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Cirius Therapeutics IPO: At Phase 2 And Results Should Arrive In 2019


Many institutional investors will assess Cirius Therapeutics (CSTX) as the company’s leading product candidate is at Phase 2 of development and results will be released in the second half of 2019. In addition, it is beneficial that the company has no debt and expects to convert all its convertible securities as the IPO goes live. With that, it is also quite beneficial that many institutional investors decided to acquire shares before the IPO. They all seemed to trust the data obtained so far.

Source: Prospectus

Source: Prospectus


Founded in 2015, Cirius is a clinical-stage pharmaceutical company developing a pipeline of therapies for the treatment of liver and metabolic diseases.

Source: Company’s Website

The company’s lead product candidate, called MSDC-0602K, is intended for the treatment of nonalcoholic steatohepatitis, or NASH, with fibrosis. MSDC-0602K is at phase 2b. The company has already enrolled 402 patients and results are expected in the second half of 2019. This feature will interest the investors very much. If the clinical results are beneficial, the stock price should increase as the market will expect revenues from commercialization to be reported soon. Cirius Therapeutics plans to commence Phase 3 of development in early 2020. The image below taken from the website provides further details on this matter:

Source: Company’s Website

The market opportunity seems large. Only in the United States, around 16 million people suffer from NASH. The prospectus reads that this figure could increase to 27 million by the year 2030. It seems also quite relevant that half of the NASH patients also have Type 2 diabetes. As noted by Cirius, the patients being targeted are at a high risk for poor clinical outcomes.

MSDC-0602K And Clinical Data

MSDC-0602K is a second generation thiazolidinediones (“TZD”), also known as glitazones. Pioglitazone and rosiglitazone are FDA-approved for the treatment of Type 2 diabetes. The image below provides further details on the chemical formulation:

Source: Wikipedia

The prospectus reads that a clinical trial of 101 subjects suffering from NASH showed 58% NASH reduction as compared to 21% for placebo with statistical significance (p = 0.001). In addition, a trend for improvement in fibrosis was also reported.

In October 2018, an interim Phase 2b trial was conducted with 328 subjects. The study reported statistically significant reductions in liver enzymes as compared to the results shown with placebo. The lines and the image below provide further details on the results obtained:

The interim analysis of exploratory endpoints showed statistically significant reductions in liver enzymes, including ALT and AST, measured at six months compared to baseline. In the two highest dose groups, at least 50% of patients with elevated baseline ALT or AST improved into the normal range at six months. “

Source: Prospectus

Source: Prospectus

Balance Sheet

The company’s financial stability is very beneficial. As of September 30, 2018, the asset/liability ratio is 6.35x, which most investors will appreciate. The amount of cash equals $22.2 million and comprises of 89% of the total amount of assets. The image below provides the list of assets:

Source: Prospectus

With that, many investors may not understand how Cirius Therapeutics financed its operations in the past. The company did not receive debt but sold convertible preferred stock worth approximately $61 million. The list of liabilities is not worrying at all. It is equal to approximately $3.9 million. The image below provides the list of liabilities:

Source: Prospectus

Investors should not worry about the convertible preferred stock. Like most IPOs, Cirius Therapeutics expects to convert these securities. In this case, the company will issue approximately 67 million shares. This is beneficial as new shareholders should not worry about the potential stock dilution from these convertible securities. The lines below provide further details on this matter:

Pro forma basis to reflect the issuance of 3,734,130 shares of our Series A-3 convertible preferred stock in November 2018 and receipt of $5.0 million in aggregate gross proceeds therefrom and the automatic conversion of all outstanding shares of our convertible preferred stock into 64,007,449 shares of our common stock immediately prior to the closing of this offering,”

Source: Prospectus

Income Statement

With that said about the cash in hand, investors should understand very clearly that the cash burn rate is significant. In the nine months ended September 30, 2018, the amount of R&D expenses was equal to $14 million and the total net loss was equal to $16.3 million. Additionally, the CFO in the same time period was equal to -$16.1 million. Investors should remember that without cash, Cirius Therapeutics may sell further stock in the future, which could lead to stock dilution and share price depreciation. The amount of cash in hand is what shareholders will need to study closely to understand the future share price dynamics. The images below show the income statement and the cash flow from operations:

Source: Prospectus

Source: Prospectus

Use Of Proceeds

The use of proceeds is beneficial as the company will not use them to acquire stock from existing shareholders. With that, it is not convenient that Cirius Therapeutics should have sufficient money to complete the Phase 3 of its leading product candidate. The prospectus reads that the company will use the proceeds for costs associated with MSDC-0602K, but it does not mention whether the company will be able to complete Phase 2 or Phase 3. The lines below provide further details on this matter:

Source: Prospectus

In this regard, it is worth mentioning that the company expects to have cash in hand for at least next 12 months. With this in mind, after this time period, Cirius Therapeutics could sell further equity, which could lead to share price depreciation. The lines below should be clearly understood:

We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through at least the next 12 months, although there can be no assurance in that regard.”

Source: Prospectus


The assessment of shareholders is very beneficial. Cirius Therapeutics was able to sell shares or convertible securities to a number of institutional investors before the IPO, which is ideal. This feature shows that investors believed that the company’s leading candidate is promising. As a result, other institutional investors may want to study the pipeline of Cirius Therapeutics. It is also great that no shareholder owns more than 50% stake before the IPO is executed. It means that no shareholder controls the Board of Directors and it should be independent. The image below provides further details on this matter:

Source: Prospectus

Competitors And Maximum Valuation After Phase 2

The list of competitors is large. Big as well as small corporations have programs that could compete with that of Cirius Therapeutics. Take a look at the list of competitors given in the prospectus:

Source: Prospectus

Among the peers, Genfit (OTCPK:GNFTF) seems a company that could be compared with Cirius Therapeutics. Like Cirius, it does not have many product candidates and its research is also quite advanced. It has a program in Phase 3. The image below taken from Genfit’s website provides further details.

Source: Genfit’s Website

Genfit has a market capitalization of $662 million. It means that Cirius Therapeutics should not have a larger market capitalization if the results from Phase 2 are beneficial. Investors should remember this fact for the second half of 2019.

Conclusion And Risks

With beneficial results and a product candidate at Phase 2 of development, many institutional investors will study Cirius Therapeutics. There are many beneficial features. First of all, the company has a large amount of cash and no debt. Also, it expects to convert all its convertible securities as the IPO goes live. Additionally, the list of shareholders shows that many institutional investors decided to trust Cirius Therapeutics. As a result, many market participants will also be willing to review the clinical data obtained so far. Finally, the company should release results in the second half of 2019. If they are beneficial, the share price could increase.

Having said that, investors should understand that investing in biotechnological stocks can be quite speculative. If the results in 2019 are not ideal, the erosion of value for shareholders should be quite substantial. Additionally, investors should understand that the company burns cash at a fast rate. The company expects to have cash in hand for at least next 12 months. After this time period, Cirius Therapeutics could sell further equity, which could lead to share price depreciation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.


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