Citius Pharma Raises $15M in Registered Direct Equity Offering

Earlier today, Citius Pharmaceuticals Inc. (CTXR) announced that it had entered into definitive agreements for the issuance of 21.4 million shares of its common stock and accompanying warrants to purchase up to the same number of common shares at a purchase price of $0.70 per unit (consisting of one share of common stock and one warrant). The warrants have an exercise price of $0.75 per share, exercisable six months from the date of issuance, and expire in five years (presumably from the date of issuance). Closing of the offering is expected to occur on or about April 30, 2024.

The equity offering is being made under the company’s $250 million shelf registration with the SEC, which was declared effective on March 1, 2024.

On April 3, 2024, Citius’s Board of Directors approved the extension of the expiration date by one year to April 5, 2025 of warrants held by Leonard Mazur, the company’s Chairman and CEO, and Myron Holubiak, its EVP and member of the BoD, to purchase 1.3 million shares of its common stock at an exercise price of $1.42. Those warrants had been issued in April 2019 in a similar equity offering in which Messrs. Mazur and Holubiak participated on the same basis as other investors. While the press release makes no mention of whether the two executive officers are participating in this new equity offering, it would not be surprising if they did so in order to protect their existing ownership position. As of January 19, 2023, Messrs. Mazur and Holubiak beneficially owned 14.0% or 22.2 million of Citius’s 159.1 million outstanding common shares (without taking into consideration warrants exercisable or convertible, more than 60 days after January 19, 2023, into 50.7 million common shares at various strike prices).

Citius has previously announced that it completed the enrollment of a Phase 3 clinical trial of Mino-Lok, its antibiotic lock solution used to treat catheter-related bloodstream infections. It expects to report topline results from that clinical trial before the end of June.

On February 14, Citius announced that it had resubmitted to the FDA the Biologics License Application (BLA) for LYMPHIR (denileukin diftitox) for the treatment of adults with relapsed or refractory cutaneous T-cell lymphoma. The FDA had issued a complete response letter (CRL) in September 2023 seeking more information about the product testing and manufacturing controls utilized in Citius’s Phase 3 clinical trial. On March 18, the FDA accepted the resubmission and assigned a PDUFA goal date of August 13, 2024 to issue its decision on approval. In its announcement of the FDA’s acceptance of the BLA, Mr. Mazur noted that the FDA’s CRL had raised no concerns related to the safety or efficacy of LYMPHIR. Citius remains confident about the adequacy of its clinical data package supporting its BLA submission and optimistic about its chances for approval.

Some members of the investment community have expressed concerns about the timing of this registered direct equity offering, wondering why, for example, Citius did not wait until after it released the data on Mino-Lok’s Phase 3 trial to raise new equity capital. The concern then is that the Mino-Lok Phase 3 data will be disappointing.

While that is a possibility, it seems more likely that the company did not want to wait another month or two before initiating an equity offering. It has previously said that it has sufficient cash to fund its operations until August 2024. Waiting until later would be cutting it very close, raising the risk, for example, that a change for the worse in financial market conditions could either make the equity offering even more expensive or jeopardize it altogether.

Citius ended the calendar year with $20.3 million in cash, enough to last until August 2024, according to its own projections. Besides this $15 million direct offering, the company received $2.4 million through the New Jersey Economic Development Program in March. If LYMPHIR is approved by the FDA in August, as seems likely, and Mino-Lok within the next year (assuming a favorable Phase 3 data readout), the company’s operating expenses will begin to rise sharply as it gears up for the product roll-outs. It will almost certainly need even more equity capital, therefore; so this equity offering is designed to buy the company more time: to get it past the LYMPHIR PDUFA date and put it in a better position for the next larger round of equity issuance.

Citius might have obtained better pricing by waiting for good news on Mino-Lok, but an equity offering at say $1 (vs. the actual $0.70) would have reduced equity issuance by 6.4 million units. That is equal to about four percent of pro forma shares outstanding (or about 5%, assuming all outstanding warrants are exercised). The additional dilution is not insignificant, but it probably does not mean that much in the long-run, especially if it helps to ensure the company’s survival.

The equity offering also buys time to bring the good news on LYMPHIR to the shareholders of TenX Keane Acquisition Corp. (TENK), the special purpose acquisition corporation (SPAC) that has tentatively agreed to merge with Citius Oncology, the subsidiary of Citius Pharmaceuticals that will own and develop LYMPHIR. As of now, TENK’s share price indicates that its shareholders at the margin will opt to have their money returned (rather than participate in the merger with Citius Oncology). As of December 31, 2023, four institutions held 54.5% of TENK’s outstanding shares, including the founder’s 18.5% equity stake.

Gaining access to TENK’s $73 million of cash (as of December 31, 2023) is presumably the primary rationale Citius’s participation in the merger. If Citius Oncology does not receive sufficient funds for its development plans for LYMPHIR in the merger, it probably will have to raise additional equity capital in a follow-on public offering soon thereafter. (Likewise, Citius Pharmaceuticals faces the prospect of another equity capital raise to fund the development of Mino-Lok.) Hopefully, with FDA approval of LYMPHIR, TENK shareholders will be more favorably disposed to keeping their money with Citius Oncology.

While it has clearly been a wild and disappointing ride over the past seven months and the stock remains quite speculative, I am maintaining my “buy” rating on Citius Pharmaceuticals (CTXR) and price target of $1.50.

April 26, 2024

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

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