NEW YORK (CNNMoney.com) -- Cell Therapeutics, a small biotech, is betting its future on an experimental drug that could enhance the effects of chemotherapy while reducing its agonizing symptoms.

On the one hand, it may be a good bet. Xyotax, in clinical trials, reduced hair loss, nausea and vomiting from chemotherapy for lung cancer patients, and in some cases increased the patients' chances for survival. The drug would work by focusing chemotherapy's effects on tumors like a "smart bomb," while reducing the "shotgun" effect of chemo on other parts of the body, said Cell Therapeutics (down $0.02 to $1.40, Charts) CEO James Bianco.

But it's not a sure bet. The drug failed in a recent late-stage trial to increase survivability when combined to the Bristol-Myers Squibb (up $0.12 to $25.51, Charts) chemotherapy Taxol.

But Bianco said Xyotax seemed to work better on women than men, since estrogen appears to be the catalyst that makes the drug more effective. In fact, Xyotax would have succeeded in the trial if it had been tested on women alone, said Bianco.

So, the Seattle-based biotech is conducting another late-stage study focused exclusively on women, and Bianco hopes to file a Xyotax application with the Food and Drug Administration by mid-2007. If the test is successful and the drug wins FDA approval, the drug might also be used by men taking estrogen.

But if Xyotax tests are not successful, then Cell Therapeutics could suffer yet another hit on its beleaguered stock price, which has plunged 78 percent over the last two years.

Hamed Khorsand, analyst for BWS Financial, has projected peak annual sales of $400 million to $500 million for Xyotax, assuming it succeeds in the current study.

But investing in biotechs is risky and Cell Therapeutics is no exception. Investors in this company would be betting on the success of the Xyotax trials, and the late-stage study for another drug, Pixantrone, for the treatment of non-Hodgkin's lymphoma.

"Investors don't appear to be placing a lot of value on the prospects for Xyotax, or for that matter the rest of the pipeline, based on the stock price," said Paul Latta, analyst for McAdams, Wright, Ragen. "There's probably some wisdom for that, given the record on biotech."

Latta said investors shouldn't overlook Cell Therapeutics, because the market for lung cancer treatment is large and potentially lucrative. However, failing prior trials is a not an inspiring sign, said the analyst.

"The record for do-over trials isn't particularly compelling," said Latta.

As an example, the biotech Vasogen (up $0.01 to $0.46, Charts) faced a similar situation in June, when it announced late-stage study results for Celacade, an experimental treatment for chronic heart failure. A prior Celacade study had failed back in August and the stock price lost two-third of its value. When the company announced another failed trial with Celacade on June 26, the price plunged three-quarters.

Even if Cell Therapeutics' current trials for Xyotax prove to be successful, Khorsand of BWS Financial said he would like to see the biotech license the drug to Cephalon (up $0.57 to $63.68, Charts), as it did last year with its leukemia treatment Trisenox.

"We would rather see them collaborate with someone else," said Khorsand. "Just to see them collaborate with a larger firm would make us more comfortable because that would relieve CTI of the financial burden."

The analysts interviewed for this story do not own shares of Cell Therapeutics stock and their firms do not do business with the biotech.

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