PRTK - Cidara Therapeutics: FDA Approval Dead Ahead

Summary

• Today, we are putting the spotlight on small biotech concern Cidara Therapeutics for the first time in more than a year and a half.
• The company has an impressive set of collaboration deals with larger drug firms and its first FDA approval is on the near-term horizon.
• An investment analysis follows in the paragraphs below.

Never open the door to a lesser evil, for other and greater ones invariably slink in after it. ”? Baltasar Gracian

We have not taken a look at small anti-fungal development firm Cidara Therapeutics ( CDTX ) since May of 2020. We concluded that article by saying:

The company has had a couple of trial failures in its history and even with its recent funding raise, will probably have to raise additional capital to support full commercialization of Rezafungin, provided it gets approved. Therefore, we are passing on making any investment recommendation on Cidara but offer up this analysis for others that may want to do their own due diligence on this name. "

That turned out to be the right call as the stock has declined precipitously since that piece was posted. However, this week Cidara got a ' thumbs up ' from an AdCom panel regarding the marketing application for its primary drug candidate rezafungin. FDA approval is likely shortly. Therefore, it seems a good time to circle back on Cidara Therapeutics and update the investment thesis around its stock.

Company Overview

Cidara Therapeutics is currently a clinical stage, small cap biotechnology company headquartered in San Diego, CA. The company is focused on the development and commercialization of long-acting anti-infectives for the treatment and prevention of infectious diseases as well as oncology.

As previously mentioned, Cidara's lead product candidate is rezafungin acetate. This a novel molecule in the echinocandin class of antifungals. It is targeted for the treatment and prevention of invasive fungal infections, including candidemia and invasive candidiasis. It should be noted these are fungal infections associated with high mortality rates. The stock currently trades around $1.25 a share and sports an approximate market capitalization of $85 million.

Recent Developments:

On Wednesday, a FDA Antimicrobial Drugs Advisory Committee or Ad Comm Panal voted 14 to 1 to recommend rezafungin as a treatment for candidemia and invasive candidiasis in adults with limited or no alternative treatment options. While this doesn't guarantee FDA approval on March 22nd, the lopsided vote makes it very likely. As it is now, it appears rezafungin will be the first FDA-approved therapy for candidemia and invasive candidiasis in over a decade.

In late July, the company granted exclusive U.S. commercialization rights to Melinta for rezafungin. For doing so, Cidara Therapeutics received a $30 million upfront payment in the third quarter. It also will receive another $60 million upon FDA approval and is also eligible to garner up to $370 million in commercial milestone payouts as well as low double digit to mid-teen royalties on future sales in the U.S.

Outside the U.S. the company struck a deal with Mundipharma. Cidara also received a $30 million upfront payment as part of that arrangement and can also garner additional regulatory and commercial milestones as well as royalties in the teens on future sales outside the United States. Cidara got a $11.1 million milestone payment within this arrangement in October in connection with its marketing application for rezafungin in Europe. Based on current planned activities, Cidara could receive up to another $108 million in commercial/regulatory milestone payouts from this partnership over the next two years.

Cidara is also trying to develop a platform called Cloudbreak that is a different technology that was used to create rezafungin. This platform takes a Fc fragment, which is a part of an antibody molecule and links it to a smaller targeting molecule. The result creates a drug-Fc conjugate or DFC. These DFCs have numerous potential advantages over traditional small molecule therapeutics.

Cidara partnered with drug giant Janssen ( JNJ ) in this effort. It has a couple of mid stage candidates in development including one (CD388) currently in a Phase 2 trial for influenza.

Jansen paid $27 million upfront for this collaboration deal. It is also contributing funding to the development effort and Cidara could eventually garner just under $700 million in regulatory and commercial milestone payouts as well as mid to high single digit royalties on future sales.

It also has its own wholly own efforts developing DFCs for oncology, but those efforts are pre-clinical are not germane to this analysis.

Analyst Commentary & Balance Sheet

Post this week's Ad Comm recommendation, both Needham ($3 price target) and H.C. Wainwright ($6.50 price target) reiterated Buy ratings against the stock. Just over one percent of the outstanding float in this equity is currently held short. There has been very little insider activity in this stock over the past year. Over the past 12 months, several insiders have sold just approximately $50,000 worth of shares in aggregate.

Cidara Therapeutics ended the third quarter with $53.1 million of cash and marketable securities on its balance sheet. The company had $25.8 million worth of operating expenses (R&D and G&A) during the quarter. It's operational cash burn was $42.8 million with was more than totally offset by upfront payments, milestone payouts and cost reimbursement in the quarter. The company has no long-term debt.

Verdict

The anti-fungal and antibiotic space has been littered with small cap companies that garnered FDA approval but who never could turn a profit in this subsector of biopharma as both traditionally have had lousy economics. The only name I hold currently in this area is Paratek Pharmaceuticals ( PRTK ) and mostly because of a huge BARDA contract the company holds and then only through covered call positions. An updated overview of Paratek was posted this summer.

Cidara does have an impressive set of partnerships. This will open up a series of regulatory and commercial milestones around rezafungin as well as potentially CD388 one day, not to mention royalties. In addition, it frees Cidara from the costly and challenging tasks of rolling out the newly approved compound.

The upcoming and likely $60 million payment from Melinta upon FDA approval will bolster Cidara's balance sheet. So despite some trepidation around the rollout of rezafungin, I think there is more enough ' sum of the parts ' value in CDTX to merit at least a small ' watch item ' position. I plan to do so early next week via covered call orders to provide some downside risk mitigation.

In the midst of chaos, there is also opportunity ”? Sun-Tzu

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