Citius Pharmaceuticals: Hoping For A Turnaround Strategy (NASDAQ:CTXR)

Late-stage biopharmaceuticals company Citius Pharmaceuticals, Inc. (NASDAQ:CTXR) informed investors that it had selected Biorasi to help it expand its Phase 3 Mino-Lok trial to clinical sites outside the U.S. Well, that formed one of the main highlights of Q2 2022, with investors yet to hear any news about patient enrolment almost 2 months after Biorasi’s appointment. Still, there is a lot of excitement among investors with Citius expected to file its biologics license application (BLA) for I/ONTAK with the U.S. Food and Drug Administration (FDA) later in the second half of 2022.

Thesis

In this article, I will explain why I am raising my rating of CTXR to hold from sell. The plan to spin off I/Ontak as a standalone company appears to be a strategic move to spearhead growth and attract new investors to the company. As a pure-play oncology-focused biopharmaceutical project, the new company may leverage past mistakes that have delayed the release of topline data for Mino-Lok. Further, new acquisitions are in the offing, especially since the company’s finances are inadequate to sustain the company for the next 12 months.

Earlier Assessment

In my previous article on CTXR, I expressed my concerns over the company’s rush to buy E7777 where it burnt a significant amount of cash. Citius is yet to recover, and it is now on the verge of forming a new company to develop and commercialize I/Ontak. This decision comes as no surprise since it had already completed the Phase 3 trial in December 2021. Additionally, the pipeline development for the two main drug candidates: Mino-Lok and E7777 were on different trajectories.

Apart from I/Ontak and Mino-Lok, Citius also has in its pipeline Halo-lido, Mino-Wrap, and a Stem cell platform. At the moment, the market is in a bear mode with investors eagerly waiting for some good news within the pipeline development to squeeze the shorts. For Citius, it has been a long time coming. In July 2021, CTXR announced a positive recommendation by the Independent Data Monitoring Committee (IDMC) to proceed with the planned Mino-Lok Phase 3 Trial. One year later, the company is yet to release test results. However, with the entry of Biorasi, we expect the company to fast-track patient enrolment.

Overview of Patient enrolment and Phase 3 Trial Dynamics

The total number of patients planned for Mino-Lok’s phase 3 trial is 144, distributed as 1:1 to the standard of care (SOC) which is antibiotics. The objective of this trial (as noted in our earlier report) is to evaluate Mino-Lok’s efficacy in salvaging colonized central venous catheters in patients with catheter-related or central line-associated bloodstream infection (CRBSI/ CLABSI). This evaluation is compared to the SOC of using antibiotics. In this trial, the protocol will be focused on reaching 92 catheter failure events that also correspond to the 144 patients. Albeit, the company is yet to disclose how many patients it has tested so far and how many events are in the balance.

The primary endpoint is the time until catheter failure occurs, expressed in days from randomization into one of the two study arms. Simply put, this means that a patient with a catheter develops a bacterial infection, is subsequently assigned to one of the two study arms, and from then on, the time in days until the catheter needs to be replaced is noted. In the description of the study, this is given as a time frame of 6 weeks. To be able to show the statistical superiority of Mino-Lok over SOC, the time to catheter failure was defined as at least 38 days for Mino-Lok versus 21 days for SOC.

The trial started in February 2018 and reached 40% enrollment in September 2019. The next 50% were reached in February 2020 and later 80% were reached in June 2021. This fits pretty nicely to a rate of 2% enrollment per month. It is interesting to note here that the normally increasing speed of enrollment throughout a study due to clinics being added and the slowdown of the study due to the COVID-19 pandemic have balanced each other out. However, there was a fundamental change by Q4 2021. Despite the increasing number of patients during the Covid19 pandemic, the company still expected a prolonged trial that would affect enrolment. This problem necessitated the recruitment of Biorasi.

Citius CEO, Myron Holubiak was optimistic about the company’s accomplishments in 2022, despite the apparent delays. He stated,

As we move into 2022, we anticipate multiple positive milestones. These include accelerated enrollment and completion of the Mino-Lok trial during the year, topline results in the first half of 2022 for the recently completed I/ONTAK (E7777) Pivotal Phase 3 trial followed by a BLA submission in the second half of the year.”

Before this date, CTXR always said that topline data for Mino-Lok will be published in 2022, suddenly it changed and only completion of the trial (meaning full enrollment) is planned. Right now, there is no further update on the actual state of the enrollment. In February, CTXR again stated that trial completion will be reached in 2022 leaving open the final date for topline data. Enrollment must be higher than 80% but seems to be very slow. CTXR plans to reach full enrollment by the end of 2022.

Now, with the help of Biorasi, this could be fastened up. But still, CTXR plans year-end 2022 for full enrollment and as long as we have no further update, we have to calculate with this. Questions are: What happened to the speed of the enrollment in H2 2021? Why was Biorasi asked for help so late? One could have added clinics in other countries also right from the beginning to keep the Phase 3 trial short. I have no idea why they waited so long for this step.

Of special note is that the FDA does not require a certain number of patients but wants to see two adequate and well-designed clinical trials. With regards to Mino-Lok, the completed Phase 2 and the ongoing Phase 3 trials will be sufficient. The number of patients per trial strongly depends on the indication, the trial design and the statistical calculations planned and thus are different for every trial. The planned 144 patients in Phase 3 is enough for FDA approval if the results are good, and statistically significant to prove that Mino-Lok is safe.

So what is remaining as far as Mino-Lok is concerned?

In presenting its phase 3 topline data, Citius will first hold a Pre-NDA (New Drug Application) meeting with the FDA to talk about the NDA filing and if data are enough. It’s the first check by FDA if there are enough data. Sometimes FDA demands additional trials, which can be small or even a full Phase 3 trial. Also, check with FDA if any designations will shorten the review process of the FDA from 10 to 6 months. Mino-Lok already was granted fast-track designation by the FDA meaning that their review process will be only 6 months.

Writing the NDA application is a time-based process. It must contain all clinical, and pre-clinical data and manufacturing details. It is expected that it will take at least 6 months from filing to submission of data to the FDA (after the release of topline data). After filing the NDA, the FDA takes 2 months to approve or reject the data. After approval, the FDA needs another 6 months (with fast-track designation, otherwise it takes 10 months) to check the NDA and decide about the approval of Mino-Lok.

Thus, in general, CTXR has to prepare everything about Mino-Lok including all results and data but also how it is manufactured and the corresponding documents that prove good manufacturing practice and quality control mechanisms, etc.

This means that from topline data onward I believe CTXR will need at least 6 months until NDA submission, followed by a total of 8 months (2 months needed by the FDA to accept the filing and 6 months to review the NDA) until the FDA will finally decide if Mino-Lok is approved. This means with topline data in H1 2023, approval could be in mid-2024.

Selling Halo-Lido?

Investors are looking forward to CTXR’s selling of Halo-Lido, especially after the Phase 2B trial. Whether it will be a possibility or not remains a subject under discussion. Still, the company desperately needs financial backup. Before we address the financial standpoint, we need to underscore the fact that the FDA is yet to approve a prescription drug for the treatment of hemorrhoids. Once approved, Halo-Lido could become the first drug to treat hemorrhoids in the US.

Citius Chairman, Leonard Mazur confirmed that the company had received several interested buyers back in 2021. We can speculate that one of the buyers may be interested in buying out Citius but may not be interested in I/Ontak or E7777- the reason for the spin-off.

Mino-Lok salvages CVCs and it is projected to rake in up to $750 million (in revenue) from the US market and close to $2 billion in the global market. Additionally, hemorrhoids affect up to 5% of the US market with approximately 10 million patients reporting symptoms annually. Halo-Lido’s valuation may reach between $2 billion to $4 billion. On its part, E7777’s projected market value stands at $300 million, largely below the dominant two. In our view, Citius rushed to complete the I/Ontak deal with the hope of hitting commercialization and funding its other projects.

Risks

CTXR’s cash balance as of March 2022 stood at $55.8 million down 14.68% from the quarter ending December 31, 2021. The company’s cash levels have been declining since they hit a high of $115.7 million in June 2021. In the 12 months trailing (TTM) to March 2022, the company used up $24.7 million in operations and $40 million in capital expenditures. It totaled $64.7 million. It means that the company has only 10 months or until December 2022 to complete its current cash reserves.

The company’s total shares outstanding as of March 2022 stood at 146.1 million up 94.8% from 75 million shares registered in the 12 months ending in December 2020. That’s close to a 100% dilution in less than 1.25 years. CTXR is currently trending below $0.90 having lost almost 70% over the past year. If the company decides to further dilute the stock, it may decline below $0.50. Still, the company has the option of taking debt since it only has a paltry $0.8 million in total debt (and total liabilities at $9.6 million) against total assets worth $127.8 million. A buy-out is another option to secure the company’s liquidity.

The founders of Citius (including Chairman Leonard Mazur and CEO Myron Holubiak are of Ukrainian descent. The ongoing war between Russia and Ukraine has disrupted clinical trials in Ukraine, thereby lengthening the delay in releasing topline. Prolonging the war may continue to have an adverse effect on CTXR’s delivery considering its management has its roots in Ukraine.

Takeaway

In general, Mino-Lok appears to be safe but more research needs to be done to assess if additional antibiotic treatment leads to contraindications. Many doctors believe that a full separation between a catheter lock solution and a patient’s blood circulation is not possible. Thus, a bit of Mino-Lok and the antibiotic minocycline will most likely reach the blood circulation. Additional systemic antibiotics thus could be dangerous as it leads to a high antibiotic concentration in the patient’s bloodstream. On its financial strength, CTXR’s current cash reserves will likely take the company up to December 2022. It underestimated the impact of the purchase of the E7777 license as it has not recovered from its earlier liquidity strength. There is also a buy-out possibility with the company’s main products Mino-Lok and Halo-Lido valued highly. In this regard, we will propose a hold option to the stock as we watch the turnaround strategy take shape.