Citius Pharmaceuticals Inc   (CTXR)
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    Sector  Healthcare    Industry Biotechnology & Drugs
   Industry Biotechnology & Drugs
   Sector  Healthcare

Citius Pharmaceuticals Inc

Business Description

The Company was formed in the state of Nevada on September 9, 2010 as Trail One, Inc. On September 12, 2014, we entered into a Share Exchange and Reorganization Agreement (the "Exchange Agreement"), among Trail One, Inc., Citius Pharmaceuticals, LLC, a Massachusetts limited liability company ("Citius"), and the beneficial holders of the membership interests of Citius (the "Citius Stockholders"). On September 12, 2014, Trail One, Inc. had no assets, no liabilities, and 5,000,000 shares of issued and outstanding common stock.

Pursuant to the Exchange Agreement, (i) Trail One, Inc. issued 21,625,219 shares of common stock to the Citius Stockholders, which represented approximately 72.0% of the outstanding shares of common stock following the closing of the Exchange Agreement (the "Reverse Acquisition") and the first closing of the Private Offering described below. The Trail One, Inc. existing shareholders before the Reverse Acquisition and the first closing of the Private Offering owned 5,000,000 shares of common stock or 16.7% of the outstanding shares of common stock following the closing of the Exchange Agreement.

Citius Pharmaceuticals, LLC, founded on January 23, 2007 as a Massachusetts limited liability company is a specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products for large and growing markets using innovative, patented or proprietary formulations and modified drug delivery technology. We seek new and expanded indications for previously approved pharmaceutical products as a means to achieving differentiated market positions or market exclusivity. Our goal is to build a successful pharmaceutical company through the development and commercialization of low-risk, innovative, efficacious and cost-effective products that address compelling market opportunities.


We seek to achieve our business objectives by utilizing the U.S. Food and Drug Administration's, or FDA's, 505(b)(2) pathway for our new drug approvals. We believe this pathway is faster, has lower risk and is less expensive than the FDA's traditional new drug approval pathway. Although this pathway is less risky and less expensive compared to developing newly discovered drugs, we believe that development, clinical trials and FDA filing fees for our hydrocortisone and lidocaine combination product will require $20 million of additional capital. Following the Company's year-end and the release of its financial statements, the Company's Chief Executive Officer and President, Leonard Mazur, anticipates meeting with investment banking firms and certain other investors to raise additional capital to fund the Company's research and development efforts; however, there can be no assurance that the Company will be able to obtain financing or anticipate the terms of such financing. In addition to focusing on new drug approvals, we focus on obtaining intellectual property protection with the objective of listing relevant patents in the FDA Orange Book in order to limit generic competition.

By using previously approved drugs with substantial safety and efficacy data already available, we seek to reduce the risks associated with pharmaceutical product development. We have already successfully employed this strategy to obtain FDA approval for Suprenza, our approved and marketed product for the treatment of obesity. We also plan to utilize this strategy to seek approval for other new drug product candidates for obesity. We also have a development candidate completing Phase 2 trials for the treatment of hemorrhoids. In addition, we are developing a topical cream product containing both hydrocortisone and lidocaine for the treatment of mild to moderate hemorrhoids. We have recently completed dosing 200 patients with the topical cream product in a Phase 2a study and are waiting for results from that study. If our Phase 2a study is positive, we will conduct a Phase 2b study followed by Phase 3 studies. We will conduct additional non-clinical and human safety studies to support our New Drug Application ("NDA"). If all of our studies are positive, we anticipate filing the NDA three to four years from the date of this Annual Report. Although both hydrocortisone and lidocaine are FDA approved drugs, we will not be permitted to market our product candidates in the United States until we receive approval from the FDA of our NDA. We believe the markets for obesity and hemorrhoid treatments are both large and underserved by innovative, efficacious and cost-effective new products. The U.S. Centers for Disease Control, or CDC, estimates that more than 35% of U.S. adult men and women, or approximately 78 million U.S. adults, were obese in 2009-2010. In addition, it is estimated that hemorrhoids affect nearly 5% of the U.S. population, with approximately 10 million persons annually reporting to be suffering from the symptoms of hemorrhoidal disease.

Since inception, we have focused on product development, have not generated any revenues and incurred losses in each period of our operations, and we expect to continue to incur losses for the foreseeable future. As of September 30, 2015, our accumulated deficit was $9,040,549 and our capital working deficit was $640,614. These losses are likely to continue to adversely affect our working capital, total assets and shareholders' deficit, and are attributable to the process of developing our products which requires significant clinical, development and laboratory testing and clinical trials. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with third parties. Due to our financial condition, our independent registered accountants have indicated, in their report for the year ended September 30, 2015, that there is substantial doubt about our ability to continue as a going concern. All the aforementioned factors may have a material, adverse effect on our ability to raise additional capital.

In November 2011, the Company entered into an agreement with Prenzamax LLC ("Prenzamax") pursuant to which the Company granted Prenzamax an exclusive, royalty-bearing, transferable license to use and sell Suprenza in the United States and to manufacture or have Suprenza manufactured by third parties for subsequent sale in the United States (the "Exclusive License Agreement"). Prenzamax is a specialty pharmaceutical company focused on providing innovative and advanced ethical prescription medications which have differential and therapeutically meaningful advantages to health care professionals and their patients. Prenzamax is an affiliate of Akrimax LLC ("Akrimax"), a privately-held pharmaceutical company which acquires and develops and markets advanced ethical prescription medications. Prenzamax was formed for the purpose of managing the license granted pursuant to the Exclusive License Agreement. Pursuant to the terms of the Exclusive License Agreement, Prenzamax purchases Suprenza from our manufacturer, Alpex Pharma S.A., and is responsible for arranging import and custom requirements. Once Suprenza is in the U.S., it is delivered to Prenzamax's third party logistics provider for warehousing, order processing and shipping to the end customers. Prenzamax is responsible for all costs related to manufacturing, warehousing and distribution. In addition, Prenzamax is also solely responsible for the sales and marketing costs associated with Suprenza. These costs include, but are not limited to, preparation of marketing materials such as brochures and electronic media as well as other advertising and promotional costs including providing samples of Suprenza to physicians and patients. A major cost component for Prenzamax is sales force salaries, training and travel expenses. Akrimax has agreed to act as a guarantor of Prenzamax's obligations owed to the Company pursuant to the Exclusive License Agreement. Specifically, the Exclusive License Agreement provides that Akrimax unconditionally guarantees the full and prompt performance of all obligations of Prenzamax pursuant to the terms and conditions of the Exclusive License Agreement, including the payment of all amounts that become due and payable by Prenzamax. In addition, Akrimax prepares estimates of time and costs with respect to selling Suprenza and allocates those costs to calculate the Product EBITDA. Product EBITDA is defined as Sales less the Cost of Goods sold, Marketing Expenses and regulatory expenses. All terms which are not defined herein are defined in the Exclusive License Agreement by and between Citius and Prenzamax dated November 15, 2011 which has been filed with the SEC.

Since the launch of Suprenza in 2012, Prenzamax has been unable to generate revenues sufficient to cover its costs and generate profits. Costs include, but are not limited to, the cost of goods from Alpex, FDA facility and product fees, the cost of marketing materials including samples provided to physicians and patients and product literature and the cost of its sales force including travel and out of pocket expenses. These costs are significantly higher than revenue derived from the sale of Suprenza and therefore, Prenzamax has thus far been unable to generate profits from such sales. Based upon the revenue to cost ratio, we do not believe that we will receive any Profit Share Payments from Prenzamax in the foreseeable future. We anticipate that we will receive Profit Share Payments from Prenzamax at such time as the revenues generated from the sale of Suprenza exceed Prenzamax's costs associated with the sale of the product.

In addition, we have entered into an agreement with Alpex pursuant to which Alpex may use clinical data generated by the Company to file for regulatory approval in markets where we are not licensed to sell the product. If Alpex sells the product directly to such markets, we shall receive thirteen percent (13%) of the net sales as royalty; provided, however, if Alpex does not market the product in such markets and licenses the product to third parties for resale, we shall receive twenty five percent (25%) of the net sales as royalty. Pursuant to the Exclusive License Agreement with Prenzamax, we are required to pay Prenzamax thirty five percent (35%) of the royalty payments which we receive from Alpex. To date, we have not received any payments from Alpex pursuant to the agreement because Alpex has not filed for regulatory approval in any countries, and we do not anticipate that Alpex will file for such approval in the near future.

After we received approval and launched Suprenza in 2012, we planned to make improvements to our Suprenza formulation. In addition, we planned to use profits generated from the sale of Suprenza for the development and clinical testing program. However, sales of Suprenza have so far been minimal and we have been unable to obtain sufficient funding and therefore, currently, we suspended our plans for the next generation of Suprenza. Currently, we are only developing our hemorrhoid treatment product.

As a condition to obtaining approval for Suprenza, the FDA required us to conduct a post-marketing study on the pharmacokinectic, or PK, parameters of Suprenza ODT in subjects with renal impairment. Drug exposure increases can be expected in patients with renal impairment who are treated with phentermine. However, Suprenza ODT's pharmacokinetics has not been assessed in renal impaired patients. Since obesity can lead to renal failure, there exists a possibility that patients with mild or moderate renal failure may be prescribed Suprenza ODT. Therefore, it is important to assess the changes in the PK parameters of Suprenza ODT in patients with renal impairment. The primary endpoint of this study is the pharmacokinetic assessment of Suprenza ODT in renal impaired patients, and the results of this study would provide important new information to prescribing physicians regarding phentermine dosing and dose adjustments for these at-risk patients.

A clinical research organization has indicated that it will cost approximately $400,000 and 18 months to conduct the renal impairment study. Due to the limited current sales of Suprenza, we requested the FDA waive the renal PK study. In the FDA's letter dated August 28, 2015, the FDA notified us that our request to waive the study was denied because financial hardship was an inadequate reason to justify a waiver of the study. In addition, the FDA restated the FDA's concern that there is a signal of serious risk of increased drug exposure in patients with decreased renal function. If we fail to conduct the post-marketing renal PK study, the FDA may ask us to discontinue selling the product or impose other penalties which they deem suitable.

In general the FDA allows companies to continue selling their product while post-marketing studies are being conducted. Based upon limited sales and usage of our product, we intend to reapply for a waiver of the post-marketing study. However, there can be no assurance that the FDA will release us from such requirement. If our next request to waive the post-marketing studying is denied and we do not have sufficient funding to conduct the study, we will likely discontinue the sale of Suprenza. If we receive sufficient funding and determine to proceed with the renal impairment study, and the results of such study demonstrate safety concerns, we may have to add additional disclosures to our label or alternatively, discontinue the sale of the product.

The co-founder and vice Chairman of Akrimax is Leonard Mazur who is our President, Chief Executive Officer and Chief Operating Officer. Pursuant to the terms of the license agreement, Prenzamax will be solely responsible for the pricing of Suprenza and will have the option to participate in the future development program of Suprenza which may result in a conflict of interest. Although Mr. Mazur does not have any direct management role in Akrimax or Prenzamax, there can be no assurance that Prenzamax will conduct its business affairs in a manner which is beneficial to our company.

Our goal is to build a successful pharmaceutical company through the development and commercialization of low-risk, innovative, efficacious and cost-effective products that address compelling market opportunities. We will seek to achieve this goal by:

Identifying new drug product candidates that are typically prescribed by a relatively small number of specialist physicians and can therefore be successfully commercialized by a small, specialty sales force;

Obtaining licenses for the most relevant and advanced technologies to provide our new product candidates with superior product characteristics and intellectual property protection;

Outsourcing formulation development and manufacturing in order to reduce our required capital investment;

Leveraging our in-house clinical and regulatory expertise to more rapidly advance the development of product candidates in our pipeline;

Establishing strategic relationships with marketing partners to maximize sales potential for our products that require significant commercial support; and

Managing our business in a financially disciplined and cost-conscious manner.

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