CDTX - Cidara Therapeutics: Promising Developments And A Speculative 'Buy' Recommendation (Rating Upgrade)

2023-05-03 18:23:18 ET

Summary

• Cidara Therapeutics, a biotech firm focused on long-acting therapeutics for severe illnesses, received FDA approval for its antifungal drug, Rezafungin, triggering $20 million in milestone payments.
• Early Phase 2a trial results suggest CD388, developed with Janssen Pharmaceuticals, effectively reduces flu viral replication and incidence rates, without serious side effects.
• The company's recent public offerings have bolstered its financials, and milestone payments combined with anticipated funds from partnerships are expected to extend the firm's cash runway.
• Considering Cidara's robust financial health and encouraging CD388 results, I shift my recommendation from "Hold" to a speculative "Buy," although it's preliminary and carries substantial risk.

Introduction

Cidara Therapeutics (CDTX) is a biotechnology company that strives to enhance patient care for severe illnesses through the development of long-acting therapeutics. Their Cloudbreak platform offers innovative approaches to transform current treatment and prevention methods, such as drug-Fc conjugates [DFCs] that target viral and oncological diseases. Moreover, their only commercial product, Rezzayo (rezafungin), is a once-weekly, long-acting echinocandin antifungal drug indicated "in patients 18 years of age or older who have limited or no alternative options for the treatment of candidemia and invasive candidiasis".

Back in February, I anticipated that rezafungin would receive FDA approval with a limited-use label, such as "Rezafungin is indicated for the treatment of candidemia in adult patients with limited or no alternative treatment options." Additionally, I praised the company's decision to outlicense rezafungin, enabling them to redirect their future endeavors beyond antibiotics and towards their platform.

The following article will update investors in light of recent developments.

Recent events: On March 1, Cidara reported ongoing Phase 2a clinical trial shows that a single dose of CD388 reduces influenza viral replication and incidence rate compared to placebo. The trial is under a collaboration agreement with Janssen Pharmaceuticals to develop Cloudbreak drug-Fc conjugates for preventing influenza. The interim analysis included 56 healthy participants, with no serious adverse events reported for CD388.

Days later, Cidara announced the pricing of its public offerings, which included 9.64 million shares of common stock and 286,000 shares of Series X Convertible Preferred Stock. The expected gross proceeds from the offerings were approximately $17.5 million.

Cidara announced on March 22nd that Rezzayo had received FDA approval, which made them eligible to receive $20 million in milestone payments.

Financials

Let's first review Cidara's most recent financial report . Revenue for the three months and full year ended December 31, 2022, was $10.2 million and $64.3 million, respectively, compared to $7.2 million and $49.6 million for the same periods in 2021. The revenue for the year ended December 31, 2022, included $25.9 million recognized upon transfer of an intellectual property license to Melinta. Research and development expenses for the year ended December 31, 2022, were $75.5 million, while general and administrative expenses were $18.5 million. The net loss for the year ended December 31, 2022, was $29.8 million, compared to a net loss of $42.5 million for the same period in 2021. Cash and cash equivalents totaled $32.7 million as of December 31, 2022, down from $62.3 million as of December 31, 2021.

Cidara has reported receiving a $20 million milestone payment and anticipates an additional $47 million from current partnerships over the next year. The company has also recently raised capital. Based on these factors, Cidara is confident in its ability to extend its cash runway and continue operations without requiring further capital injections.

It is worth noting that Cidara's stock has dropped by approximately 20% in the past month since receiving FDA approval. This could be due to investors selling after the news, commonly referred to as a "sell-the-news" event. However, it is important to keep in mind that the stock is still up by 72% within the last six months.

CD388 May Be an Effective Tool in Preventing the Flu, According to Phase 2a Clinical Trial

In a phase 2a clinical trial conducted by Cidara, the potential of CD388 in preventing the flu is being evaluated. The preplanned interim analysis consisted of 56 healthy volunteers, where half were administered CD388 and the other half received a placebo.

The study revealed that the group treated with CD388 showed a lower viral load-time curve (VL-AUC) than the placebo group over time, indicating a reduced viral replication. The mean VL-AUC for the CD388 group was 10.7 (with a standard deviation of 8.0), compared to the placebo group's mean of 16.1 (with a standard deviation of 11.9). Additionally, the percentage of confirmed flu infections was lower in the CD388 group, with only 21.4% of participants contracting the flu, compared to 50% in the placebo group.

The drug was found to have no serious side effects, and none of the participants had to withdraw from the study due to any side effects.

However, it is important to note that these findings are based on a small sample size and preliminary data. Further research is necessary to assess the safety and effectiveness of CD388 in larger trials, the duration of its effects, any long-term side effects, and its efficacy against various flu strains.

Despite the study's limitations, the current data suggests that CD388 has the potential to prevent the flu and warrants further investigation. As a Drug Fc Conjugate, CD388 is designed to enhance the potency and duration of therapeutic antibodies, and it appears to directly reduce viral load and prevent infection.

Considering this perspective, CD388 could be a valuable tool in conjunction with the flu vaccine, particularly for high-risk individuals susceptible to severe flu complications. Additionally, it could provide a preventative option for individuals unable to receive the flu vaccine for medical reasons.

My Analysis & Recommendation

In conclusion, Cidara Therapeutics demonstrates considerable promise as a biotechnology player, primarily due to its innovative approaches in developing long-acting therapeutics. The FDA approval of Rezzayo, the company's first commercial product, is a significant milestone that has already boosted its financials through milestone payments, and promises potential future earnings through sales and further milestone payments. The company's strategic decision to outlicense Rezzayo allows it to leverage its Cloudbreak platform to focus on tackling viral and oncological diseases.

The positive interim results from the ongoing Phase 2a clinical trial for CD388 underscore this potential. Despite the small sample size and preliminary nature of the data, the significant reduction in influenza viral replication and incidence rate compared to placebo provides a strong argument for the continued development of this drug candidate. Importantly, the lack of serious adverse events reinforces its safety profile, a crucial aspect for any new drug.

Financially, Cidara Therapeutics appears to be in a stable position. The recent public offerings have strengthened its cash reserves, and milestone payments, coupled with anticipated funds from partnerships, will likely extend the company's cash runway. While the company's revenues have improved compared to the previous year, it continues to report a net loss due to significant research and development expenses.

After considering the discussed factors, I am upgrading my recommendation on Cidara Therapeutics from "Hold" to a speculative "Buy." This decision is based on Cidara's current financial strength and promising preliminary data for their partnered Cloudbreak platform. This investment opportunity may be suitable for individuals with a higher risk tolerance, as the potential upside could be significant if CD388 or other upcoming products are successful. However, it is crucial to closely monitor the progress of ongoing clinical trials and future financial reports to thoroughly evaluate the company's performance and prospects.

Risks to Thesis

When the facts change, I change my mind.

Here are some key risks associated with my thesis:

1. Clinical Trials Risk : As I've acknowledged, the preliminary data from the Phase 2a clinical trial of CD388 is based on a small sample size. The promising results will need to be confirmed in larger-scale trials. The failure of the drug to exhibit the same efficacy or safety in later-stage trials could have a significant impact on the company's valuation. Moreover, there's the risk of unforeseen side effects or complications that could arise in future trials.

2. Regulatory Risks : Even if CD388 shows promising results in clinical trials, it still needs to pass through the regulatory hurdles imposed by authorities like the FDA. There is no guarantee that the drug will receive regulatory approval, and any negative decision or delay can significantly impact the company's value.

3. Market Acceptance and Competition : Even if CD388 gets approved, its success in the market isn't guaranteed. It would need to compete with other treatments and preventive measures for influenza, which may already be entrenched in medical practice. Also, the pricing strategy and reimbursement issues could influence its market adoption. Furthermore, rapid advancements in antiviral therapies may bring competing products to market, potentially affecting the demand for CD388.

4. Financial Risks : While the company is currently in a stable financial position, it continues to operate at a loss due to significant R&D expenses. If the company's products fail to generate expected revenue or if additional capital needs arise unexpectedly, the company could face financial difficulties. Additionally, the milestone payments and funds from partnerships are not guaranteed and could be affected by various factors, such as contractual disagreements or the failure of the partnered product.

5. Dependence on Partnerships : The company's business model relies heavily on strategic partnerships. Any issues with current or future partners could have a severe impact on the company's ability to generate revenue or develop new products. It's also worth noting that partnerships often involve complex negotiations and legal issues, which can lead to delays or unforeseen costs.

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