Why This Citius Analyst Thinks The Biopharma's Shares Present 375% Upside Potential

Citius Pharmaceuticals, Inc. CTXR announced earlier this week an agreement with Dr. Reddy's Laboratories Ltd RDY to acquire its exclusive license of E7777, a late-stage oncology immunotherapy for the treatment of cutaneous T-cell lymphoma, a rare form of non-Hodgkin lymphoma.

The Citius Analyst: Dawson James Securities analyst Jason Kolbert maintained a Buy rating on Citius shares and upped the price target from $8 to $10.

The Citius Thesis: E7777, which Citius has agreed to acquire, has been recently approved in Japan and has a similar path in the U.S., analyst Kolbert said in a note.

E7777 is an improved formulation of an oncology agent, ONTAK, which was previously approved by the Food and Drug Administration for the treatment of patients with persistent or recurrent CTCL, the analyst noted.

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The current Phase 3 trial in the U.S., according to the analyst, is a bridging study to validate a manufacturing change, dose confirmation and efficacy in CTCL patients. Given that the investigational asset has an orphan indication, the pricing is likely too high, the analyst said.

The last patient in a pivotal trial of E7777 has been enrolled and a biologics license application for the first indication in CTCL is expected to be filed with the FDA by the end of 2022, Kolbert said.

Citius paid $40 million upfront and has an obligation for $40 million in milestones, and potentially a 10% royalty, the analyst estimates. Additional payments for other indications and modest fees to Eisai Co., Ltd. ESALY are due, he added.

ET7777 has a $100 million to $200 million annual opportunity, the analyst said. The analyst also sees synergy, given the MinoLok target audience is patients with permanent catheters and a significant segment of this market is oncology patients.

"E7777 clinical data suggests a 40% ORR (Overall Response Rate), and regulators believe this supports approval, especially when coupled with a benign adverse events profile versus other compounds used (off-label)," Dawson James said.

Citius Price Action: On Friday morning, Citius shares were down 0.64% at $2.09.

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