Citius (CTXR) at Sidoti

I recently had the opportunity to view a presentation and ask questions of Leonard Mazur at the Sidoti MicroCap Conference on January 18.  Mr. Mazur helped fill in some of the gaps in my knowledge about company and its plans going forward.  Here is what I learned:

As previously reported, Citius has a PDUFA date of July 28 with the FDA on its proposed cutaneous T-cell lymphoma (CTCL) treatment, I/ONTAK.  The data from its Phase 3 clinical trial show that 49% of patients had a positive response to the therapy (complete, partial or stable) and a 36.2% objective response rate (95% CI (25%, 48.7%)).  Among evaluable patients, 84.4% experienced a reduction in skin tumor burden, with a median 1.4 months to response and median 6.5 months of controlled disease (for patients who responded).  I/ONTAK has shown a similar safety profile to its predecessor formulation which was previously approved by the FDA.  Since Citius appears to have met all of the FDA’s requirements, it seems highly likely that I/ONTAK will be approved on or soon after the July 28, PDUFA date.

If so, then investors will focus on the outlook for I/ONTAK’s revenues and profits.  Although it has only 20 employees, Citius is set to oversee and manage the launch and subsequent development of the therapy. (For example, Dr. Myron Czuczman, CTXR’s Chief Medical Officer, headed Lymphoma research at Celgene before it was acquired by Bristol Myers.) Even so, the company must rely on third parties to manufacture, market and distribute the drug.  It has been working with a manufacturer for some time on the product.  It also has an agreement with a pharmaceutical warehousing firm to manage and distribute inventory, and a marketing firm, which will designate 10-12 salespeople to work exclusively on marketing I/ONTAK.  Citius has the option to hire those salespeople as a team under its contract with the marketing firm.

The company anticipates that it will pass the breakeven point for I/ONTAK about a year after launch.  Although it has not offered any specific sales estimates, it has assessed the total addressable U.S. market for advanced stage relapse or refractory CTCL treatments, its primary target, at $300-$400 million.  There are currently three competing CTCL therapies:  ADCETRIS, an antigen of the CD30 protein, by Seagen; POTELIGEO, a CCR4 antagonist, by Kyowa Kirin; and ISTODAX, a HDAC inhibitor, by Bristol-Myers Squibb.  I/ONTAK, which is a recombinant engineered fusion protein that delivers diphtheria toxin to cancer cells by binding to IL-2 receptors, offers a differentiated mechanism of action that should qualify it as another treatment option for CTCL.

Meanwhile, the Phase III trial for Mino-Lok, CTXR’s other leading drug candidate, has been extended by a number of months to meet FDA requirements.  Mino-Lok is a treatment for salvaging infected central venous catheters, which are typically installed in cancer patients.  There is no current FDA-approved treatment option for infected CVCs.  To avoid having to remove and replace a CVC, most hospitals use their own in-house solutions to treat the infection.  Successful treatment can avoid the significant monetary cost (and the emotional cost to the patient) of removal.  Citius estimates that Mino-Lok has the potential to achieve sales as high as $2 billion.

Under the FDA’s requirements, the clinical trial is evaluating Mino-Lok against local treatment options (in an approximate ratio of one Mino-Lok treatment for every two hospital-engineered treatments) until a total of 92 catheter failure events are recorded.  The results of the trial will therefore be based upon the relative failure rates for each treatment.)  Up until 22Q4, the Phase 3 trial had recorded only 72 failure events, so the trial had to be extended.

With the development efforts for both of its leading drug candidates still a work in progress, Citius has disclosed that its Sept. 30 fiscal year-end cash balance of $41.7 million will be sufficient to fund its operations through December 2023.  Since it will not be cash flow positive by then, it will need to raise additional cash in order to continue operating. Although there are several alternative approaches that the company can take in order to raise the necessary capital, most will require issuing equity or equity-linked securities.  That then raises the question of the likely dilution that existing shareholders will face, especially in light of the sharp drop in equity offerings in 2022 which has made it more difficult for early stage companies to raise capital.

During his presentation, Mr. Mazur noted that he and Myron Holubiak, CTXR’s Executive Vice-Chairman, currently have a combined 14.7% equity stake in the company.  Mr. Mazur said that as a major shareholder he aims to preserve his equity stake as much as possible.  Of course, his ability to achieve that goal depends on market conditions, broadly defined.  However, there are alternatives – such as issuing preferred stock, entering into a joint venture or even selling the marketing rights to I/ONTAK for a fee (including royalties), that can substantially reduce the amount of dilution required to raise the capital.

January 24, 2023 

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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