CDTX - Cidara Therapeutics Could Soar On Rezafungin Approval

Summary

• Rezafungin has an FDA approval deadline of March 22, 2023.
• The stock has been neglected by investors.
• Even bigger success is possible in Cloudbreak co-development with Janssen.

Cidara Therapeutics ( CDTX ) is a clinical stage biotechnology company with a marketing application pending before the FDA. If rezafungin for candida infections does get approval in March 2023, two larger companies are ready to market it in the U.S., and with EU approval, in Europe. I am bringing this to the attention of my fellow investors because the market has overlooked this stock. I believe it is massively undervalued. However, there are some risks involved, so studying the entire situation is advised before deciding if its risk and reward profile fits in any specific portfolio. With cash and royalties from the rezafungin program Cidara plans to further invest in its Cloudbreak program of novel therapeutics.

Rezafungin Phase 3 Results

Rezafungin is a small molecule that inhibits an enzyme needed to build fungal cell walls. It is in the echinocandin class, so it is not first-in-class, but it has been engineered to be effective and longer-lasting. It has worked well, in trials, against drug-resistant candida. While the current application is for treating Candida auris infections, it has shown efficacy against azole-resistant Aspergillus fumigatus infections. On January 6, 2022 Cidara reported positive rezafungin Phase 3 results for the treatment of candidemia and invasive candidiasis. Rezafungin administered weekly was compared to Caspofungin administered daily. In the primary efficacy endpoints rezafungin did slightly worse at Day 30 all-cause mortality and Day 14 global cure rates. It did better than Caspofungin in the secondary endpoints of Day 5 mycologic eradication, Day 5 global cure, and Day 14 mycologic eradication. Safety results were comparable between the two drugs. Since the FDA and EMA agreed the goal of the trial was similar efficacy and safety, with a longer dosing period, the trial was positive. That does not guarantee an FDA approval in March 2023 [the PDUFA date is March 22, 2023], but it makes it likely.

Another Phase 3 trial of rezafungin is underway and, if successful, would allow for label expansion. It is testing rezafungin for prevention of fungal infections caused by Candida, Aspergillus or Pneumocystis, in patients receiving blood and marrow transplants.

Rezafungin distribution

Cidara is a small research-oriented company and has decided to leave the commercialization of their discoveries to other companies for now. In July 2022 Cidara announced an exclusive license agreement with Melinta Therapeutics for rezafungin sales in the U.S., assuming FDA approval. Cidara received $30 million upfront. It is eligible to receive another $60 million in regulatory milestone payments. It is eligible for up to another $370 million in commercial milestone payments plus sales royalty percentages in the double digits to mid-teens.

Previously, in 2019, Cidara had licensed rezafungin EU rights and rest-of-world rights, excepting the U.S. and Japan, to Mundipharma. In October 2022 it received a $11 million milestone payment in that deal. In 2019 Cidara received a $30 million upfront payment, and it received $42 million to support ongoing trials. More regulatory and commercial milestones are available, and sales royalty percentages will be in the double-digits.

But will it sell?

In its Phase 3 trial, rezafungin met or exceeded the efficacy of the current standard of care, but not by an overwhelming amount. Its main benefit appears to be a decreased dosing schedule. That is a significant benefit, given these drugs are given by injection, but it is reasonable to wonder how fast doctors will make the transition from older anti-fungal drugs. As usual, it will take time after regulatory approval to get payers to agree to reimburse for prescriptions. We are likely to see the usual slow ramp through 2023. There is always some risk that the FDA or EMA will not approve a therapy even if it had positive Phase 3 results. I do not want to overstate these risks, but anyone investing before a positive FDA decision should be aware of them.

Cloudbreak Platform

Cloudbreak is an entirely separate platform from that used for rezafungin. It takes a part of an antibody molecule, known as the Fc fragment, and links it to a smaller targeting molecule. This is called a drug-Fc conjugate or DFC. Cidara is moving this program forward in partnership with Janssen ( JNJ ) in a Phase 2 trial for influenza. It is also doing preclinical work on variations to treat viruses and cancers. While promising, it is rather early to evaluate how this novel therapy will compete against other flu therapies. If it does work well in any of its target indications it could be a very large revenue generator, but that is likely a story for the second half of this decade.

Q3 2022 Cidara Results

What we do know is Cidara results for Q3 . Collaboration revenue was $40.7 million. Operating expenses were $25.8 million. Net income was $11.9 million, or $0.17 per share. Cash ended at $53 million. It looks like milestone payments will enable Cidara to get rezafungin to its commercial partners without any further need to raise cash. It is possible it might achieve cash-flow break even in 2024 if royalty revenue ramps faster than investment in the Cloudbreak program.

Market valuation and conclusion

Cidara stock closed on Monday, November 14 at $0.5844, giving it a market capitalization of just $43 million. That is less than its cash at the end of Q3. The valuation seems to ignore the milestone payments that will be due if the FDA and EMA approve rezafungin. I believe the abnormally low stock price stems mainly from three factors. One, detailed above, was that rezafungin was not clearly more effective than the current standard of care. Another is the low stock price, which makes it a penny stock, is somewhat of a self-fulfilling prophecy. The third is the general decline these last two years in the prices of biotechnology stocks, especially small-caps. I think the risk of not getting FDA or EMA approvals is also a factor. I do not know when the stock might start acting like a winner, though it should do better if it gets an FDA approval. Longer run, it will be judged by the royalties generated by rezafungin and the development of the Cloudbreak program. I like the potential reward versus risks for my portfolio and hope for more certainty in March when the FDA makes its decision. If the stock price has not gone up significantly before the decision, it will likely jump on the approval, if there is one.

For further details see: