2023-06-02 18:55:19 ET
Summary
- The article provides an updated analysis of Citius Pharmaceuticals following a previous piece in February 2023.
- Citius' lead therapy has a midsummer 2023 PDUFA; it has generated excitement among investors, although it is unlikely to generate alpha.
- Its second lead therapy is likely to disappoint.
This is my second look at Citius Pharmaceuticals ( CTXR ). In this article I update my Citius thesis following 02/2023's "Citius Pharmaceuticals: Diverse Development Portfolio Backs Up A Problematic Lead Therapy" (" Diverse ").
Near term PDUFA for Citius' lead therapy allows slim possibility for early monetization
As described in Diverse, Citius' lead therapy I/ONTAK is an improved formulation of ONTAK (E7777). ONTAK was developed and approved by the FDA in treatment of persistent or recurrent cutaneous T-cell lymphoma (“CTCL”). It was subsequently withdrawn from the market back in 2014; all this by a different pharma.
Citius first entered the I/ONTAK picture as a latecomer in 09/2021 when it acquired a sublicense from Dr. Reddy’s (RDY). Citius' fiscal Q2, 2023 10-Q (pp. 8-9) locates the extent of the sublicense as including all markets outside of (i) Japan and (ii) certain other Asian countries. I/ONTAK's PDUFA date for CTCL is due just after summer 2023 grinds to an end on 09/28/2023.
Near term PDUFA's on penny stocks, as I write on 06/01/2023 Citius hovers just >$1.25, always get bargain hunters' blood boiling. A comment to Seeking Alpha's fiscal Q2, 2023 Citius earnings release makes the point clearly. It envisions the super bullish scenario in which Citius secures FDA approval of its top three prospects: I/ONTAK, Halo-Lido and Mino-Lok.
In such a case it enthuses that Citius could be in line for >$4 billion in revenues. Applying a hefty 5X multiple to that $4 billion it calculates Citius rising from its current level of ~>$1.25 to >$100.00. Such is the stuff of dreams.
I do not see Citius as having any such glory in anything like a reasonably calculable future time span. Rather than venture into such blue sky speculation, let's stick to the future that appears to be real. Let me assume that the FDA acts positively to its I/ONTAK PDUFA.
Citius management appears to have prepared for just such an event. It announced a plan to spin off I/ONTAK into a separate entity in 05/2022; it contemplated completing the spin in H2, 2022. Its release announcing the plan advised of the possibility that it might fall through, stating:
There can be no assurance regarding the ultimate timing of the proposed transaction or that the transaction will be completed at all.
Unfortunately, this clever idea for monetizing I/ONTAK has failed to take wing. In its 05/2023 Q2, 2023 Earnings Summary , it announced its ongoing commitment to this plan as follows:
...we believe that at this time, a spinoff of I/ONTAK into a separate publicly traded company would be in the best interest of Citius shareholders and allow us to maximize the value of this asset. To that end, we have worked diligently with financial advisors to advance those efforts and look forward to sharing additional details, as appropriate, in the coming months.
The fact that it has so far failed in this endeavor is likely the shroud that is currently dogging Citius' shares. A combination of one or more of the following issues is likely the impediment keeping it from reaching an I/ONTAK spinoff:
- concern over FDA approval of I/ONTAK;
- the fact that I/ONTAK will be a fourth to market therapy as shown by Presentation slide 18;
- the heavy burden of milestones and royalties that encumber Citius' I/ONTAK's sublicense balanced against I/ONTAK's limited addressable market as described in Diverse;
- Citius' lack of negotiating clout as described in Diverse.
Citius has scant infrastructure upon which to build a launch of I/ONTAK
Citius' plan B for I/ONTAK in the event it fails to achieve a robust spinoff is ugly, as shown by the following excerpt from its latest (12/2022) 10-K :
Currently we do not have any sales, marketing, or distribution capabilities. In order to generate sales of any product candidate that receives regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third parties to perform these services for us.
Certainly Citius could acquire such capabilities. However they are not easily acquired in a rush or on a budget. A search for documented evidence that Citius is preparing a credible and effective launch of I/ONTAK comes up with nothing.
Its latest presentation dates back to its previously cited 02/2023 presentation which describes no launch preparations. Its latest Q2, 2023 press release and 10-Q provide similarly slim pickings. We see nothing about acquisition of sales force or a marketing and distribution function.
In terms of liquidity to marshal an effective team on the fly there is similarly little to work with. Its latest available current assets as of 03/31/2023 are shown by the excerpt below from its 10-Q:
Citius' Q2, 2023 earnings press release which was published in 05/2023 quotes its CEO Mazur as follows:
Given the challenging financial environment for small biopharmaceutical companies, we took the opportunity earlier this month to raise $15 million from two institutional funds. With this additional capital, we believe that, as of March 31, 2023, our cash runway extends through May 2024. Our priority remains to advance our leading programs and deliver on the multiple value-driving catalysts we outlined for 2023.
The news flow surrounding this essential financing as reflected by the Seeking Alpha news report below points to a common penny stock dilemma:
Stocks trading in the penumbra of $1.00 often have poor liquidity. When they try to raise money by selling their own shares it often devalues their currency. Of course such bumps and grinds are just short term gyrations. The chart below gives a longer term picture of Citius:
As I write midday on 06/01/2023 it is enjoying a nice >8% bump to >$1.25 on no apparent Citius directed news.
Citius has a late stage pipeline which helps to support its shares for patient bulls
As an investor with suboptimal patience I always tend to focus on development stage biotechs' lead assets. In Citius' case that approach disappoints; I assess I/ONTAK as lacking appeal as discussed above.
Patient Citius bulls who join me in my assessment need not throw up their hands in disgust. Citius has two nice trial completions anticipated yet in 2023 as stated in Presentation slide 3. These include:
- Mino-Lok Phase 3 trial completion featuring potential to be first and only FDA-approved product to salvage infected CVCs causing Central Line-associated Bloodstream Infection (CLABSI), estimated $1.8 billion market;
- Halo-Lido Phase 2b trial completion with potential to be the first FDA-approved prescription product to treat hemorrhoids in the US.
Mino-Lok with its attractive blockbuster sized potential market is an attractive focal point for Citius bulls. It is clearly an important product addressing a major problem for hospitals and their patients. It is not however a product that enjoys easy comparisons.
Its presentation slide 7 below describes it as follows:
As I assess Mino-Lok it appears to be a product that primarily addresses infections in hospitals . The second I see that, I back away. Selling to hospitals is a long expensive process that is anathema to little companies like Citius. My most recent bad experience in this arena is with T2 Biosystems ( TTOO ).
T2 developed a system to improve diagnosis of sepsis. T2's system was clearly superior to prevailing practice. However that has not kept it from anemic sales and horrific losses as I document in a series of articles , most recently 08/2022's "T2 Biosystems' Survival Riddle".
Conclusion
Citius is an apparently attractive stock for certain investors looking for high reward from high risk plays. I sympathize with those who set aside a minor portion of their portfolio in such quests. I submit however that investors double check their analysis before buying Citius.
For further details see:
Citius Pharmaceuticals: Steer Clear From This One