891293--3/16/2006--CELL_THERAPEUTICS

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This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this annual report on Form 10-K. We expect to continue to incur net losses, and we might never achieve profitability. We have a substantial amount of debt. We expect to need to raise additional funds in the near future, and they may not be available on acceptable terms, or at all. We may be delayed, limited or precluded from obtaining regulatory approval of XYOTAX given that our three STELLAR phase III clinical trials for the treatment of non-small cell lung cancer did not meet their primary endpoints. We are subject to extensive government regulation. We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them. Uncertainty regarding third-party reimbursement and healthcare cost containment initiatives may limit our returns. Even if our drug candidates are successful in clinical trials, we may not be able to successfully commercialize them. If any of our license agreements for intellectual property underlying XYOTAX, pixantrone or any other products are terminated, we may lose our rights to develop or market that product. If we fail to adequately protect our intellectual property, our competitive position could be harmed. Our products could infringe on 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 may be unable to obtain the raw materials necessary to produce our XYOTAX product candidate in sufficient quantity to meet demand when and if such product is approved. Our dependence on third-party manufacturers means that we do not always have sufficient control over the manufacture of our products. If we do not successfully develop additional products, we may be unable to generate significant revenue or become profitable. If we are unable to enter into new licensing arrangements, 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. 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. Because we base several of our drug candidates on unproven novel technologies, we may never develop them into commercial products. We are required to comply with the regulatory structure of Italy because our stock is traded on the Nuovo Mercato, which could result in administrative challenges. We are subject to additional legal duties, additional operational challenges and additional political and economic risks related to our operations in Italy. Because there is a risk of product liability associated with our products, we face potential difficulties in obtaining insurance. Since we use hazardous materials in our business, we may be subject to claims relating to improper handling, storage or disposal of these materials. We may not be able to conduct animal testing in the future, which could harm our research and development activities. Our operations in Italy make us subject to increased risk regarding currency exchange rate fluctuations. Our stock price 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. Anti-takeover provisions in our charter documents, our shareholder 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.

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891293--3/16/2006--CELL_THERAPEUTICS_INC