed Territory. Pursuant to the terms of the Chroma Agreement, we paid Chroma an upfront fee of $5.0 million upon execution of the agreement and will make a milestone payment of $5.0 million upon the initiation of the first pivotal trial, which could commence in the second half of 2012. The Chroma Agreement also includes additional development- and sales-based milestone payments related to AML and certain other indications, up to a maximum amount of $209.0 million payable by us to Chroma if all development and sales milestones are achieved.

that country, (b) the expiration of all regulatory exclusivity periods for tosedostat in that country or (c) ten years after the first commercial sale in that country. Royalty payments to Chroma are based on net sales volumes in any country within the Licensed Territory and range from the low- to mid-teens as a percentage of net sales.

We will oversee and be responsible for performing the development operations and commercialization activities in the Licensed Territory and Chroma will oversee and be responsible for performing the development operations and commercialization activities worldwide except for the Licensed Territory, or the ROW Territory. Development costs may not exceed $50.0 million for the first three years of the Chroma Agreement unless agreed by the parties and we will be responsible for 75% of all development costs, while Chroma will be responsible for 25% of all development costs, subject to certain exceptions. Chroma is responsible for the manufacturing of tosedostat for development purposes in the Licensed Territory and the ROW Territory in accordance with the terms of the manufacturing and supply agreement. We have the option of obtaining a commercial supply of tosedostat from Chroma or from another manufacturer at our sole discretion in the Licensed Territory. The Chroma Agreement may be terminated by us at our convenience upon 120 days’ written notice to Chroma. The Chroma Agreement may also be terminated by either party following a material breach by the other party subject to notice and cure periods.

University of Vermont

We have an agreement with the University of Vermont, or UVM, which grants us an exclusive license, with the right to sublicense, for the rights to pixantrone, or the UVM Agreement. Pursuant to the UVM Agreement, we acquired the rights to make, have made, sell and use pixantrone. Pursuant to the UVM Agreement, we are obligated to make payments to UVM based on net sales. Our royalty payments range from low-single digits to mid-single digits as a percentage of net sales. The higher royalty rate is payable for net sales in countries where specified UVM licensed patents exist, or where we have obtained orphan drug protection, until such UVM patents or such protection no longer exists. For a period of ten years after first commercialization of pixantrone, the lower royalty rate is payable for net sales in such countries after expiration of the designated UVM patents or loss of orphan drug protection, and in all other countries without such specified UVM patents or orphan drug protection. Unless otherwise terminated, the term of the UVM Agreement continues for the life of the licensed patents in those countries in which a licensed patent exists, and continues for ten years after the first sale of pixantrone in those countries where no such patents exist. We may terminate the UVM Agreement, on a country-by-country basis or on a patent-by-patent basis, at any time upon advance written notice. UVM may terminate the UVM Agreement upon advance written notice in the event royalty payments are not made. In addition, either party may terminate the UVM Agreement (a) in the event of an uncured material breach of the UVM Agreement by the other party; or (b) in the event of bankruptcy of the other party.

PG-TXL

We have an agreement, or the PG-TXL Agreement, with PG-TXL Company, L.P., or PG-TXL, which grants us an exclusive worldwide license for the rights to OPAXIO and to all potential uses of PG-TXL’s polymer technology. Pursuant to the PG-TXL Agreement, we acquired the rights to research, develop, manufacture, market and sell anti-cancer drugs developed using this polymer technology. Pursuant to the PG-TXL Agreement, we are obligated to make payments to PG-TXL upon the achievement of certain development and regulatory milestones of up to $14.4 million. The timing of the remaining milestone payments under the PG-TXL Agreement is based on trial commencements and completions for compounds protected by PG-TXL license rights, and regulatory and marketing approval of those compounds by the FDA and the EMA. Additionally, we are required to make royalty payments to PG-TXL based on net sales. Our royalty payments range from low-single digits to mid-single digits as a percentage of net sales. Unless otherwise terminated, the term of the PG-TXL Agreement continues until no royalties are payable to PG-TXL. We may terminate the PG-TXL Agreement (i) upon advance written notice to PG-TXL in the event issues regarding the safety of the products licensed pursuant to the PG-TXL Agreement arise during development or clinical data obtained reveal a materially adverse tolerability profile for the licensed product in humans or (ii) for any reason upon advance

written notice. In addition, either party may terminate the PG-TXL Agreement (a) upon advance written notice in the event certain license fee payments are not made; (b) in the event of an uncured material breach of the respective material obligations and conditions of the PG-TXL Agreement; or (c) in the event of liquidation or bankruptcy of a party.

Gynecologic Oncology Group

We have an agreement with the GOG related to the GOG0212 trial, which the GOG is conducting. We recorded a $1.7 million payment due to the GOG based on the 800 patient enrollment milestone achieved in the second quarter of 2011, which is included in accounts payable as of December 31, 2011. Under this agreement, we are required to pay up to $1.8 million in additional milestone payments related to the trial, of which $0.5 million will become due upon receipt of the interim analysis and data transfer which may occur in 2013. There were 843 patients enrolled as of December 31, 2011.

Nerviano Medical Sciences

Under a license agreement entered into with Nerviano Medical Sciences, S.r.l. for brostallicin, we may be required to pay up to $80.0 million in milestone payments based on the achievement of certain product development results. Due to the early stage of development that brostallicin is in, we are not able to determine whether the clinical trials will be successful and therefore cannot make a determination that the milestone payments are reasonably likely to occur at this time.

Cephalon

Pursuant to an acquisition agreement entered into with Cephalon, Inc., or Cephalon, in June 2005, we may receive up to $100.0 million in payments upon achievement by Cephalon of specified sales and development milestones related to TRISENOX. However, the achievement of any such milestones is uncertain at this time.

Novartis

In September 2006, we entered into an exclusive worldwide licensing agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Ltd., or Novartis, for the development and commercialization of OPAXIO. Total product and registration milestones to us for OPAXIO under the Novartis Agreement could reach up to $270 million. Royalty payments to us for OPAXIO are based on worldwide OPAXIO net sales volumes and range from the low-twenties to mid-twenties as a percentage of net sales.

Pursuant to the Novartis Agreement, we are responsible for the development costs of OPAXIO and have control over development of OPAXIO unless and until Novartis exercises its development rights, or the Development Rights. In the event that Novartis exercises the Development Rights, then from and after the date of such exercise, or the Novartis Development Commencement Date, Novartis will be solely responsible for the development of OPAXIO. Prior to the Novartis Development Commencement Date, we are solely responsible for all costs associated with the development of OPAXIO, but will be reimbursed by Novartis for certain costs after the Novartis Development Commencement Date. After the Novartis Development Commencement Date, Novartis will be responsible for costs associated with the development of OPAXIO, subject to certain limitations; however, we are also responsible for reimbursing Novartis for certain costs pursuant to the Novartis Agreement.

The Novartis Agreement also provides Novartis with an option to develop and commercialize Pixuvri based on agreed terms. If Novartis exercises its option on Pixuvri under certain conditions and we are able to negotiate and sign a definitive license agreement with Novartis, Novartis would be required to pay us a $7.5 million license fee, up to $104 million in registration and sales related milestones and a royalty on Pixuvri worldwide net sales. Royalty payments to us for Pixuvri are based on worldwide Pixuvri net sales volumes and range from the low-double digits to the low-thirties as a percentage of net sales.

Royalties for OPAXIO are based on worldwide sales volumes of OPAXIO and royalties for Pixuvri are based on sales volumes in the United States and sales volumes in other countries.

Royalties for OPAXIO and Pixuvri are payable from the first commercial sale of a product until the later of the expiration of the last to expire valid claim of the licensor or the occurrence of other certain events, or the Royalty Term. Unless otherwise terminated, the term of the Novartis Agreement continues on a product-by-product and country-by-country basis until the expiration of the last-to-expire Royalty Term with respect to a product in such certain country. In the event Novartis does not exercise its Development Rights until the earlier to occur of (i) the expiration of 30 days following receipt by Novartis of the product approval information package pursuant to the Novartis Agreement or (ii) Novartis’ determination, in its sole discretion, to terminate the Development Rights exercise period by written notice to us (events (i) and (ii) collectively being referred to as the “Development Rights Exercise Period”), the Novartis Agreement will automatically terminate upon expiration of the Development Rights Exercise Period. In the event of an uncured material breach of the Novartis Agreement, the non-breaching party may terminate the Novartis Agreement. Either party may terminate the Novartis Agreement without notice upon the bankruptcy of the other party. In addition, Novartis may terminate the Novartis Agreement without cause at any time (a) in its entirety within 30 days written notice prior to the exercise by Novartis of its Development Rights or (b) on a product-by-product or country-by-country basis on 180 days written notice after the exercise by Novartis of its Development Rights. If we experience a change of control that involves certain major pharmaceutical companies, Novartis may terminate the Novartis Agreement by written notice within a certain period of time to us or our successor entity.

As of December 31, 2011, we have not received any milestone payments and we will not receive any milestone payments unless Novartis elects to exercise its option to participate in the development and commercialization of Pixuvri or exercise its Development Rights for OPAXIO.

Patents and Proprietary Rights

We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the U.S. and various other countries seeking protection of inventions originating from our research and development and we have also obtained rights to various patents and patent applications under licenses with third parties. Patents have been issued on many of these applications. We have pending patent applications or issued patents in the U.S. and foreign countries directed to OPAXIO, Pixuvri, tosedostat, brostallicin and other product candidates. Patents for the individual products extend for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The OPAXIO-directed patents will expire on various dates ranging from 2017 through 2018. The Pixuvri-directed patents will expire in 2014. The tosedostat-directed patents will expire in 2017. The brostallicin-directed patents will expire on various dates ranging from 2017 to 2021. The patent expiration ranges given above are only for U.S. issued patents. The Pixuvri-directed patents in Europe will expire in 2012 through 2015. However, these dates do not account for potential extensions that may be available in certain countries. For example, certain Pixuvri-directed patents may be subject to possible patent-term extensions that could provide extensions through 2019 in the U.S. and 2021 in Europe.

Manufacturing

We currently use, and expect to continue to be dependent upon, contract manufacturers to manufacture each of our product candidates. We have established a quality control and quality assurance program, including a set of standard operating procedures and specifications with the goal that our products and product candidates are manufactured in accordance with current Good Manufacturing Practices, or cGMPs, and other applicable domestic and European regulations. We will need to invest in additional manufacturing development, manufacturing and supply chain resources, and may seek to enter into additional collaborative arrangements with other parties that have established manufacturing capabilities. It is likely that we will continue to rely on third-party manufacturers for our development and commercial products on a contract basis. Currently, we have

agreements with third-party vendors to produce, test, and distribute Pixuvri, OPAXIO, tosedostat and brostallicin drug supply for clinical studies. We will be dependent upon these third-party vendors to supply us in a timely manner with products manufactured in compliance with cGMPs or similar standards imposed by U.S. and/or foreign regulatory authorities where our products are being developed, tested, and/or marketed.

We signed a manufacturing supply agreement, or the NerPharMa Agreement, with NerPharMa, S.r.l., or NerPharMa (a pharmaceutical manufacturing company belonging to Nerviano Medical Sciences, S.r.l., in Nerviano, Italy), for our drug candidate Pixuvri. The NerPharMa Agreement is a five year non-exclusive agreement and provides for both the commercial and clinical supply of Pixuvri. The NerPharMa Agreement commenced on July 9, 2010 and expires on the fifth anniversary date of the first government approval obtained either in the United States or Europe. The NerPharMa Agreement may be terminated for an uncured material breach, insolvency or the filing of bankruptcy, or by mutual agreement. We may also terminate the NerPharMa Agreement (i) upon prior written notice in the event of failure of three or more of seven consecutive lots of product or (ii) in the event NerPharMa is acquired or a substantial portion of NerPharMa’s assets related to the NerPharMa Agreement are sold to another entity.

We signed a manufacturing and supply agreement, or the Chroma Supply Agreement, with Chroma for our drug candidate tosedostat. The Chroma Supply Agreement is a non-exclusive agreement and provides for both the clinical and commercial drug supply of tosedostat. The Chroma Supply Agreement commenced on June 8, 2011 and expires two years from the date when tosedostat is granted first approval for commercial distribution by the applicable regulatory authority in the licensed territory. Upon expiration of the initial term, we have a one year renewal option. We have the right to terminate the Chroma Supply Agreement without cause with 90 days written notice to Chroma. Both parties have the right to terminate for breach, bankruptcy, mutual agreement, or termination of the development agreement.

Competition

Competition in the pharmaceutical and biotechnology industries is intense. We face competition from a variety of companies focused on developing oncology drugs. We compete with large pharmaceutical companies and with other specialized biotechnology companies, including but not limited to: Bristol-Myers Squibb Company, Sanofi-Aventis, Pfizer, Roche Group, Genentech, Inc., Astellas Pharma, Eli Lilly and Company, Celgene, Telik, Inc., TEVA Pharmaceuticals Industries Ltd. and PharmaMar. Many of our existing or potential competitors have substantially greater financial, technical and human resources than us and may be better equipped to develop, manufacture and market products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well-funded research and development programs.

We expect to encounter significant competition for the principal pharmaceutical products we plan to develop. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before us may achieve a significant competitive advantage if their products work through a similar mechanism as our products and if the approved indications are similar. We do not believe competition is as intense among products that treat cancer through novel delivery or therapeutic mechanisms where these mechanisms translate into a clinical advantage in safety and/or efficacy. A number of biotechnology and pharmaceutical companies are developing new products for the treatment of the same diseases being targeted by us. In some instances, such products have already entered late-stage clinical trials or received FDA approval. However, cancer drugs with distinctly different mechanisms of action are often used together in combination for treating cancer, allowing several different products to target the same cancer indication or disease type. Such combination therapy is typically supported by clinical trials that demonstrate the advantage of combination therapy over that of a single-agent treatment.

We believe that our ability to compete successfully will be based on our ability to create and maintain scientifically advanced technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory approvals and manufacture and successfully market our products, either alone or through outside parties. We will continue to seek licenses with respect to technology related to our field of interest and may face competition with respect to such efforts.

Government Regulation

The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, Public Health Service Act, or PHSA, and their implementing regulations. Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.

Drug Approval Process. None of our drugs may be marketed in the United States until such drug has received FDA approval. The steps required before a drug may be marketed in the United States include:

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preclinical laboratory tests, animal studies and formulation studies;

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submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;

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adequate and well-controlled human clinical trials to establish the safety and efficacy of the investigational product for each indication;

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submission to the FDA of an NDA;

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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced, tested, and distributed to assess compliance with cGMPs; and

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FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA unless, before that time, the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an Institutional Review Board for each institution where the trials will be conducted. Study subjects must sign an informed consent form before participating in a clinical trial. Phase I usually involves the initial introduction of the investigational product into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its

effectiveness. Phase II usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage, (ii) identify possible adverse effects and safety risks, and (iii) evaluate preliminarily the efficacy of the product candidate for specific indications. Phase III trials usually further evaluate clinical efficacy and test further for safety by using the product candidate in its final form in an expanded patient population. There can be no assurance that phase I, phase II or phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The FDA and IND sponsor may agree in writing on the design and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA application. This process is known as a SPA. These agreements may not be changed after the clinical studies begin, except in limited circumstances. The existence of a SPA, however, does not assure approval of a product candidate.

Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a substantial review user fee to the FDA. The FDA will review the application and may deem it to be inadequate to support commercial marketing, and we cannot be sure that any approval will be granted on a timely basis, if at all. The FDA may also seek the advice of an advisory committee, typically a panel of clinicians practicing in the field for which the product is intended, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.

The FDA has various programs, including fast track, priority review and accelerated approval that are intended to expedite or simplify the process for reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced or the product will be approved.

Before approving a NDA, the FDA usually will inspect the facility or the facilities where the product is manufactured, tested and distributed and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA may issue an approval letter, or in some cases, a complete response letter. A complete response letter contains a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy, or impose other post-approval commitment conditions.

After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical studies be conducted.

Post-Approval Requirements. Holders of an approved NDA are required to: (i) report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. We use and will continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at our facilities or at

the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market.

Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. We must comply with restrictions on off-label use promotion, anti-kickback, ongoing clinical trial registration, and limitations on gifts and payments to physicians. In addition, we have entered into a corporate integrity agreement, or CIA, with the Office of the Inspector General, Health and Human Services, or OIG-HHS, as part of our settlement agreement with the United States Attorney’s Office, or USAO, for the Western District of Washington arising out of their investigation into certain of our prior marketing practices relating to TRISENOX, which was divested to Cephalon Inc. in July 2005. The CIA, which became effective in December 2007 upon our acquisition of a commercially marketed drug, Zevalin, requires us to establish a compliance committee and compliance program and adopt a formal code of conduct.

Non-U.S. Regulation. Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the United States, although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.

In Europe, marketing authorizations may be submitted at a centralized, a decentralized or national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization that is valid in all EU members’ states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products that are not subject to the centralized procedure. There can be no assurance that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all.

Environmental Regulation

In connection with our research and development activities, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believe that we have complied with these laws, regulations and policies in all material respects and have not been required to take any significant action to correct any noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development involves the controlled use of hazardous materials, including, but not limited to, certain hazardous chemicals and radioactive materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.

Employees

As of December 31, 2011, we employed 95 individuals in the United States and one in Europe. Our U.S. employees do not have a collective bargaining agreement. Our European employee is subject to a collective bargaining agreement. We believe our relations with our employees are good.

Information regarding our executive officers is set forth in Item 10 of this Annual Report on Form 10-K, which information is incorporated herein by reference.

Corporate Information

We were incorporated in Washington in 1991. Our principal executive offices are located at 501 Elliott Avenue West, Suite 400, Seattle, Washington 98119. Our telephone number is (206) 282-7100. “CTI”, “Pixuvri” and “OPAXIO” are our proprietary marks. All other product names, trademarks and trade names referred to in this prospectus are the property of their respective owners.

The address for our website is http://www.celltherapeutics.com. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such filings, as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC.

Item 1a.

Risk Factors

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The occurrence of any of the following risks described below and elsewhere in this document, including the risk that our actual results may differ materially from those anticipated in these forward-looking statements, could materially adversely affect our business, financial condition, operating results or prospects and the trading price of our securities. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial condition, operating results and prospects and the trading price of our securities.

Factors Affecting Our Operating Results and Financial Condition

We need to raise additional funds and expect that we will need to continue to raise funds in the future, and additional funds may not be available on acceptable terms, or at all; failure to raise significant additional funds may cause us to cease development of our products and operations.

We have substantial operating expenses associated with the development of our product candidates and as of December 31, 2011, we had cash and cash equivalents of $47.1 million. We do not expect that our existing cash and cash equivalents, including additional funds received to date, will provide sufficient working capital to fund our presently anticipated operations beyond the second quarter of 2012. There can be no assurance that we will have sufficient earnings, access to liquidity or cash flow in the future to meet our operating expenses and other obligations.

Raising additional capital will likely require that we issue additional shares of our common stock. Because of the number of shares reserved for issuance under various convertible securities, derivative securities and otherwise, we have very few authorized shares of common stock available for issuance and it can be difficult for us to obtain an increase in our authorized shares. If we do not have enough shares authorized to effect an equity financing, our ability to raise capital through equity financings may be harmed. To the extent that we raise additional capital through the sale of equity securities, or securities convertible into our equity securities, our shareholders may experience dilution of their proportionate ownership of us.

We may not be able to raise such capital or, if we can, it may not be on favorable terms. We may seek to raise additional capital through public or private equity financings, partnerships, joint ventures, dispositions of assets, debt financings or restructurings, bank borrowings or other sources. To obtain additional funding, we may need to enter into arrangements that require us to relinquish rights to certain technologies, drug candidates, products and/or potential markets. In addition, some financing alternatives may require us to meet additional regulatory requirements in the European Union (including Italy) and the United States and we may be subject to

certain contractual limitations, which may increase our costs and harm our ability to obtain additional funding. If adequate funds are not otherwise available, we will further curtail operations significantly, including the delay, modification or cancellation of operations and plans related to Pixuvri, OPAXIO, tosedostat, brostallicin, and bisplatinates and may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Bankruptcy may result in the termination of agreements pursuant to which we license certain intellectual property rights, including the rights to Pixuvri, OPAXIO, tosedostat, brostallicin and bisplatinates.

We need to implement a reduction in expenses across our operations if we are unable to secure additional financing.

We need substantial additional capital to fund our current operations. If we are unable to secure additional financing on acceptable terms in the near future, we will need to implement additional cost reduction initiatives, such as further reductions in the cost of our workforce and the discontinuation of a number of business initiatives to further reduce our rate of cash utilization and extend our existing cash balances. We believe that these additional cost reduction initiatives, if undertaken, could provide us with additional time to continue our pursuit of additional funding sources and also strategic alternatives. In the event that we are unable to obtain financing on acceptable terms and reduce our expenses, we may be required to limit or cease our operations, pursue a plan to sell our operating assets, seek bankruptcy protection, or otherwise modify our business strategy, which could materially harm our future business prospects.

Our common stock is listed on The NASDAQ Capital Market and the Mercato Telematico Azionario stock market in Italy, or the MTA, and we may not be able to maintain those listings or trading on these exchanges may be halted or suspended, which may make it more difficult for investors to sell shares of our common stock.

Effective with the opening of trading on January 8, 2009, the U.S. listing of our common stock was transferred to The NASDAQ Capital Market, subject to meeting a minimum market value of listed securities of $35.0 million. NASDAQ’s Listing Qualifications Panel, or the Panel, approved this transfer after our market capitalization did not comply with the minimum market capitalization required for companies listed on The NASDAQ Global Market, and we presented a plan to the Panel for regaining compliance with the NASDAQ Marketplace Rules. On January 23, 2009, we received an Additional Staff Determination Letter from NASDAQ that stated that the NASDAQ staff had concluded that we had violated NASDAQ Marketplace Rule 4350(i)(1)(C) (now NASDAQ Marketplace Rule 5635), which requires shareholder approval in connection with an acquisition if the issuance or potential issuance is greater than 20% of the pre-acquisition shares outstanding, and that we had at times not complied with Marketplace Rule 4310(c)(17) regarding submission of a “Listing of Additional Shares” form. On February 18, 2009, we updated the Panel on our plan for regaining compliance and requested an extension of the deadline to regain compliance with the minimum market capitalization requirement for The NASDAQ Capital Market. On March 6, 2009, we were notified by NASDAQ that the Panel determined to continue the listing of our common stock on The NASDAQ Capital Market, subject to the condition that, on or before April 6, 2009, we demonstrated compliance with all applicable standards for continued listing on The NASDAQ Capital Market, including the $35.0 million minimum market capitalization requirement. In addition, the Panel issued a public reprimand for our prior failures to comply with the shareholder approval requirements and late filing of “Listing of Additional Shares” forms. On April 2, 2009, we were notified by NASDAQ that we had complied with the Panel’s decision dated March 6, 2009, and, accordingly, the Panel determined to continue the listing of our common stock on The NASDAQ Capital Market.

NASDAQ reinstated the $1.00 minimum bid price requirement on August 3, 2009. On May 3, 2010, we received notice from NASDAQ indicating that for the last 30 consecutive business days the closing bid price of our common stock was below the minimum $1.00 per share requirement for continued listing of our common stock on The NASDAQ Capital Market under NASDAQ Marketplace Rule 5550(a)(2). This notification had no immediate effect on the listing of or the ability to trade our common stock on The NASDAQ Capital Market. In accordance with NASDAQ Marketplace Rule 5810(c)(3)(A), we were provided a grace period of 180 calendar days, or until November 1, 2010, to regain compliance. We would have achieved compliance if the bid price of

our common stock closed at $1.00 per share or more for a minimum of ten consecutive trading days before November 1, 2010. In addition, we were eligible for an additional 180-day grace period if we met all of the initial listing standards of NASDAQ, with the exception of the closing bid price. On November 2, 2010, we received notice from NASDAQ that it granted us an additional 180 days, or until May 2, 2011, to regain compliance with the minimum $1.00 per share requirement for continued listing of our common stock on The NASDAQ Capital Market under NASDAQ Marketplace Rule 5550(a)(2).

On May 3, 2011, we received a notice from NASDAQ stating that we had not regained compliance with NASDAQ’s $1.00 minimum bid price rule under NASDAQ Marketplace Rule 5550(a)(2). On May 5, 2011, in an effort to regain compliance with the NASDAQ listing requirements and increase the per-share trading price of our common stock, our board of directors approved a 1-for-6 reverse stock split. The reverse stock split became effective on May 15, 2011. On June 1, 2011, we announced that we received a letter from NASDAQ indicating that as of that date we had regained compliance with NASDAQ Marketplace Rule 5550(a)(2) and that as of that date we were in compliance with all applicable listing standards. As a result, our common stock will continue to be listed and traded on The NASDAQ Capital Market. However, notwithstanding our current compliance with NASDAQ listing standards, there can be no assurance that we will be able to maintain our continued listing on The NASDAQ Capital Market in the future.

The level of trading activity of our common stock may decline if it is no longer listed on The NASDAQ Capital Market. Furthermore, our failure to maintain a listing on The NASDAQ Capital Market may constitute an event of default under certain of our indebtedness which would accelerate the maturity date of such debt. As such, if our common stock ceases to be listed for trading on The NASDAQ Capital Market for any reason, it may harm our stock price, increase the volatility of our stock price and make it more difficult for investors to sell shares of our common stock. In the event our common stock is delisted from The NASDAQ Capital Market, we currently expect that our common stock would be eligible to be listed on the OTC Bulletin Board or Pink Sheets. We do not know what impact delisting from The NASDAQ Capital Market may have on our listing with the Borsa Italiana. Although we continue to be listed on The NASDAQ Capital Market, trading in our common stock may be halted or suspended due to market conditions or if NASDAQ, the Commissione Nazionale per le Società e la Borsa, or CONSOB (which is the public authority responsible for regulating the Italian securities markets), or the Borsa Italiana (which ensures the development of the managed markets in Italy) determine that trading in our common stock is inadvisable. Trading in our common stock was halted by the Borsa Italiana on February 10, 2009, and, as a consequence, trading in our common stock was also halted by NASDAQ. After we provided CONSOB with additional information and clarification on our business operations and financial condition, as requested, and published a press release containing such information in Italy, the Borsa Italiana and NASDAQ lifted the trading halts on our common stock. In addition, on March 23, 2009, the Borsa Italiana halted trading of our common stock on the MTA and resumed trading prior to the opening of the MTA the next day after we filed a press release regarding the explanatory paragraph in our auditor’s reports on our December 31, 2008 and 2007 consolidated financial statements regarding their substantial doubt as to our ability to continue as a going concern. As a consequence, NASDAQ also halted trading in our common stock on March 23, 2009, but re-initiated trading later that day. Although we file press releases with CONSOB at the end of each month regarding our business and financial condition, CONSOB may make additional inquiries about our business and financial condition at any time, and there can be no guarantee that the Borsa Italiana, CONSOB or NASDAQ will not halt trading in our shares again in the future.

If our common stock ceases to be listed for trading on The NASDAQ Capital Market or the MTA, or both, for any reason, or if trading in our stock is halted or suspended on The NASDAQ Capital Market or the MTA, or both, such events may harm the trading price of our securities, increase the volatility of the trading price of our securities and make it more difficult for investors to buy or sell shares of our common stock. Moreover, if our common stock ceases to be listed for trading on The NASDAQ Capital Market or if trading in our stock is halted or suspended on The NASDAQ Capital Market, we may become subject to certain obligations. In addition, if we are not listed on The NASDAQ Capital Market and/or if our public float falls below $75 million, we will be limited in our ability to file new shelf registration statements on SEC Form S-3 and/or to fully use one or more

registration statements on SEC Form S-3. We have relied significantly on shelf registration statements on SEC Form S-3 for most of our financings in recent years, so any such limitations may harm our ability to raise the capital we need.

We may be unable to obtain a quorum for meetings of our shareholders or obtain necessary shareholder approvals and therefore be unable to take certain corporate actions.

At our Annual Meeting held on November 11, 2011, our shareholders approved a proposal to amend our articles of incorporation to reflect an increase in the total number of authorized shares from 284,999,999 to 384,999,999 and an increase in our authorized shares of common stock from 283,333,333 to 383,333,333. However, in the future, if we are unable to obtain a quorum at our shareholder meetings, including the Annual Meeting, and/or fail to obtain shareholder approval of corporation actions, such failure could harm us. Our amended and restated articles of incorporation, or our articles of incorporation, require that a quorum, generally consisting of one-third of the outstanding shares of voting stock, be represented in person, by telephone or by proxy in order to transact business at a meeting of our shareholders. In addition, amendments to our articles of incorporation, such as an amendment to increase our authorized capital stock, generally require the approval of a majority of our outstanding shares. As a result, there is a risk that we may not get shareholder approval for amendments to our articles of incorporation, including amendments to increase the number of authorized shares of common stock at a time when we need those shares to effect a future equity financing. If we do not receive shareholder approval for such increase in authorized shares, our ability to raise capital through equity financings will be significantly harmed.

A substantial majority of our common shares are held by Italian institutions and, under Italian laws and regulations, it is difficult to communicate with the beneficial holders of those shares to obtain votes. In 2006, when a quorum required a majority of the outstanding shares of our voting stock be represented in person or by proxy, we scheduled two annual meetings of shareholders, but were unable to obtain quorum at either meeting. Following that failure to a obtain quorum, we contacted certain depository banks in Italy where significant numbers of shares of our common stock were held and asked them to cooperate by making a book-entry transfer of their share positions at Monte Titoli to their U.S. correspondent bank, who would then transfer the shares to an account of the Italian bank at a U.S. broker-dealer that is an affiliate of that bank. Certain of the banks contacted agreed to make the share transfer pursuant to these arrangements as of the record date of the meeting, subject to the relevant beneficial owner being given notice before such record date and taking no action to direct the voting of such shares. We were able to obtain a quorum to hold special meetings of the shareholders in April 2007, January 2008, March 2009 and June 2011 and annual meetings of the shareholders in September 2007, June 2008, October 2009, September 2010 and November 2011. Nevertheless, obtaining a quorum at future meetings even at the lower threshold and obtaining necessary shareholder approvals will depend in part upon the willingness of the Italian depository banks to continue participating in the custody transfer arrangements, and we cannot be assured that those banks that have participated in the past will continue to participate in custody transfer arrangements in the future. We are continuing to explore other alternatives to achieve a quorum for and shareholder representation at our meetings; however, we cannot be certain that we will find an alternate method if we are unable to continue to use the custody transfer arrangements. As a result, we may be unable to obtain a quorum at future annual or special meetings of shareholders or obtain shareholder approval of proposals when needed.

Even if we obtain a quorum at our shareholder meetings, we may not obtain enough votes to approve matters to be resolved upon at those meetings. Under Rule 452 of the New York Stock Exchange, or Rule 452, the U.S. broker-dealer may only vote shares absent direction from the beneficial owner on certain specified “routine” matters, such as certain amendments to our articles of incorporation to increase authorized shares that are to be used for general corporate purposes and the ratification of our auditors. If our shareholders do not instruct their brokers on how to vote their shares on “non-routine” matters, then we may not obtain the necessary number of votes for approval. “Non-routine” matters include, for example, proposals that relate to the authorization or creation of indebtedness or preferred stock. Revisions to Rule 452 that further limit matters for

which broker discretionary voting is allowed, such as the recent revisions imposed by the Dodd-Frank Act to prohibit broker discretionary voting on matters related to executive compensation and in the election of directors, may further harm our ability to obtain a quorum and shareholder approval of certain matters. Therefore it is possible that even if we are able to obtain a quorum for our meetings of the shareholders we still may not receive enough votes to approve proxy proposals presented at such meeting and, depending on the proposal in question, including if a proposal is submitted to our shareholders to increase the number of authorized shares of common stock, such failure could harm us. For example, a proposal to approve a reverse stock split failed to receive sufficient votes to pass at the March 2009 shareholders meeting.

We may continue to incur net losses, and we may never achieve profitability.

We were incorporated in 1991 and have incurred a net operating loss every year since our formation. As of December 31, 2011, we had an accumulated deficit of $1.7 billion. We are pursuing regulatory approval for Pixuvri, OPAXIO, tosedostat, brostallicin and bisplatinates. We will need to conduct research, development, testing and regulatory compliance activities and undertake manufacturing and drug supply activities the costs of which, together with projected general and administrative expenses, may result in operating losses for the foreseeable future. We may never become profitable even if we are able to commercialize products currently in development or otherwise.

We may be unable to use our net operating losses to reduce future income tax liability.

We have substantial tax loss carryforwards for U.S. federal income tax purposes. As a result of prior changes in the stock ownership of the Company, our ability to use such carryforwards to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended. Moreover, future changes in the ownership of our stock, including those resulting from the issuance of shares of our common stock upon exercise of outstanding warrants, may further limit our ability to use our net operating losses.

We have received audit reports with a going concern disclosure on our consolidated financial statements.

As we may need to raise additional financing to fund our operations and satisfy obligations as they become due, our independent registered public accounting firm has included an explanatory paragraph in their reports on our December 31, 2011, 2010 and 2009 consolidated financial statements regarding their substantial doubt as to our ability to continue as a going concern. This may have a negative impact on the trading price of our common stock and we may have a more difficult time obtaining necessary financing.

If we make any acquisitions, we will incur a variety of costs and may never realize the anticipated benefits.

If appropriate opportunities become available, we may attempt to acquire businesses and assets that we believe are a strategic fit with our business. We currently have no agreements to consummate any pending material acquisitions. If we pursue any such transaction, the process of negotiating the acquisition and integrating an acquired business and assets may result in operating difficulties and expenditures and may require significant management attention that would otherwise be available for ongoing development of our business, whether or not any such transaction is ever consummated. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could harm our business, financial condition, operating results and prospects and the trading price of our securities.

The global financial crisis may have an impact on our business and financial condition in ways that we currently cannot predict, and may further limit our ability to raise additional funds.

The ongoing credit crisis and related turmoil in the global financial system has had and may continue to have an impact on our business and our financial condition. We may face significant challenges if conditions in

the financial markets do not improve or continue to worsen. In particular, our ability to access the capital markets and raise funds required for our operations may be severely restricted at a time when we would like, or need, to do so, which could have an adverse effect on our ability to meet our current and future funding requirements and on our flexibility to react to changing economic and business conditions.

We are required to comply with the regulatory structure of Italy because our stock is traded on the MTA, which could result in administrative and other challenges and additional expenses.

Our common stock is traded on the MTA and we are required to also comply with the rules and regulations of CONSOB and the Borsa Italiana, which ensures the development of the managed markets in Italy. Collectively, these entities regulate companies listed on Italy’s public markets. Conducting our operations in a manner that complies with all of the applicable laws and rules requires us to devote additional time and resources to regulatory compliance matters. For example, the process of seeking to understand and comply with the laws of each country, including tax, labor and regulatory laws, might require us to incur the expense of engaging additional outside counsel, accountants and other professional advisors and might result in delayed business initiatives as we seek to ensure that each new initiative will comply with all of the applicable regulatory regimes. In addition, the Borsa Italiana and CONSOB have made several requests for information asking us to provide additional clarifications about our business operations and financial condition, and we have complied with such requests and have met with CONSOB on several occasions to answer questions. Compliance with Italian regulatory requirements may delay additional issuances of our common stock; we are currently taking steps to attempt to conform to the requirements of the Italian stock exchange and CONSOB to allow such additional issuances.

In addition, under Italian law, we must publish a registration document, securities note and summary that have to be approved by CONSOB prior to issuing common stock that exceeds, in any twelve-month period, 10% of the number of shares of our common stock outstanding at the beginning of that period (except for certain applicable exceptions).

If we are unable to obtain and maintain a registration document, securities note or summary to cover general financing efforts under Italian law, we may be required to raise money using alternative forms of securities. For example, we may need to use convertible preferred stock and convertible debt since the common stock resulting from the conversion of such securities, subject to the current provisions of European Directive No. 71/2003 and, according to the current interpretations of the Committee of European Securities Regulators, is not subject to the 10% limitation imposed by E.U. and Italian law. However, there can be no assurance that these exceptions to the registration document requirement are not changed from time to time.

Moreover, on December 10, 2009, CONSOB sent us a notice claiming two violations of the provisions of Section 114, paragraph 1 of the Italian Legislative Decree no. 58/98 due to the asserted late disclosure of certain information then reported, at CONSOB’s request, in press releases disseminated on December 19, 2008 and March 23, 2009. Such information concerned, respectively: (i) the conversion by BAM Opportunity Fund LP of 9.66% notes into shares of common stock that occurred between October 24, 2008 and November 19, 2008; and (ii) the contents of the opinion expressed by Stonefield Josephson, Inc., an independent registered public accounting firm, with respect to our 2008 financial statements. The sanctions established by Section 193, paragraph 1 of the Italian Legislative Decree no. 58/98 for such violations are pecuniary administrative sanctions amounting to between €5,000 and €500,000, or approximately $6,000 to $649,000 converted using the currency exchange rate as of December 31, 2011, applicable to each of the two asserted violations. According to the applicable Italian legal provisions, CONSOB may impose such administrative sanctions by means of a decree stating the grounds of its decision only after evaluating our possible defenses that were submitted to CONSOB on January 8, 2010 (within 30 days of December 10, 2009, the notification date of the relevant charges, according to the applicable Italian rules). On July 12, 2010, CONSOB (a) notified us that it had begun the preliminary investigation for its decision on these administrative proceedings and (b) provided us with a preliminary investigation report in response to our defenses submitted on January 8, 2010. On August 12, 2010 (within 30

days of July 12, 2010, the notification date of the beginning of the aforesaid preliminary investigation, according to the applicable Italian rules), we submitted further defenses that CONSOB would have to evaluate before imposing any possible administrative sanctions. In a letter dated March 10, 2011, CONSOB notified us of a resolution confirming the occurrence of the violation asserted in clause (i) above and applied a fine in the amount of €40,000, or approximately $55,000 converted using the foreign currency exchange rate as of March 10, 2011, which we paid on April 5, 2011. CONSOB has not yet notified us of a resolution with respect to the violation asserted in clause (ii) above, but based on our assessment, we believe the likelihood that a pecuniary administrative sanction will be imposed on us for such asserted violation (ii) is probable.

Our assets and liabilities that remain in our Italian branches make us subject to increased risk regarding currency exchange rate fluctuations.

We are exposed to risks associated with the translation of euro-denominated financial results and accounts into U.S. dollars. As long as we continue to have assets and liabilities held in our Italian branches, the carrying value of these assets and liabilities will be affected by fluctuations in the value of the U.S. dollar as compared to the euro. Changes in the value of the U.S. dollar as compared to the euro might have an adverse effect on our reported results of operations and financial condition.

We may owe additional amounts for value added taxes related to our operations in Europe.

Our European operations are subject to value added tax, or VAT, which is usually applied to all goods and services purchased and sold throughout Europe. The VAT receivable is $5.0 million and $5.3 million as of December 31, 2011 and December 31, 2010, respectively. On April 14, 2009 and December 21, 2009, the Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003 and 2005, respectively. On June 25, 2010, the ITA issued notices of assessment to CTI (Europe) for the years 2006 and 2007 based on similar findings for the 2003 and 2005 assessments. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2005, 2006 and 2007 are €0.5 million, €5.5 million, €2.5 million and €0.8 million, or approximately $0.7 million, $7.1 million, $3.3 million and $1.1 million converted using the currency exchange rate as of December 31, 2011, respectively. We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are vigorously defending ourselves against the assessments both on procedural grounds and on the merits of the case. If the decisions of the Provincial Tax Court of Milan, or the Tax Court, for the different VAT cases are unfavorable, then we expect to appeal to the higher courts in order to further defend our interests. However, if we are unable to successfully defend ourselves against the assessments issued by the ITA, we may be requested to pay to the ITA an amount ranging from €2.9 million to €9.4 million, or approximately $3.7 million to $12.2 million converted using the currency exchange rate as of December 31, 2011, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment. On February 2, 2011, we paid to the ITA the required deposit in respect of the 2005 VAT in the amount of €1.5 million, or approximately $2.1 million converted using the currency exchange rate as of February 2, 2011. On March 4, 2011, we paid to the ITA the required deposit in respect of the 2006 VAT in the amount of €0.4 million, or approximately $0.6 million converted using the currency exchange rate as of March 4, 2011. On March 25, 2011, we paid to the Italian collection agent an additional €0.1 million, or approximately $0.1 million converted using the currency exchange rate as of March 25, 2011. On September 26, 2011, we paid to the ITA the required deposit in respect of the 2007 VAT in the amount of €0.1 million or approximately $0.1 million converted using the currency exchange rate as of September 26, 2011. Further information pertaining to these cases can be found in this Annual Report on Form 10-K under Part I, Item 3 “Legal Proceedings” and is incorporated by reference herein.

Our financial condition may be harmed if third parties default in the performance of contractual obligations.

Our business is dependent on the performance by third parties of their responsibilities under contractual relationships and if third parties default on their performance of their contractual obligations, we could suffer significant financial losses and operational problems, which could in turn adversely affect our financial performance, cash flows or results of operations and may jeopardize our ability to maintain our operations.

We may not realize any royalties, milestone payments or other benefits under the License and Co-Development Agreement entered into with Novartis Pharmaceutical Company Ltd.

We have entered into a license and co-development agreement related to OPAXIO and Pixuvri with Novartis pursuant to which Novartis received an exclusive worldwide license for the development and commercialization of OPAXIO and an option to enter into an exclusive worldwide license to develop and commercialize Pixuvri. We will not receive any royalty or milestone payments under this agreement unless Novartis exercises its option related to Pixuvri and we are able to reach a definitive agreement or Novartis elects to participate in the development and commercialization of OPAXIO. Novartis is under no obligation to make such election and enter into a definitive license agreement or exercise such right and may never do so. In addition, even if Novartis exercises such rights, any royalties and milestone payments we may be eligible to receive from Novartis are subject to the receipt of the necessary regulatory approvals and the attainment of certain sales levels. In the event Novartis does not elect to participate in the development of OPAXIO or Pixuvri, we may not be able to find another suitable partner for the commercialization and development of those products, which may have an adverse effect on our ability to bring those drugs to market. In addition, we would need to obtain a release from Novartis prior to entering into any agreement to develop and commercialize Pixuvri or OPAXIO with a third party. We may never receive the necessary regulatory approvals and our products may not reach the necessary sales levels to generate royalty or milestone payments even if Novartis elects to exercise its option with regard to Pixuvri and enter into a definitive license agreement or to participate in the development and commercialization of OPAXIO. Novartis has the right under the agreement in its sole discretion to terminate such agreement at any time upon written notice to us. Further information about the status of the regulatory approval for Pixuvri can be found in “Risk Factors—Factors Affecting Our Operating Results and Financial Condition—We cannot guarantee that we will obtain regulatory approval to manufacture or market any of our drug candidates.”

We cannot guarantee that we will obtain regulatory approval to manufacture or market any of our drug candidates.

Obtaining regulatory approval to market drugs to treat cancer is expensive, difficult and risky. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. Negative or inconclusive results or adverse medical events during a clinical trial could delay, limit or prevent regulatory approval.

Information about the status of the regulatory approval of Pixuvri can be found in this Annual Report on Form 10-K under Part I, Item 1 “Business, Overview” and is incorporated by reference herein.

In March 2011, we initiated a randomized pivotal trial of Pixuvri for the treatment of relapsed or refractory DLBCL. This clinical trial, referred to as PIX306 or PIX-R, is now open to patient enrollment. PIX-R will compare a combination of Pixuvri plus rituximab to a combination of gemcitabine plus rituximab in patients with relapsed or refractory DLBCL who have received one to three prior lines of therapy. We cannot predict the outcome of PIX-R or whether PIX-R will serve as either a post-marketing commitment trial or as a pivotal trial. Moreover, the FDA may request that we conduct more clinical trials in addition to PIX-R to obtain FDA approval of our NDA for Pixuvri and we do not know what this trial will cost or how long it would take to execute this study and provide additional information to the FDA. We may also need to take additional steps to obtain regulatory approval of Pixuvri. The expense to design and conduct clinical trials are substantial and any additional clinical trials or actions we may need to pursue to obtain approval of Pixuvri may negatively affect our business, financial condition and results of operations.

We may be delayed, limited or precluded from obtaining regulatory approval of OPAXIO as a maintenance therapy for advanced-stage ovarian cancer and as a radiation sensitizer.

Our future financial success depends in part on obtaining regulatory approval of OPAXIO. We are currently focusing our development of OPAXIO as a potential maintenance therapy for women with advanced-stage ovarian cancer who achieve a complete remission following first-line therapy with paclitaxel and carboplatin and as a radiation sensitizer. This study, the GOG0212 trial, is under the control of the GOG and is expected to enroll 1,100 patients with 843 patients enrolled as of December 31, 2011. The GOG Data Monitoring Committee plans to conduct the first interim analysis of overall survival and, based on feedback provided by the GOG, that interim analysis is currently expected in 2013. If successful, we could utilize those results to form the basis of an NDA for OPAXIO. However, prior clinical trials for OPAXIO have not been successful. In March 2005, we announced the results of STELLAR 3, and in May 2005, we announced the results of STELLAR 2 and 4, our phase III clinical trials of OPAXIO in non-small cell lung cancer, or NSCLC. All three trials failed to achieve their primary endpoints of superior overall survival compared to current marketed agents for treating NSCLC. Accordingly, there can be no assurance that the GOG0212 will provide compelling evidence or any positive results, which would preclude any submission of an NDA to the FDA. In addition, we cannot predict the outcome of the GOG0212 study and that study may not demonstrate or be adequate to support regulatory approval of OPAXIO by the FDA.

In March 2008, we submitted an MAA to the EMA for first-line treatment of patients with advanced NSCLC who are poor performance status, or PS2, based on a non-inferior survival and improved side effect profile which we believe was demonstrated in our previous clinical trials. The application was based on a positive opinion we received from the EMA’s Scientific Advice Working Party; the EMA agreed that switching the primary endpoint from superiority to non-inferiority is feasible if the retrospective justification provided in the marketing application is adequate. In September 2009, we notified the EMA of our decision to withdraw the MAA and we refocused our resources on the approval of OPAXIO for its potential superiority indication in maintenance therapy for ovarian cancer and as a radiation sensitizer in the treatment of esophageal cancer.

We are subject to extensive government regulation.

We are subject to rigorous and extensive regulation by the FDA in the United States and by comparable agencies in other states and countries, including the EMA’s review of our MAA for Pixuvri. Failure to comply with regulatory requirements could result in various adverse consequences, including possible delay in approval or refusal to approve a product, withdrawal of approved products from the market, product seizures, injunctions, regulatory restrictions on our business and sales activities, monetary penalties, or criminal prosecution.

Our products may not be marketed in the United States until they have been approved by the FDA and may not be marketed in other countries until they have received approval from the appropriate agencies. None of our current product candidates have received approval for marketing in any country.

Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our products on a timely basis, or at all. In addition, data obtained from preclinical and clinical trials are susceptible to varying interpretations, and government regulators and our collaborators may not agree with our interpretation of our clinical trial results. If our products are not approved quickly enough to provide net revenues to defray our debt and operating expenses, our business, financial condition and results of operations will be harmed.

In the event that we receive marketing approval for any of our product candidates, we will be subject to numerous regulations and statutes regulating the manner of selling and obtaining reimbursement for those products. For example, federal statutes generally prohibit providing certain discounts and payments to physicians to encourage them to prescribe our product. Violations of such regulations or statutes may result in treble damages, criminal or civil penalties, fines or exclusion of us or our employees from participation in federal and state health care programs. Although we have policies prohibiting violations of relevant regulations and statutes, unauthorized actions of our employees or consultants, or unfavorable interpretations of such regulations or statutes may result in third parties or regulatory agencies bringing legal proceedings or enforcement actions against us. Because we will likely need to develop a new sales force for any future marketed products, we may have a greater risk of such violations from lack of adequate training or experience. The expense to retain and pay legal counsel and consultants to defend against any such proceedings would be substantial, and together with the diversion of management’s time and attention to assist in any such defense, may negatively affect our business, financial condition and results of operations.

In addition, both before and after approval, our contract manufacturers and our products are subject to numerous regulatory requirements covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, distribution and export. Manufacturing processes must conform to current Good Manufacturing Practice, or cGMPs. The FDA, EMA and other regulatory authorities periodically inspect manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort to maintain compliance. Failure to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance.

The marketing and promotion of pharmaceuticals is also heavily regulated, particularly with regard to prohibitions on the promotion of products for off-label uses. In April 2007, we paid a civil penalty of $10.6 million and entered into a settlement agreement with the United States Attorney’s Office for the Western District of Washington arising out of their investigation into certain of our prior marketing practices relating to TRISENOX, which was divested to Cephalon Inc. in July 2005. As part of that settlement agreement and in connection with the acquisition of Zevalin, we also entered into a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services, which required us to establish a compliance committee and compliance program and adopt a formal code of conduct.

We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them.

Competition in the oncology market is intense and is accentuated by the rapid pace of technological development. We anticipate that we will face increased competition in the future as new companies enter the market. Our competitors in the United States and elsewhere are numerous and include, among others, major multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. Specifically:

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If we are successful in bringing Pixuvri to market, Pixuvri will face competition from currently marketed anthracyclines, such as mitoxantrone (Novantrone^®), and new anti-cancer drugs with reduced toxicity that may be developed and marketed.

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If we are successful in bringing OPAXIO to market, we will face direct competition from oncology-focused multinational corporations. OPAXIO will compete with other taxanes. Many oncology-focused multinational corporations currently market or are developing taxanes, epothilones, and other cytotoxic agents, which inhibit cancer cells by a mechanism similar to taxanes, or similar products. Such corporations include, among others, Bristol-Myers Squibb Co. and others, which market paclitaxel and generic forms of paclitaxel; Sanofi-Aventis, which markets docetaxel; Genentech, Roche and OSI Pharmaceuticals, which market Tarceva™; Genentech and Roche, which market Avastin™; Eli Lilly, which markets Alimta^®; and Celgene, which markets Abraxane™. In addition, other companies such as Telik, Inc. are also developing products, which could compete with OPAXIO.

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If we are successful in bringing tosedostat to market, tosedostat will face competition from currently marketed products, such as Dacogen^®, Vidaza^®, Clolar^®, Revlimid^®, Thalomid^® and new anti-cancer drugs that may be developed and marketed.

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If we are successful in bringing brostallicin to market, we will face direct competition from other minor groove binding agents including Yondelis^®, which is currently developed by PharmaMar and has received Authorization of Commercialization from the European Commission for soft tissue sarcoma.

Many of our competitors, particularly the multinational pharmaceutical companies, either alone or together with their collaborators, have substantially greater financial resources and substantially larger development and marketing teams than us. In addition, many of our competitors, either alone or together with their collaborators, have significantly greater experience than we do in developing, manufacturing and marketing products. As a result, these companies’ products might come to market sooner or might prove to be more effective, less expensive, have fewer side effects or be easier to administer than ours. In any such case, sales of our current or future products would likely suffer and we might never recoup the significant investments we are making to develop these product candidates.

Uncertainty regarding third-party reimbursement and healthcare cost containment initiatives may limit our returns.

The ongoing efforts of governmental and third-party payors to contain or reduce the cost of healthcare may affect our ability to commercialize our products successfully. Governmental and other third-party payors continue to attempt to contain healthcare costs by:

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challenging the prices charged for health care products and services;

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limiting both coverage and the amount of reimbursement for new therapeutic products;

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denying or limiting coverage for products that are approved by the FDA or the EMA, but are considered experimental or investigational by third-party payors;

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refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA or EMA marketing approval; and

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denying coverage altogether.

The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. In the United States, given the comprehensive health care reform legislation that the President signed into law on March 23, 2010, under the Patient Protection and Affordable Care Act (HR 3590), or the PPACA, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of healthcare services and products and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of these proposals could significantly influence the purchase of healthcare services

and products, resulting in lower prices and reducing demand for our products. In addition, in almost all European markets, pricing and choice of prescription pharmaceuticals are subject to governmental control. Therefore, the price of our products and their reimbursement in Europe will be determined by national regulatory authorities.

Even if we succeed in bringing any of our proposed products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.

If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues.

Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained by governmental authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs. Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to further reform health care or reduce government insurance programs, may all result in lower prices for our products if approved for commercialization. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability to sell our products at a profit.

Products that appear promising in research and development may be delayed or fail to reach later stages of development or the market.

The successful development of pharmaceutical products is highly uncertain and obtaining regulatory approval to market drugs to treat cancer is expensive, difficult and risky. Products that appear promising in research and development may be delayed or fail to reach later stages of development or the market for several reasons, including:

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clinical trial results may show the product to be less effective than desired or to have harmful or problematic side effects;

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preclinical tests may show the product to be toxic or lack efficacy in animal models;

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failure to receive the necessary U.S. and international regulatory approvals or a delay in receiving such approvals;

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difficulties in formulating the product, scaling the manufacturing process or getting approval for manufacturing;

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manufacturing costs, pricing, reimbursement issues or other factors may make the product uneconomical to commercialize;

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other companies or people have or may have proprietary rights to a product candidate, such as patent rights, and will not let the product candidate be sold on reasonable terms, or at all; or

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the product candidate is not cost effective in light of existing therapeutics.

Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results or adverse medical events during a clinical trial could

delay, limit or prevent regulatory approval. In addition, any significant problem in the production of our products, such as the inability of a supplier to provide raw materials or supplies used to manufacture our products, equipment obsolescence, malfunctions or failures, product quality or contamination problems, or changes in regulatory requirements or standards that require modifications to our manufacturing process could delay, limit or prevent regulatory approval which could harm our business, financial condition and results or the trading price of our securities. There can be no assurance as to whether or when we will receive regulatory approvals for our products.

If any of our license agreements for intellectual property underlying Pixuvri, OPAXIO, tosedostat, brostallicin, bisplatinates or any other products are terminated, we may lose the right to develop or market that product.

We have licensed intellectual property, including patent applications relating to intellectual property for Pixuvri, tosedostat, brostallicin and bisplatinates. We have also in-licensed the intellectual property for our drug delivery technology relating to OPAXIO which uses polymers that are linked to drugs, known as polymer-drug conjugates. Some of our product development programs depend on our ability to maintain rights under these licenses. Each licensor has the power to terminate its agreement with us if we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses. If we default under any license agreement, we may lose our right to market and sell any products based on the licensed technology.

We hold rights under numerous patents that protect inventions originating from our research and development, and the expiration of any one or more of these patents may allow our competitors to copy the inventions that are currently protected.

We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the U.S. and various other countries seeking protection of inventions originating from our research and development and we have also obtained rights to various patents and patent applications under licenses with third parties. Patents have been issued on many of these applications. We have pending patent applications or issued patents in the U.S. and foreign countries directed to OPAXIO, Pixuvri, tosedostat, brostallicin and other product candidates. However, the lives of these patents are limited. Patents for the individual products extend for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The OPAXIO-directed patents will expire on various dates ranging from 2017 through 2018. The Pixuvri-directed patents will expire in 2014. The tosedostat-directed patents will expire in 2017. The brostallicin-directed patents will expire on various dates ranging from 2017 to 2021. The patent expiration ranges given above are only for U.S. issued patents. The Pixuvri-directed patents in Europe will expire between 2012 and 2015. Although such patent expirations do not account for potential extensions that may be available in certain countries (for example, certain Pixuvri-directed patents may be subject to possible patent-term extensions that could provide extensions through 2019 in the U.S. and 2021 in Europe), there can be no assurance that such extensions will be obtained. The expiration of these patents may allow our competitors to copy the inventions that are currently protected and better compete with us.

If there is an adverse outcome in the securities class actions and shareholder derivative litigation that have been filed against us, our business may be harmed.

In March 2010, three purported securities class action complaints were filed against the Company and certain of its officers and directors in the United States District Court for the Western District of Washington. On August 2, 2010, Judge Marsha Pechman consolidated the actions, appointed lead plaintiffs, and approved lead plaintiffs’ counsel. On September 27, 2010, lead plaintiff filed an amended consolidated complaint, captioned Sabbagh v. Cell Therapeutics, Inc. (Case No. 2:10-cv-00414-MJP), naming the Company, Dr. James A. Bianco, Louis A. Bianco, and Craig W. Philips as defendants. The amended consolidated complaint alleges that defendants violated the federal securities laws by making certain alleged false and misleading statements related to the FDA approval process for pixantrone. The action seeks damages on behalf of purchasers of the Company’s stock during a purported class period of March 25, 2008 through March 22, 2010. On October 27, 2010,

defendants moved to dismiss the amended consolidated complaint. On February 4, 2011, the Court denied in large part the defendants’ motion. Defendants answered the amended consolidated complaint on March 28, 2011, and discovery commenced, with trial set for June 25, 2012. On December 14, 2011, the parties filed a letter with the Court indicating they had agreed to the general terms of a settlement, and asking the Court to remove the case deadlines from the Court calendar. On February 14, 2012, the parties filed a Motion for Preliminary Approval of the Stipulation of Settlement and related documents with the Court. The negotiated terms of the settlement include a $19 million payment to plaintiffs.

In April 2010, three shareholder derivative complaints were filed against the Company and certain of its officers and directors in the United States District Court for the Western District of Washington. These derivative complaints allege that defendants breached their fiduciary duties to the Company by making or failing to prevent the issuance of certain alleged false and misleading statements related to the FDA approval process for pixantrone. The allegations in the derivative actions are substantially similar to those in the securities action. On May 10, 2010, Judge Marsha Pechman consolidated the shareholder derivative actions under the caption Shackleton v. Bauer (Case No. 2:10-cv-00414-MJP), and appointed the law firms of Robbins Umeda LLP and Federman & Sherwood as co-lead counsel for derivative plaintiffs. Three more derivative complaints were filed in June, July and October 2010, and they have also been consolidated with Shackleton v. Bauer. The parties have agreed to coordinate discovery in the derivative and securities actions. Pursuant to the parties’ stipulation, the Court has stayed the deadline for the derivative plaintiffs to file an amended complaint until March 12, 2012 (45 days after the scheduled close of discovery in the securities class action), and briefing on any motion to dismiss will follow. The court has set a trial date of December 3, 2012 for the shareholder derivative action. The litigation is at an early stage and the company has asserted meritorious defenses, so no probability of loss can be predicted at this time.

As with any litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Furthermore, we may have to incur substantial expenses in connection with these lawsuits. In the event of an adverse outcome, our business could be materially harmed.

If we fail to adequately protect our intellectual property, our competitive position could be harmed.

Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to:

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obtain patent protection for our products or processes both in the United States and other countries;

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protect trade secrets; and

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prevent others from infringing on our proprietary rights.

When polymers are linked, or conjugated, to drugs, the results are referred to as polymer-drug conjugates. We are developing drug delivery technology that links chemotherapy to biodegradable polymers. For example, OPAXIO is paclitaxel, the active ingredient in Taxol^®, one of the world’s best selling cancer drugs, linked to polyglutamate. We may not receive a patent for all of our polymer-drug conjugates and we may be challenged by the holder of a patent covering the underlying drug and/or methods for its use or manufacture.

The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents. If it allows broad claims, the number and cost of patent interference proceedings in the United States and the risk of infringement litigation may increase. If it allows narrow claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease. Patent applications in which we have rights may never issue as patents and the claims of any issued patents may not afford meaningful protection for our technologies or

products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Litigation, interference proceedings or other governmental proceedings that we may become involved in with respect to our proprietary technologies or the proprietary technology of others could result in substantial cost to us. Patent litigation is widespread in the biotechnology industry, and any patent litigation could harm our business. Costly litigation might be necessary to protect a patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue any such litigation or to protect our patent rights. Any adverse outcome in litigation with respect to the infringement or validity of any patents owned by third parties could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using a product or technology.

We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While we require our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored.

Our products could infringe upon the intellectual property rights of others, which may cause us to engage in costly litigation and, if unsuccessful, could cause us to pay substantial damages and prohibit us from selling our products.

We attempt to monitor patent filings for patents that may be relevant to our products and product candidates in an effort to guide the design and development of our products to avoid infringement, but have not conducted an exhaustive search. We may not be able to successfully challenge the validity of these patents and could be required to pay substantial damages, possibly including treble damages, for past infringement and attorneys’ fees if it is ultimately determined that our products infringe a third-party’s patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Moreover, third parties may challenge the patents that have been issued or licensed to us. Even if infringement claims against us are without merit, or if we challenge the validity of issued patents, lawsuits take significant time, may be expensive and may divert management attention from other business concerns.

We could fail in financing efforts or be delisted from NASDAQ if we fail to receive shareholder approval when needed.

We are required under the NASDAQ Marketplace Rules to obtain shareholder approval for any issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by the NASDAQ Marketplace Rules or NASDAQ. Funding of our operations in the future may require issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding, but we might not be successful in obtaining the required shareholder approval for such an issuance, particularly in light of the difficulties we have experienced in obtaining a quorum and holding shareholder meetings as outlined above. If we are unable to obtain financing due to shareholder approval difficulties, such failure may harm our ability to continue operations.

We may be unable to obtain the raw materials necessary to produce our OPAXIO product candidate in sufficient quantity to meet demand when and if such product is approved.

We may not be able to continue to purchase the materials necessary to produce OPAXIO, including paclitaxel, in adequate volume and quality. Paclitaxel is derived from certain varieties of yew trees and the supply of paclitaxel is controlled by a limited number of companies. We purchase the raw materials paclitaxel and polyglutamic acid from single sources. Should the paclitaxel or polyglutamic acid purchased from our sources prove to be insufficient in quantity or quality, should a supplier fail to deliver in a timely fashion or at all, or should these relationships terminate, we may not be able to qualify and obtain a sufficient supply from alternate sources on acceptable terms, or at all.

Our dependence on third-party manufacturers means that we do not always have direct control over the manufacture, testing or distribution of our products.

We do not currently have internal analytical laboratory or manufacturing facilities to allow the testing or production and distribution of drug products in compliance with cGMPs. Because we do not directly control our suppliers, these vendors may not be able to provide us with finished product when we need it.

We will be dependent upon these third parties to supply us in a timely manner with products manufactured in compliance with cGMPs or similar manufacturing standards imposed by United States and/or foreign regulatory authorities where our products will be tested and/or marketed. While the FDA, EMA and other regulatory authorities maintain oversight for cGMP compliance of drug manufacturers, contract manufacturers and contract service providers may at times violate cGMPs. The FDA, EMA and other regulatory authorities may take action against a contract manufacturer who violates cGMPs. Failure to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance.

In addition, one of our other products under development, OPAXIO, has a complex manufacturing process and supply chain, which may prevent us from obtaining a sufficient supply of drug product for the clinical trials and commercial activities currently planned or underway on a timely basis, if at all. The active pharmaceutical ingredients and drug products for Pixuvri, tosedostat and brostallicin are manufactured by a single vendor. Finished product manufacture and distribution for both Pixuvri and brostallicin are to be manufactured and distributed by different single vendors. We are currently disputing our right to cancel the exclusive manufacturing contract between us and the former manufacturer of Pixuvri. We assert multiple grounds for terminating this exclusive manufacturing agreement, which the former manufacturer disputes. The former manufacturer has asserted that we do not have the right to terminate the manufacturing contracts and has filed a lawsuit in the Court of Milan to compel us to source Pixuvri from that manufacturer. A hearing was held on January 21, 2010 to discuss preliminary matters and set a schedule for future filings and hearings. On November 11, 2010 a hearing was held aimed at examining and discussing the requests for evidence submitted by the parties in the briefs filed pursuant to article 183, paragraph 6 of the Italian code of civil procedure. At the hearing of November 11, the judge declared that the case does not require any discovery or evidentiary phase, as it may be decided on the basis of the documents and pleadings filed by the parties. The judge fixed accordingly the last hearing for October 11, 2012, for the parties to definitively submit to the judge their requests.

Even if our drug candidates are successful in clinical trials, we may not be able to successfully commercialize them.

Since our inception in 1991, we have dedicated substantially all of our resources to the research and development of our technologies and related compounds. All of our compounds currently are in research or development, and have not received marketing approval.

Prior to commercialization, each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. The development of anti-cancer drugs, including those we are currently developing, is unpredictable and subject to numerous risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons including that they may:

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be found ineffective or cause harmful side effects during preclinical testing or clinical trials;

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fail to receive necessary regulatory approvals;

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be difficult to manufacture on a scale necessary for commercialization;

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be uneconomical to produce;

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fail to achieve market acceptance; or

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be precluded from commercialization by proprietary rights of third parties.

The occurrence of any of these events could adversely affect the commercialization of our products. Products, if introduced, may not be successfully marketed and/or may not achieve customer acceptance. If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable.

If we do not successfully develop our product candidates into marketable products, we may be unable to generate significant revenue or become profitable.

We divested our commercial product, TRISENOX, in July 2005 and fully divested our commercial product, Zevalin, in March 2009. Currently, we do not have a marketed product, and unless we are able to develop one of our product candidates, such as Pixuvri, into an approved commercial product, we will not generate any significant revenues from product sales, royalty payments, license fees or otherwise. Pixuvri, OPAXIO, tosedostat and brostallicin are currently in clinical trials and bisplatinates are in preclinical development; the development and clinical trials of these products may not be successful and, even if they are, we may not be successful in developing any of them into a commercial product. For example, our STELLAR phase III clinical trials for OPAXIO for the treatment of non-small cell lung cancer failed to meet their primary endpoints. In addition, a number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. We will need to commit significant time and resources to develop these and any additional product candidates. Even if our trials are viewed as successful, we may not get regulatory approval. Our product candidates will be successful only if:

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our product candidates are developed to a stage that will enable us to commercialize them or sell related marketing rights to pharmaceutical companies;

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we are able to commercialize product candidates in clinical development or sell the marketing rights to third parties; and

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our product candidates, if developed, are approved by the regulatory authorities.

We are dependent on the successful completion of these goals in order to generate revenues. The failure to generate such revenues may preclude us from continuing our research and development of these and other product candidates.

If we are unable to enter into new in-licensing arrangements, our future product portfolio and potential profitability could be harmed.

One component of our business strategy is in-licensing drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories. All of our product candidates in clinical and preclinical development are in-licensed from a third-party, including Pixuvri, OPAXIO, tosedostat, brostallicin and bisplatinates.

Competition for new promising compounds and commercial products can be intense. If we are not able to identify future in-licensing opportunities and enter into future licensing arrangements on acceptable terms, our future product portfolio and potential profitability could be harmed.

We may take longer to complete our clinical trials than we expect, or we may not be able to complete them at all.

Before regulatory approval for any potential product can be obtained, we must undertake extensive clinical testing on humans to demonstrate the safety and efficacy of the product. Although for planning purposes we forecast the commencement and completion of clinical trials, the actual timing of these events can vary dramatically due to a number of factors. For example:

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we may not obtain authorization to permit product candidates that are already in the preclinical development phase to enter the human clinical testing phase;

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the FDA or the EMA may object to proposed protocols;

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there may be shortages of available product supplies or the materials that are used to manufacture the products;

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the quality or stability of the product candidates may fall below acceptable standards;

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authorized preclinical or clinical testing may require significantly more time, resources or expertise than originally expected to be necessary;

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clinical testing may not show potential products to be safe and efficacious and, as with many drugs, may fail to demonstrate the desired safety and efficacy characteristics in human clinical trials;

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clinical testing may show that potential products are not appropriate for the specific indication for which they are being tested;

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the results from preclinical studies and early clinical trials may not be indicative of the results that will be obtained in later-stage clinical trials;

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we or regulatory authorities may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks or for other reasons; and

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the rates of patient recruitment and enrollment of patients who meet trial eligibility criteria may be lower than anticipated, which is a function of many factors, including the number of patients with the relevant conditions, the nature of the clinical testing, the proximity of patients to clinical testing centers, the eligibility criteria for tests as well as competition with other clinical testing programs involving the same patient profile but different treatments.

We have limited experience in conducting clinical trials. We expect to continue to rely on third parties, such as contract research organizations, academic institutions and/or cooperative groups, to conduct, oversee and monitor clinical trials as well as to process the clinical results and manage test requests, which may result in delays or failure to complete trials if the third parties fail to perform or to meet the applicable standards.

If we fail to commence, complete, experience delays in any of our present or planned clinical trials or need to perform more or larger clinical trials than planned, our development costs may increase and/or our ability to commercialize our product candidates may be harmed. If delays or costs are significant, our financial results and our ability to commercialize our product candidates may be harmed.

If we fail to establish and maintain collaborations or if our partners do not perform, we may be unable to develop and commercialize our product candidates.

We have entered into collaborative arrangements with third-parties to develop and/or commercialize product candidates and are currently seeking additional collaborations. For example, we entered into an agreement with the GOG to perform a phase III trial of OPAXIO in patients with ovarian cancer. Additional collaborations might be necessary in order for us to fund our research and development activities and third-party manufacturing arrangements, seek and obtain regulatory approvals and successfully commercialize our existing and future product candidates. If we fail to enter into additional collaborative arrangements or fail to maintain our existing collaborative arrangements, the number of product candidates from which we could receive future revenues would decline. For example, in 2005 we sold our product TRISENOX to Cephalon and, pursuant to the terms of the purchase agreement under which TRISENOX was sold, we are entitled to receive milestone payments upon the approval by the FDA of new labeled uses for TRISENOX; however, Cephalon may decide not to submit any additional information to the FDA to apply for label expansion of TRISENOX, in which case we would not receive a milestone payment under the agreement.

Our dependence on collaborative arrangements with third parties will subject us to a number of risks that could harm our ability to develop and commercialize products, including that:

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collaborative arrangements may not be on terms favorable to us;

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disagreements with partners may result in delays in the development and marketing of products, termination of our collaboration agreements or time consuming and expensive legal action;

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we cannot control the amount and timing of resources partners devote to product candidates or their prioritization of product candidates and partners may not allocate sufficient funds or resources to the development, promotion or marketing of our products, or may not perform their obligations as expected;

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partners may choose to develop, independently or with other companies, alternative products or treatments, including products or treatments which compete with ours;

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agreements with partners may expire or be terminated without renewal, or partners may breach collaboration agreements with us;

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business combinations or significant changes in a partner’s business strategy might adversely affect that partner’s willingness or ability to complete its obligations to us; and

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the terms and conditions of the relevant agreements may no longer be suitable.

The occurrence of any of these events could harm the development or commercialization of our products.

Because we base several of our drug candidates on unproven technologies, we may never develop them into commercial products.

We base several of our product candidates upon novel technologies that we are using to develop drugs for the treatment of cancer. These technologies have not been proven. Furthermore, preclinical results in animal studies may not predict outcomes in human clinical trials. Our product candidates may not be proven safe or effective. If these technologies do not work, our drug candidates will not develop into commercial products.

Because there is a risk of product liability associated with our products, we face potential difficulties in obtaining insurance.

Our business exposes us to potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceutical products, and we may not be able to avoid significant product liability exposure. While we have insurance covering the product use in our clinical trials for our product candidates, it is possible that we will not be able to maintain such insurance on acceptable terms or that any insurance obtained will not provide adequate coverage against potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop. A successful product liability claim in excess of our insurance coverage could exceed our net worth.

Since we use hazardous materials in our business, we may be subject to claims relating to improper handling, storage or disposal of these materials.

Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to international, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by the regulations, the risk of accidental contamination or injury from these materials cannot be eliminated completely. In the event of such an accident, we could be held liable for any damages that result

and any such liability not covered by insurance could exceed our resources. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or production efforts.

We may not be able to conduct animal testing in the future, which could harm our research and development activities.

Certain of our research and development activities involve animal testing. Such activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting activities through protests and other means. To the extent the activities of these groups are successful, our business could be materially harmed by delaying or interrupting our research and development activities.

The unfavorable outcome of litigation and other claims against us could harm our financial condition and results of operations.

We are subject to a variety of claims and lawsuits from time to time, some of which arise in the ordinary course of our business. Adverse outcomes in some or all of such pending cases may result in significant monetary damages or injunctive relief against us. While we currently believe that resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or trading price of our securities, the ultimate outcome of litigation and other claims is subject to inherent uncertainties, and our view of these matters may change in the future. It is possible that our financial condition and results of operations could be harmed in any period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

Our financial condition and results of operations could be harmed by public health issues, wars and other military action, as well as terrorist attacks and threats and government responses thereto, especially if any such actions were directed at us or our facilities or customers.

Public health issues, terrorist attacks in the United States and elsewhere, government responses thereto, and military actions in Afghanistan and elsewhere, may disrupt our operations or those of our customers and suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers. A health pandemic could cause damage or disruption to international commerce by creating economic and political uncertainties that may have a strong negative impact on the global economy, us, and our customers or suppliers. Should a severe public health issues arise, we could be negatively impacted by the need for more stringent employee travel restrictions, additional limitations in the availability of freight services, governmental actions limiting the movement of products between various regions and disruptions in the operations of our customers or suppliers. The long-term effects public health issues, the terrorist attacks, and the ongoing war on terrorism on our business and on the global economy remain unknown. In addition, any of these events could increase volatility in the United States and world financial markets which may depress the price of our common stock and may limit the capital resources available to us or our customers or suppliers, which could result in decreased orders from customers, less favorable financing terms from suppliers, and scarcity or increased costs of materials and components of our products. Additionally, terrorist attacks directly upon us may significantly disrupt our ability to conduct our business. Any of these occurrences could have a significant impact on our operating results, revenues and costs and may result in increased volatility of the trading price of our securities.

Higher health care costs could harm our business.

We will be impacted by the recent passage of the PPACA. Under the PPACA, we may be required to amend our health care plans to, among other things, provide affordable coverage, as defined in the PPACA, to all employees, or otherwise be subject to a payment per employee based on the affordability criteria in the Act: cover adult children of our employees to age 26; delete lifetime limits; and delete pre-existing condition

limitations. Many of these requirements will be phased in over a period of time. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. Increased health care costs could harm our business, financial condition and results of operations.

Risks Related To the Securities Markets

The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment in our securities to sudden decreases.

The market price for securities of biopharmaceutical and biotechnology companies, including ours, historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. For example, during the twelve month period ended March 2, 2012, our stock price has ranged from a low of $0.95 to a high of $3.30. Fluctuations in the trading price or liquidity of our common stock may harm the value of your investment in our common stock.

Factors that may have a significant impact on the market price and marketability of our securities include:

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announcements by us or others of results of preclinical testing and clinical trials and regulatory actions;

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announcements of technological innovations or new commercial therapeutic products by us, our collaborative partners or our present or potential competitors;

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our issuance of additional debt, equity or other securities, which we need to pursue in 2012 to generate additional funds to cover our outstanding obligations and operating expenses;

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our quarterly operating results;

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developments or disputes concerning patent or other proprietary rights;

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developments in our relationships with collaborative partners;

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acquisitions or divestitures;

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litigation and government proceedings;

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adverse legislation, including changes in governmental regulation;

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third-party reimbursement policies;

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changes in securities analysts’ recommendations;

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short selling;

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changes in health care policies and practices;

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halting or suspension of trading in our common stock by NASDAQ, CONSOB or the Borsa Italiana;

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economic and other external factors; and

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general market conditions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. For example, in the case of our company, we and certain of our officers and directors are named as defendants in purported securities class action and shareholder derivative lawsuits brought on behalf of a putative class of purchasers of our securities from March 25, 2008 through March 22, 2010. These lawsuits seek unspecified damages and, as with any litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Furthermore, we may have to incur substantial expenses in connection with these lawsuits and our management’s attention and resources could be diverted from operating our business as we respond to the litigation. We maintain significant insurance to cover these risks for us and our

directors and officers, but our insurance is subject to high deductibles to reduce premium expense, and there is no guarantee that the insurance will cover any specific claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages.

Shares of common stock are equity securities and are subordinate to our existing and future indebtedness.

Shares of our common stock are common equity interests. This means that our common stock ranks junior to any outstanding shares of our preferred stock that we may issue in the future to our indebtedness and to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our existing and future indebtedness and our preferred stock may restrict payment of dividends on our common stock.

Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock, (i) dividends are payable only when and if declared by our board of directors or a duly authorized committee of our board of directors, and (ii) as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to shareholders generally.

The market price of our common stock may be harmed by market conditions affecting the stock markets in general, including price and trading fluctuations on The NASDAQ Capital Market.

The market price of our common stock may be harmed by market conditions affecting the stock markets in general, including price and trading fluctuations on The NASDAQ Capital Market. These conditions may result in (i) volatility in the level of, and fluctuations in, the market prices of stocks generally and, in turn, our shares of common stock, and (ii) sales of substantial amounts of our common stock in the market, in each case that could be unrelated or disproportionate to changes in our operating performance.

There may be future sales or other dilution of our equity, which may harm the market price of shares of our common stock.

We are not restricted from issuing additional shares of common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock or preferred stock, or any substantially similar securities. The market price of our shares of common stock or preferred stock could decline as a result of sales of a large number of shares of our common stock or preferred stock or similar securities in the market, or the perception that such sales could occur in the future.

Anti-takeover provisions in our charter documents, in our shareholder rights plan, or rights plan, and under Washington law could make removal of incumbent management or an acquisition of us, which may be beneficial to our shareholders, more difficult.

Provisions of our amended and restated articles of incorporation and amended and restated bylaws may have the effect of deterring or delaying attempts by our shareholders to remove or replace management, to commence proxy contests, or to effect changes in control. These provisions include:

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a classified board of directors so that only approximately one third of our board of directors is elected each year;

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elimination of cumulative voting in the election of directors;

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procedures for advance notification of shareholder nominations and proposals;

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the ability of our board of directors to amend our amended and restated bylaws without shareholder approval; and

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the ability of our board of directors to issue shares of preferred stock without shareholder approval upon the terms and conditions and with the rights, privileges and preferences as the board of directors may determine.

Pursuant to our rights plan, an acquisition of 20% or more of our common stock could result in the exercisability of the preferred stock purchase right accompanying each share of our common stock (except those held by a 20% shareholder, which become null and void), thereby entitling the holder to receive upon exercise, in lieu of a number of units of preferred stock, that number of shares of our common stock having a market value of two times the exercise price of the right. The existence of our rights plan could have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our shareholders might believe to be in their best interest or that could give our shareholders the opportunity to realize a premium over the then-prevailing market prices for their shares. In addition, as a Washington corporation, we are subject to Washington law which imposes restrictions on some transactions between a corporation and certain significant shareholders. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.

Item 1b.

Unresolved Staff Comments

None.

Item 2.

Properties

We currently lease approximately 43,000 square feet of space at 501 Elliott Avenue West in Seattle, Washington under an amended lease for our executive offices and administrative operations, which expires in July 2012. We also lease approximately 4,700 square feet of warehouse space in Seattle, Washington with a lease expiration of May 2012. We notified the landlord of the warehouse space that we exercised our option to extend the term for an additional 12 months. Additionally, we lease 2,700 square feet in Milan, Italy with a lease expiration of December 2015. In January 2012, we entered into an agreement to lease approximately 66,000 square feet of office space in Seattle, Washington. The term of this lease is for a period of 120 months, commencing on the earlier of (i) May 1, 2012, or (ii) upon substantial completion of improvements we plan to perform to the premises. We believe our existing and planned facilities are adequate to meet our present requirements. We anticipate that additional space will be available, when needed, on commercially reasonable terms.

Item 3.

Legal Proceedings

On August 10, 2011, the parties settled outstanding litigation entitled Cell Therapeutics, Inc. v. The Lash Group, Inc., et al., Case No. 07-310 (filed in the Western District of Washington), or the Litigation. The settlement is not an admission of liability by either party. Under the terms of the settlement agreement, CTI received $11.0 million from The Lash Group, Inc.’s insurers. Of that settlement amount, CTI received a payment of approximately $8.2 million in October 2011, which represents the settlement amount net of certain attorneys’ fees, litigation costs and expenses outstanding at the time the settlement payment was made. The settlement agreement also provides for a complete, mutual and general release of all claims between CTI and The Lash Group, Inc.

On December 23, 2008, CONSOB sent a notice to us requesting that we issue (i) immediately, a press release providing, among other things, information about our debt restructuring plan, the current state of compliance with the relevant covenants regulating our debt and the equity line of credit agreement we entered into with Midsummer

Investment Ltd. on July 29, 2008, and (ii) by the end of each month and starting from the month of December 2008, a press release providing certain information relating to our management and financial situation, updated to the previous month, or the Monthly CONSOB Press Release. On July 31, 2009, CONSOB sent us a notice asserting three violations of the provisions of Section 114, paragraph 5 of the Italian Legislative Decree no. 58/98, as follows: (a) the non-disclosure without delay of the press release described under point (i) above and the subsequent incomplete disclosure of the relevant information through press releases dated January 9, 2009 and January 13, 2009; (b) the non-disclosure of the Monthly CONSOB Press Release in December 2008; and (c) the incomplete disclosure of the Monthly CONSOB Press Release in January 2009. The sanctions established by Section 193, paragraph 1 of the Italian Legislative Decree no. 58/98 for such violations are pecuniary administrative sanctions amounting to between €5,000 and €500,000, or approximately $6,000 to $649,000 converted using the currency exchange rate as of December 31, 2011, applicable to each one of the three asserted violations. According to the applicable Italian legal provisions, CONSOB may impose such administrative sanctions by means of a decree stating the grounds of its decision only after evaluating our possible defenses that were submitted to CONSOB on August 28, 2009 (within 30 days of July 31, 2009, the notification date of the relevant charges, according to the applicable Italian rules). On May 5, 2010, CONSOB (1) notified us that it had begun the preliminary investigation for its decision on these administrative proceedings and (2) provided us with a preliminary investigation report in response to our defenses submitted on August 28, 2009. On June 4, 2010 (within 30 days of May 5, 2010, the notification date of the beginning of the aforesaid preliminary investigation, according to the applicable Italian rules), we submitted further defenses that CONSOB had to evaluate before imposing any possible administrative sanctions. On January 21, 2011, CONSOB notified us of a resolution confirming the occurrence of the three asserted violations and applying a fine for each of them in the following amounts: €20,000 for sanction (a) above; €50,000 for sanction (b) above; and €30,000 for sanction (c) above, for an aggregate fine of €100,000, or approximately $136,000 converted using the currency exchange rate as of January 21, 2011, for these sanctions. On March 4, 2011, we paid the aggregate fine of €100,000 in full.

Separately, on December 10, 2009, CONSOB sent us a notice claiming two violations of the provisions of Section 114, paragraph 1 of the Italian Legislative Decree no. 58/98 due to the asserted late disclosure of certain information then reported, at CONSOB’s request, in press releases disseminated on December 19, 2008 and March 23, 2009. Such information concerned, respectively: (i) the conversion by BAM Opportunity Fund LP of 9.66% notes into shares of common stock that occurred between October 24, 2008 and November 19, 2008; and (ii) the contents of the opinion expressed by Stonefield Josephson, Inc., an independent registered public accounting firm, with respect to our 2008 financial statements. The sanctions established by Section 193, paragraph 1 of the Italian Legislative Decree no. 58/98 for such violations are pecuniary administrative sanctions amounting to between €5,000 and €500,000, or approximately $6,000 to $649,000 converted using the currency exchange rate as of December 31, 2011, applicable to each of the two asserted violations. According to the applicable Italian legal provisions, CONSOB may impose such administrative sanctions by means of a decree stating the grounds of its decision only after evaluating our possible defenses that were submitted to CONSOB on January 8, 2010 (within 30 days of December 10, 2009, the notification date of the relevant charges, according to the applicable Italian rules). On July 12, 2010, CONSOB (a) notified us that it had begun the preliminary investigation for its decision on these administrative proceedings and (b) provided us with a preliminary investigation report in response to our defenses submitted on January 8, 2010. On August 12, 2010 (within 30 days of July 12, 2010, the notification date of the beginning of the aforesaid preliminary investigation, according to the applicable Italian rules), we submitted further defenses that CONSOB had to evaluate before imposing any possible administrative sanctions. In a letter dated March 10, 2011, CONSOB notified us of a resolution confirming the occurrence of the violation asserted in clause (i) above and applied a fine in the amount of €40,000, or approximately $55,000 converted using the currency exchange rate as of March 10, 2011, which we paid on April 5, 2011. CONSOB has not yet notified us of a resolution with respect to the violation asserted in clause (ii) above, but based on our assessment we believe the likelihood that a pecuniary administrative sanction will be imposed on the Company for the violation asserted in clause (ii) is probable.

On April 14, 2009 and December 21, 2009, the Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003 and

2005, respectively. On June 25, 2010, the ITA issued notices of assessment to CTI (Europe) for the years 2006 and 2007 based on similar findings for the 2003 and 2005 assessments. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2005, 2006 and 2007 are €0.5 million, €5.5 million, €2.5 million and €0.8 million, or approximately $0.7 million, $7.1 million, $3.3 million and $1.1 million converted using the currency exchange rate as of December 31, 2011, respectively. We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are vigorously defending ourselves against the assessments both on procedural grounds and on the merits of the case. If the decisions of the Provincial Tax Court of Milan, or the Tax Court, for the different VAT cases are unfavorable, then we expect to appeal to the higher courts in order to further defend our interests. However, if we are unable to successfully defend ourselves against the assessments issued by the ITA, we may be requested to pay to the ITA an amount ranging from €2.9 million to €9.4 million, or approximately $3.7 million to $12.2 million converted using the currency exchange rate as of December 31, 2011, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment. On February 2, 2011, we paid to the ITA the required deposit in respect of the 2005 VAT in the amount of €1.5 million, or approximately $2.1 million converted using the currency exchange rate as of February 2, 2011. On March 4, 2011, we paid to the ITA the required deposit in respect of the 2006 VAT in the amount of €0.4 million, or approximately $0.6 million converted using the currency exchange rate as of March 4, 2011. On March 25, 2011, we paid to the Italian collection agent an additional €0.1 million, or approximately $0.1 million converted using the currency exchange rate as of March 25, 2011. On September 26, 2011, we paid to the ITA the required deposit in respect of the 2007 VAT in the amount of €0.1 million, or approximately $0.1 million converted using the currency exchange rate as of September 26, 2011.

2003 VAT. We did not receive a notice from the ITA requesting a deposit payment for the VAT based on the 2003 assessment as of December 31, 2011. The first hearing for the discussion of the merits of the case was held on March 18, 2011 in front of the Provincial Tax Court of Milan. On September 13, 2011, the Tax Court issued decision no. 229/3/2011 in which the Tax Court (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found the Tax Office liable to pay us €10,000, or approximately $14,000 converted using the currency exchange rate as of September 13, 2011, as partial refund of the legal expenses we incurred for our appeal. The Tax Office is entitled to appeal this decision to a higher court within six months. We have not been notified of any appeal from the Tax Office.

2005 VAT. On July 14, 2010, the ITA issued a notice requiring a deposit payment for the VAT to CTI (Europe) based on the 2005 assessment, including 50% of the assessed VAT, interest and collection fees for an amount of €1.5 million, or approximately $2.0 million converted using the currency exchange rate as of December 31, 2011. On September 28, 2010, the merits of the case for the year 2005 were discussed in a public hearing before the Tax Court. On January 13, 2011, the Tax Court issued decision no. 4/2010 in which the Tax Court (i) partially accepted our appeal and declared that no penalties can be imposed against us, (ii) confirmed the right of the Italian Tax Authorities to reassess the VAT (plus interest) in relation to the transactions identified in the 2005 notice of assessment and (iii) repealed the suspension of the notice of deposit payment. As a result of this decision, our exposure for 2005 VAT assessment is currently reduced by the waiver of penalties of €2.6 million, or approximately $3.4 million converted using the currency exchange rate as of December 31, 2011. On February 2, 2011, we paid the required VAT deposit of €1.5 million, or approximately $2.1 million converted using the currency exchange rate as of February 2, 2011, prior to the due date of February 6, 2011. On March 25, 2011, we paid to the Italian collection agent an additional €0.1 million, or approximately $0.1 million converted using the currency exchange rate as of March 25, 2011. The additional payment was for interest and collection fees during the suspension period. We do not believe this additional payment was due and we intend to pursue recovery of such payment through litigation. In July 2011, we were notified by our Italian counsel of the ITA’s appeal regarding the January 2011 decision that no penalties could be imposed on the Company. We do not believe that the Tax Court has carefully reviewed all of our arguments, relevant documents and other supporting evidence that our counsel filed and presented during the hearing, including an appraisal from an independent

expert, and, therefore, that there are grounds of appeal in order to ask the judges of the higher court to further consider all of our arguments in support of invalidating the entire notice of assessment. Accordingly, we filed an appeal with the Tax Office on July 7, 2011 and intend to file a complaint with the European Commission.

While we contend that services invoiced were non-VAT taxable consulting services and that the VAT returns are correct as originally filed, we have recorded a reserve for VAT assessed, interest and collection fees totalling €2.6 million, or approximately $3.4 million as of December 31, 2011, of which $2.9 million is included in long-term obligations, less current portion and $0.5 million of the reserve is accounted for as an offset to VAT receivable included in other assets.

2006 VAT. On January 10, 2011, we received a notice from the ITA requiring a deposit payment for VAT to CTI (Europe) based on the 2006 assessment, including 50% of the assessed VAT, interest and collection fees for an amount of €0.4 million, or approximately $0.6 million converted using the currency exchange rate as of January 10, 2011, payable in the first quarter 2011. We filed a request for suspension of the collection of such amount, which was rejected. On March 4, 2011, we paid to the ITA the required deposit in respect of the 2006 VAT in the amount of €0.4 million, or approximately $0.6 million converted using the currency exchange rate as of March 4, 2011. The first hearing for the discussion of the merits of the case was held on May 27, 2011 (jointly with the 2007 VAT case). On October 18, 2011, the Tax Court issued decision no. 276/21/11 (jointly with the 2007 VAT case) in which the Tax Court (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found for the 2006 and 2007 VAT cases the Tax Office liable to pay us €10,000, or approximately $14,000 converted using the currency exchange rate as of October 18, 2011, as partial refund of the legal expenses we incurred for our appeal. The Tax Office has appealed to the higher court against this decision. We will defend against the Tax Office’s appeal before the higher Tax Court.

2007 VAT. The first hearing for the discussion of the merits of the case was held on May 27, 2011 (jointly with the 2006 VAT case). On August 4, 2011, we received a notice from the ITA requiring a deposit payment for VAT to CTI (Europe) based on the 2007 assessment, including 50% of the assessed VAT, interest and collection fees for an amount of €0.1 million, or approximately $0.1 million converted using the currency exchange rate as of August 4, 2011, payable in the third quarter 2011. On September 26, 2011, we paid to the ITA the required deposit in respect of the 2007 VAT in the amount of €0.1 million or approximately $0.1 million converted using the currency exchange rate as of September 26, 2011. On October 18, 2011, the Tax Court issued decision no. 276/21/11 (jointly with the 2006 VAT case) in which the Tax Court (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found for the 2006 and 2007 VAT cases the Tax Office liable to pay us €10,000, or approximately $14,000 converted using the currency exchange rate as of October 18, 2011, as partial refund of the legal expenses we incurred for our appeal. The Tax Office has appealed to the higher court against this decision. We will defend against the Tax Office’s appeal before the higher Tax Court.

On August 3, 2009, Sicor Italia, or Sicor, filed a lawsuit in the Court of Milan to compel us to source Pixuvri from Sicor according to the terms of a supply agreement executed between Sicor and Novuspharma on October 4, 2002. Sicor alleges that the agreement was not terminated according to its terms. We assert that the supply agreement in question was properly terminated and that we have no further obligation to comply with its terms. A hearing was held on January 21, 2010 to discuss preliminary matters and set a schedule for future filings and hearings. The parties filed the authorized pleadings and submitted to the Court their requests for evidence. On November 11, 2010, a hearing was held to examine and discuss the requests for evidence submitted by the parties in the briefs filed pursuant to article 183, paragraph 6 of the Italian code of civil procedure. At the hearing of November 11, 2010, the judge declared that the case does not require any discovery or evidentiary phase, and may be decided on the basis of the documents and pleadings already filed by the parties. A final hearing is scheduled for October 11, 2012, for the parties to definitively submit to the judge their requests. No estimate of a loss, if any, can be made at this time in the event that we do not prevail.

August 2, 2010, Judge Marsha Pechman consolidated the actions, appointed lead plaintiffs, and approved lead plaintiffs’ counsel. On September 27, 2010, lead plaintiff filed an amended consolidated complaint, captioned Sabbagh v. Cell Therapeutics, Inc. (Case No. 2:10-cv-00414-MJP), naming the Company, Dr. James A. Bianco, Louis A. Bianco, and Craig W. Philips as defendants. The amended consolidated complaint alleges that defendants violated the federal securities laws by making certain alleged false and misleading statements related to the FDA approval process for pixantrone. The action seeks damages on behalf of purchasers of the Company’s stock during a purported class period of March 25, 2008 through March 22, 2010. On October 27, 2010, defendants moved to dismiss the amended consolidated complaint. On February 4, 2011, the Court denied in large part the defendants’ motion. Defendants answered the amended consolidated complaint on March 28, 2011, and discovery commenced, with trial set for June 25, 2012. On December 14, 2011, the parties filed a letter with the Court indicating they had agreed to the general terms of a settlement, and asking the Court to remove the case deadlines from the Court calendar. On February 14, 2012, the parties filed a Motion for Preliminary Approval of the Stipulation of Settlement and related documents with the Court. The negotiated terms of the settlement include a $19 million payment to plaintiffs, which the Company expects to be paid by the Company’s insurance carriers. Because the Company expects that the negotiated settlement will be paid by the Company’s insurance carriers, there is no estimated loss to the Company.

In April 2010, three shareholder derivative complaints were filed against the Company and certain of its officers and directors in the United States District Court for the Western District of Washington. These derivative complaints allege that defendants breached their fiduciary duties to the Company by making or failing to prevent the issuance of certain alleged false and misleading statements related to the FDA approval process for Pixuvri. The allegations in the derivative actions are substantially similar to those in the securities action. On May 10, 2010, Judge Marsha Pechman consolidated the shareholder derivative actions under the caption Shackleton v. Bauer (Case No. 2:10-cv-00414-MJP), and appointed the law firms of Robbins Umeda LLP and Federman & Sherwood as co-lead counsel for derivative plaintiffs. Three more derivative complaints were filed in June, July and October 2010, and they have also been consolidated with Shackleton v. Bauer. The parties have agreed to coordinate discovery in the derivative and securities actions. Pursuant to the parties’ stipulation, the Court has stayed the deadline for the derivative plaintiffs to file an amended complaint until March 12, 2012 (45 days after the scheduled close of discovery in the securities class action), and briefing on any motion to dismiss will follow. The court has set a trial date of December 3, 2012 for the shareholder derivative action. We believe that the shareholder derivative action is without merit and intend to defend it vigorously. No estimate of a loss, if any, can be made at this time in the event that we do not prevail.

In December 2011, we were informed of a decree by the Italian Ministry for Education, University and Research, or the Ministry, dated July 7, 2011 revoking a financial support granted to Novuspharma S.p.A. (now CTI, following the merger of Novuspharma into CTI in January 2004) in July 2002, or the Financial Support, and requesting the repayment of the amount paid to Novuspharma as grant for the expenses (i.e. €0.5 million, plus interests for an additional amount of €0.1 million) by January 15, 2012, or the Decree. The Financial Support was granted (following a proper application by Novuspharma) for a research project about new compounds for the treatment of tumors of the gastrointestinal area, or the Project. The initial amount of the Financial Support was (i) up to €2.3 million as subsidised loan, and (ii) up to €2.5 million as grant for expenses (a portion of which, corresponding to €0.5 million, was effectively paid to Novuspharma). Following the interruption of the Project in June 2004, due to unforeseeable technical reasons not ascribable to the beneficiary company, the Financial Support was reduced (i) to €0.6 million for the subsidised loan, and (ii) to €0.6 million for the grant for expenses. In 2005, we requested the Ministry to authorize the joint ownership of the Project by both Cell Therapeutics Europe S.r.l., or CTE, and the CTI Italian branch. In May 2007, the Ministry accepted such joint ownership of the Project subject to the issuance of a guarantee, or the Guarantee, for the portion corresponding to the subsidised loan, but we never issued such Guarantee. In 2009, CTI Italian branch’s research activities were terminated. Since we assert that the Decree is unlawful and that the relevant issuance represents a breach of the Ministry’s duty of good faith and an abuse of right, on February 13, 2012, we served a writ of summons upon the Ministry, suing it in the civil Court of Rome in order to have the Decree declared ineffective. However, if we are unable to successfully defend ourselves against the Decree issued by the Ministry, we may be requested to pay

€0.6 million (i.e. the amount paid to Novuspharma as grant for the expenses plus interests, as described above), or approximately $0.8 million converted using the currency exchange rate as of December 31, 2011, plus counterparty’s attorney’s fees, litigation costs and additional default interests for the period lapsed between January 16, 2012 and the date of the effective payment. At this time, we are not able to make a determination whether the likelihood of an unfavorable outcome is probable.

In addition to the litigation discussed above, we are from time to time subject to legal proceedings and claims arising in the ordinary course of business, some of which may be covered in whole or in part by insurance.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock is currently traded on the NASDAQ Capital Market under the symbol “CTIC” and the MTA (formerly known as the MTAX and, prior to that, as the Nuovo Mercato) in Italy, also under the ticker symbol “CTIC”. Prior to January 8, 2009, our common stock was traded on the NASDAQ Global Market. The following table sets forth, for the periods indicated, the high and low reported sales prices per share of the common stock as reported on the NASDAQ Capital Market, our principal trading market.


	High		Low
2010
First Quarter	$	8.40	$	0.72
Second Quarter	$	4.20	$	1.74
Third Quarter	$	2.82	$	2.10
Fourth Quarter	$	2.94	$	2.10
2011
First Quarter	$	3.30	$	1.26
Second Quarter	$	2.52	$	1.47
Third Quarter	$	1.69	$	0.95
Fourth Quarter	$	1.48	$	0.95

On March 2, 2012, the last reported sale price of our common stock on the NASDAQ Capital Market was $1.24 per share. As of March 2, 2012, there were 186 shareholders of record of our common stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and do not currently anticipate declaring or paying cash dividends on our common stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and other factors that our board of directors may deem relevant.

Sales of Unregistered Securities

Not applicable.

Stock Repurchases in the Fourth Quarter

The following table sets forth information with respect to purchases of our common stock during the three months ended December 31, 2011:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 – October 31, 2011		37,765	$	1.20		—		—
November 1 – November 30, 2011		15,710	$	1.09		—		—
December 1 – December 31, 2011		—	$	—		—		—

Total		53,475	$	1.17		—		—

(1)	Represents purchases of shares in connection with satisfying tax withholding obligations on the vesting of restricted stock awards to employees.

Stock Performance Graph

The following graph sets forth the cumulative total shareholder return of our common stock during the five-year period ended December 31, 2011, as well as the NASDAQ Stock Index (U.S.) and the NASDAQ Pharmaceutical Index:

LOGO

The stock performance graph assumes $100 was invested on December 31, 2006. The actual returns shown on the graph above are as follows:


	3/31/07		6/30/07		9/30/07		12/31/07
Cell Therapeutics, Inc.	$	90.86	$	43.55	$	52.40	$	26.84
NASDAQ Stock Index (U.S.)	$	100.15	$	107.31	$	110.72	$	108.47
NASDAQ Pharmaceutical Index	$	97.86	$	102.18	$	106.98	$	105.17

	3/31/08		6/30/08		9/30/08		12/31/08
Cell Therapeutics, Inc.	$	9.42	$	6.85	$	1.04	$	0.20
NASDAQ Stock Index (U.S.)	$	93.42	$	93.87	$	87.29	$	66.35
NASDAQ Pharmaceutical Index	$	99.51	$	101.81	$	106.46	$	97.85

	3/31/09		6/30/09		9/30/09		12/31/09
Cell Therapeutics, Inc.	$	0.54	$	2.46	$	1.76	$	1.63
NASDAQ Stock Index (U.S.)	$	64.28	$	76.83	$	88.93	$	95.38
NASDAQ Pharmaceutical Index	$	91.12	$	99.51	$	109.69	$	109.95

	3/31/10		6/30/10		9/30/10		12/31/10
Cell Therapeutics, Inc.	$	0.77	$	0.54	$	0.56	$	0.53
NASDAQ Stock Index (U.S.)	$	100.83	$	89.38	$	100.49	$	113.19
NASDAQ Pharmaceutical Index	$	119.78	$	102.66	$	113.00	$	119.19

	3/31/11		6/30/11		9/30/11		12/31/11
Cell Therapeutics, Inc.	$	0.53	$	0.38	$	0.25	$	0.28
NASDAQ Stock Index (U.S.)	$	118.74	$	119.16	$	105.00	$	113.81
NASDAQ Pharmaceutical Index	$	125.17	$	133.32	$	115.45	$	127.71

Item 6.

Selected Financial Data

The data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto appearing at Item 8 of this Annual Report on Form 10-K.


	Year ended December 31,
	2011			2010			2009			2008			2007
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Product sales	$	—		$	—		$	—		$	11,352		$	47
License and contract revenue		—			319			80			80			80

Total revenues		—			319			80			11,432			127

Operating expenses, net:
Cost of product sold		—			—			—			3,244			49
Research and development		34,900			27,031			30,179			51,614			72,019
Selling, general and administrative		38,290			48,043			57,725			41,607			35,517
Amortization of purchased intangibles		—			—			—			1,658			913
Restructuring charges and related gain on sale of assets, net(1)		—			—			3,979			—			—
Gain on sale of Zevalin(2)		—			—			—			(9,444	)		—
Gain on sale of investment in joint venture(3)		—			—			(10,244	)		—			—
Gain from litigation settlement		(11,000	)		—			—			—			—
Acquired in-process research and development(4)		—			—			—			36			24,615

Total operating expenses, net		62,190			75,074			81,639			88,715			133,113

Loss from operations		(62,190	)		(74,755	)		(81,559	)		(77,283	)		(132,986	)

Other income (expense):
Investment and other income, net		1,713			1,221			133			549			2,430
Interest expense		(1,038	)		(2,334	)		(4,806	)		(8,559	)		(8,237	)
Amortization of debt discount and issuance costs		(546	)		(768	)		(5,788	)		(66,530	)		(4,280	)
Foreign exchange gain (loss)		(558	)		(521	)		33			3,637			4,657
Debt conversion expense		—			(2,031	)		—			—			—
Provision for VAT Assessments		—			(3,503	)		—			—			—
Make-whole interest expense		—			—			(6,345	)		(70,243	)		(2,310	)
Gain on derivative liabilities, net		—			—			7,218			69,739			3,672
Gain (loss) on exchange of convertible notes		—			—			7,381			(25,103	)		(972	)
Equity loss from investment in joint venture		—			—			(1,204	)		(123	)		—
Milestone modification expense		—			—			(6,000	)		—			—
Settlement expense, net		—			(145	)		(4,710	)		(3,393	)		(160	)
Write-off of financing arrangement costs		—			—			—			(2,846	)		—

Net loss before noncontrolling interest		(62,619	)		(82,836	)		(95,647	)		(180,155	)		(138,186	)
Noncontrolling interest		259			194			252			126			78

Net loss attributable to CTI	$	(62,360	)	$	(82,642	)	$	(95,395	)	$	(180,029	)	$	(138,108	)
Gain on restructuring of preferred stock		—			—			2,116			—			—
Dividends and deemed dividends on preferred stock		(58,718	)		(64,918	)		(23,484	)		(22,878	)		(10,197	)

Net loss attributable to common shareholders	$	(121,078	)	$	(147,560	)	$	(116,763	)	$	(202,907	)	$	(148,305	)

Basic and diluted net loss per common share(5)	$	(0.71	)	$	(1.29	)	$	(1.53	)	$	(42.03	)	$	(196.43	)

Shares used in calculation of basic and diluted net loss per common share(5)		171,468			114,105			76,393			4,828			755


	December 31,
	2011			2010			2009			2008			2007
	(In thousands)
Consolidated Balance Sheets Data:
Cash and cash equivalents	$	47,052		$	22,649		$	37,811		$	10,072		$	15,798
Restricted cash(6)		—			—			—			6,640			—
Working capital		33,291			(14,165	)		(21,694	)		(14,141	)		(30,909	)
Total assets(7)		62,239			53,592			69,595			64,243			73,513
10% convertible senior notes		—			—			—			19,784			—
9% convertible senior notes		—			—			—			4,104			—
7.5% convertible senior notes		—			10,215			10,102			32,601			32,220
6.75% convertible senior notes		—			—			—			6,926			6,922
5.75% convertible senior notes		—			12,093			11,677			23,808			23,287
5.75% convertible senior subordinated notes		—			—			—			—			16,907
4.0% convertible senior subordinated notes		—			—			40,363			55,150			55,150
5.75% convertible subordinated notes		—			—			—			—			2,910
Current portion of long-term obligations		970			1,717			1,312			757			1,020
Long-term obligations, less current portion		2,985			4,206			1,861			2,907			9,879
Common stock purchase warrants		13,461			13,461			626			—			—
Series A 3% convertible preferred stock		—			—			—			417			5,188
Series B 3% convertible preferred stock		—			—			—			4,031			11,881
Series C 3% convertible preferred stock		—			—			—			3,221			6,229
Series D 7% convertible preferred stock		—			—			—			734			2,938
Series 14 convertible preferred stock		6,736			—			—			—			—
Accumulated deficit(7)		(1,714,785	)		(1,576,643	)		(1,429,083	)		(1,312,320	)		(1,109,413	)
Total shareholders’ equity (deficit)		28,009			(5,145	)		(18,769	)		(132,061	)		(134,125	)

(1)	The 2009 amount primarily relates to the closure of our Bresso, Italy operations as well as the termination of Zevalin-related employees.

(2)	The gain on sale of Zevalin for the year ended December 31, 2008 related to the gain recognized, net of transaction costs, on the sale of Zevalin to RIT Oncology, our 50/50 joint venture with Spectrum. We subsequently sold our 50% interest in RIT Oncology to Spectrum in March 2009.

(3)

The gain on sale of investment in joint venture relates to the sale of our 50% interest in RIT Oncology in March 2009. This amount was based on the difference between $16.5 million in gross proceeds and the $4.6 million book value of our investment in RIT Oncology at the time of sale, net of $1.6 million in transaction costs.

(4)

Acquired in-process research and development, or IPRD, represents the value of Systems Medicine LLC’s and Zevalin’s purchased technology, which had not reached technological feasibility at the time of the acquisitions. Acquired IPRD for Systems Medicine LLC was $21.4 million and was related to brostallicin. Acquired IPRD for Zevalin was $3.2 million related to label expansions for indication not approved by the FDA.

(5)

The net loss per share calculation, including the number of shares used in basic and diluted net loss per share, has been adjusted to reflect one-for-four, one-for-ten and one-for-six reverse stock splits on April 15, 2007, August 31, 2008 and May 15, 2011, respectively. See Notes 1, 10 and 18 of the Notes to Consolidated Financial Statements for a description of the computation of the number of shares and net loss per share.

(6)	The 2008 amount represents cash held in escrow to fund potential make-whole payments on certain of our convertible senior notes.

(7)	Effective January 1, 2011, we adopted new guidance on goodwill impairment. See Note 4 of the Notes to Consolidated Financial Statements for additional information.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K, including the following discussion contains forward-looking statements, which involve risks and uncertainties and should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements and the related Notes included in Items 6 and 8 of this Annual Report on Form 10-K. When used in this Annual Report on Form 10-K, terms such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of those terms or other comparable terms are intended to identify such forward-looking statements. Such statements, which include statements concerning product sales, research and development expenses, selling, general and administrative expenses, additional financings and additional losses, are subject to known and unknown risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Factors Affecting Our Operating Results and Financial Condition,” that could cause actual results, levels of activity, performance or achievements to differ significantly from those projected. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

Overview

We develop, acquire and commercialize novel treatments for cancer. Our goal is to build a leading biopharmaceutical company with a diversified portfolio of proprietary cancer drugs. Our research and in-licensing activities are concentrated on identifying new, less toxic and more effective ways to treat cancer. As of December 31, 2011, we had incurred aggregate net losses of $1.7 billion since inception. Unless we receive FDA or EMA approval for Pixuvri, we expect to continue to incur operating losses for at least the next couple of years.

We are developing Pixuvri, a novel anthracycline derivative, for the treatment of hematologic malignancies and solid tumors. Pixuvri was studied in our PIX301 clinical trial, which is the first randomized, controlled, phase III single-agent clinical trial of Pixuvri for patients with relapsed or refractory aggressive NHL who received two or more prior therapies and who were sensitive to treatment with anthracyclines. In the U.S., we initially completed our NDA submission with the FDA in June 2009. In early April 2010, we received a complete response letter from the FDA regarding our NDA for Pixuvri recommending that we design and conduct an additional trial to demonstrate the safety and efficacy of Pixuvri and other items. We filed an appeal in December 2010 with the FDA’s Center for Drug Evaluation and Research regarding the FDA’s decision in April 2010 to not approve Pixuvri. The appeal was filed under the FDA’s formal dispute resolution process asking the OND to conclude that PIX301 demonstrated efficacy.

The FDA responded allowing us to resubmit the NDA with additional information. Prior to resubmitting the NDA, we initiated an additional Pixuvri clinical trial, PIX306, to study Pixuvri in combination with rituximab in patients with relapsed, aggressive NHL that received at least one prior therapy. On October 25, 2011, we announced the resubmission of the NDA to the FDA’s DOP1 for accelerated approval to treat relapsed or refractory aggressive NHL in patients who failed two or more lines of prior therapy. On December 6, 2011, we announced that the FDA’s DOP1 had notified us that our resubmitted NDA is considered a complete, Class 2 response to the FDA’s April 2010 complete response letter. The FDA set a PDUFA goal date of April 24, 2012 for a decision on the NDA.

On January 3, 2012, we announced that the FDA’s ODAC was scheduled to review our resubmitted NDA for Pixuvri on February 9, 2012. On January 30, 2012, we announced that we had voluntarily withdrawn our NDA for Pixuvri. The NDA was withdrawn because, after communications with the FDA, we needed additional

time to prepare for the review of the NDA by the FDA’s ODAC at its February 9, 2012 meeting. Prior to withdrawing the NDA, we requested that the FDA consider rescheduling the review of the NDA to the ODAC meeting to be held in late March. The FDA was unable to accommodate our request to reschedule, and given the April 24, 2012 PDUFA date, the only way to have Pixuvri possibly considered at a later ODAC meeting was to withdraw and later resubmit the NDA. We plan to resubmit the NDA in 2012.

In Europe, we filed a Marketing Authorization Application, or MAA, for commercialization of Pixuvri, which was accepted for review by the European Medicines Agency, or the EMA, in December 2010. On February 17, 2012, Pixuvri was granted a positive opinion for conditional approval from the EMA’s CHMP. The CHMP recommended Pixuvri for conditional approval as monotherapy for the treatment of adult patients with multiple relapsed or refractory aggressive non-Hodgkin B-cell lymphomas. The CHMP positive opinion for Pixuvri will now be reviewed by the European Commission, which has the authority to approve medicines for use in the E.U. If the CHMP’s recommendation is formally adopted by the European Commission, Pixuvri would be approved for marketing in the 27 countries that are members of the E.U., as well as the European Economic Area. We expect that a conditional marketing authorization for Pixuvri should be granted by the European Commission within the first half of 2012. We are working with consultants to develop a go-to-market strategy in Europe, including product messaging, positioning, staffing and resources required for Pixuvri product introduction in the E.U. If the European Commission adopts the positive opinion rendered by the CHMP for Pixuvri and if we successfully implement our go-to-market strategy, we expect to begin product launch on an E.U. country-by-country basis beginning in the second half of 2012.

Our other late-stage drug candidate, OPAXIO is being studied as a potential maintenance therapy for women with advanced stage ovarian cancer who achieve a complete remission following first-line therapy with paclitaxel and carboplatin. This phase III study, the GOG0212 trial, is under the control of the GOG and is expected to enroll 1,100 patients with 843 patients enrolled as of December 31, 2011. OPAXIO is also being studied in follow-on phase II trial for the treatment of metastatic brain cancer based on encouraging results from a prior phase II study in this disease.

We are also developing tosedostat in collaboration with Chroma Therapeutics, Ltd., or Chroma. We entered into a co-development and license agreement with Chroma in March 2011, providing us with exclusive marketing and co-development rights to Chroma’s drug candidate, tosedostat, in North, Central and South America. Tosedostat is an oral, aminopeptidase inhibitor that has demonstrated significant anti-tumor responses in blood related cancers and solid tumors in phase I-II clinical trials. Interim results from the phase II OPAL study of tosedostat in elderly patients with relapsed or refractory acute myeloid leukemia, or AML, were presented in June 2011 at the 2011 ASCO Annual Meeting. These results showed that once-daily, oral doses of tosedostat had predictable and manageable toxicities and demonstrated encouraging response rates at the interim evaluation time point including a high-response rate among patients who received prior hypomethylating agents, which are used to treat myelodysplastic syndrome, or MDS, a precursor of AML. Based on these results, and pending discussions with the FDA, we, in collaboration with Chroma, anticipate initiating a phase III study for patients with relapsed or refractory MDS in the second half of 2012.

In 2009 and 2010, we reduced our debt by a total of $97.8 million plus accrued and unpaid interest through exchanges and retirement of our convertible debt. In 2009, we exchanged $52.9 million principal amount of portions of our outstanding convertible notes for $7.1 million in cash and 4.0 million shares of our common stock. In addition, we exchanged of $3.0 million of our 4% convertible senior subordinated notes, or 4% Notes, and $1.5 million of our 6.75% convertible senior notes, or 6.75% Notes, as well as accrued and unpaid interest on these notes for 0.5 million shares of our common stock. In May 2010, we exchanged $1.8 million of our 4% Notes for common stock and in July 2010, we fully retired $38.5 million of our 4% Notes. In May 2011, we retired $10.3 million of our 7.5% convertible senior notes, or 7.5% Notes, and in December 2011, we retired $10.9 million of our 5.75% convertible senior notes, or 5.75% Notes. At this time we have no convertible debt outstanding.

In March 2009, we divested our interest in the radiopharmaceutical product Zevalin^® (ibritumomab tiuxetan) by selling our 50% interest in the Zevalin joint venture, RIT Oncology, to Spectrum for $16.5 million. Previously, in December 2008, we closed our transaction with Spectrum to form RIT Oncology, to commercialize and develop Zevalin in the United States. We originally acquired the U.S. rights to develop, market and sell Zevalin from Biogen Idec Inc., or Biogen, in December 2007. We received an initial payment of $6.5 million in gross proceeds from Spectrum in March 2009, $0.8 million of which was used to pay a consent fee to Biogen, and an additional $6.5 million in gross proceeds in April 2009. The remaining $3.5 million we expected to receive from Spectrum, subject to certain adjustments, was disputed and was ultimately released to Spectrum based on the outcome of an arbitration hearing held in May 2009. In addition, as part of the divestiture transaction, we agreed to forego the right to receive up to $15.0 million in product sales milestone payments in connection with the original transaction establishing the joint venture.

In July 2007, we completed our acquisition of Systems Medicine, Inc., or SMI, a privately held oncology company, in a stock-for-stock merger, valued at $20.0 million. SMI stockholders were also entitled to receive a maximum of $15.0 million in additional consideration (payable in cash or stock at our election, subject to certain NASDAQ limitations on issuance of stock) upon the achievement of certain FDA regulatory milestones. In August 2009, we entered into an amended agreement under which these milestone payments were replaced by an immediate substitute payment of $6.0 million payable in shares of our common stock subject to certain conditions, including required shareholder approval. If the conditions were not satisfied, we would have been required to pay the SMI stockholders $5.0 million in cash in lieu of the $6.0 million shares of our common stock. In October 2009, our shareholders approved the issuance of $6.0 million shares of our common stock and we issued approximately 0.9 million shares to the SMI stockholders. Under the original acquisition agreement, SMI became Systems Medicine, LLC, or SM, and operates as our wholly owned subsidiary. SM holds worldwide rights to use, develop, import and export brostallicin, a synthetic DNA minor groove binding agent that has demonstrated anti-tumor activity and a favorable safety profile in clinical trials.

Critical Accounting Policies and Estimates

Management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the United States in the preparation of our consolidated financial statements. We evaluate our estimates and judgments on an on-going basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our consolidated financial statements and require our subjective or complex judgment in the preparation of our consolidated financial statements.

Impairment of Long-lived Assets

We review our long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on quoted fair market values.

Valuation of Goodwill

We have reviewed goodwill for impairment annually and whenever events or changes in circumstances indicated that the carrying value may not be recoverable. Previously, goodwill was tested for impairment by comparing the fair value of our single reporting unit to its carrying value. Our estimate of fair value was based on our current market capitalization. If the implied fair value of goodwill was less than its carrying value, an impairment charge would have been recorded. Effective January 1, 2011, we adopted the accounting standards update on Intangibles – Goodwill and Other (Topic 350), which provided additional guidance on when to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. Upon adoption of the guidance, we determined that it was more likely than not that a goodwill impairment existed. On January 1, 2011, the implied fair value of goodwill for the reporting unit, after considering unrecognized in-process research and development, was zero. An impairment charge of $17.1 million was recorded in retained earnings as a cumulative-effective adjustment.

Derivatives Embedded in Certain Debt Securities

Derivative instruments are recorded at fair value with changes in value recognized in the statement of operations in the period of change.

Certain of our convertible senior notes included a feature that calls for make-whole payments upon conversion of these notes. These make-whole features along with the conversion options on the notes represented embedded derivatives that have been accounted for separately from the related debt securities except where our convertible senior notes are recorded entirely at fair value.

We have calculated the fair value of the derivatives related to our convertible notes using either a Monte Carlo simulation model or a discounted cash flow model. Changes in the estimated fair value of the derivative liabilities related to the convertible senior notes are included in gain on derivative liabilities and are remeasured at the end of each reporting period until the relevant feature expires or all of the relevant notes are converted or repurchased.

Restructuring Charges

We have recorded charges in connection with restructuring activities, including estimates pertaining to employee separation costs, the related abandonment of excess facilities and impairment of fixed assets, and certain contract termination costs. Restructuring charges are recorded in accordance with ASC 420, Exit or Disposal Cost Obligations. The recognition of restructuring charges requires management to make certain judgments regarding the nature, timing and amount associated with the planned restructuring activities. At the end of each reporting period, we evaluate the appropriateness of the remaining accrued balances.

Share-based Compensation Expense

Share-based compensation expense for all share-based payment awards made to employees and directors is recognized and measured based on estimated fair values. For option valuations, we have elected to utilize the Black-Scholes valuation method in order to estimate the fair value of options on the date of grant. The risk-free

interest rate is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. We have not declared or paid any dividends on our common stock and do not currently expect to do so in the future. The expected term of options represents the period that our share-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our share-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility, including consideration of the implied volatility and market prices of traded options for comparable entities within our industry. These assumptions underlying the Black-Scholes valuation model involve management’s best estimates.

For more complex awards, such as our December 2009 performance awards, we employ a Monte Carlo simulation model to calculate estimated grant-date fair value. For the December 2009 performance awards, the average present value is calculated based upon the expected date the award will vest, or the event date, the expected stock price on the event date and the expected current shares outstanding on the event date. The event date, stock price and the shares outstanding are estimated using the Monte Carlo simulation model, which is based on assumptions by management, including the likelihood of achieving milestones and potential future financings. These assumptions impact the fair value of the equity-based award and the expense that will be recognized over the life of the award.

Generally accepted accounting principles for share-based compensation also require that we recognize compensation expense for only the portion of awards expected to vest. Therefore, we apply an estimated forfeiture rate that we derive from historical employee termination behavior. If the actual number of forfeitures differs from our estimates, adjustments to compensation expense may be required in future periods. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met.

Results of Operations

Years ended December 31, 2011 and 2010.

License and contract revenue. License and contract revenue for the year ended December 31, 2010 represents recognition of deferred revenue from the sale of Lisofylline material to DiaKine Therapeutics, Inc.

Research and development expenses. Our research and development expenses for compounds under development and preclinical development are as follows (in thousands):


	2011		2010
Compounds under development:
Pixuvri	$	11,266	$	7,249
OPAXIO		1,445		2,608
Tosedostat		6,955		—
Brostallicin		75		115
Other compounds		180		108
Operating expenses		14,975		16,297
Research and preclinical development		4		654

Total research and development expenses	$	34,900	$	27,031

Costs for compounds under development include external direct expenses such as principal investigator fees, clinical research organization charges and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, EMA or other regulatory agencies outside the United States and Europe, as well as upfront license fees for acquired technology. Operating costs include our personnel and an allocation of occupancy expenses associated with developing these compounds. Research and preclinical development costs primarily include costs associated with bisplatinates development as well as external laboratory services associated with other compounds. We do not allocate operating costs to the individual compounds under development as our accounting system does not track these costs by individual compound. As a result, we are not able to capture the total cost of each compound. Direct external costs incurred to date for Pixuvri, OPAXIO, tosedostat and brostallicin are $73.5 million, $224.5 million, $7.0 million and $9.4 million, respectively. Costs for Pixuvri prior to our merger with Novuspharma S.p.A, a public pharmaceutical company located in Italy, or CTI (Europe), in January 2004 are excluded from this amount. Costs for brostallicin prior to our acquisition of SM in July 2007 are also excluded from this amount. Costs for tosedostat prior to our co-development and license agreement with Chroma are also excluded from this amount.

Research and development expenses increased to $34.9 million for the year ended December 31, 2011 from $27.0 million for the year ended December 31, 2010. Pixuvri costs increased primarily due to an increase in clinical development activity associated with the start-up of the PIX306 study. These increases were partially offset by decreases in the EXTEND and RAPID trials related to their wind-down and by a decrease in regulatory activity primarily associated with consulting services. Costs for our OPAXIO program decreased primarily due to a reduction in clinical development activity associated with a decline in patient enrollment in our GOG0212 trial, in addition to a decrease in manufacturing activity. Costs for tosedostat relate to the upfront payment upon execution of the co-development and license agreement with Chroma, in addition to our share of development costs associated with clinical and manufacturing activity incurred under the agreement. Costs for brostallicin relate primarily to clinical development activities associated with phase I and phase II studies. Our operating expenses decreased primarily due to a reduction in occupancy costs associated with a lease adjustment, in addition to a decrease in share-based compensation expense. These decreases were partially offset by increases in our 2011 estimated discretionary bonus accrual and depreciation expense. Research and preclinical development costs declined primarily due to the completion of contracted bisplatinate process development work, in addition to further decreases in expenses associated with the closure of our Bresso, Italy operations.

Our lead drug candidates, Pixuvri, OPAXIO, tosedostat and brostallicin, are currently in clinical trials. Many drugs in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even if our drugs progress successfully through initial human testing, they may fail in later stages of development. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. Regulatory agencies, including the FDA and EMA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and clinical testing. We, or regulatory authorities, may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks. Completion of clinical trials depends on, among other things, the number of patients available for enrollment in a particular trial, which is a function of many factors, including the availability and proximity of patients with the relevant condition. We rely on third parties to conduct clinical trials, which may result in delays or failure to complete trials if the third parties fail to perform or meet applicable standards. We have drug candidates that are still in research and preclinical development, which means that they have not yet been tested on humans. We will need to commit significant time and resources to develop these and additional product candidates.

Our products will be successful and we will be able to generate revenues only if:

•

our product candidates are developed to a stage that will enable us to commercialize, sell, or license related marketing rights to third parties; and

•

our product candidates, if developed, are approved.

Failure to generate such revenues may preclude us from continuing our research, development and commercial activities for these and other product candidates. We also enter into collaboration agreements for the development and commercialization of our product candidates. We cannot control the amount and timing of resources our collaborators devote to product candidates, which may also result in delays in the development or marketing of products.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $38.3 million for the year ended December 31, 2011 from $48.0 million for the year ended December 31, 2010. This decrease was primarily related to a $10.4 million reduction in noncash share-based compensation, a $1.6 million decrease in compensation and benefits associated with a lower average number of personnel between the periods, a $1.2 million decrease in occupancy expense primarily related to a lease adjustment and a decrease in sales and marketing expense associated with the pre-commercial efforts for Pixuvri during 2010. These decreases were offset in part by a net increase of $2.3 million in legal and patent services primarily related to attorney fees and related costs for litigation settlement associated with The Lash Group, Inc., see Note 20, Legal Proceedings in the Notes to Consolidated Financial Statement in Item 8 in this Annual Report on Form 10-K, and a $1.9 million increase associated with our 2011 estimated discretionary bonus accrual. If we receive FDA or EMA approval for Pixuvri, we expect selling, general and administrative expenses to increase in 2012 as compared to 2011 due to increased sales and marketing expenses for Pixuvri, including increased compensation expense for our Pixuvri sales force.

Gain from litigation settlement. We recorded $11.0 million gain from litigation settlement for the year ended December 31, 2011 resulting from the settlement with The Lash Group, Inc. See Note 20, Legal Proceedings in the Notes to Consolidated Financial Statements in Item 8 in this Annual Report on Form 10-K for additional information.

Investment and other income, net. Investment and other income for the year ended December 31, 2011 increased to $1.7 million as compared to $1.2 million for the year ended December 31, 2010. The amount in 2011 is primarily related to the retirement of our 5.75% Notes in December 2011 resulting from the difference in the carrying amount and the outstanding principal balance at maturity. In 2010, we were awarded $1.0 million in grants by the Internal Revenue Service under the Qualifying Therapeutic Discovery Project Credit Program.

Interest expense. Interest expense decreased to $1.0 million for the year ended December 31, 2011 from $2.3 million for the year ended December 31, 2010. This decrease is primarily due to maturity of our 4% Notes in July 2010. In addition, we fully repaid $10.3 million on our 7.5% Notes in April 2011 and $10.9 million on our 5.75% Notes in December 2011 upon maturity.

Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs decreased to $0.5 million for the year ended December 31, 2011 as compared to $0.8 million for the year ended December 31, 2010. The decrease is primarily due to the maturity of our 4% Notes in July 2010 and maturity of our 7.5% convertible senior notes in April 2011.

Foreign exchange gain (loss). Foreign exchange losses for the years ended December 31, 2011 and 2010 are due to fluctuations in foreign currency exchange rates, primarily related to payables and receivables in our European branches denominated in foreign currencies.

Debt conversion expense. Debt conversion expense of $2.0 million for the year ended December 31, 2010 is related to the exchange of $1.8 million principal balance of our 4% Notes in May 2010 for approximately 0.7 million shares of our common stock.

Provision for VAT assessments. For the year ended December 31, 2010, we recorded a provision for VAT assessments in the amount of $3.5 million as discussed in Note 20, Legal Proceedings in the Notes to Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Years ended December 31, 2010 and 2009.

License and contract revenue. License and contract revenue for the year ended December 31, 2010 and 2009 represents recognition of deferred revenue from the sale of Lisofylline material to DiaKine Therapeutics, Inc.

Research and development expenses. Our research and development expenses for compounds under development and preclinical development are as follows (in thousands):


	2010		2009
Compounds under development:
Pixuvri	$	7,249	$	6,256
OPAXIO		2,608		3,365
Brostallicin		115		1,096
Zevalin		—		987
Other compounds		108		137
Operating expenses		16,297		17,920
Research and preclinical development		654		418

Total research and development expenses	$	27,031	$	30,179

Research and development expenses decreased to $27.0 million for the year ended December 31, 2010 from $30.2 million for the year ended December 31, 2009. Pixuvri costs increased primarily due to an increase in clinical development activity mainly related to the RAPID trial as it continues to incur costs during its wind-down. Other increases related to Pixuvri costs associated with the startup of the additional clinical trial of PIX306 in addition to consulting costs. These increases were partially offset by a decrease in the EXTEND trial related to its wind-down. This increase in clinical development activity was partially offset by a decrease in manufacturing expenses due to a reduction in pre-commercialization activities for Pixuvri. In addition, regulatory activities decreased primarily due to the non-recurring expense associated with the filing fee for the NDA submission to the FDA, partially offset by an increase in consulting costs primarily associated with the MAA submission. Costs for our OPAXIO program decreased primarily due to a decrease in regulatory and quality assurance activities as well as a decrease in clinical development activity associated with our PGT307 trial. These decreases were partially offset by an increase in clinical development activity associated with our GOG0212 study due to an increase in patient enrollment. Costs for brostallicin relate primarily to clinical development activities associated with phase I and phase II studies. Zevalin costs decreased primarily due to the contribution of the product to RIT Oncology, the joint venture we formed with Spectrum on December 15, 2008, which assumed all related Zevalin expenses subsequent to that date. Our operating expenses decreased primarily due to a reduction in personnel and overhead costs associated with the closure of our Bresso, Italy operations as well as external consulting costs and share-based compensation expense, partially offset by an increase in discretionary bonus expense. Research and preclinical development expense increased primarily due to costs associated with contracted bisplatinate process development work.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $48.0 million for the year ended December 31, 2010 from $57.7 million for the year ended December 31, 2009. This is primarily due to a $7.4 million decrease in noncash share-based compensation and a $2.1 million decrease in expenses associated with our Bresso, Italy operations due to facility closure. Additionally, there were decreases in compensation and benefits associated with a lower average headcount between periods, and patent expenses.

Restructuring charges and related gain on sale of assets, net. Restructuring charges of $4.0 million for the year ended December 31, 2009 primarily relate to activities associated with the closure of our Bresso, Italy operations, including $2.6 million in employee termination benefits and $1.5 million in contract termination and

clean-up charges related to the Bresso facilities. These amounts were offset by a gain of $0.3 million on the sale of the assets related to the Bresso operations. In addition, we incurred $0.1 million in restructuring charges related to employee separation costs associated with the termination of Zevalin-related employees in connection with the sale of our 50% interest in RIT Oncology to Spectrum.

Gain on sale of investment in joint venture. During the year ended December 31, 2009, we recorded a $10.2 million one-time gain on the sale of our 50% interest in RIT Oncology in March 2009. This amount was based on the difference between $16.5 million in gross proceeds and the $4.6 million book value of our investment in RIT Oncology at the time of sale, net of $1.6 million in transaction costs.

Investment and other income, net. Investment and other income for the year ended December 31, 2010 increased to $1.2 million as compared to $0.1 million for the year ended December 31, 2009. In 2010, we were awarded $1.0 million in grants by the Internal Revenue Service under the Qualifying Therapeutic Discovery Project Credit Program.

Interest expense. Interest expense decreased to $2.3 million for the year ended December 31, 2010 from $4.8 million for the year ended December 31, 2009. This decrease is primarily due to the exchanges of $42.3 million principal balance of our 5.75%, 6.75% and 7.5% convertible senior notes and $14.8 million of our 4% Notes in 2009. In addition, we fully repaid the $38.5 million outstanding principal balance of our 4% Notes in July 2010.

Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs decreased to $0.8 million for the year ended December 31, 2010 as compared to $5.8 million for the year ended December 31, 2009. During 2009, conversions of our 9% and 10% convertible senior notes resulted in accelerated amortization of debt discount and issuance costs of $4.4 million. In addition, amortization of debt discount and issuance costs decreased by $0.5 million due to accelerated amortization of debt discount and amortization costs on our 5.75% and 7.5% convertible senior notes and 4% Notes as a result of exchanges and conversions in 2009 reducing the remaining cost basis and discount amount to be amortized over the remaining term of the respective convertible notes.

Foreign exchange gain (loss). Foreign exchange loss for the year ended December 31, 2010 and foreign exchange gain for the year ended December 31, 2009 are due to fluctuations in foreign currency exchange rates, primarily related to payables and receivables in our European branches denominated in foreign currencies.

Make-whole interest expense. Make-whole interest expense of $6.3 million for the year ended December 31, 2009 is related to $5.4 million in payments made upon the conversion of $18.0 million of our 10% convertible senior notes due 2011 and $0.9 million in payments made upon the conversion of $5.3 million of our 9% convertible senior notes.

Gain on derivative liabilities. The gain on derivative liabilities of $7.2 million for the year ended December 31, 2009 is primarily due to a gain of $4.4 million resulting from the change in the estimated fair value of the derivative liability related to the embedded conversion option on our 10% convertible senior notes due 2011 as well as a gain of $2.8 million due to the change in the estimated fair value of the derivative liability related to the Series B Unit Warrant that was issued in connection with our 13.5% convertible senior notes and

Series E preferred stock financing and modified in July 2008 in connection with the issuance of our 18.33% convertible senior notes. The 10% convertible senior notes due 2011 were fully converted into common stock during the first quarter of 2009. The Series B Unit Warrant expired in the second quarter of 2009.

Gain on exchange of convertible notes. The $7.4 million gain on exchange of convertible notes for the year ended December 31, 2009 is primarily related to $7.2 million due to the exchange of $52.9 million principal amount of portions of our 9%, 7.5%, 6.75% and 5.75% convertible senior notes and our 4% Notes for $7.1 million in cash and 4.0 million shares of our common stock, net of related transaction costs. In addition, we recorded a $0.2 million gain related to the exchange of $3.0 million of our 4% Notes and $1.5 million of our 6.75% Notes as well as accrued and unpaid interest on these notes for 0.5 million shares of our common stock.

Equity loss from investment in joint venture. The equity loss from investment in joint venture for the year ended December 31, 2009 relates to our 50% interest in RIT Oncology, prior to the sale of this interest in March 2009, which we accounted for using the equity method of accounting.

Milestone modification expense. Milestone modification expense for the year ended December 31, 2009 was due to a $6.0 million payment in shares of our common stock to the SMI shareholders based on the August 2009 amendment to our original acquisition agreement pursuant to which we acquired SMI in a stock-for-stock merger in July 2007.

Settlement expense. Settlement expense of $0.1 million for the year ended December 31, 2010 related to a settlement agreement reached with the former General Manager of our Italian Branch office, CTI (Europe) based on claims challenging his dismissal, which occurred in 2009. Settlement expense of $4.7 million for the year ended December 31, 2009 was due to $3.2 million related to amounts paid to Spectrum for the settlement of the final installment payment related to our sale of our 50% interest in RIT Oncology based on the outcome of arbitration proceedings. This amount includes the $3.5 million escrow amount released to Spectrum, our $0.8 million payment to Spectrum based on arbitration proceedings and $0.9 million in receivables recognized in prior periods and owed to us by RIT Oncology. The settlement amount is also net of $2.0 million in payables assumed by Spectrum on our behalf. We also incurred $1.3 million in settlement expense related to the payment made in accordance with our settlement agreement and release with Ingenix Pharmaceutical Services, Inc., or Ingenix, whereby each party agreed to a full release of the other party from any and all claims related to our dispute with Ingenix. The settlement expense recorded is net of $0.3 million in payables to Ingenix that were relieved from our books.

Liquidity and Capital Resources

As of December 31, 2011, we had $47.1 million in cash and cash equivalents.

Net cash used in operating activities totaled $60.5 million in 2011, compared to $63.1 million in 2010 and $88.2 million in 2009. The decrease in net cash used in operating activities for the year ended December 31, 2011 as compared to 2010 was primarily due to the proceeds received from settlement with The Lash Group, Inc. as discussed in Note 20, Legal Proceedings, in the Notes to Consolidated Financial Statements in Item 8 in this Annual Report on Form 10-K. In addition, decreases in cash paid for interest during 2011 as compared to 2010 and payments related to the closure of our Bresso, Italy operations made in 2010 contributed to the overall decrease in cash used in operating activities in 2011. These decreases were offset primarily by an increase in research and development expense, which includes an upfront payment of $5.0 million related to the licensing of tosedostat. In addition, we made a $1.1 million payment in 2011 to the GOG related to the 650 patient enrollment milestone achieved in 2010. The decrease in net cash used in operating activities for the year ended December 31, 2010 as compared to 2009 was primarily due to a reduction in interest payments on convertible notes and a decrease in operating expenses, including research and development expenses and selling, general and administrative expenses, excluding the allocation of noncash share-based compensation. The decrease is also attributable to a reduction in cash payments for prepaid expenses and other current assets in 2010 as well as

non-recurring cash payments made in connection with settlement of legal matters during 2009. We also received one-time grants from the Internal Revenue Service under the Qualifying Therapeutic Discovery Project Credit Program offsetting cash used in operating activities for the year ended December 31, 2010.

Net cash used in investing activities totaled $2.7 million in 2011 as compared to $2.3 million in 2010 and net cash provided by investing activities of $21.8 million in 2009. Net cash used in investing activities for the year ended December 31, 2011 was primarily due to purchases of property and equipment. Net cash used in investing activities for the year ended December 31, 2010 was primarily due to $2.0 million in purchases of property and equipment and $0.4 million in purchases of securities available-for-sale. Net cash provided by investing activities during the year ended December 31, 2009 was primarily due to $6.8 million in net proceeds from Spectrum in January 2009 related to the initial formation of RIT Oncology in December 2008 and $15.0 million in net proceeds from Spectrum related to the sale of our 50% interest in RIT Oncology in 2009.

Net cash provided by financing activities totaled $87.0 million in 2011, $49.7 million in 2010 and $94.8 million in 2009. Net cash provided by financing activities for the year ended December 31, 2011 was primarily due to issuances of preferred stock and warrants offset by repayments of outstanding convertible notes during the period. In January 2011, we received approximately $23.2 million in net proceeds from the issuance of our Series 8 preferred stock, warrants to purchase up to 3.8 million shares of common stock and an additional investment right to purchase shares of our Series 9 preferred stock. In February 2011, we received approximately $23.5 million in net proceeds from the issuance of our Series 10 preferred stock, warrants to purchase up to 4.3 million shares of common stock and an additional investment right to purchase shares of our Series 11 preferred stock. In May 2011, we received approximately $15.0 million in net proceeds from the issuance of our Series 12 preferred stock and warrants to purchase up to 3.0 million shares of common stock. In July 2011, we received approximately $28.0 million in net proceeds from the issuance of our Series 13 preferred stock and warrants to purchase up to 8.8 million shares of common stock. In December 2011, we received approximately $18.9 million in net proceeds from the issuance of our Series 14 preferred stock and warrants to purchase up to 7.0 million shares of common stock. These proceeds were offset by a $10.3 million payment to retire the outstanding principal balance on our 7.5% convertible senior notes in April 2011, $10.9 million payment to retire the outstanding principal balance on our 5.75% Notes in December 2011, and $0.4 million cash paid for the repurchase of shares in connection with satisfying tax withholding obligations on the vesting of restricted stock awards to employees.

Net cash provided by financing activities for the year ended December 31, 2010 was primarily due to issuances of convertible preferred stock and warrants during the period. In January 2010, we received $28.0 million in net proceeds from the issuance of our Series 3 preferred stock and warrants to purchase up to 1.4 million shares of our common stock. In April 2010, we received $18.6 million in net proceeds from the issuance of our Series 4 preferred stock and warrants to purchase up to 3.3 million shares of our common stock. In May 2010, we received $19.7 million in net proceeds from the issuance of our Series 5 preferred stock and warrants to purchase up to 4.4 million shares of our common stock. In July 2010, we received $3.0 million in net proceeds from the issuance of our Series 6 preferred stock and warrants to purchase up to 1.0 million shares of our common stock. In October 2010, we received $19.9 million in net proceeds from the issuance of our Series 7 preferred stock and warrants to purchase up to 3.8 million shares of our common stock. These proceeds were offset by a $38.5 million payment to retire the outstanding principal balance on our 4% Notes upon maturity in July 2010. In addition, we paid $0.9 million for the repurchase of shares in connection with satisfying tax withholding obligations on the vesting of restricted stock awards to employees during 2010.

Net cash provided by financing activities for the year ended December 31, 2009 was primarily due to $18.9 million in net proceeds received from the issuance of 2.7 million shares of our common stock and warrants to purchase up to 0.8 million shares of our common stock in May 2009, as well as $40.3 million in net proceeds received from the issuance of 5.6 million shares of our common stock and warrants to purchase up to 1.4 million shares of our common stock in a public offering in July 2009. In addition, we received $18.7 million in net proceeds from the issuance of our Series 1 preferred stock and related Class A and Class B warrants in May 2009, as well as $3.8 million and $4.3 million upon the exercise of the Class A and Class B warrants in May and

October 2009, respectively. We also received $28.4 million in net proceeds from the issuance of our Series 2 preferred stock and warrants to purchase up to 0.8 million shares of our common stock in August 2009. These proceeds were offset by $10.0 million in cash paid, net of transaction costs and in addition to 4.0 million shares of our common stock, for the exchange of $52.9 million principal amount of our convertible notes. We also repurchased $6.4 million shares of our common stock for cash in connection with the vesting of employee share awards based on taxes owed by employees due to the vesting of the awards. We made a $3.0 million deemed dividend payment in connection with our settlement with Tang Capital Partners LP for full release of all claims against us in connection with our alleged breach of contract related to Tang’s Series B preferred stock. This amount was accrued as of December 31, 2008 and paid in January 2009.

We have prepared our financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred net losses since inception and, unless we receive FDA or EMA approval for Pixuvri, we expect to generate losses from operations for at least the next couple of years primarily due to research and development costs for Pixuvri, OPAXIO, tosedostat and brostallicin.

We do not expect that our existing cash and cash equivalents are sufficient to fund our presently anticipated operations beyond the second quarter of 2012. This raises substantial doubt about our ability to continue as a going concern.

Our future capital requirements will depend on many factors, including:

•

results of our clinical trials;

•

regulatory approval of our products;

•

success in acquiring or divesting products, technologies or businesses;

•

progress in and scope of our research and development activities;

•

ability to find appropriate partners for the development and commercialization of our products if they are approved for marketing; and

•

competitive market developments.

Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies or sell or license our products to others. We may seek to raise such capital through public or private equity financings, partnerships, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources. However, we may not have sufficient authorized shares of common stock available for issuance or such financing may not be available when needed or, if available, we may not be able to obtain it on terms favorable to us or to our shareholders. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholders may result. If we fail to obtain capital when required, we may be required to delay, scale back, or eliminate some or all of our research and development programs and may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Insufficient funds may require us to delay, scale back or eliminate some or all of our research and development programs, or may harm our ability to operate as a going concern.

The following table includes information relating to our contractual obligations as of December 31, 2011 (in thousands):


Contractual Obligations	Payments Due by Period
	Total		1 Year		2-3 Years		4-5 Years		After 5 Years
Operating leases:
Facilities (1)	$	2,703	$	2,384	$	319	$	—	$	—
Long-term obligations (2)		262		225		37		—		—
Purchase commitments		1,487		1,174		308		5		—

	$	4,452	$	3,783	$	664	$	5	$	—

(1)

The table above does not include any payments associated with the lease agreement signed in January 2012. See Note 6, Contractual Arrangements and Commitments in the Notes to Consolidated Financial Statement in Item 8 in this Annual Report on Form 10-K for further information regarding our contractual obligations under this lease agreement.

(2)	Long-term obligations do not include $0.7 million related to the liability for excess facilities charges and $2.9 million related to the reserve for VAT assessments.

Manufacturing Supply Agreements

We signed the Chroma Supply Agreement for our drug candidate tosedostat. The Chroma Supply Agreement is a non-exclusive agreement and provides for both the clinical and commercial drug supply of tosedostat. The Chroma Supply Agreement commenced on June 8, 2011 and expires two years from the date when tosedostat is granted first approval for commercial distribution by the applicable regulatory authority in the licensed territory. Upon expiration of the initial term, we have a one year renewal option. We have the right to terminate the Chroma Supply Agreement without cause with 90 days written notice to Chroma. Both parties have the right to terminate for breach, bankruptcy, mutual agreement, or termination of the development agreement.

Additional Milestone Activities

Chroma Therapeutics, Ltd.

We have an agreement with Chroma, the Chroma Agreement, under which we have an exclusive license to certain technology and intellectual property controlled by Chroma to develop and commercialize the drug candidate, tosedostat, in the Licensed Territory. Pursuant to the terms of the Chroma Agreement, we paid Chroma an upfront fee of $5.0 million upon execution of the agreement and will make a milestone payment of $5.0 million upon the initiation of the first pivotal trial, which could commence in the second half of 2012. The Chroma Agreement also includes additional development- and sales-based milestone payments related to AML and certain other indications, up to a maximum amount of $209.0 million payable by us to Chroma if all development and sales milestones are achieved.

We will also pay Chroma royalties on net sales of tosedostat in any country within the Licensed Territory, commencing on the first commercial sale of tosedostat in any country in the Licensed Territory and continuing with respect to that country until the later of (a) the expiration date of the last patent claim covering tosedostat in that country, (b) the expiration of all regulatory exclusivity periods for tosedostat in that country or (c) ten years after the first commercial sale in that country. Royalty payments to Chroma are based on net sales volumes in any country within the Licensed Territory and range from the low- to mid-teens as a percentage of net sales.

We will oversee and be responsible for performing the development operations and commercialization activities in the Licensed Territory and Chroma will oversee and be responsible for performing the development operations and commercialization activities worldwide in the ROW Territory. Development costs may not exceed $50.0 million for the first three years of the Chroma Agreement unless agreed by the parties and we will be responsible for 75% of all development costs, while Chroma will be responsible for 25% of all development costs, subject to certain exceptions. Chroma is responsible for the manufacturing of tosedostat for development purposes in the Licensed Territory and the ROW Territory in accordance with the terms of the Chroma Supply Agreement. We have the option of obtaining a commercial supply of tosedostat from Chroma or from another manufacturer at our sole discretion in the Licensed Territory. The Chroma Agreement may be terminated by us at our convenience upon 120 days’ written notice to Chroma. The Chroma Agreement may also be terminated by either party following a material breach by the other party subject to notice and cure periods.

University of Vermont

PG-TXL

We have an agreement with PG-TXL, which grants us an exclusive worldwide license for the rights to OPAXIO and to all potential uses of PG-TXL’s polymer technology. Pursuant to the PG-TXL Agreement, we acquired the rights to research, develop, manufacture, market and sell anti-cancer drugs developed using this polymer technology. Pursuant to the PG-TXL Agreement, we are obligated to make payments to PG-TXL upon the achievement of certain development and regulatory milestones of up to $14.4 million. The timing of the remaining milestone payments under the PG-TXL Agreement is based on trial commencements and completions for compounds protected by PG-TXL license rights, and regulatory and marketing approval of those compounds by the FDA and the EMA. Additionally, we are required to make royalty payments to PG-TXL based on net sales. Our royalty payments range from low-single digits to mid-single digits as a percentage of net sales. Unless otherwise terminated, the term of the PG-TXL Agreement continues until no royalties are payable to PG-TXL. We may terminate the PG-TXL Agreement (i) upon advance written notice to PG-TXL in the event issues regarding the safety of the products licensed pursuant to the PG-TXL Agreement arise during development or

clinical data obtained reveal a materially adverse tolerability profile for the licensed product in humans or (ii) for any reason upon advance written notice. In addition, either party may terminate the PG-TXL Agreement (a) upon advance written notice in the event certain license fee payments are not made; (b) in the event of an uncured material breach of the respective material obligations and conditions of the PG-TXL Agreement; or (c) in the event of liquidation or bankruptcy of a party.

Gynecologic Oncology Group

Nerviano Medical Sciences

Cephalon

Pursuant to an acquisition agreement entered into with Cephalon in June 2005, we may receive up to $100.0 million in payments upon achievement by Cephalon of specified sales and development milestones related to TRISENOX. However, the achievement of any such milestones is uncertain at this time.

Novartis

In September 2006, we entered into an exclusive worldwide licensing agreement with Novartis for the development and commercialization of OPAXIO. Total product and registration milestones to us for OPAXIO under the Novartis Agreement could reach up to $270 million. Royalty payments to us for OPAXIO are based on worldwide OPAXIO net sales volumes and range from the low-twenties to mid-twenties as a percentage of net sales.

Pursuant to the Novartis Agreement, we are responsible for the development costs of OPAXIO and have control over development of OPAXIO unless and until Novartis exercises the Development Rights. In the event that Novartis exercises the Development Rights, then from and after the date of such exercise, or the Novartis Development Commencement Date, Novartis will be solely responsible for the development of OPAXIO. Prior to the Novartis Development Commencement Date, we are solely responsible for all costs associated with the development of OPAXIO, but will be reimbursed by Novartis for certain costs after the Novartis Development Commencement Date. After the Novartis Development Commencement Date, Novartis will be responsible for costs associated with the development of OPAXIO, subject to certain limitations; however, we are also responsible for reimbursing Novartis for certain costs pursuant to the Novartis Agreement.

Royalties for OPAXIO are based on worldwide sales volumes of OPAXIO and royalties for Pixuvri are based on sales volumes in the United States and sales volumes in other countries.

Impact of Inflation

In the opinion of management, inflation has not had a material effect on our operations including selling prices, capital expenditures and operating expenses.

Recently Adopted Accounting Standards

In April 2010, the FASB issued guidance on the milestone method for revenue recognition purposes. Previously, definitive guidance on when the use of the milestone method was appropriate did not exist. This guidance provides a framework of the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. This guidance was effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010 with early adoption permitted. The adoption of this guidance on January 1, 2011 did not have a material impact on our financial statements.

In December 2010, the FASB issued additional guidance on when to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The criteria for evaluating Step 1 of the goodwill impairment test and proceeding to Step 2 were amended for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. For public entities, this guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Upon adoption of this guidance on January 1, 2011, we performed Step 2 of the goodwill impairment test. Based on a valuation using the income, market and cost approaches, we determined that all of our $17.1 million in goodwill was impaired. The related charge was recorded as a cumulative-effect adjustment to beginning retained earnings in the current period. See Note 4, Goodwill, in the Notes to Consolidated Financial Statement in Item 8 in this Annual Report on Form 10-K for additional information.

Recently Issued Accounting Standards

In June 2011, the FASB issued guidance amending the presentation requirements for comprehensive income. For public entities, this guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. Upon adoption, we will have the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. Subsequently, in December 2011, the FASB deferred the effective date of the portion of the June 2011 accounting standards update requiring separate presentation of reclassifications out of accumulated other comprehensive income. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

Item 7a.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange Market Risk

We are exposed to risks associated with foreign currency transactions insofar as we use U.S. dollars to make contract payments denominated in euros or vice versa. As the net positions of our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. As of December 31, 2011, our foreign currency transactions are minimal and changes to the exchange rate between the U.S. dollar and foreign currencies would have an immaterial affect on our earnings. In addition, the reported carrying value of our euro-denominated assets and liabilities will be affected by fluctuations in the value of the U.S. dollar as compared to the euro. As of December 31, 2011, we had a net asset balance, excluding intercompany payables and receivables, in our European branches and subsidiaries denominated in euros. If the euro were to weaken 20% against the dollar, our net asset balance would decrease by approximately $1.1 million as of this date.

Item 8.

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm		71
Reports of Marcum LLP, Independent Registered Public Accounting Firm		72
Consolidated Balance Sheets		74
Consolidated Statements of Operations		75
Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Loss		76
Consolidated Statements of Cash Flows		79
Notes to Consolidated Financial Statements		82

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and

Shareholders of Cell Therapeutics, Inc.

We have audited the consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows of Cell Therapeutics, Inc. (the “Company”) for the year ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations, shareholders’ deficit and comprehensive loss, and cash flows of Cell Therapeutics, Inc. for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained loss from operations over the audit period, incurred an accumulated deficit, and had substantial monetary liabilities in excess of monetary assets as of December 31, 2009. Given these factors and the Company’s inability to demonstrate its ability to satisfy the monetary liabilities raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are described in Note 1 to the consolidated financial statements. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

/s/ Stonefield Josephson, Inc.

San Francisco, California

February 26, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders of

Cell Therapeutics, Inc.

We have audited the accompanying consolidated balance sheets of Cell Therapeutics, Inc. (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity (deficit) and comprehensive loss, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cell Therapeutics, Inc. as of December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses since its inception and does not have sufficient liquidity to fund its presently anticipated operations beyond the second quarter of 2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Marcum LLP

San Francisco, CA

March 8, 2012

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Audit Committee of the

Board of Directors and Shareholders of

Cell Therapeutics, Inc.

We have audited Cell Therapeutics, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

In our opinion, Cell Therapeutics, Inc. maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity (deficit) and comprehensive loss, and cash flows for the years then ended of Cell Therapeutics, Inc. and our report dated March 8, 2012 expressed an unqualified opinion, with an explanatory paragraph as to the uncertainty regarding the Company’s ability to continue as a going concern, on those financial statements.

/s/ Marcum LLP

San Francisco, CA

March 8, 2012

CELL THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	December 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	47,052		$	22,649
Prepaid expenses and other current assets		4,023			4,256

Total current assets		51,075			26,905
Property and equipment, net		3,604			3,426
Goodwill		—			17,064
Other assets		7,560			6,197

Total assets	$	62,239		$	53,592

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	5,750		$	6,037
Accrued expenses		11,064			11,008
Current portion of long-term obligations		970			1,717
7.5% convertible senior notes		—			10,215
5.75% convertible senior notes		—			12,093

Total current liabilities		17,784			41,070
Long-term obligations, less current portion		2,985			4,206

Total liabilities		20,769			45,276
Commitments and contingencies
Common stock purchase warrants		13,461			13,461
Shareholders’ equity (deficit):
Preferred stock, no par value:
Authorized shares—1,666,666 Series 14 Preferred Stock, $1,000 stated value, 20,000 shares designated, 10,000 and 0 shares issued and outstanding at December 31, 2011 and 2010, respectively		6,736			—
Common stock, no par value:
Authorized shares—383,333,333 and 200,000,000 at December 31, 2011 and 2010, respectively
Issued and outstanding shares—203,067,725 and 135,625,216 at December 31, 2011 and 2010, respectively		1,744,801			1,579,866
Accumulated other comprehensive loss		(8,035	)		(7,969	)
Accumulated deficit		(1,714,785	)		(1,576,643	)

Total CTI shareholders’ equity (deficit)		28,717			(4,746	)
Noncontrolling interest		(708	)		(399	)

Total shareholders’ equity (deficit)		28,009			(5,145	)

Total liabilities and shareholders’ equity (deficit)	$	62,239		$	53,592

See accompanying notes.

CELL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Year Ended December 31,
	2011			2010			2009
Revenues:
License and contract revenue	$	—		$	319		$	80

Total revenues		—			319			80

Operating expenses, net:
Research and development		34,900			27,031			30,179
Selling, general and administrative		38,290			48,043			57,725
Gain from litigation settlement		(11,000	)		—			—
Restructuring charges and related gain on sale of assets, net		—			—			3,979
Gain on sale of investment in joint venture		—			—			(10,244	)

Total operating expenses, net		62,190			75,074			81,639

Loss from operations		(62,190	)		(74,755	)		(81,559	)
Other income (expense):
Investment and other income, net		1,713			1,221			133
Interest expense		(1,038	)		(2,334	)		(4,806	)
Amortization of debt discount and issuance costs		(546	)		(768	)		(5,788	)
Foreign exchange gain (loss)		(558	)		(521	)		33
Debt conversion expense		—			(2,031	)		—
Provision for VAT Assessments		—			(3,503	)		—
Make-whole interest expense		—			—			(6,345	)
Gain on derivative liabilities, net		—			—			7,218
Gain on exchange of convertible notes		—			—			7,381
Equity loss from investment in joint venture		—			—			(1,204	)
Milestone modification expense		—			—			(6,000	)
Settlement expense		—			(145	)		(4,710	)

Other expense, net		(429	)		(8,081	)		(14,088	)

Net loss before noncontrolling interest		(62,619	)		(82,836	)		(95,647	)
Noncontrolling interest		259			194			252

Net loss attributable to CTI		(62,360	)		(82,642	)		(95,395	)
Gain on restructuring of preferred stock		—			—			2,116
Dividends and deemed dividends on preferred stock		(58,718	)		(64,918	)		(23,484	)

Net loss attributable to common shareholders	$	(121,078	)	$	(147,560	)	$	(116,763	)

Basic and diluted net loss per common share	$	(0.71	)	$	(1.29	)	$	(1.53	)

Shares used in calculation of basic and diluted net loss per common share		171,468			114,105			76,393

See accompanying notes.

CELL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

(In thousands)


	Preferred Stock						Common Stock						Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
	Shares			Amount			Shares			Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
Balance at December 31, 2008		—		$	—			31,069		$	1,188,071		$	(1,312,320	)	$	(7,812	)	$	—		$	(132,061	)
Issuance of common stock and warrants		—			—			8,289			59,233			—			—			—			59,233
Conversion of 10% convertible senior notes due 2011 to common stock		—			—			21,898			18,000			—			—			—			18,000
Conversion of 9% convertible senior notes to common stock		—			—			62			5,250			—			—			—			5,250
Issuance of Series F preferred stock in exchange for Series A, B, and D preferred stock		7			3,866			—			—			—			—			—			3,866
Conversion of Series F preferred stock to common stock		(7	)		(3,866	)		7,979			3,866			—			—			—			—
Issuance of Series 1 preferred stock, net of transaction costs		20			18,537			—			—			—			—			—			18,537
Conversion of Series 1 preferred stock to common stock		(20	)		(18,537	)		11,111			18,537			—			—			—			—
Issuance and Series 2 preferred stock, net of transaction costs		30			27,796			—			—			—			—			—			27,796
Conversion of Series 2 preferred stock to common stock		(30	)		(27,796	)		3,142			27,796			—			—			—			—
Value of beneficial conversion features related to Series 1 and 2 preferred stock		—			—			—			13,194			—			—			—			13,194
Issuance of warrants in connection with Series 2 preferred stock		—			—			—			6,138			—			—			—			6,138
Exercise of Class A warrants		—			—			1,530			5,222			—			—			—			5,222
Exercise of Class B warrants		—			—			1,730			5,732			—			—			—			5,732
Issuance of common stock in exchange for convertible notes		—			—			4,589			39,523			—			—			—			39,523
Issuance of common stock in connection with Series A preferred stock settlement		—			—			666			509			—			—			—			509
Issuance of common stock in exchange for milestone modification		—			—			934			6,000			—			—			—			6,000
Conversion or exchange of Series A, B and D preferred stock to common stock		—			—			631			4,288			—			—			—			4,288
Reacquisition of BCF in connection with exchange of Series A, B and C preferred stock for Series F preferred stock		—			—			—			(961	)		—			—			—			(961	)
Equity-based compensation		—			—			5,637			24,937			—			—			—			24,937
Repurchase of shares in connection with taxes on restricted stock vesting		—			—			(894	)		(6,394	)		—			—			—			(6,394	)
Employee stock purchase plan		—			—			7			36			—			—			—			36
Noncontrolling interest		—			—			—			(47	)		—			—			(205	)		(252	)
Gain on restructuring of preferred stock		—			—			—			—			2,116			—			—			2,116
Dividends and deemed dividends on preferred stock		—			—			—			1			(23,484	)		—			—			(23,483	)
Comprehensive loss:
Foreign currency translation loss		—			—			—			—			—			(601	)		—			(601	)
Unrealized gain on securities available-for-sale		—			—			—			—			—			1			—			1
Net loss for the year ended December 31, 2009		—			—			—			—			(95,395	)		—			—			(95,395	)

Comprehensive loss																							(95,995	)

Balance at December 31, 2009		—		$	—			98,380		$	1,418,931		$	(1,429,083	)	$	(8,412	)	$	(205	)	$	(18,769	)

See accompanying notes.

CELL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS—(Continued)

(In thousands)


	Preferred Stock						Common Stock						Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
	Shares			Amount			Shares			Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
Issuance of Series 3 preferred stock, net of transaction costs		30			27,761			—			—			—			—			—			27,761
Conversion of Series 3 preferred stock to common stock		(30	)		(27,761	)		4,115			27,761			—			—			—			—
Issuance of Series 4 preferred stock, net of transaction costs		20			18,621			—			—			—			—			—			18,621
Conversion of Series 4 preferred stock to common stock		(20	)		(18,621	)		6,667			18,621			—			—			—			—
Issuance of Series 5 preferred stock, net of transaction costs		21			19,464			—			—			—			—			—			19,464
Conversion of Series 5 preferred stock to common stock		(21	)		(19,464	)		8,750			19,464			—			—			—			—
Issuance of Series 6 preferred stock, net of transaction costs		4			2,970			—			—			—			—			—			2,970
Conversion of Series 6 preferred stock to common stock		(4	)		(2,970	)		1,933			2,970			—			—			—			—
Issuance of Series 7 preferred stock, net of transaction costs		21			19,273			—			—			—			—			—			19,273
Conversion of Series 7 preferred stock to common stock		(21	)		(19,273	)		9,459			19,273			—			—			—			—
Value of beneficial conversion features related to preferred stock		—			—			—			39,923			—			—			—			39,923
Issuance of warrants in connection with preferred stock		—			—			—			12,741			—			—			—			12,741
Issuance of common stock in exchange for convertible notes		—			—			717			3,879			—			—			—			3,879
Exercise of common stock purchase warrants		—			—			86			177			—			—			—			177
Equity-based compensation		—			—			5,773			17,048			—			—			—			17,048
Repurchase of shares in connection with taxes on restricted stock vesting		—			—			(262	)		(932	)		—			—			—			(932	)
Employee stock purchase plan		—			—			7			10			—			—			—			10
Noncontrolling interest		—			—			—			—			—			—			(194	)		(194	)
Dividends and deemed dividends on preferred stock		—			—			—			—			(64,918	)		—			—			(64,918	)
Comprehensive loss:
Foreign currency translation gain		—			—			—			—			—			301			—			301
Unrealized gain on securities available-for-sale		—			—			—			—			—			142			—			142
Net loss for the year ended December 31, 2010		—			—			—			—			(82,642	)		—			—			(82,642	)

Comprehensive loss																							(82,199	)

Balance at December 31, 2010		—		$	—			135,625		$	1,579,866		$	(1,576,643	)	$	(7,969	)	$	(399	)	$	(5,145	)

See accompanying notes.

CELL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS—(Continued)

(In thousands)


	Preferred Stock						Common Stock						Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
	Shares			Amount			Shares			Amount			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest			Total Shareholders’ Equity (Deficit)
Cumulative effect adjustment		—			—			—			—			(17,064	)		—		—			(17,064	)
Issuance of Series 8 preferred stock, net of transaction costs		25			18,337			—			—			—			—		—			18,337
Redemption of Series 8 preferred stock		(25	)		(18,337	)		—			—			—			—		—			(18,337	)
Issuance of Series 9 preferred stock		25			25,000			—			—			—			—		—			25,000
Conversion of Series 9 preferred stock to common stock		(25	)		(25,000	)		10,745			25,000			—			—		—			—
Issuance of Series 10 preferred stock, net of transaction costs		25			18,301			—			—			—			—		—			18,301
Redemption of Series 10 preferred stock		(25	)		(18,301	)		—			—			—			—		—			(18,301	)
Issuance of Series 11 preferred stock		25			24,957			—			—			—			—		—			24,957
Conversion of Series 11 preferred stock to common stock		(25	)		(24,957	)		12,343			24,957			—			—		—			—
Issuance of Series 12 preferred stock, net of transaction costs		16			10,647			—			—			—			—		—			10,647
Conversion of Series 12 preferred stock to common stock		(16	)		(10,647	)		7,606			10,647			—			—		—			—
Issuance of Series 13 preferred stock, net of transaction costs		30			19,077			—			—			—			—		—			19,077
Conversion of Series 13 preferred stock to common stock		(30	)		(19,077	)		17,647			19,077			—			—		—			—
Issuance of Series 14 preferred stock, net of transaction costs		20			13,472			—			—			—			—		—			13,472
Conversion of Series 14 preferred stock to common stock		(10	)		(6,736	)		8,696			6,736			—			—		—			—
Value of beneficial conversion features related to preferred stock		—			—			—			27,435			—			—		—			27,435
Issuance of additional investment right in connection with preferred stock issuances		—			—			—			7,742			—			—		—			7,742
Issuance of warrants in connection with preferred stock issuances		—			—			—			21,198			—			—		—			21,198
Exercise of common stock purchase warrants		—			—			8,080			17,485			—			—		—			17,485
Equity-based compensation		—			—			2,547			5,017			—			—		—			5,017
Repurchase of shares in connection with taxes on restricted stock vesting		—			—			(222	)		(405	)		—			—		—			(405	)
Noncontrolling interest		—			—			—			50			—			—		(309	)		(259	)
Dividends and deemed dividends on preferred stock		—			—			—			—			(58,718	)		—		—			(58,718	)
Employee stock purchase plan		—			—