Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2016 (fiscal Q2). Financial statements are unaudited.
Business context
Citius develops pharmaceutical formulations and delivery technologies. It has no reported revenue. Suprenza, its approved and marketed product, is licensed to a partner; the company says it is unlikely to receive material revenue from it. On March 30, 2016, Citius acquired Leonard-Meron Biosciences, Inc. (LMB), adding a development-stage antibiotic candidate, Mino-Lok, intended to treat catheter-related bloodstream infections.
Financial highlights
| Metric | Six months ended Mar. 31, 2016 | Comparable 2015 period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.916 million | $1.488 million |
| Operating loss | $1.916 million | $1.488 million |
| Net loss | $2.090 million | $1.169 million |
| Net loss per share, basic and diluted | $0.06 | $0.04 |
| Cash used in operating activities | $1.572 million | $1.052 million |
- For the three months ended March 31, 2016, net loss was $869,454, versus $345,268 in 2015. The 2016 quarter included a $197,846 loss from warrant-liability revaluation, compared with a $263,199 gain in the prior-year quarter.
- Six-month R&D expense was $628,856, down from $759,361, including a $292,575 reimbursement from Alpex that reduced R&D expense. Second-quarter R&D was reported as a credit of $200,300, largely reflecting that reimbursement and lower development costs.
- Six-month general and administrative expense rose to $1.051 million from $510,929, primarily due to compensation, consulting and investor-relations costs, and LMB acquisition expenses.
- At March 31, cash and cash equivalents were $3.759 million; current assets were $3.780 million and current liabilities $4.353 million, resulting in a $573,860 working-capital deficit. Total liabilities included $772,970 of notes payable and a $1.503 million derivative warrant liability. No meaningful operating margin is available because revenue was zero.
- Total assets were $24.779 million, including $19.4 million of acquired in-process R&D and $1.587 million of goodwill. Stockholders’ equity was $20.426 million, compared with a $635,213 deficit at September 30, 2015.
Material changes and transactions
- LMB was acquired for consideration valued at $19.015 million, principally 29,136,821 Citius shares, plus converted warrants and options. LMB shareholders received approximately 41% of Citius’s outstanding common stock at the transaction date. The purchase-price allocation was preliminary.
- Six-month financing provided $4.399 million in net proceeds. This included private placements and a $3 million common-stock purchase by Chairman Leonard Mazur. Common shares outstanding rose to 71,138,042 at March 31, from 34,117,886 at September 30, 2015; 73,038,042 were reported outstanding on May 16, 2016.
- In April 2016, Citius raised an additional $1.029 million in unit sales. It also repaid $600,000 of 4% demand notes and $1,985 of accrued interest to the Chairman. This repayment occurred after quarter-end.
- Operating cash burn exceeded the prior-year period. Financing inflows more than offset operating cash use, and the acquisition brought in $255,748 of cash.
Outlook, risks and unusual items
- Management estimated available funds would support operations for approximately six to nine months and planned to raise additional capital. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; future financing is not assured.
- No formal revenue or earnings guidance was provided. Management said it was seeking capital to fund operations and R&D.
- Mino-Lok’s license arrangement includes annual maintenance fees, sales royalties, up to $1.05 million in regulatory and sales milestone payments, and sublicense-related payments.
- Management reported disclosure controls and internal control over financial reporting were ineffective at March 31, 2016, citing material weaknesses: no audit committee, insufficient documented procedures, reliance on consultants for financial reporting, and inadequate segregation of duties.
- Warrant-liability remeasurement is a material source of noncash earnings volatility. Its fair value depends on assumptions including share-price volatility; the filing identifies this valuation as Level 3.
- The company reported no legal proceedings and no change in risk factors from its prior Form 10-K. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Citius can secure financing before its estimated six-to-nine-month funding runway expires, and the cash impact of subsequent financing and debt repayment.
- Clinical, regulatory and development milestones, costs, and funding needs for Mino-Lok and other pipeline programs.
- The final LMB purchase-price allocation and the valuation and impairment assumptions for acquired in-process R&D and goodwill.
- Current share count and potential dilution from outstanding warrants, options, and future capital raises.
- Progress in addressing the disclosed material weaknesses in financial reporting controls.
- Whether Suprenza or other commercial arrangements generate cash payments to Citius; the filing reports no revenue and no material Suprenza payments to the company to date.