Citius Pharmaceuticals (CTXR) posted a 24Q3 loss of $10.9 million or $0.06 per share, matching my estimate. R&D expense fell by $1.0 million or 26.6% vs. the prior year, while general & administrative expense increased $1.1 million or 28.8%. The company is reducing its clinical development activity and gearing up for the launch of LYMPHIR.
Citius has achieved two significant milestones this month. On August 8, the company announced that the FDA has approved LYMPHIR (denileukin diftitox-cxdl) for the treatment of relapsed and refractory cutaneous T-cell lymphoma (CTCL) for patients who have received at least one prior systemic therapy. LYMPHIR expands the options for CTCL patients, potentially growing the market for such treatments, which the company estimates at $300-$400 million. Citius is preparing to launch LYMPHIR in the U.S. within the next five months.
On August 12, Citius completed the merger of its oncology subsidiary with TenX Keane Acquisition, a publicly traded SPAC. The combination now operates as Citius Oncology, Inc. and is publicly traded on NASDAQ under the symbol “CTOR.” Pro forma financials of the combined company are not yet available. Citius now holds 66.0 million shares of CTOR, equivalent to a 92.6% stake. Its obligation to invest $10 million in CTOR was accomplished through the contribution of $3.8 million of working capital, the funding of $6.2 million of transaction expenses and the purchase of $1 million of TenX rights, which have been converted into 422,533 shares of CTOR stock.
I had assumed that the primary purpose for the creation of Citius Oncology was to gain access to TenX’s cash to fund the launch of LYMPHIR. However, TenX shareholders had the option of having all of their investments returned to them plus interest rather than take stock in CTOR. Apparently, substantially all shareholders opted to cash out. As a result, Citius and CTOR must pursue other financing options to fund the launch.
On the day of the TenX merger, Citius entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC, under which it may offer and sell from time to time and at its sole discretion up to $50 million of its common shares. Proceeds will be used to fund the company’s operations, primarily for the launch of LYMPHIR and the further development and preparation for the launch of Mino-Lok. With the FDA’s approval of LYMPHIR, Citius owes a $6 million milestone payment to Eisai, Inc., its creator. Citius is also obligated for development milestone payments and royalties to Dr. Reddy’s Laboratories, from which it acquired the license for LYMPHIR. The company has said that its cash on hand of $17.9 million as of June 30, 2024 is sufficient to fund its operations until December. If completed in full, the At The Market Offering will probably take care of Citius’s financing needs through 2025.
The At The Market Offering is currently an overhang on Citius’s stock and a major cause of its inability to comply with NASDAQ’s minimum $1.00 per share threshold. Citius has been granted an extension until September 9 to regain compliance. At this point, the company will have to seek another extension from NASDAQ. A reverse split cannot be ruled out. It is also possible that CTXR will eventually be delisted.
Since CTOR starts out with little or no cash, raising the likelihood of even more dilution for CTXR shareholders, I am lowering my 12-month price target from $1.50 to $1.25 and my performance rating from “1” (Buy) to “2” (Outperform). The distinction between buy and outperform ratings for a stock trading below $1 is meaningless. I am using it here to convey my assessment that there is less upside potential in CTXR shares. This turn of events raises questions about the purpose of the CTOR merger and the endgame for Citius. Perhaps the CTOR structure will now facilitate the sale of CTOR to a company with sufficient resources to complete the launch successfully.
This is a summary of my recent update report on Citius Pharmaceuticals, Inc. (CTXR). To obtain a copy of the report, please reach out to me using the contact information provided below.
August 23, 2024 (Report published on August 22, 2024.)
Stephen P. Percoco
Lark Research
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