Citius Pharmaceuticals (CXTR) is a specialty pharmaceutical company focused on the development of four 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”); Halo-Lido, a topical formation of halobetasol propionate and lidocaine for the treatment of hemorrhoids; Mino-Wrap, a liquefying, gel-based wrap for the reduction of infections associated with breast implants following breast reconstructive surgeries; and a next generation mesenchymal stem cell (MSC) mRNA therapy under license from Novellus Therapeutics Limited that is early in pre-clinical development.
On February 16, Citius raised $71.1 million in an equity unit offering. Each unit consists of two shares of its common stock and one 5-year warrant (with a strike price of $1.70) that was priced at $1.505. In total, the company issued 50.8 million common shares and warrants exercisable into 25.4 million common shares. The net proceeds will be used to fund the remainder of the Phase 3 clinical trial for Mino-Lok, its initial commercialization efforts and further development of the other three products in Citius’s pipeline.
Citius has generated no revenues since it became a publicly-traded company in 2014. In fiscal 2020 (ended Sept. 30, 2020), it recorded a net loss of $17.5 million and used $16.9 million of cash to fund operating activities. In its fiscal 2021 first quarter (ended Dec. 31, 2020), it recorded a net loss of $8.1 million and used $9.6 million of cash for operating activities.
Due to the uncertainty about the timing of product approvals and the subsequent growth of revenues, projecting the company’s future performance is at best a speculative exercise. While the company has made disclosures that help to quantify the market opportunity of Mino-Lok, those disclosures are stale and it has not to my knowledge offered guidance about its expectations for the trajectory of the Mino-Lok’s revenues and profits. Assuming that Mino-Lok gains FDA approval sometime in the second half of 2021, it should begin generating revenues in 2022; but those will probably be exceeded by the cost of rolling out and marketing the product for the first year or two. There is currently substantially less visibility about the development paths and outlooks for Citius’s other three candidates, Halo-Lido, Mino-Wrap and the iMSC mRNA technology.
At the annualized rate of cash burn for FY2020 and 21Q1, the company should now have sufficient cash to fund development and operating expenses for 2-3 years (assuming no revenues and sustained operating losses at or near current levels). If it demonstrates progress in moving its pipeline toward commercialization, it could receive perhaps as much as $115 million from the exercise of the outstanding warrants that are now exercisable into 70.9 million shares, equivalent to 56% of total common shares currently outstanding. With the achievement of product development milestones over time, Citius may also be able to raise additional capital to sustain its operations and product development, if necessary.
While Citius is positioning Mino-Lok as an effective alternative to removal and replacement of CVCs, Mino-Lok’s sales and market share potential may also depend upon its effectiveness versus existing and potential future preventive treatments. Two other companies are developing products designed to prevent laboratory confirmed “central line” (i.e. long fine catheter) associated bloodstream infections (“CLABSIs”), which may eventually be extended to CVCs.
Using simplified assumptions, i.e. that Citius captures a 30% share of Mino-Lok’s estimated market potential, achieves a 10.8% operating margin by 2025, further dilutes the interests of existing shareholders by 36% and eventually obtains a P/E multiple of 25, I estimate that its stock price could rise to $4.09 by 2025, which translates into a compounded annualized return of 16% on the March 22, 2021 closing share price of $1.99. These estimates do not factor in any potential contribution from Halo-Lido, Mino-Wrap or the mRNA technology. My projections include only nominal expenditures for the further development of these products.
The company has announced that it will disclose the preliminary results of its Phase 3 trial of Mino-Lok on Thursday, March 25 in a presentation at an investor conference sponsored by Benzinga.
For my full report on Citius Pharmaceuticals (CTXR), please contact me directly.
March 23, 2021
Stephen P. Percoco
Lark Research
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