Citius Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2018; filed May 11, 2018. The company is a development-stage specialty pharmaceutical business focused on critical-care products. Its principal programs include Mino-Lok, in Phase 3 development, and Hydro-Lido, in Phase 2b development. The company reported no revenue.
Financial results and liquidity
| Metric | Three months ended March 31, 2018 | Six months ended March 31, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $3.44 million | $4.05 million | $0.86 million / $2.27 million |
| Total operating expenses | $4.87 million | $8.11 million | $2.54 million / $5.33 million |
| Net loss | $4.42 million | $7.67 million | $2.74 million / $4.92 million |
| Net loss per share | $0.44 | $0.82 | $0.55 / $0.99 |
Quarterly and six-month operating losses were $4.87 million and $8.11 million, respectively. Gross margin is not meaningful because there was no revenue. Six-month operating cash outflow was $6.57 million, compared with $2.14 million in 2017. Financing activities provided $8.37 million, leaving cash and cash equivalents of $5.01 million at March 31, 2018, up from $3.20 million at September 30, 2017. Working capital was $2.51 million.
Total assets were $26.06 million, including $19.40 million of in-process research and development and $1.59 million of goodwill. Current liabilities were $2.56 million. The company reported $172,970 of related-party notes payable, plus $50,106 of accrued related-party interest; the notes bear interest at prime plus 1% or 12%. Stockholders’ equity was $23.50 million. The filing reports no revenue-based margin or conventional long-term debt balance.
Changes and notable items
- Research and development expense rose substantially, primarily reflecting Mino-Lok Phase 3 trial activity. Six-month Mino-Lok costs were $3.72 million, versus $2.15 million in 2017; Hydro-Lido costs were $327,832, versus $121,797.
- Six-month general and administrative expense increased to $3.56 million from $2.52 million, attributed to higher compensation, financing and corporate-development consulting, and investor-relations costs. This included $357,400 related to terminating an underwriter right-of-first-refusal arrangement.
- The company recorded a $450,000 gain from reversing a prior-year research and development accrual that management said would not be paid. This offset part of operating expenses in reported net loss.
- Six-month net loss increased by $2.75 million year over year. The quarter’s net loss increased by $1.68 million year over year, principally reflecting higher development spending.
- Capital raised during the six months included $7.25 million in net proceeds from registered direct offerings and $1.13 million from warrant exercises. The March offering included 669,504 shares and warrants for an equal number of shares. Shares issued and outstanding rose to 10,667,222 from 8,345,844 at September 30, 2017; 4,479,465 warrants were outstanding at quarter-end.
Outlook, risks, and controls
Management expected cash on hand to fund operations for the next six months from March 31, 2018, but said additional capital would be needed. It expected research and development spending to increase as it continued the Mino-Lok Phase 3 trial and stated that it was seeking additional funding. The filing provides no quantified longer-term financial guidance or assurance that financing will be available on acceptable terms.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern, citing recurring losses, no operating revenue, and six-month operating cash use of $6.57 million. Management planned to pursue equity financing, additional funds from existing investors, and related-party borrowings; success and sufficiency were not assured. The statements were prepared on a going-concern basis without adjustments that might result if the company could not continue operating.
Management concluded disclosure controls and internal control over financial reporting were ineffective as of March 31, 2018, citing material weaknesses: lack of documented policies and procedures, reliance on consultants for financial reporting, and ineffective segregation of duties due to limited staff. The filing reported no legal proceedings and no change in risk factors from the prior Form 10-K. Other identified risks include clinical-trial outcomes, regulatory approvals, product commercialization, financing, and personnel.
Investor verification priorities
- Confirm Mino-Lok Phase 3 progress, trial timing, costs, and regulatory milestones, along with Hydro-Lido development status.
- Assess actual cash burn and financing needs against management’s six-month cash runway statement and going-concern warning.
- Review subsequent financing, dilution, warrant exercises, and the terms and availability of related-party funding.
- Verify the basis and status of the $450,000 accrual reversal and monitor future research and development and administrative spending.
- Track remediation of the disclosed material weaknesses and the effect of outstanding warrants, options, and reserved shares on potential dilution.