Buying shares of early stage biotech companies is one of the ways that cash-strapped investors can plant the seeds of massive growth. And, with enough luck, someday those nascent businesses might grow to become formidable companies with budding rosters of life-saving drugs. 

Citius Pharmaceuticals (NASDAQ:CTXR) is typical of such a small biotech: It doesn't have any revenue or profits, and its only hope of getting either is to follow through on its drugs in development. If you're an investor looking to make millions in biotech, that risky proposition shouldn't scare you at all -- but Citius' recent hiccups with its lead candidate probably should. 

Four doctors talk while wearing personal protective gear in a hospital.

Image source: Getty Images.

The price is right, but are the products?

Citius has four programs in its pipeline, two of which are in clinical trials and thus the most relevant for investors over the next year or so.

Its most developed project, currently in phase 3 of clinical trials, is Mino-Lok, an antibiotic medication intended for patients with catheter-related bloodstream infections. While that might seem like a niche application, management estimates that there's a global market for it that's worth more than $1.5 billion. Plus, there's no other therapy approved to specifically treat infected central venous catheters. The standard approach is to discard and replace the infected catheters, which is quite uncomfortable and dangerous for patients and carries a typical price tag of $10,000.

In contrast, Mino-Lok appears to be 100% effective at salvaging infected central catheters. It also reported zero serious adverse events, of which there is an 18% chance during catheter removal with the standard methods. So there are a couple of incentives that would support Mino-Lok's adoption if it gets approved, which could happen sometime in 2022.

Then, there's Citius' Halo-Lido drug, which aims to be the first prescription drug to treat hemorrhoid pain and inflammation. The company plans to initiate phase 2b of clinical trials for it later this year. Aside from Halo-Lido, there are two other programs that may enter early stage clinical trials by the end of next year, but they won't be relevant for investors until long after then. 

Recent troubles may portend losses ahead

Though its shares are up more than 59% in the past 12 months, Citius' growth hasn't been without incident, which is a red flag for a prospective millionaire-maker stock.

Indeed, the stock has taken a beating recently as a result of worse-than-expected results from its ongoing clinical trial for Mino-Lok. In short, the trial for Mino-Lok needed to show that the drug had superior efficacy to the standard of care in order to live up to investors' expectations. But so far, there hasn't been any conclusive data to support that. 

Now, Citius is facing shareholder lawsuits. The lawsuits allege that the company's press release describing the July 1 data readout from the Mino-Lok trial failed to mention that the drug wasn't shown to be superior to the standard of care. Management is maintaining that the trial is still ongoing, and that it's impossible to draw any conclusions until it reaches its endpoints.

Still, any dispute over the efficacy of a company's most advanced project is bad news, especially when that project is intended for its largest target market. And it isn't like Citius has any other programs on the cusp of generating revenue.

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Making millions is possible, but investors seeking riches should look elsewhere 

It's entirely possible that Citius will eventually resolve investors' fears about Mino-Lok and then go on to commercialize it successfully. 

Let's do some quick math to see if that might be enough to make millions.

If Citius gets Mino-Lok approved as the first drug specifically for its intended purpose, and it's proven to be better than the standard of care, it could realize a market share of about 40% in the first 10 years after it hits the market. Forty percent of the $1.5 billion market is $600 million. The average price-to-sales ratio (P/S) for a biotech stock is 8.09. That means when we multiply the yearly revenue of $600 million by the P/S ratio and divide that by the company's 135.47 million shares outstanding, we get an estimated price of $35.83. That's a 1,775.91% increase. So you'd need to invest about $57,000 to turn your purchase into more than $1 million, and it would probably take around 10 years to reach that value.

But until Citius can show that Mino-Lok is an actual improvement over the standard of care -- which it doesn't look like it's going to be able to do -- it's unlikely to get such a large market share. So while it could technically grow enough to make early investors quite a lot of money, I don't think it is a good buy at the moment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.