Cidara Therapeutics (NASDAQ: CDTX) is an emerging biopharmaceutical company developing new antifungal agents for treatment of common and serious fungal infections. The company is also developing an immunotherapy platform (Cloudbreak) that could represent a paradigm shift in the treatment of common bacterial, fungal and viral pathogens using a similar approach as cancer immunotherapy. We are initiating coverage on Cidara Therapeutics with a Buy rating and common share long-term target (fair value) of $25.61 based on a sum-of-parts enterprise discounted cash flow (NYSE:DCF) method.
- Common stock price target: $25.61
- Current stock price: $11.14
- 52-week stock price range: $9.48 to $18.07
- Market Cap: $154.3M
- Average daily share volume: 71,135
- Cash/cash equivalents/short-term investments: $96.7M
- Cash enough to last till: Q1 2017
- Debt - Nil
- Short interest: 1.3%
- Short interest, days to cover: 2.4
Figure 1: Cidara Therapeutics, common stock price chart (Source: Bloomberg)
Figure 2: Cidara Therapeutics, product developmental pipeline
CD-101 IV in treatment of candidemia and invasive candidiasis infections
Invasive fungal infections like candida and aspergillus are a common cause of morbidity and mortality. According to an estimate, invasive candida infections (including candidemia or bloodstream infection) may affect about 400,000 cases globally per year, or about 98,000 cases per year in the U.S. About 67,500 patients die every year in the U.S. due to candida infections (Source: Company investor presentation). Various factors, like immunocompromised state or insertion of invasive intravenous catheters, may predispose one to these infections. Current standard of care for these infections is intravenous (IV) echinocandin (a class of antifungal agents) like caspofungin, followed by a switch to oral fluconazole for about 2 weeks after clearing of the bloodstream infection. However, currently available echinocandin drugs are dosed once daily (resulting in fluctuant blood levels of the drug), and fungal resistance to these agents is slowly emerging. Moreover, azole agents like fluconazole have liver toxicity, widespread drug interactions (for example, with oral contraceptives) and a high rate of candida resistance.
CD-101 is a new echinocandin antifungal agent. At present, the longest-acting echinocandin agent is anidulafungin (Eraxis) owned by Pfizer (NYSE: PFE), with a half-life of 24-26 hours. CD-101 has several advantages over currently available echinocandins and azoles. First, it has a prolonged half-life of 80 hours. This allows for once-weekly convenient administration. It does not have significant drug interactions, abnormal effect on EKG and is highly water-soluble.
Figure 3: Human pharmacokinetics after single dose of CD-101 in comparison to anidulafungin. More sustained high drug levels are seen with CD-101 lasting up to one week (Source: Cidara website)
Patients with invasive candida infections and candidemia can be discharged home after a single IV dose of CD-101 and documenting clearance of bloodstream infection. The next weekly IV dose can even be administered conveniently at home by a visiting nurse. Usually, two weekly doses are needed for treatment of invasive candida infections, though a third weekly dose can be administered, if needed.
Figure 4: Half-life of CD-101 compared to other echinocandin agents (Source: Cidara website)
Treatment of invasive candida infections by CD-101 is, thus, expected to allow single-agent administration with an echinocandin as per recommended guidelines, improve patient compliance with therapy, decrease hospital stay duration and decrease chances of candida resistance to treatment. CD-101 has Orphan drug designation, Fast-Track and Qualified Infectious Disease Product (QIDP) designation in the U.S. for treatment of invasive candida infections, including candidemia.
In two phase 1 trials, CD-101 was well tolerated without any serious side effects. Based on the encouraging results of phase 1 trial, CD-101 is being tested in a phase 2, multicenter, randomized, double-blind trial called STRIVE (two treatment arms of 400 mg IV weekly for 2 weeks; one 400 mg dose followed by 200 mg after one week) in comparison to current standard of care (caspofungin followed by fluconazole). A third weekly dose may be added to either CD-101 treatment arm, if needed. Total of 90 patients will be enrolled in this trial in the U.S. and Europe. The results of this phase 2 trial are expected in the second half of 2017.
Figure 5: Design of phase 2 STRIVE study
In valuing the contribution of future revenues due to CD-101 in invasive candida infections/candidemia, we input candidate patients per year at 98,000 in the U.S. and 150,000/year in the E.U. Cost of treatment per case was input at $3500 (similar to treating with 7 days of brand Eraxis and then 14 days of brand Diflucan). Peak market share of 70% was assumed, and the revenues were risk-adjusted with probability of 30% success (similar to the average for drugs in the phase 2 trial). Using these inputs, we modeled peak risk-adjusted annual revenue at $183 million in the U.S. and E.U. (which could translate to about $610 million/annually if risk removed after approval). Echinocandins currently have about $1.1 billion in annual sales worldwide, and caspofungin had peak annual sales of $600 million.
Using these inputs in forecasting revenue from CD-101 and the average values for pharmaceuticals for revenue/net income, revenue/depreciation and amortization, revenue/R&D and reinvestment rate of 87% and an initial discount rate of 15%, we obtained future operating value of CD-101 in this indication at about $130 million and contribution to fair value/share at $9.36. The spreadsheet can be downloaded here.
CD-101 topical in treatment of acute vulvovaginal candidiasis (VVC)
VVC is a common clinical condition resulting in about 4.4 million cases per year in the U.S. (affecting 2.3 million women per year in the U.S.). Current treatment is topical azole agents like miconazole or oral fluconazole. However, azole agents have widespread resistance, and about 30-40% cases of acute VVC relapse. Recurrent VVC is a clinical condition in which there are 3 or more relapses of VVC within a year. Even in recurrent VVC, about 50% cases relapse. Azole class of antifungals are fungistatic (do not kill candida, but only slow their growth). Oral fluconazole is more effective in treating VVC, but is not safe for pregnant women.
CD-101 topical is the first ever topical version of an echinocandin antifungal agent. Moreover, this class of drugs is fungicidal (kills the candida).
Figure 6: Preclinical results of topical CD-101 in VVC
In a preclinical study, CD-101 was highly effective in treating VVC (Figure 6). The drug is currently being tested in a phase 2 study (study design shown in figure 7) in comparison to oral fluconazole. There are two treatment arms of topical CD-101 (single dose of 6% topical CD-101 ointment and multiple doses of 3% topical CD-101 gel). Results of this study are expected in mid-2017. The drug has QIDP with Fast-Track designation in the U.S. for treatment of acute VVC and preventing relapse of recurrent VVC. Various patents protecting the drug extend till 2032-2033.
Figure 7: Design of phase 2 RADIANT study of topical CD101 in VVC
In valuing the contribution of future revenues due to topical CD-101 in acute VVC, we input candidate cases per year in the U.S. at 4.4 million and 6.4 million cases/year in the E.U. Cost of treatment per case was input at $105 (similar to treating with 7 days of brand Monistat, topical fluconazole). Peak market share of 50% was assumed, and the revenues were risk-adjusted with probability of 30% success (similar to the average for drugs in the phase 2 trial). Using these inputs, we modeled peak risk-adjusted annual revenue of $170 million in the U.S. and the E.U. (which could translate to about $578 million/annually, if risk is removed after approval).
Using these inputs in forecasting revenue from CD-101 and the average values for pharmaceuticals for revenue/net income, revenue/depreciation and amortization, revenue/ R&D and reinvestment rate of 87% and an initial discount rate of 15%, we obtained future operating value of CD-101 in this indication of $130 million and contribution to fair value/share of $9.37. The spreadsheet can be downloaded here.
Cloudbreak Immunotherapy platform
This represents a novel approach to treating infectious disease similar to cancer immunotherapy. The candidates in this program help to recruit the immune cells like neutrophils to the site of infection, enabling the body's own immune system to fight infectious pathogens. The first potential application of this platform is likely to be in invasive aspergillosis, another serious fungal infection in which the technology has shown promising results in vivo. This technology is still is very early and in preclinical stage, and therefore, we did not include it in our valuation. We will watch for more clinical data from this platform, which might be a paradigm shift in treatment of infectious diseases similar to cancer immunotherapy.
Figure 8: Overview of the Cloudbreak platform (details)
Contribution of non-operating assets less liabilities to fair value/share
We adjusted non-operating assets like extra cash and cash-equivalents, operating loss carry-forwards and liabilities like long-term debt, operating lease liability and employee stock option liability (at fair value). We calculated the contribution of non-operating assets minus liabilities at $6.88/share. The spreadsheet used in the valuation can be downloaded here.
Sum-of-parts valuation of the common stock
Using the sum-of-parts valuation, we calculated fair value/common share at $25.61 using future projected revenue from the above-mentioned indications (enterprise DCF method). This represents significant upside from the current stock price.
Figure 9: Cidara Therapeutics, sum-of-the-parts enterprise DCF valuation
CEO and President, Jeffrey Stein, PhD: He served as the CEO of Trius Therapeutics (acquired by Cubist Pharmaceuticals (NASDAQ:CBSTZ)) and serves as a director of Paratek Pharmceuticals (NASDAQ:PRTK). Previously, he was the co-founder and chief scientific officer of Quorex Pharmaceuticals (acquired by Pfizer).
Chief Medical Officer, Dirk Thye, MD: He has over 17 years of experience in developing anti-infective therapies. Previously, he was co-founder of Cerexa (acquired by Forest Laboratories) and founder and senior V.P. of Clinical Development for Peninsula Pharmaceuticals (acquired by Johnson & Johnson (NYSE:JNJ)).
Details of other members of the management team and the Board of Directors can be accessed here.
Risks in the investment
Like all emerging pharmaceutical companies with little revenue, this investment has its risks. CD-101 might fail to succeed in clinical trials, side effects might limit its use, regulatory agencies might not approve the drug and healthcare insurers might not reimburse it. The company is likely to need to raise capital through debt and/or equity offering in the near future, which might put downward pressure on the stock price.
In conclusion, we are including common share of Cidara Therapeutics in our model portfolio as of 7/8/16 at an average price of $11.27 and common share long-term price target (fair value) of $25.61. The company's Cloudbreak Immunotherapy platform could revolutionize the treatment of infectious diseases.
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Disclosure: I am/we are long CDTX, SCYX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article represents my own opinion and is not a substitute for professional investment advice. It does not represent solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment.