Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020; filed August 14, 2020. The company is a specialty pharmaceutical developer with no product revenue to date. Its programs include Mino-Lok, Mino-Wrap and Halo-Lido, and it held an option to license an ARDS cell therapy.
Financial performance and position
| Metric | Three months ended June 30, 2020 | Nine months ended June 30, 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.64 million | $7.32 million |
| General and administrative expense | $1.87 million | $5.69 million |
| Total operating expenses / operating loss | $4.69 million | $13.57 million |
| Net loss | $4.68 million | $13.43 million |
| Basic and diluted loss per share | $0.11 | $0.38 |
- For the quarter, net loss increased $275,000 year over year, mainly reflecting higher G&A costs. For the nine months, net loss increased $1.52 million, driven by higher R&D and G&A spending.
- Nine-month operating cash use was $13.57 million, versus $9.53 million in the prior-year period. Financing provided $14.20 million, principally from registered offerings and warrant exercises; cash increased $624,000 to $8.52 million.
- At June 30, cash was $8.52 million, working capital was $4.96 million, and total liabilities were $9.66 million. Current liabilities were $3.61 million. Liabilities included $172,970 of related-party notes, a $164,583 PPP loan and $1.05 million of operating lease liabilities. The filing gives no conventional gross-margin measure because the company had no revenue.
- Stockholders’ equity was $28.74 million; accumulated deficit was $66.47 million. Common shares outstanding were 46.32 million at June 30 and 55,475,822 as of August 10. The company reported 26.29 million outstanding warrants at June 30.
Material changes and financing
- Quarterly R&D expense declined 4% year over year, while nine-month R&D rose 11%. Nine-month Mino-Lok spending decreased, while Halo-Lido spending increased.
- In February, a warrant exercise transaction generated $5.01 million net proceeds. A May registered direct offering generated $6.88 million net proceeds, and further warrant exercises generated $1.13 million.
- After quarter-end, an August 10 public offering sold 9,159,524 shares at $1.05 per share, for approximately $9.6 million gross proceeds before expenses. The company said proceeds were intended for general corporate purposes and product development. The filing’s June 30 cash-runway estimate predates this financing.
- The September 30, 2019 financial statements and opening equity balances were restated for errors involving deferred taxes, goodwill and accumulated deficit. The restatement increased goodwill by $7.76 million and recognized a deferred tax liability and a $2.77 million reduction in accumulated deficit. The restatement table states a deferred tax liability of $4.985 million; the June 30 balance sheet reports $4.9858 million.
Outlook, risks and notable items
- Management estimated that June 30 cash resources would fund operations through January 2021 and stated that additional capital would be needed. The filing identifies substantial doubt about the company’s ability to continue as a going concern; future financing is not assured.
- Management expected R&D expense to increase as it advanced the Mino-Lok Phase 3 trial, Halo-Lido, Mino-Wrap and ARDS work. The Mino-Lok independent monitoring committee had recommended continuing the trial after its prespecified interim futility analysis; another interim analysis was expected before September 30, 2020.
- The company recorded $110,207 of FDA fee refunds as other income for the nine-month period. It received a $164,583 PPP loan in April; eligible amounts could be forgiven, while unforgiven amounts were repayable over two years.
- Nasdaq notified the company in April of a minimum-bid-price deficiency; it regained compliance in July. The company also entered an ARDS therapy option agreement with a Novellus subsidiary for a $100,000 payment. Chairman and significant shareholder Leonard Mazur is a Novellus director and significant shareholder; the filing says the audit committee and disinterested directors approved the agreement.
- Key risks include financing needs, clinical trial cost, timing and results, regulatory approvals, commercialization prospects, and reliance on personnel, suppliers and strategic partners. The company reported no legal proceedings and no material change in risk factors from its prior quarterly report.
Investor verification priorities
- Confirm the impact of the August 2020 offering and subsequent warrant activity on cash runway, share count and potential dilution.
- Track Mino-Lok Phase 3 enrollment, the next monitoring-committee analysis and trial timing, alongside spending plans for the other candidates.
- Review financing availability and terms in light of the going-concern warning and absence of operating revenue.
- Reconcile the deferred tax liability figures in the restatement disclosure and June 30 balance sheet, and assess the effects of the prior-period restatement.
- Monitor PPP forgiveness, related-party obligations and the milestones, costs and potential conflicts associated with the Novellus option.