June 1, 1999

RECOMMENDATION: BUY

Cell Therapeutics, Inc. (NASDAQ: CTIC)

CTIC Announces Halt to Lisofylline ALI/ARDS Trial;
Market Reaction Creates BUY-ing Opportunity

Recent Developments

Cell Therapeutics ("CTIC") announced Friday that the Data Safety and Monitoring Board appointed by the National Heart, Lung and Blood Institute (NHLBI) recommended that CTIC discontinue enrollment in the NHLBI-sponsored Phase II/III trial using Lisofylline (LSF) as a treatment for Acute Lung Injury/Acute Respiratory Distress Syndrome (ALI/ARDS). Based on a preliminary look at the data in early March of this year, we were surprised at this outcome. After speaking with management, we believe the significant drop in CTIC stock on Friday was a reaction to the news and has created a BUYing opportunity for the stock. We are therefore reiterating our BUY recommendation on CTIC for those investors tolerant of the risks associated with small-cap equity investments.

Today’s News: CTIC has not yet received the data from the NHLBI. They anticipate receiving the data promptly and will spend the next few weeks analyzing the results. We would expect a follow-on announcement pertaining to this analysis upon completion. It is the Company’s hope that it will be able to develop a Phase III protocol that can take into account any of the anomalies seen within certain subsets of the data, if any.

Implications of Today’s News: First, investors should keep in mind that the ALI/ARDS indication represented an opportunistic play for CTIC — funded by the NHLBI — outside of CTIC’s core oncology strategy. As such, a positive outcome was "upside" potential, and we believe results (which we won’t have a complete picture of until the data is analyzed) that are negative represent little "downside." Second, we don’t believe investors should assume that a failure of LSF in ALI/ARDS means the drug will not be efficacious in the ongoing oncology trials (investors should also note that the NHLBI board reported no safety issues in the ALI/ARDS trial). CTIC announced today that it had completed enrollment in its Phase III trial for LSF to prevent serious infection in patients undergoing high-dose chemotherapy for acute myeloid leukemia (AML). These patients will be followed for a 90-day period and data analysis should be available sometime in September 1999. Third, we suspect that investors may believe that negative news concerning the ALI/ARDS trial may affect Johnson & Johnson’s (JNJ) decision of whether or not to exercise its option to continue its partnership with CTIC. While it may, this decision should not be made until JNJ has analyzed the data from the AML trial this fall. We believe it is premature to make assumptions concerning the JNJ relationship.

It is possible that further analysis of the data will provide no helpful information and the ALI/ARDS program will end. If this were the case, removing LSF for the ALI/ARDS indication from our model would reduce our 12-18 month price target ($14 to $17 per share) by roughly 20%.

Product Pipeline and Valuation Discussion: At the end of 1Q99, CTIC had over $2.50 per share in cash. In addition, CTIC recently announced positive news on its Apra product, an anti-cancer product that is currently involved in two efficacy studies. CTIC is also developing PG-TXL, (polyglutamate paclitaxel) a novel, site-specific version of the anti-cancer drug Taxol, which is expected to enter human trials later this year following very promising animal studies (investors should note that Taxol is one of the most successful chemotherapy drugs on the market). A product called SC-7 is also being developed by CTIC. SC-7 is an anti-angiogenesis drug in preclinical development. We believe both Apra and PG-TXL will provide CTIC with multiple partnering opportunities over the next year. And, while neither PG-TXL nor SC-7 are included in our earnings model, we believe their potential adds great depth to the CTIC product portfolio. With such a strong oncology pipeline, the potential for partnerships and the stock currently trading at roughly cash value, we are reiterating our BUY recommendation on CTIC.

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. 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 www.SEC.gov on the Internet. Other potential risks include:

• Market risk: 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.

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.cticseattle.com CTIC’s corporate website

www.johnsonandjohnson.com Johnson & Johnson’s corporate website

www.SmallCapsOnline.com SmallCaps Online’s site for company information and research

www.FDA.gov US Food and Drug Administration homepage

www.sec.gov US Securities and Exchange Commission

www.cancer.org American Cancer Society

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