May 12, 1999   RECOMMENDATION: BUY

Market Data: Exchange Symbol........................CTIC (NASDAQ) Price of Common Stock (4/21/98)............$3.31 30-Day Average Trading Volume............72,954 Shares Outstanding.........................15.4 million 52-Week High/Low......................$4.75/$1.50

CTIC Corporate Information: Address..........201 Elliott Avenue West, Ste. 400 .............................................Seattle, WA 98119 Telephone................................(206) 282-7100 President & CEO......................James Bianco, M.D. Executive VP, Finance..................Louis A. Bianco

Summary Investment Considerations

CTIC is an emerging pharmaceutical company focusing on the discovery, development, and commercialization of drugs useful in treating cancer and the serious side effects of various cancer treatments. The Company is building a deep, vertically integrated pipeline of cancer products targeting major unmet treatment needs, each with independent technology. This strategy enables use of multiple CTIC products by the same clinician and patient, and protects against the failure or ineffectiveness of any one particular technology. CTIC's lead product, Lisofylline ("LSF"), is in trials for two different indications: treating the side effects of high-dose chemotherapy and radiation, and for treatment of patients with acute respiratory distress syndrome (ARDS) and acute lung injury (ALI). CTIC has partnered with Johnson & Johnson ("JNJ") for the development of Lisofylline; CTIC is actively seeking additional corporate partners for other drug candidates. We are initiating coverage of CTIC with a BUY rating, and recommend purchase of CTIC by investors tolerant of the risks associated with small-cap equity investments.

I.      Integrated Oncology Strategy -- Broad, Late-Stage Product Pipeline

• Strategy: CTIC has a pipeline of promising products, two in late-stage clinical trials, addressing significant oncology market opportunities. The market for cancer drugs continues to grow; by 2000, cancer is expected to surpass heart disease as the leading cause of death in the U.S.
• Lisofylline: LSF is in Phase III trials for acute myelogenous leukemia (AML); CTIC anticipates completion of enrollment in June 1999 and announcement of results this summer. Results from the LSF Phase II/III trial for ARDS/ALI, sponsored by the National Heart, Lung and Blood Institute, should be announced in June 1999.
• Apra: Apra is in Phase II trials to treat patients with cancers resistant to conventional chemotherapy such as prostate, lung, colon and breast cancer, as well as soft tissue sarcomas.
• PG-TXL is a polymer conjugate derivative of Taxol, the world's most popular cancer drug. Binding Taxol to a polymer enhances delivery of the drug to the tumor site and anti-cancer effectiveness, while reducing systemic side effects. PG-TXL is entering Phase I clinical trials for breast, colon, lung and other cancers. SC-7, an anti-angiogenic drug currently in preclinical research, is a copper chelator that binds with copper at a molecular level to block multiple steps in the growth of new blood vessels in tumors.

• As of 12/31/98, CTIC had approximately $50 million in cash and equivalents (approximately $3.25 per share). CTIC anticipates a reduction in burn rate this year, assuming additional corporate partnerships are secured.
• Since November 1996, CTIC has been collaborating with JNJ to develop LSF. JNJ has paid a total of $40.8 million to CTIC for LSF, and has an option to continue the collaboration following review of the results from the AML and ARDS/ALI studies (decision anticipated 4Q99). If JNJ does not exercise its option, we believe CTIC will be able to partner LSF in a timely fashion. CTIC is actively seeking partners on other programs.

• June 1999: Announce interim results from the Phase II/III study of LSF for ALI/ARDS; complete enrollment in Phase III trials of LSF for induction chemotherapy/AML.
• 2H99: Announce results of the Phase III trials for LSF for AML and the Phase II trials for Apra for prostate cancer patients; complete enrollment in Phase III of the LSF bone marrow transplant (BMT) trials; complete Phase II of LSF trials for mucositis; initiation of trials of PG-TXL; file an NDA for LSF in early 2000.

Company Background & Overview

CTIC is an emerging pharmaceutical company focusing on the discovery, development, and commercialization of drugs useful in treating cancer and the serious side effects of cancer treatment. The Company's strategy is to build a deep, vertically integrated pipeline of cancer products targeting major unmet treatment needs, each with independent technology. CTIC was incorporated in September 1991, and commenced operations in 1992. Until the end of 1995, CTIC primarily conducted development-stage activities such as recruiting scientific and management personnel, establishing laboratory facilities and raising capital.

On March 26, 1997, CTIC completed its IPO, selling 3 million shares at a price of $10.00 per share. CTIC sold 300,000 shares to Johnson & Johnson at the same time, also for $10.00 per share, raising combined net proceeds of roughly $30 million. A secondary offering of 2.3 million shares at $16.00 per share was completed on October 27, 1997, which resulted in net proceeds of $34.3 million.

The key elements of CTIC's business strategy involve targeting large oncology markets that are inadequately served by existing therapeutics and entering into corporate collaborations only when products are in mid-to-late-stage clinical trials in order to receive terms most favorable to CTIC. The Company plans to leverage its non-core proprietary technologies in order to create a cash-flow stream that will allow it to fund its pipeline of core products. CTIC believes that by initially focusing on life-threatening conditions, followed by less serious conditions, regulatory review and approval will be accelerated, as will adoption by healthcare providers, patients, and third-party payers.

CTIC's Diversification Strategy -- Enhancing the Risk/Reward Profile Over the past 12 months, CTIC has undergone a significant transformation from a single product/single indication/one partner company, into a diversified oncology company with multiple products in advanced clinical trials. Despite significant progress on many fronts, including:

• Diversifying development risk over several products and technologies;
• Moving multiple products with large target markets into advanced clinical trials;
• Strengthening the management team; and
• Maintaining a strong balance sheet by successfully managing its cash balances;

12-Months Ago: The value being attributed to CTIC was based almost entirely on the potential for Lisofylline (LSF) in the Bone Marrow Transplant (BMT) indication (preventing infections in patients undergoing BMTs), and on the value attributed to the partnership with JNJ. In early March 1998, CTIC stock traded around $15 per share. On March 25, 1998, CTIC announced that preliminary results of the first Phase III trial of LSF for BMT were not confirmatory. Despite the Company's belief that these results were negatively affected by patient recruitment issues at certain clinical trial sites, and not the clinical and commercial potential of LSF, the stock sold off aggressively following this announcement. Interestingly, JNJ stuck with CTIC and LSF.

CTIC Today: We believe management has done an impressive job at diversifying CTIC's development activities, getting new products into clinical trials, strengthening the management team and managing its cash resources. With respect to product diversification and enhancement of shareholder value, CTIC investors have gained:

• The ARDS/ALI opportunity for LSF in pivotal phase II/III trials -- the results of which should be announced shortly;
• Apra, in pivotal trials for prostate cancer and soft tissue sarcoma -- the results to be announced 2H99;
• A significant corporate partnering opportunity with Apra;
• PG-TXL, the polymer conjugate of the world's most successful cancer drug, Taxol -- entering Phase I trials in large cancer indications;
• A significant corporate partnering opportunity for PG-TXL -- CTIC has been approached by multiple potential partners interested in this compound;
• SC-7, an oral, once-a-day, anti-angiogenic drug, in pre-clinical studies;
• And a stronger management team;

Cancer -- Background

Cancer is the second-leading cause of death in the US -- over 550,000 deaths annually. The American Cancer Society estimates that half of all men and one third of all women in America will develop cancer at some point in their lifetime. According to the National Cancer Advisory Board, more than 8 million people in the US have cancer, and by the end of this decade, it is projected that cancer will surpass heart disease as the leading cause of death in the US. Every year, another 1.4 million new cases are diagnosed.

Current Treatment: Surgery, radiation therapy, and chemotherapy are the most common methods for treating cancer, and cancer patients generally receive a combination of these therapies. At some point during treatment, 70 percent of all cancer patients will receive radiation therapy and 50 percent of all newly diagnosed cancer patients receive chemotherapy.

For many years, surgery was the only treatment capable of curing cancer (a patient is deemed to have been "cured" of cancer if five years go by with no recurrence of the cancer). Patients generally receive surgery to diagnose the cancer, determine its extent, relieve symptoms, reconstruct anatomy that has been damaged by the disease and treat any existing complications such as a perforation or a hemorrhage. Surgery can be performed as a curative measure on solid tumors confined to one anatomic region, or as a reductive measure to remove as much of a tumor as possible without causing damage to surrounding anatomy.

Radiation therapy, like surgery, is limited to localized tumors. Radiation destroys cells by damaging their DNA, and thus their ability to reproduce. When cancer cells stop reproducing, the tumor stops growing. As dosage is increased, the number of cells destroyed increases. Unfortunately, at higher doses, bone marrow, which is critical to the formation of blood cells, is damaged or destroyed. In 1995, approximately 20,000 patients in the US received bone marrow transplants (BMT) following ablative (bone marrow destroying) doses of radiation therapy. This type of treatment regimen is one of the fastest-growing types of cancer treatments in America, with an estimated growth rate of 15-20% annually.

Chemotherapy, treatment with cytotoxic chemicals to kill cancer cells, is used to treat cancers that have metastasized (spread to other parts of the body). The biggest difference between radiotherapy and chemotherapy is that radiation therapy is delivered specifically to the tumor, and chemotherapy is systemic (delivered to the entire body), and as such leads to toxicity not only in cancerous cells, but in normal tissues as well, thus limiting the potential effectiveness of the chemotherapy treatment.

Since the toxicity issues resulting from these treatments limit the dosage level a patient may receive, there is a very high rate of failure (only 10% of chemotherapy patients are cured, for example), and patients are placed at risk of life-threatening infection. Although treatment with growth factors has helped infection-fighting white blood cells recover after chemotherapy, they have been largely ineffective in the prevention of infection.

Radiation and chemotherapy are toxic to rapidly dividing cells, which include not only cancer cells, but hair follicle cells, bone marrow cells, and the epithelial, or protective, cells lining the gastrointestinal tract, mouth and stomach that form a barrier to keep bacteria from entering the sterile bloodstream. Side effects from these treatments include neutropenia (bone marrow suppression of white blood cells) and mucositis (damage to the epithelial cells). Damage to the epithelial cells lining the gastrointestinal tract allows infective pathogens to enter the blood and places patients at risk of infection.

Lisofylline for Oncology Indications

Lisofylline (LSF) is CTIC's lead product. It is a synthetic, small-molecule drug being developed to address the serious side effects of high-dose radiation and chemotherapy by reducing inflammation and damage to the epithelial cells lining the gastrointestinal tract. LSF appears to prevent infective agents from passing from the gastrointestinal tract through the damaged layer of epithelial cells and into the bloodstream, and in clinical trials has greatly reduced the incidence of serious infections while improving the survival rates among cancer patients receiving high-dose radiation and chemotherapy.

CTIC's development strategy for LSF has been to target anti-cancer treatment regimens with a high incidence of neutropenic infections, mucositis, and treatment-related mortality. Approximately 575,000 patients get chemotherapy every year in the US, and more than 20% develop neutropenia and/or mucositis. Other factors influencing the LSF development strategy are as follows:

• As many as 50 percent of patients who receive bone marrow transplants (BMT) or chemotherapy for acute myelogenous leukemia (AML) develop serious infections and as many as 50 percent of those patients may die from the side effects of the high doses of radiation and chemotherapy.
• There are currently no agents that effectively reduce incidences of these serious and/or fatal infections.
• New FDA guidelines provide for accelerated review and approval of New Drug Applications for serious, life-threatening or severely debilitating indications that provide a meaningful therapeutic benefit to patients over existing treatments.
• Once LSF is approved, there is a strong chance that healthcare providers, patients, and third-party payers will adopt an agent that targets life-threatening side effects of cancer therapy.

On March 25, 1998, CTIC announced that preliminary results of its first Phase III test of LSF for safety and efficacy for treatment of BMT patients were not confirmatory. According to management, the trial results were negatively influenced by patient recruitment issues at some of the clinical sites, and not the therapeutic or commercial potential of LSF itself. LSF is currently in a second pivotal Phase III trials for the BMT application, and results are expected to be announced early next year.

LSF is also in Phase III trials for patients with newly diagnosed AML that receive high-dose chemotherapy. CTIC anticipates completing patient enrollment (a total of 160 patients) during the first half of 1999. Results are expected to be announced sometime in 3Q 99.

During 3Q98, CTIC commenced a Phase IIa LSF trial to treat oral mucositis in patients with head and neck tumors who are receiving high-dose radiation. These patients very commonly develop severe mucositis and difficulties in swallowing and nutritional development that can cause therapy to be interrupted. The epithelial cell damage in the mouth can also provide bacteria and fungus an entry point into the patient's body. This trial should be completed in the second half of 1999, and if successful, Phase III trials will commence in 2000.

LSF for Non-Oncology Indications

Acute Lung Injury -- Just as LSF may be able to prevent damage to the epithelial cells lining the intestinal tract caused by anti-cancer treatment, it may also treat acute lung injury (ALI) by protecting the epithelial barrier cells that line the respiratory tract. ALI results from oxidative injury to these cells after exposure to high levels of oxygen in connection with mechanical ventilation and/or following resuscitation with blood transfusions. Although ALI is frequently associated with many different diseases or conditions, it is most commonly observed following mechanical ventilation for pneumonia, traumatic injuries requiring resuscitation, and sepsis (the presence of disease-causing organisms or their toxins in the blood). ALI can lead to Acute Respiratory Distress Syndrome (ARDS), an inflammatory lung condition. Over one million patients annually are at risk for developing ALI, and approximately 150,000 new cases of ARDS are diagnosed every year. Thirty to forty percent of them are fatal. Currently there are no specific treatments or therapies available for ARDS.

In January 1997, the National Heart, Lung, and Blood Institute (NHLBI), through its ARDS network, selected LSF for investigation in a multi-center, pivotal Phase II/III trial, and is funding patient costs for the trial. The first 200 of 800 patients have been enrolled, and preliminary results on these first 200 patients should be announced in June.

Other Pipeline Technologies

Apra -- Apra is a novel, small-molecule, anti-cancer drug being developed to treat patients with cancers that are resistant to conventional chemotherapy such as prostate, lung, colon and breast cancer, and soft tissue sarcomas (diseases in which malignant tumors are found in bone, cartilage, muscle, fibrous connective tissue, or fatty tissue). Tumor resistance to chemotherapy is a major problem when treating cancer; almost 50 percent of certain cancer cell types are resistant to conventional therapy at the time of diagnosis, and up to 90 percent of treated cancers may develop drug resistance after only one cycle of treatment. Apra's unique mechanism is selectively toxic to cancer cells and does not damage bone marrow. In clinical trials, patients have been able to receive Apra with no bone marrow damage, no hair loss, and no lowering of white blood cell count. So far, fatigue has been shown to be the only side effect. Surprisingly, trials have indicated that the more malignant the tumor, the less drug is needed to treat the tumor, and that the drug may also be anti-angiogenic, preventing the growth of tumor-feeding blood vessels.

Apra is currently in Phase II efficacy trials for the treatment of hormone-refractory prostate cancer. Enrollment for the 80-person trial, to be conducted by a consortium of eight leading prostate cancer research centers, is expected to be completed in the second half of 1999. CTIC also anticipates initiating a Phase II efficacy trial for soft tissue sarcoma during the first half of 1999. This trial will be followed by a Phase II trial for the use of Apra alongside conventional chemotherapy as a treatment for lung cancer. CTIC is currently seeking a corporate partner to assist in the commercialization of Apra.

PG-TXL -- In July 1998 CTIC licensed PG-TXL (polyglutamic acid paclitaxel) from the M.D. Anderson Cancer Center. PG-TXL is a polymer conjugate, water-soluble derivative of Taxol, the most popular cancer drug in the world. Because it is bound to a polymer, PG-TXL becomes trapped in the abnormal blood vessels in a tumor, where it becomes active, and is slowly digested by tumor cells. This allows for delivery of the drug directly into a tumor. In animal studies, scientists have been able to deliver up to 400% more of the drug with less toxicity than the maximum tolerable amount of Taxol. Taxol, by contrast, does not allow for targeted delivery, but is delivered systemically, with sometimes severe side effects. Further, whereas Taxol is delivered by an infusion lasting several hours, PG-TXL can be given via an infusion lasting 10 minutes, and it enhances the effectiveness of the radiation therapy normally given along with Taxol. PG-TXL is entering Phase I clinical trials.

SC-7 -- SC-7 is a novel, orally delivered copper chelator that binds with copper at a molecular level to block multiple steps in the growth of new blood vessels in tumors. Copper is an essential co-factor in multiple key parts of the formation of new blood vessels in tumors, and SC-7, in addition to being non-toxic, may be able to block several major steps by which tumors stimulate new blood vessel formation. It is currently in preclinical research, and CTIC plans to determine whether to license the technology and enter development of SC-7 by the third quarter of 1999.

Corporate Partnerships

In November 1996, CTIC entered into a Collaboration and License Agreement with Ortho Biotech and The R.W. Johnson Pharmaceutical Research Institute (PRI), both of which are wholly owned subsidiaries of JNJ, for the joint development and commercialization of Lisofylline to prevent or reduce toxic side effects among cancer patients receiving high-dose radiation and/or chemotherapy followed by a bone-marrow transplant. Both companies agreed to co-promote LSF, and share equally in operating profits and losses in the US. The agreement was expanded in September 1997 to include the development of LSF to treat patients with acute myelogenous leukemia (AML) who are undergoing high-dose chemotherapy.

In July 1998, the agreement was further revised so that JNJ paid $13.1 million in development cost reimbursements for BMT and AML through December 31, 1998, bringing JNJ's total payments to $40.8 million. Since that date, CTIC has had sole responsibility for LSF's development costs. JNJ may elect to resume responsibility for LSF's development and commercialization after review of the clinical results from the ARDS/ALI and AML trials, which we anticipate in May 1999 and September 1999, respectively. Should JNJ choose not to resume funding, CTIC will be free to license LSF to any other third party, which we believe they could do without difficulty.

CTIC entered into collaboration and supply agreements with BioChem Pharma in March of 1995 for the development and commercialization of LSF and Apra in Canada. According to the terms of this agreement, BioChem Pharma will be responsible for obtaining regulatory approval for the drugs in Canada. BioChem Pharma is not obligated to perform any research and development activities, but will fully fund any clinical trials CTIC performs in Canada and will pay royalties to CTIC for the exclusive right to sell LSF and Apra in Canada. BioChem Pharma made an equity investment of $2.5 million in CTIC during the fourth quarter of 1995. As of December 31, 1999, CTIC had recorded milestone payments of $450,000 from BioChem Pharma.

Summary of Milestones

Given the number of product programs, clinical trials and partnering activity occurring, we anticipate a steady stream of news from CTIC over the remainder of the year and into the early part of next year. We have listed a number of the anticipated milestones below.

June 1999

• Announce interim results from Phase II/III study of LSF for ALI/ARDS
• Complete enrollment in Phase III trials of LSF for side effects of induction chemotherapy for AML treatment

Second Half of 1999

• Announce results from Phase II trials of Apra for prostate cancer patients
• Complete enrollment in Phase III trials of LSF for BMT
• Announce Results of Phase III trials of LSF for AML treatment
• Complete Phase II trials of LSF for mucositis
• Announce results of LSF Phase III trials for BMT
• Initiate PG-TXL clinical trials
• CTIC to determine whether to license and develop SC-7

Early 2000

• File NDA for LSF for BMT patients

Management

James Bianco, M.D. is CTIC's principal founder and has been President and CEO since February 1992. He is a former Assistant Professor of Medicine at the University of Washington and a former assistant member of the clinical research division at the Fred Hutchinson Cancer Research Center, the world's largest bone marrow transplant center. From 1990 to 1992, Dr. Bianco was the director of the bone marrow transplant program at the Veterans' Administration Medical Center in Seattle. Dr. Bianco received his B.S. in Biology and Physics from New York University and his M.D. from Mt. Sinai School of Medicine.

Max Link, Ph.D. has been Chairman of the Board since January 1996, after joining the Board of Directors in July 1995 as Vice-Chairman. Most recently, he was CEO of Corange, Ltd. From May 1993 to June 1994, Dr. Link was CEO of Sandoz from 1990 to April 1992 and Chairman from April 1992 to May 1993. Dr. Link currently serves on the boards of directors of Alexion Pharmaceuticals, Inc., Human Genome Sciences, Inc., Procept, Inc. and Protein Design Labs, Inc. Dr. Link received his Ph.D. in Economics from the University of St. Gallen.

E. Donnall Thomas, M.D. is the Chairman of the Clinical Advisory Board. Dr. Thomas won the Nobel Prize for Medicine in 1990, and is regarded as the "father" of bone marrow transplantation. He is Professor of Medicine Emeritus at the University of Washington School of Medicine.

Michael R. Hanley, Ph.D. is the Chairman of the Scientific Advisory Board. He is an authority on cell communication processes, and a Professor at the Department of Biological Chemistry at the University of California, Davis School of Medicine.

Jack Singer, M.D. is a founder and director of CTIC. He is currently CTIC's Executive Vice President, and Chairman of the Research Program. Dr. Singer has been a Director since the Company's inception in September of 1991. From April 1992 to July 1995, he was Executive Vice President, Research & Development. He was a Professor of Medicine at the University of Washington and a full member of Fred Hutchinson Cancer Research Center. From 1975 to 1992, he was the Chief of Medical Oncology at the Veterans Administration Medical Center in Seattle, and was a director for the National Transplant Board for the Veterans Administration from 1978 to 1992.

Louis A. Bianco is a founder of CTIC. He has been CTIC's Executive Vice President, Finance and Administration since February 1, 1992. From the Company's inception in September 1991 to April 1992 and from April 1993 to April 1995 he was a Director of CTIC. Mr. Bianco was a Vice President in charge of risk management at Deutsche Bank Capital Corporation from January 1989 until January 1992. He is a CPA and received his MBA from New York University.

Financial Information and Valuation Discussion

Based upon our discussions with management, and a review of the market opportunities for CTIC's products in development, we have generated an earnings model and forecast out to the year 2004. We have provided information pertaining to the targeted indications for Lisofylline and Apra, and believe our assumptions (as to market size, growth, penetration and pricing) are sufficiently conservative and consistent with comparable company estimates.

With respect to revenues from collaborative agreements, we have included in our model only assumptions for Lisofylline, based upon the JNJ agreement. We have not included potential collaborative agreements on Apra or PG-TXL, despite our belief that a corporate partnership with either one of these compounds could occur this year. With respect to international revenues, we believe we have also been very conservative, including only revenues from Lisofylline (including royalty assumptions on Canadian sales through CTIC's partnership with BioChem Pharma).

Valuation: From our assumption pages, we developed a six-year income statement forecast. From these data, we generated valuation analyses using a discounted cash flow method, a terminal P/E multiple method and a terminal EBITDA multiple method. We believe we have been sufficiently (if not excessively) punitive in our discount rates, and are comfortable with the range of multiples being used. Regardless of the valuation methodology, CTIC's share price appears to be significantly undervalued at its current level, particularly for a biotechnology company with multiple products in advanced clinical trials. The stock is currently trading at roughly cash value, with the market assigning no value whatsoever to CTIC's pipeline of products. We believe current fair value for CTIC to be in the range of $14 to $17 per share. We are initiating coverage of CTIC with a BUY rating, and recommend purchase of CTIC by investors tolerant of the risks associated with small-cap equity investments.

Earnings Model and Valuation Analyses: See Below

Summary Balance Sheet ($000s) -- FY Ends December 31
	12/31/98A
Cash, equivalents & investments	$47,072
A/R	0
Total Assets	$58,156
Long term debt	3,887
Shareholders' equity	$47,072

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of CTIC Corporation. For a complete description of risks and uncertainties to CTIC's business, see the "Risk Factors" section in CTIC's SEC filings, which can be accessed directly from the SEC Edgar filings at on the Internet. Other potential risks include:

• Market risk: Like many small-cap and micro-cap stocks, CTIC's share price is trading near its 52-week low. Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: CTIC has limited experience in the manufacturing, marketing, and the distribution of cancer treatments. Many of its products are in the early stages of development. Additionally, CTIC intends to license rights to its products to other companies. There can be no assurance that these licensing agreements will be completed, or that the market will accept any products under development.
• Regulatory risk: There is no guarantee that CTIC's products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.