Citius Pharmaceuticals (CTXR) posted a 24Q4 loss of $11.8 million or $1.64 per share. Excluding an estimated $6 million milestone payment, which I had incorrectly expensed rather than capitalized, I had projected a $12.5 million or $1.73 per share loss. During the quarter, the company reported in August that the FDA has approved LYMPHIR, a treatment for relapsed and refractory cutaneous T-cell lymphoma (CTCL) for patients who have received at least one prior systemic therapy. Also in August, it completed the acquisition of TenX Acquisition, now known as Citius Oncology (CTOR), in which it held a 92.3% equity stake immediately after the closing. In November, Citius completed a 1-for-25 reverse stock split in order to maintain its NASDAQ listing. It also raised $3 million from the sale of common stock and warrants under its at-the-market equity offering agreement with H.C. Wainwright & Co.
Citius is focusing on two priorities: First, it must raise enough capital to fund its operations. Second, it must launch LYMPHIR to begin generating revenues. It will presumably attend to a third priority – gaining FDA approval for Mino-Lok, its proposed antibiotic lock solution for infected central venous catheters – after the first two are addressed.
On the capital front, Citius reported yesterday that it agreed to sell 743,496 of its common shares and an equivalent number warrants with an exercise price of $3.91 for $3 million (before underwriting costs and discounts). That follows the $3 million at-the-money stock and warrant offering from November. Taken together, the two offerings represent an immediate 16.9% increase in Citius’s share count (from the end of fiscal 2024) and a potential 33.8% increase if the warrants are exercised. It should be noted, however, that as a result of the reverse stock split, all of Citius’s previously outstanding warrants, equal to 40.6% of common shares outstanding at fiscal 2024 year-end, are now substantially out of the money (with a weighted average strike price of $31.69). Among those are warrants exercisable into 1.3 million shares held by Leonard Mazur, CTXR’s Chairman and CEO, and Myron Holubiak, its Executive Vice Chairman, that now have an exercise price of $35.50 and whose expiration date was extended last year by CTXR’s Board by one year to April 2025.
Yesterday, Citius and CTOR also reported significant progress in their preparations for the commercial launch of LYMPHIR. Their strategy focuses on maximizing LYMPHIR’s U.S. market penetration, as well as pursuing additional growth opportunities, including licensing partnerships in key international markets, expanded indications for LYMPHIR and exploring LYMPHIR’s potential as a combination immunotherapy. In November, the company reported positive results from its Phase 1 clinical trial evaluating the combination of LYMPHIR and KEYTRUDA (vs. KEYTRUDA alone) in heavily pre-treated patients with recurrent or metastatic gynecological tumors. Data from the preliminary results of the trial suggest that LYMPHIR may improve and prolong the anti-tumor activity of immune checkpoint inhibitors. CTXR also has an open Phase 1 trial of LYMPHIR administered prior to CAR-T therapies. Earlier this week, Citius Oncology announced that it has engaged Jefferies LLC as its exclusive financial advisor to assist in evaluating strategic alternatives aimed at maximizing shareholder value. Strategic alternatives under consideration, which presumably would help address the company’s capital requirements, include partnerships, joint ventures, mergers, acquisitions and licensing, among others.
The most obvious partners for CTOR are Eisai Co. Ltd. of Japan, which acquired the commercial rights to ONTAK, the predecessor of LYMPHIR, in 2006 and Dr. Reddy’s Laboratories, Ltd. of India, which acquired the exclusive global (excluding Japan and certain parts of Asia) licensing rights to E7777 (a/k/a LYMPHIR), an updated formulation of ONTAK, in 2016. Dr. Reddy’s sold substantially all of those rights to Citius in 2021. Both Eisai and Dr. Reddy’s are entitled to development and commercial milestone payments on LYMPHIR going forward.
Eisai markets E7777 under the name of Remitoro in Japan and other Asian markets as a treatment for relapsed or refractory CTCL and relapsed or refractory Peripheral T-Cell Lymphoma (PTCL). It does not list Remitoro among its best selling medicines, so I believe that its total sales from Remitoro are less than $100 million per year. Still, it has an interest in continuing to pursue the development of the drug, as evidenced by its sponsorship of the Phase 3 clinical trial for LYMPHIR, upon which the FDA based its approval. Any other acquiror or licensee of Citius’s rights for LYMPHIR would have to either step into or renegotiate the existing agreements with Eisai and Dr. Reddy’s, which would be an added cost on top of the acquisition and required investment to develop and commercialize LYMPHIR.
Citius estimates that LYMPHIR’s addressable market is currently $400 million (presumably annual sales) and that the market may expand with the launch of LYMPHIR. It estimates that there are 25,000-35,000 people living with CTCL in the U.S. A prior study, now 18 years old, estimated the annual incidence rate of mycosis fungoides and Sezary Syndrome, two forms of CTCL, to be 0.5 out of 100,000 or 2,500-3,000 new cases per year. I recall a prior management estimate of $500,000 per treatment for LYMPHIR, but no such estimate was included in CTXR’s 2024 10-K.
Products that have been approved for the systemic treatment of advanced CTCL include Poteligeo, a monoclonal antibody from Kyowa Kirin; Adcetris, an antibody drug conjugate from Pfizer; Istodax, a histone deacetylase (HDAC) inhibitor from Bristol-Myers Squibb; and Zolinza, an HDAC inhibitor from Merck. Together, these treatments presumably comprise the current addressable market.
The Phase 3 clinical trial for LYMPHIR was conducted in two phases: a lead-in phase with 21 subjects designed to assess the optimal dosing, pharmacokinetics, immunogenicity and the Objective Response Rate (ORR), which is defined as a 50% reduction in tumor burden; and a main phase with 70 subjects at a fixed dose treatment regimen.
In my view, the ORR of the main phase of the trial of 36% was good but not especially impressive. FDA approval was apparently based upon the view that this treatment would nevertheless provide another option to extend the lives of those afflicted with this very difficult to treat disease. What caught my eye, however, was the Phase 3 trial’s Complete Response Rate (CRR) of 9%. That is, 9% or 6 of the 69 patients were cleared of their disease entirely, including their skin lesions. While it is not clear yet that these results will hold up over time and in future clinical trials, they should, in my view, be sufficient to attract interest from one or more established pharmaceutical companies.
There is still a lot of work to do here. A third party investor/ developer may, for example, conduct clinical trials of LYMPHIR against other standards of care or in combinations with other established treatments, such as PD-1 inhibitors, in other types of (solid tumor) cancers. Even so, the investment required to explore the medical and commercial potential of LYMPHIR may not a big issue for a large pharmaceutical company like Bristol-Myers, Merck or Pfizer, as it would most likely represent only a small percentage of their research budgets.
Under the circumstances, with the limited available data from one small clinical trial and the complexity of the existing licensing arrangements, a third party may prefer not to acquire CTOR outright at this time. It might instead structure a licensing/joint venture agreement (perhaps bringing Eisai or Dr. Reddy’s back into the fold). This would get CTOR some upfront cash to fund its operations and possibly relieve it of much of the burden of launching the drug, while giving it the potential to earn milestone payments and/or royalties as revenues grow. That investor would still have the option to acquire CTOR at some point in the future when the business opportunity has been “derisked.”
On the other hand, CTOR’s total equity market value is only $84.5 million, which seems cheap for an FDA approved oncology drug with a 36% ORR and 9% CRR and the potential to be used in combinations with PD-1 and CAR-T therapies. CTXR does not have in-house capabilities and is in fact relying upon third parties to conduct much of its research and execute the launch, so it is unclear just how much value it will add to the commercial launch and future development of LYMPHIR. That probably makes an outright sale the preferred option at this time. Based upon observations of other acquisitions by large pharmaceutical companies, I think it is reasonable to expect that if CTOR is acquired, the purchase price is likely to be a meaningful premium to its current valuation.
Given the wide range of possible outcomes, I find it impossible to put a value on LYMPHIR, so I am withdrawing my price target. If a sale does occur, the ultimate price will most likely be determined by the bidding process. A joint venture or licensing agreement would probably put at least a temporary halt to equity dilution. Thus, I am raising my performance rating on CTXR to “1” (Buy) from “3” (Neutral). The stock remains highly speculative, as evidenced by the auditor’s “going concern” warning in CTXR’s financial statements. If a viable strategic alternative does not emerge, Citius will have to rely on equity issuance which will almost certainly result in further substantial dilution to existing shareholders. If the launch of LYMPHIR falters, the company could face bankruptcy and a liquidation.
This is a summary of my recent report on Citius Pharmaceuticals, Inc. (CTXR). To obtain a copy of the report, please reach out to me using the contact information provided below.
January 10, 2025 (Report published on January 9, 2025.)
Stephen P. Percoco
Lark Research
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