Citius Pharmaceuticals, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2015. The filing’s prior comparable period is the nine months ended September 30, 2014 because the company changed its fiscal year-end after its September 2014 reverse acquisition; the periods are not directly comparable. This summary does not provide standalone fourth-quarter results.
Business context
Citius is an early-stage specialty pharmaceutical company developing products based on previously approved drugs. Its approved product, Suprenza (phentermine orally disintegrating tablets for obesity), is licensed to Prenzamax for commercialization; Citius reported no revenue and has not earned profit-share payments. The company’s active development focus is a hydrocortisone-lidocaine cream for hemorrhoids. It completed dosing 200 patients in a Phase 2a study and was awaiting results. The former Trail One business is no longer pursued.
Key financial metrics
| Metric | FY ended September 30, 2015 | Comparison / year-end position |
|---|---|---|
| Revenue | $0 | $0 in the nine months ended September 30, 2014 |
| Operating expenses | $3.230 million | $653,803 in the prior nine-month period |
| Operating loss | $3.230 million | $653,803 in the prior nine-month period |
| Net loss | $2.902 million; $0.09 per basic and diluted share | $737,727; $0.04 per share in the prior nine-month period |
| Research and development | $1.797 million | $574 in the prior nine-month period |
| General and administrative | $946,613 | $183,044 in the prior nine-month period; stock-based compensation was a further $486,271 |
| Cash used in operating activities | $2.385 million | $183,164 in the prior nine-month period |
| Cash and cash equivalents | $676,137 | $1.552 million at September 30, 2014 |
| Working capital | Deficit of $640,614 | Current liabilities were $1.377 million versus current assets of $736,137 |
| Debt and other liabilities | No interest-bearing debt at year-end; current liabilities totaled $1.377 million, including a $738,955 derivative warrant liability | Accounts payable were $559,150 |
| Equity / accumulated deficit | Stockholders’ deficit of $635,213; accumulated deficit of $9.041 million | — |
Profit margins are not meaningful because the company reported no revenue. Net loss included a $332,095 noncash gain from revaluing warrant liabilities. Results also reflect the changed reporting period, reverse acquisition and substantially increased development activity.
Material changes and financing
- Research and development spending rose as the company funded hemorrhoid-product development; the filing attributes much of the year-over-year increase in net loss to this spending.
- Cash fell by $875,923 during the year. Net proceeds from 2015 private placements were $1.509 million, while operating activities used $2.385 million.
- Promissory notes and accrued interest totaling $633,333 were converted into common stock in December 2014. The filing states there was no interest-bearing debt outstanding at September 30, 2015.
- At year-end, 34.1 million shares were outstanding; 34.7 million were reported outstanding as of December 1, 2015. The company also had 8.8 million shares reserved for outstanding warrants and 3.9 million options outstanding at September 30, 2015.
Outlook, risks and unusual items
- Going concern and funding: The auditor cited substantial doubt about the company’s ability to continue as a going concern. Management said available capital was expected to fund operations for about six months, but not twelve months, and that additional financing was needed. The filing provides no assurance financing will be available. The company estimated that development and FDA work for its hydrocortisone-lidocaine product would require approximately $20 million of additional capital.
- Development outlook: If Phase 2a results are positive, management planned a Phase 2b study followed by Phase 3 and supporting studies; the filing estimated these later studies could cost millions of dollars and anticipated an NDA filing in three to four years, subject to successful results and funding. These are forward-looking estimates, not assurances.
- Suprenza regulatory risk: The FDA denied a request to waive a required renal-impairment pharmacokinetic study, citing concern about potentially increased drug exposure in patients with reduced renal function. The study was estimated to cost approximately $400,000 and take 18 months. If the company cannot obtain a waiver or fund the study, it said it may discontinue Suprenza sales; safety findings could also require label changes or discontinuation.
- Commercial and intellectual-property risks: Suprenza sales have been insufficient to cover the licensee’s costs, and Citius does not expect material revenue from the product in the foreseeable future. The company settled litigation with Zydus over a generic application; settlement terms are confidential. A later petition challenged an Alpex-owned patent licensed to Citius; the filing says Alpex had primary responsibility for defense and Citius was unlikely to defend that patent.
- Controls and governance: Management concluded disclosure controls and internal control over financial reporting were ineffective at September 30, 2015, citing material weaknesses including limited staffing, lack of documented procedures, and no independent board or audit committee at that date. Two independent directors were appointed after year-end.
- Other risks: The company depends on outside manufacturers, research organizations and commercial partners; it has limited personnel and no internal sales force. Its CEO is also Akrimax’s co-founder and vice chairman, creating a disclosed potential conflict related to the Suprenza license. The filing also notes a 2014 FDA promotion-related notice, which the company says was remedied and closed.
Important facts for investors to verify
- Current cash runway, financing completed since the filing, and the terms and dilution of any additional capital raises.
- Phase 2a hemorrhoid-study results, subsequent trial plans, expected costs, and whether adequate funding is available to execute them.
- FDA status of the Suprenza renal-impairment study, any renewed waiver request, and any effect on product sales or labeling.
- Suprenza sales economics under the Prenzamax agreement, including whether the licensee has reached profitability and whether any payments are due to Citius.
- Status and commercial impact of generic competition, the Zydus settlement, and the challenged Alpex patent.
- Progress in remediating the disclosed internal-control weaknesses and the fully diluted share count, including warrants, options and subsequent issuances.