Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2015, the first quarter of fiscal 2016. The financial statements are unaudited. Citius develops drug formulations and delivery technologies; Suprenza is marketed by a licensee, but the company reported no revenue.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2015 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $829,156 | $477,123 |
| General and administrative | $294,221 | $293,018 |
| Stock-based compensation | $121,299 | $108,764 |
| Total operating expenses | $1,244,676 | $878,905 |
| Operating loss | $(1,244,676) | $(878,905) |
| Net loss | $(1,220,721) | $(823,708) |
| Basic and diluted loss per share | $(0.04) | $(0.03) |
| Cash used in operating activities | $(697,086) | $(734,823) |
At December 31, cash and cash equivalents were $281,489, total assets were $346,890, current liabilities were $1,937,071, working capital deficit was $1,595,582, and stockholders’ deficit was $1,590,181. Current liabilities included a $872,999 derivative warrant liability, $535,000 of accrued expenses, $458,686 of accounts payable, and $70,386 due to a related party. No interest expense was recorded in the quarter; the prior-year promissory notes had been converted to equity in December 2014. The filing reports no gross margin figure; with no revenue, a meaningful margin comparison is unavailable.
Material changes and financing
- Net loss increased by $397,013 year over year, primarily because research and development expense rose by $352,033. The company attributed most of that increase to $302,187 in costs for development of a hemorrhoid-treatment product and a $50,000 option fee for a potential product.
- Cash declined by $394,648 during the quarter. Operating activities used $697,086, partly offset by $302,438 of net proceeds from private placements.
- Between October 1 and November 20, 2015, the company sold units for $325,000 gross proceeds. It subsequently reported a January 2016 sale generating $247,500 gross proceeds.
- The derivative warrant liability increased from $738,955 to $872,999, including $157,984 attributed to warrants issued and a $23,940 fair-value gain recorded in earnings.
Outlook, risks, and unusual items
- Management said available funds were expected to support operations for only three to six months and that additional capital would be needed. The filing states there is substantial doubt about the company’s ability to continue as a going concern; planned equity fundraising is not assured.
- The company had no revenue and had not received royalties, profit-share payments, or development-cost reimbursements related to Suprenza through December 31, 2015. Management stated it was unlikely to receive material revenue from Suprenza.
- Key risks include financing availability, clinical and product development success, regulatory approvals, market acceptance, competition, and reliance on key personnel, suppliers, and partners.
- Disclosure controls and procedures were reported ineffective. Management identified material weaknesses including no audit committee, insufficient documented policies and procedures, reliance on consultants for financial reporting, and inadequate segregation of duties.
- No legal proceedings were reported, and the company stated there had been no change in risk factors since its fiscal 2015 Form 10-K.
Important facts for investors to verify
- Whether subsequent financing was sufficient to extend the stated three-to-six-month cash runway, and on what terms.
- Development milestones, costs, and funding needs for the hemorrhoid-treatment candidate and the potential new product.
- Whether Suprenza or other products generate royalties, reimbursements, or other cash receipts under the disclosed agreements.
- The potential dilution and valuation effects of outstanding warrants, options, and additional equity financing.
- The September 30, 2015 balance-sheet total: the filing lists total assets of $741,538 but total liabilities and stockholders’ deficit of $743,538, a $2,000 discrepancy.