Summary
- Shares of therapy reformulator Citius Pharmaceuticals should see volatility in the ensuing months as all three of the company’s clinical programs provide catalysts.
- The slowly progressing Phase 3 trial for its catheter infection therapy should produce results in 2023 while the company seeks an out-licensing deal for its mid-stage hemorrhoid therapy.
- Short on cash and a with a potential milestone bill coming due if its lead asset is approved on or near its upcoming PDUFA date, Citius merited further investigation.
- A full investment analysis follows in the paragraphs below.
Maybe the difference between first marriage and second marriage is that the second time at least you know you are gambling ." - Elizabeth Gilbert
Today we take a deeper look at a small cap biopharma concern. This appears to be a complex, but compelling ' sums of the parts ' story. An analysis follows below.
Company Overview:
Citius Pharmaceuticals, Inc. ( CTXR ) is a Cranford, New Jersey based late-stage drug concern focused on the development of therapies that are typically reformulations of previously approved drugs and (in some instances) leverage the FDA's 505[B](2) pathway to quicker approval. The company has two later-stage programs, one undergoing Phase 2 assessment, and two in the preclinic. Citius was founded in 2007 and went public in 2014 when it reverse-merged into failed specialty license plate manufacturer Trail One with its first trade conducted at $15 a share, when giving effect to a 1-for-15 reverse stock split in 2017. Its first real public offering occurred in 2017, when it raised net proceeds of $6.1 million at $3.09 a share. The stock trades just over a buck a share, equating to an approximate market cap of $170 million.
Clinical Pipeline
I/ONTAK . The company's lead asset is I/ONTAK (E7777), an intravenously administered interleukin-2 diphtheria toxin fusion protein for the treatment of patients with persistent or recurrent cutaneous T-cell lymphoma [CTCL], which it in-licensed from Dr. Reddy's Laboratories ( RDY ) in September 2021. CTCLs are a subset (~4%) of non-Hodgkin lymphomas, where T-cell abnormalities compel them to attack the skin, resulting in rashes, scaly patches, and/or skin tumors. The most common form is mycosis fungoides, which occurs in ~60% of CTCLs. There are 30,000 to 40,000 patients living with CTCL in the U.S., of which ~10,000 are of the relapsed/refractory variety, requiring systemic treatment.
I/ONTAK is a purified and more bioactive version of Ontak (denileukin diftitox), which was approved by the FDA in 1999 and marketed in the U.S. by Ligand ( LGND ) until 2006 and subsequently by Eisai (ESALF) until 2014, when manufacturing issues - specifically bacterial expression and purification challenges - forced its 'voluntary' removal from the market. In 2016, Dr. Reddy's acquired the worldwide rights (ex-Far East Asia) to a new formulation of denileukin diftitox (known as E7777) from Eisai, who had commenced a Phase 3 study in the U.S. Eisai received approval in Japan for E7777 for the treatment of CTCL and peripheral T cell lymphoma (PTCL) in March 2021. Shortly after Citius acquired the rights from Dr. Reddy's, the last patient enrolled in the aforementioned Phase 3 trial (December 2021) that was still being conducted by Eisai. In April 2022, results from the trial revealed that E7777's efficacy was consistent with the prior formulation with no new adverse events observed. A BLA was filed with the FDA in September 2022 and received a PDUFA date of July 28, 2023.
For the commercial rights to I/ONTAK, Citius paid Dr. Reddy's $40 million upfront and is potentially on the hook for regulatory ($40 million), development ($70 million), and commercial ($300 million) milestones, as well as low double-digit royalties.
If approved, the company estimates the domestic market opportunity at $300 million to $400 million, where it will compete with three other therapies: Kyowa Kirin's (KYKOF) monoclonal antibody Poteligeo (mogamulizumab); Seagen's ( SGEN ) antibody-drug conjugate Adcetris (brentuximab vedotin); and Merck's ( MRK ) oral chemotherapy Zolinza (vorinostat). All of these therapies are limited due to toxicity and adverse events, as well as limited duration of response due to resistance over time. Along those lines, Bristol Myers Squibb's ( BMY ) chemo drug Istodax (romidepsin) was pulled from the market in 2021. As such, Citius' therapy has an opportunity to absorb significant market share.
Furthermore, the company is exploring expansion into the PTCL indication - likely requiring only a single-arm pivotal trial - while investigator-led studies are assessing I/ONTAK as part of combination therapies in other oncology indications.
Subject to market conditions, I/ONTAK will be spun out as a separate entity in what the company is calling a strategic move to " optimize organizational resources and investment capital to support the successful execution of each development program." This transaction is out of necessity to fund the milestone payment[S] to Reddy's and a sales force buildout if I/ONTAK is approved.
Mino-Lok . Citius' second most advanced program is Mino-Lok, which is a solution of antibiotic minocycline, heavy sulfate disodium ethylenediaminetetraacetic acid (a.k.a. EDTA), and ethyl alcohol that is designed to treat and salvage infected central venous catheters (CVCs) in patients with catheter related bloodstream infections (CRBSIs). Mino-Lok is introduced to the lumen of the catheter (without flowing into the vein - i.e. 'locked'), where it eradicates bacteria and other unwanted clotting factors for two hours and is subsequently aspirated. This procedure is usually conducted seven times over a two-week period with a start of five consecutive days, providing an alternative to catheter removal and replacement, which can interrupt treatment, as well as cause physical and psychological trauma to the patient at a cost of ~$10,000 per procedure, with infection treatment typically north of $50,000. The only other alternative is a hospital home brew of antibiotics. Approximately 500,000 CRBSI or central line-associated bloodstream infections (CLABSIs) occur annually in the U.S.
After demonstrating 100% effectiveness salvaging CVCs with a 0% complication rate (versus 18% for the remove and replace control arm) in a Phase 2b trial that wrapped up in 2014, Citius initiated a Phase 3 trial in 2016 that enrolled its first patient in 2018. The study has been bogged down in trial design changes, sluggish pandemic-related enrollment, and very slow catheter failure event rates. When the Data Monitoring Committee recommended that the trial continue ' as is ' for a third time in mid-2021 (and not halt it for utility), shares of CTXR plummeted 34% in the following trading session and are currently off some 75% from their five-year peak ($4.56) set around that same time.
The primary endpoint of the Phase 3 study is comparison of ' time to catheter failure ' between Mino-Lok and the control arm (antibiotics). It will be considered fully enrolled at 92 catheter failures, which is expected to occur in 2023 with 72 failure events having transpired as of December 21, 2022. An anticipated median time of 21 days in the control group would necessitate 38 days for the Mino-Lok cohort to achieve statistical significance. When the trial is completed and assuming primary endpoint achievement, it will receive a Priority Review from the FDA. As of its fourth quarter press release earlier this month, management stated:
Our Mino-Lok Phase 3 trial is actively enrolling patients in the U.S. and India. We believe the recent uptick in recruitment at clinical sites will aid in completing the trial this year. "
If green-lit, it will be the first and only antibiotic lock solution with a global CRBSI/CLABSI market estimated in excess of $1.8 billion.
Halo-Lido . The company's third clinical asset is Halo-Lido, a topical formulation of corticosteroid halobetasol and lidocaine designed to provide anti-inflammatory and anesthetic relief from hemorrhoids. It is currently undergoing evaluation in a 300-patient Phase 2b trial with data expected to readout in 2H23. It has the potential to be the first and only prescription hemorrhoid therapy, the domestic opportunity for which - with approximately one-third of the ten million plus sufferers seeking physician treatment - is estimated at more than $2 billion. If the data readout is positive, look for Halo-Lido to be out-licensed to fund Mino-Lok and its other programs.
Other Assets
These other programs include Citius' in-license of Mino-Wrap (CITI-101) from MD Anderson Cancer Center. It is a liquefying gel-based wrap designed to provide inflammatory tissue protection and prevent infection in tissue expanders and breast implants post mastectomy. Furthermore, the company has initiated preclinical activities for its induced mesenchymal stem cells therapy for acute respiratory distress syndrome. This asset is 75% owned and housed under its NoveCite subsidiary.
Balance Sheet & Analyst Commentary:
The contemplation of spinning out I/ONTAK and out-licensing Halo-Lido have to do with the company's low cash position. As of year end 2022, Citius held cash and equivalents of $36.9 million, providing it an operational runway through February 2024. The company could also leverage positive news regarding an out-licensing deal for Halo-Lido, I/ONTAK's approval, or positive Mino-Lok data into a less dilutive capital raise. It should be noted that Citius has 38.3 million warrants outstanding, the majority of which have strike prices between $1 and $2 and expire between 2024 and 2026.
Only three Street analysts have made commentary on the company in the past Year. All three, Maxim Group ($4 price target), Darwin James ($10 price target) and H.C. Wainwright ($6 price target) have Buy/Outperform ratings on the stock.
Verdict:
There are three potential significant catalysts in 2023, the exact timing of which are uncertain. The spinout of I/ONTAK could occur before or nearly concurrent to its (assumed) FDA approval on July 28, 2023. An out-licensing deal for Halo-Lido could come before or after Phase 2b trial results are released in 2H23. The seemingly endless Phase 3 Mino-Lok trial should mercifully come to an end sometime in 2023 - positive results from which could send shares substantially higher.
Worse-case scenario is a thumbs down from the FDA on I/ONTAK, no out-licensing deal for Halo-Lido followed by tepid Phase 2b results, and no statistical significance achieved (or further delays) in the pivotal Mino-Lok trial. Although worse-case is possible, it is about equal to best-case scenario of I/ONTAK approval and spinout, a Halo-Lido out-licensing deal, and positive and timely results from Mino-Lok. Worse case, the investor will lose most or all of their investment; best case, given the market opportunities for Citius' therapies, an investor could see a three to five bagger in the span of twelve months even with dilution from the warrants.
While too risky and complex for inclusion for a large stake, an asymmetrical risk-reward profile, CTXR merits a small ' watch item ' purchase for risk tolerant investors.
The gambling known as business looks with austere disfavor upon the business known as gambling ." - Ambrose Bierce
For further details see:
Citius Pharmaceuticals: Balanced Risk-Reward Bet, Near-Term Catalysts