Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Business context and period. This quarterly report covers the three and six months ended March 31, 2019, the company’s fiscal second quarter. Citius is a development-stage specialty pharmaceutical company with no operating revenue to date. Its programs include Phase 3 Mino-Lok for catheter-related bloodstream infections, Phase 2b Hydro-Lido for hemorrhoids, and newly licensed Mino-Wrap for infections associated with breast implants.
Financial results and position
| Metric | Three months ended March 31, 2019 | Six months ended March 31, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.70 million | $3.81 million |
| General and administrative expense | $1.74 million | $3.33 million |
| Operating loss | $3.64 million | $7.51 million |
| Net loss | $3.63 million | $7.51 million |
| Net loss per share, basic and diluted | $0.20 | $0.41 |
- At March 31, 2019, cash and cash equivalents were $3.20 million, compared with $9.18 million at September 30, 2018. Current assets were $3.25 million and current liabilities $3.36 million, producing a $115,291 working capital deficit.
- Operating cash use was $6.01 million for the six months. Financing provided $23,216, from warrant exercises; cash declined by $5.98 million.
- Related-party notes payable were $172,970, with accrued related-party interest of $65,962. The balance sheet reports no other notes payable. Total assets were $24.24 million, including $19.40 million of in-process research and development and $1.59 million of goodwill.
- Operating and profit margins are not meaningful given the absence of revenue and continuing losses.
Changes versus comparable periods
- Quarterly net loss narrowed to $3.63 million from $4.42 million. Operating expense fell $1.22 million, mainly because R&D expense declined $1.74 million after prior-period Mino-Lok registration-batch costs; higher G&A expense partly offset the reduction. The prior-year quarter also included a $450,000 liability-extinguishment gain.
- Six-month net loss narrowed to $7.51 million from $7.67 million. Total operating expense declined to $7.51 million from $8.11 million, while the prior-year period included the $450,000 gain on extinguishment of a liability.
- Six-month R&D decreased $233,397, principally due to lower Mino-Lok costs; G&A decreased $232,144, largely because the prior period included $357,400 of underwriter release-agreement costs. Stock-based compensation decreased $129,743.
- Common shares outstanding rose from 16.20 million at September 30, 2018 to 18.65 million at March 31, 2019. The company reported 22.08 million shares issued and outstanding as of May 8, 2019.
Outlook, risks and notable items
- Going concern: Management stated that limited capital, operating cash outflows and the absence of revenue raise substantial doubt about the company’s ability to continue as a going concern. The company depends on additional equity financing, investor funding and related-party borrowing; there is no assurance it can obtain sufficient funding on acceptable terms.
- On April 3, 2019, after quarter-end, Citius completed a registered direct offering for $5.3 million gross proceeds, issuing 3,430,421 shares and an equal number of immediately exercisable two-year warrants at a $1.42 exercise price. Management expected cash, including this financing, to fund operations through September 2019, and said additional capital would be needed.
- Management expected R&D expense to increase in fiscal 2019 as it continued the Mino-Lok Phase 3 trial and began Mino-Wrap development. It was actively seeking capital to support these efforts.
- The Mino-Wrap license involved a $125,000 upfront payment, up to $2.1 million in contingent milestones, royalties and future maintenance fees. Mino-Lok also carries license royalties and up to $1.39 million in contingent milestones.
- The company reported no legal proceedings, no material changes to risk factors since its latest Form 10-K, and no material changes in internal control over financial reporting. Management judged disclosure controls effective. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether cash runway after the April offering was sufficient in practice, and whether further financing was raised on acceptable terms.
- Progress, timing, costs and clinical/regulatory outcomes for Mino-Lok, Hydro-Lido and Mino-Wrap.
- Potential dilution from outstanding warrants and options; 12.87 million warrants were outstanding at March 31, 2019, in addition to stock options and subsequent-offering warrants.
- The status and repayment terms of related-party notes, and the company’s ability to meet near-term obligations given its working capital deficit.
- Future R&D spending and the assumptions underlying management’s expected runway through September 2019.