Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2017; financial statements are unaudited. The company is a development-stage specialty pharmaceutical business focused on critical-care products. It reported no revenue and is developing Mino-Lok, an antibiotic lock solution, and Hydro-Lido, a hemorrhoid treatment.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2017 | Quarter ended Dec. 31, 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $606,521 | $1,411,159 |
| General and administrative expense | $2,346,240 | $1,132,183 |
| Total operating expenses / operating loss | $3,242,782 / ($3,242,782) | $2,784,856 / ($2,784,856) |
| Net loss | ($3,246,166) | ($2,175,898) |
| Basic and diluted loss per share | ($0.38) | ($0.44) |
| Cash used in operating activities | ($2,441,082) | ($1,314,792) |
| Cash and cash equivalents | $7,370,697 at Dec. 31, 2017 | $3,204,108 at Sept. 30, 2017 |
| Working capital | $4,864,757 at Dec. 31, 2017 | Not stated as a comparable figure |
There were no revenues, so revenue margins are not meaningful. At December 31, current liabilities were $2,616,757, including $172,970 of related-party notes payable; total liabilities were also $2,616,757. The company reported $6,607,671 in net financing cash inflows during the quarter, from an equity offering and warrant exercises.
Material changes and notable items
- Net loss increased by $1,070,268 year over year. G&A expense rose $1,214,057, mainly due to compensation, financing and corporate-development consulting, investor-relations costs, and a $357,400 charge related to ending an underwriter’s right of first refusal.
- R&D expense fell $804,638, primarily because Mino-Lok development costs were lower. Management said it expects R&D expense to increase in 2018 as it commences Mino-Lok Phase 3 trials.
- The prior-year quarter included a $622,186 gain from revaluing derivative warrant liabilities; there was no such gain in the current quarter. This contributed to the year-over-year increase in net loss.
- In December 2017, the company raised $5,482,523 net through a registered direct offering and concurrent private placement, issuing 1,280,360 common shares and 640,180 investor warrants. It also received $1,125,148 from warrant exercises. Shares outstanding increased to 9,975,518 at December 31, 2017.
- Outstanding warrants totaled 3,763,095 at quarter-end; options outstanding totaled 861,039. These securities may result in future dilution if exercised.
Outlook, risks, and other disclosures
- Going concern: The company reported substantial doubt about its ability to continue as a going concern, citing operating losses, negative operating cash flow, no operating revenue, and dependence on additional financing. It said it expects available funds to support operations for the next six months from December 31, 2017, but provides no assurance it can raise further capital on acceptable terms or in time.
- Development outlook: Management is focused on Mino-Lok Phase 3 and Hydro-Lido Phase 2b development and said additional capital is needed to fund operations and development. No revenue or product-launch guidance was provided.
- Controls: Management concluded disclosure controls were not effective as of December 31, 2017. Reported material weaknesses included lack of documented policies and procedures, reliance on consultants for financial reporting, and ineffective segregation of duties due to limited staff.
- Other matters: The filing reports no legal proceedings and no change in risk factors from the company’s latest Form 10-K. The Mino-Lok license includes royalties and up to $1.39 million in regulatory and sales milestone payments, subject to specified events.
Important facts for investors to verify
- Whether the company obtained sufficient financing after the stated six-month cash runway and how long its available cash can fund operations.
- Progress, timing, and funding requirements for Mino-Lok Phase 3 and Hydro-Lido Phase 2b trials.
- Potential dilution from outstanding warrants, options, and any subsequent equity financing.
- Whether the disclosed material weaknesses in financial controls have been remediated.
- Potential license royalties and milestone obligations if Mino-Lok advances toward regulatory approval or commercialization.