Citius Pharma 22Q1 Update

Citius Pharmaceuticals (CXTR) is a specialty pharmaceutical company focused on the development of five potential products: (1) Mino-Lok, an antibiotic lock solution to treat and salvage infected central venous catheters (CVCs) in patients with catheter-related bloodstream infections (CRBSIs); (2) I/ONTAK, a late-stage oncology immunotherapy for the treatment for cutaneous T-cell lymphoma (CTCL), that was acquired from Dr. Reddy’s Laboratories SA in September 2021; (3) Halo-Lido, a topical formation of halobetasol propionate and lidocaine for the treatment of hemorrhoids; (4) Mino-Wrap, a liquefying, gel-based wrap for the reduction of infections associated with breast implants following breast reconstructive surgeries; and (5) a next generation iPSC mesenchymal stem cell (iMSC) mRNA therapy, which is in pre-clinical development, under license from Brooklyn Immunotherapeutics (BTX).

In fiscal 2021 (ended Sept. 30, 2021), Citius completed a $71 million registered direct offering of equity units, an $18.5 million equity private placement and realized $31.2 million from the exercise of warrants.  With these resources, the company sustained its clinical development program and acquired the licensing rights (outside Japan and certain Asia-Pacific countries) to I/ONTAK for $40 million.  As of December 31, 2021, Citius had $65.4 million of cash on its balance sheet.

Citius has generated no revenues since it became a publicly-traded company in 2014.  In fiscal 2021 (ended Sept. 30, 2021), it recorded a net loss of $24.5 million and used $24.3 million of cash to fund operating activities.  In its fiscal 2022 first quarter (ended Dec. 31, 2022), it recorded a net loss of $9.2 million and used $4.7 million of cash for operating activities.

Due to the uncertainty about the timing of product approvals and the subsequent growth of revenues, projecting Citius’s future performance is a speculative exercise.  The company’s disclosures that help quantify the market opportunity for Mino-Lok should be updated.  Completion of a Phase 3 clinical trial of Mino-Lok has been delayed twice, due to the pandemic, and is now scheduled for the end of 2022.  Assuming FDA approval soon after the clinical trial’s completion, Mino-Lok should begin generating revenues in 2023; but revenues in the early years will probably lag behind the cost of rolling out and marketing the product.  I/ONTAK is in a late stage clinical trial and could conceivably generate revenues in 2023, but the market opportunity is difficult to quantify.  There is less visibility about the development and commercialization paths for Citius’s three other candidates: Halo-Lido, Mino-Wrap and the iMSC mRNA technology.

At the annualized rate of cash burn for FY2021, the company would have sufficient cash to fund fiscal 2021 development and operating expenses for 2-3 years.  However, cash operating losses could rise in the early years of a Mino-Lok rollout, which may be a factor in the company’s assessment of sufficient cash resources to fund its operations only through March 2023.

If Citius demonstrates progress in moving its pipeline toward commercialization, it could receive perhaps as much as $55.3 million from the exercise of the outstanding warrants that are now exercisable into 37.3 million shares[1], equivalent to 27.5% of total common shares currently outstanding.  The average exercise price of the warrants is $1.50.  With the achievement of product development milestones in 2022, Citius should also be able to raise additional equity capital to sustain its operations and product development activities.

Using simplified assumptions, i.e. that Citius captures a 30% share of Mino-Lok’s estimated market potential, achieves a 10.0% operating margin by 2026, further dilutes the interests of existing shareholders by 37.0% and eventually obtains a P/E multiple of 25, I estimate that its stock price could rise to $3.22 by 2026, which translates into a compounded annualized return of 25% on the April 26, 2022 closing share price of $1.09.  These estimates do not factor in any potential contribution from Halo-Lido, Mino-Wrap, the mRNA technology or I/ONTAK.  My projections include only nominal expenditures for the further development of these products.

Citius’s stock has fallen sharply over the past few weeks to a new 52-week low.  Lack of progress in its development pipeline and concerns about future capital availability may be the most likely factors.  Demonstrable progress in 2022 on its late stage pipeline, including Mino-Lok and I/ONTAK, would therefore be the most likely catalyst for a rebound in the share price.  Although the stock is highly speculative, I am maintaining my performance rating of “1” (significantly outperform) and establishing a 12-month price target of $2.00.

[1] I am excluding from this calculation warrants exercisable into 2.9 million shares at an average exercise price of $4.26 that have expiration dates ranging from April 29, 2022 to March 28, 2023.

This is a summary of my recent update report on Citius Pharmaceuticals (CTXR). For a copy of the full report, please reach out to me using the contact information provided below.

April 26, 2022

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

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