Citius Pharmaceuticals (CTXR) Risk Analysis

In late April 2020, we made a pre-IND submission to the FDA for NoveCite as a treatment for ARDS. The submission was made under the FDA's Coronavirus Treatment Acceleration Program ("CTAP") and we requested the FDA's feedback to support the most expeditious pathway for clinical development of the therapy. The CTAP program is relatively new and the FDA has broad discretion in administering the CTAP program and therefore we cannot assure you what the FDA might decide and whether there would be a faster development process.

Pre-clinical studies and Phase 1 and Phase 2 clinical trials are not primarily designed to test the efficacy of a product candidate in the general population, but rather to test initial safety, to study pharmacokinetics and pharmacodynamics, to study limited efficacy in a small number of study patients in a selected disease population, and to identify and attempt to understand the product candidate's side effects at various doses and dosing schedules. Success in pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing pre-clinical studies and large-scale clinical trials, will be successful nor does it predict future results. Favorable results in early studies or trials may not be repeated in later studies or trials, and product candidates in later stage trials may fail to show acceptable safety and efficacy despite having progressed through earlier trials. In addition, the placebo rate in larger studies may be higher than expected. We may be required to demonstrate through large, long-term outcome trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory approval. This would increase the duration and cost of any such trial. There is typically a high rate of attrition from the failure of product candidates proceeding through clinical trials. In addition, certain subjects in our clinical trials may respond positively to placebo treatment - these subjects are commonly known as "placebo responders" - making it more difficult to demonstrate efficacy of the trial drug compared to placebo. This effect is likely to be observed in the treatment of hemorrhoids, which could negatively impact the development program for Halo-Lido. If any of our product candidates fail to demonstrate sufficient safety and efficacy in any clinical trial, we will experience potentially significant delays and cost increases in, or may decide to abandon development of, that product candidate. If we abandon or are delayed, or experience increased costs, in our development efforts related to any of our product candidates, we may not have sufficient resources to continue or complete development of that product candidate or any other product candidates. We may not be able to continue our operations and clinical studies, or generate any revenue or become profitable. Our reputation in the industry and in the investment community would likely be significantly damaged. Further, it might not be possible for us to raise funds in the public or private markets, and our stock price would likely decrease significantly.

Our goal in generally pursuing late-stage therapeutic product candidates with what we believe is a promising pre-clinical and early clinical stage track record is to avoid the risk of failure at the pre-clinical and early clinical stages. However, there is still significant risk to obtaining regulatory approval and successfully commercializing any late-stage product candidate that we pursue. All of the risks inherent in drug development of initial stage product candidates also apply to late-stage candidates. We cannot assure you that our business strategy will be successful.

NoveCite anticipates that its research and development for its NoveCite product candidate will involve iPSCs, rather than adult-donor derived cells. With respect to iPSCs, NoveCite believes that scientists are still somewhat uncertain about the clinical utility, life span, and safety of such cells, and whether such cells differ in any clinically significant ways from adult-donor derived cells. If NoveCite discovers that iPSCs will not be useful for whatever reason for its NoveCite product candidate program, this would negatively affect NoveCite's ability to develop a marketable product and it and we may never become profitable, which would have an adverse effect on our respective businesses, prospects, financial condition and results of operations.

While we believe we have sufficient funds on hand to commercially launch LYMPHIR, various factors could increase the cost to launch LYMPHIR, which we expect would require us to obtain additional capital to complete those efforts. Financing might not be available on acceptable terms or at all.

Our business depends on the successful development and commercialization of our product candidates. We are not permitted to market any of our product candidates in the U.S. until we receive approval from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from such jurisdiction. The process of developing new drugs and/or therapeutic products is inherently complex, unpredictable, time-consuming, expensive and uncertain. We must make long-term investments and commit significant resources before knowing whether our development programs will result in products that will receive regulatory approval and achieve market acceptance. For example, while LYMPHIR received FDA approval in August 2024, we had incurred significant expenses in its development and planned commercialization; as of September 30, 2024, we had outstanding commitments of approximately $50.6 million to third parties for LYMPHIR licensing, supply and other costs. Product candidates that appear to be promising at some or all stages of development may not receive approval or reach the market for a number of reasons that may not be predictable based on results and data of the clinical program. Product candidates may be found ineffective or may cause harmful side effects during clinical trials, may take longer to progress through clinical trials than had been anticipated, may not be able to achieve the pre-defined clinical endpoints due to statistical anomalies even though clinical benefit may have been achieved, may fail to receive necessary regulatory approvals, may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality, or may fail to achieve market acceptance. While we anticipate that Citius Oncology will launch LYMPHIR in the first half of 2025, that timeline is subject to change for various reasons. Moreover, we cannot predict whether or when we will obtain regulatory approval to commercialize our other product candidates that are under development, notably Mino-Lok. We cannot, therefore, predict the timing of any future revenues from LYMPHIR or any other product candidate. As an example, in response to the submission of our BLA for LYMPHIR, the FDA issued a complete response letter ("CRL") on July 28, 2023. The FDA required us to incorporate enhanced product testing and additional controls agreed to with the FDA during the market application review. There were no concerns relating to the safety and efficacy clinical data package submitted with the BLA, or the proposed prescribing information. In September 2023, we announced that the FDA had agreed with our plans to address the requirements outlined in the CRL, which guidance provided us with a path for completing the necessary activities to support the resubmission of the BLA for LYMPHIR and we received approval from the FDA in August 2024. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the FDA: - may not find the data from clinical trials sufficient to support the submission of an NDA or BLA or to obtain marketing approval in the U.S., including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;         - could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to demonstrate the safety and effectiveness of any of our product candidates for any indication;         - may disagree with our trial design or our interpretation of data from preclinical studies or clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;- could determine that we cannot rely on Section 505(b)(2) for Mino-Lok or Halo-Lido or any future product candidate whose composition includes components previously approved by the FDA;         - may determine that we have identified the wrong reference listed drug or drugs or that approval of a Section 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;         - may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the manufacture of our product candidates;         - may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials;- may change its approval policies or adopt new regulations that could adversely impact our product candidate development programs; or         - may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates, or may require labeling claims that impair the potential market acceptance of our product candidates. These same risks are generally applicable to the regulatory process in foreign countries. Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.

We have registered a trademark with the USPTO for the marks "LYMPHIR" and "Mino-Lok". These and any other trademarks or trade names we may obtain may be challenged, infringed, diluted, tarnished, circumvented or declared generic or determined to be infringing on other marks. The Company may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in the markets of interest. At times, competitors or other third parties may adopt similar trade names or trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement, dilution or tarnishment claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business, financial condition and results of operations may be adversely affected. The Company's efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources.

If at any time federal monies are used in support of the research and development activities at MDACC that resulted or in the future result in certain of our issued pending U.S. patent applications, the federal government retains what are referred to as "march-in rights" to patents that are granted on these applications. Our license agreement for Mino-Lok provides that in the event of such governmental funding, our rights are subject to the government's prior rights, if any. In addition, the license agreement provides that we will comply with the requirements of any agreement between MDACC and the governmental funding entity. If applicable, this could require us to grant the U.S. government either a nonexclusive, partially exclusive, or exclusive license to the patented invention in any field of use, upon terms that are reasonable for a particular situation. Circumstances that could trigger march-in rights generally would be set out in the agreement between MDACC and the funding governmental entity and could include, for example, failure to take, within a reasonable time, effective steps to achieve practical application of the invention in a field of use, failure to satisfy the health and safety needs of the public and failure to meet requirements of public use specified by federal regulations. A funding governmental entity could elect to exercise these march-in rights on their own initiative or at the request of a third party; however, the exercise of such march-in rights has been historically rare when the patent holder (or its licensee) is practicing the patent invention although there can be no assurance that such rights would not be exercised. This same risk would apply to any other license into which we enter if the licensor receives government funding for the product candidate that is the subject of the license.

If our product candidates, methods, processes, and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we might have to: - obtain licenses, which might not be available on commercially reasonable terms, if at all;         - abandon an infringing product candidate;         - redesign our product candidates or processes to avoid infringement;         - stop using the subject matter claimed in the patents held by others;         - pay damages; and/or         - defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources. Any of these events could substantially harm our earnings, financial condition, and operations.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and divert management's attention from our operations.

We cannot assure you that we will receive the approvals necessary to commercialize for sale any product candidates we are currently developing or that we may acquire or seek to develop in the future. We will need FDA approval to commercialize our product candidates in the U.S. In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA or a BLA demonstrating that the product candidate is safe for humans and effective for its intended use. This demonstration requires significant research, pre-clinical studies, and clinical trials. Satisfaction of the FDA's regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in products that the FDA considers safe for humans and effective for their indicated uses. The FDA has substantial discretion in the product approval process and might require us to conduct additional pre-clinical and clinical testing, perform post-marketing studies or otherwise limit or impose conditions on any additional approvals we obtain. The approval process might also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our product candidate's regulatory review. Delays in obtaining regulatory approvals might: - delay commercialization of, and our ability to derive product revenues from, our product candidates;         - impose costly procedures on us; and         - diminish any competitive advantages that we might otherwise enjoy. Even if we comply with all FDA requests, the FDA might ultimately reject one or more of our NDAs or BLAs. Even if we are able to obtain regulatory approval for a particular product candidate, the approval might limit the indicated medical uses for the product, limit our ability to promote, sell, and distribute the product, require that we conduct costly post-marketing surveillance, and/or require that we conduct ongoing post-marketing studies. We cannot be sure that we will ever obtain regulatory clearance for any of our product candidates. Failure to obtain FDA approval of one or more of our product candidates could severely undermine our business by leaving us without saleable products, and therefore without any potential sources of revenues, until another product candidate could be developed or obtained and successfully developed, approved and commercialized. Foreign jurisdictions impose similar regulatory approval processes and we will face the same risks if we seek foreign approval for any of our product candidates. There is no guarantee that we will ever be able to successfully develop or acquire any product candidate.

NoveCite's cell programming technology and platform for generating cell therapy products using allogenic mesenchymal stem cells derived from iPSCs represent novel therapeutic approaches, and to our knowledge there are currently no iPSC-derived cell products approved anywhere in the world for commercial sale. As such, it is difficult to accurately predict the type and scope of challenges that NoveCite may incur during development of its NoveCite product candidate, and it faces uncertainties associated with the preclinical and clinical development, manufacture and regulatory requirements for the initiation and conduct of clinical trials, regulatory approval, and reimbursement required for successful commercialization of its NoveCite product candidate. In addition, because NoveCite's iPSC-derived cell product candidate is in the pre-clinical stage, NoveCite is currently assessing safety in humans and has not yet been able to assess the long-term effects of treatment. Animal models and assays may not accurately predict the safety and efficacy of our product candidate in our target patient populations, and appropriate models and assays may not exist for demonstrating the safety and purity of the NoveCite product candidate, as required by the FDA and other regulatory authorities for ongoing clinical development and regulatory approval. The pre-clinical and clinical development, manufacture, and regulatory requirements for approval of the NoveCite product candidate may be more expensive and take longer than for other more well-known or extensively studied pharmaceutical or biopharmaceutical product candidates due to a lack of prior experiences on the side of both developers and regulatory agencies. Additionally, due to the uncertainties associated with the pre-clinical and clinical development, manufacture, and regulatory requirements for approval of the NoveCite product candidate, NoveCite may be required to modify or change its pre-clinical and clinical development plans or its manufacturing activities and plans or be required to meet stricter regulatory requirements for approval. Any such modifications or changes could delay or prevent NoveCite's ability to develop, manufacture, obtain regulatory approval for or commercialize its NoveCite product candidate, which would adversely affect NoveCite's and our business, financial condition and results of operations. Cellular immunotherapies, and stem cell therapies and iPSC-derived cell therapies in particular, represent relatively new therapeutic areas, and the FDA has cautioned consumers about potential safety risks associated with cell therapies. To date, there are relatively few approved cell therapies. As a result, the regulatory approval process for a product candidate such as NoveCite is uncertain and may be more expensive and take longer than the approval process for product candidates based on other, better known or more extensively studied technologies and therapeutic approaches. For example, there are currently no FDA approved products with a label designation that supports the use of a product to treat and reduce the severity of ARDS in patients with COVID-19, which makes it difficult to determine the clinical endpoints and data required to support an application or regulatory approval, and the time and cost required to obtain regulatory approval in the U.S. for our product candidate. Regulatory requirements in the U.S. governing cell therapy products have changed frequently and the FDA or other regulatory bodies may change the requirements, or identify different regulatory pathways, for approval of the NoveCite product candidate. For example, within the FDA, the Center for Biologics Evaluation and Research ("CBER") restructured and created a new Office of Tissues and Advanced Therapies to better align its oversight activities with FDA Centers for Drugs and Medical Devices. It is possible that over time new or different divisions may be established or be granted the responsibility for regulating cell and/or gene therapy products, including iPSC-derived cell products, such as the NoveCite product candidate. As a result, NoveCite may be required to change its regulatory strategy or to modify its applications for regulatory approval, which could delay and impair its ability to complete the pre-clinical and clinical development and manufacture of, and obtain regulatory approval for, its NoveCite product candidate. Changes in regulatory authorities and advisory groups, or any new requirements or guidelines they promulgate, may lengthen the regulatory review process, require NoveCite to perform additional studies, increase its development and manufacturing costs, lead to changes in regulatory pathways, positions and interpretations, delay or prevent approval and commercialization of the NoveCite product candidate or lead to significant post-approval limitations or restrictions. As NoveCite advances its NoveCite product candidate, NoveCite will be required to consult with the FDA and other regulatory authorities, and its NoveCite product candidate will likely be reviewed by an FDA advisory committee. NoveCite also must comply with applicable requirements, and if it fails to do so, it may be required to delay or discontinue development of its NoveCite product candidate. Delays or unexpected costs in obtaining, or the failure to obtain, the regulatory approval necessary to bring the NoveCite product candidate to market could impair NoveCite's and our ability to generate sufficient product revenues to maintain our respective businesses.

If we are found to have improperly promoted any off-label use of LYMPHIR or for any product candidates, if approved, or if we are found to have improperly engaged in pre-approval promotion prior to the approval of such product candidates, we may become subject to significant liability. Such enforcement has become more common in the pharmaceutical industry. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as LYMPHIR and any product candidates that might be approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product's approved labeling. If the Company receives marketing approval for its product candidates for its proposed indications, physicians may nevertheless use its product for their patients in a manner that is inconsistent with the approved label, if the physicians believe in their professional medical judgment it could be used in such manner. However, if the Company is found to have promoted its product for any off-label uses, the federal government could levy civil, criminal and/or administrative penalties, and seek fines against us. The FDA, Department of Justice or other regulatory authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of LYMPHIR or any product candidates that receive approval, we could become subject to significant liability, which would materially adversely affect our business, financial condition and results of operations.

Our strategy with LYMPHIR (through Citius Oncology) and for our unapproved product candidates is to outsource to third parties all or most aspects of the product development process, as well as much of our marketing, sales, and distribution activities. In order to generate sales of any product candidate that receives regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third parties to perform these services for us. Currently, we, through Citius Oncology, are developing our sales, marketing and distribution capabilities for LYMPHIR and have contracted with Innovation Partners, a large third-party commercial sales and marketing organization with an existing commercial infrastructure and product launch experience, to assist in our commercial efforts. We do not have any sales, marketing or distribution capabilities with respect to our other product candidates. The acquisition or development of a sales and distribution infrastructure requires substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts. To the extent that we enter into marketing and sales arrangements with other companies for any product candidates, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop sales, marketing, and distribution channels, or fail to enter into arrangements with third parties or the collaboration is terminated or is otherwise unsuccessful, we will experience delays in product launch and sales and incur increased costs.

Even if one of our product candidates obtains regulatory approval, that product may not gain market acceptance among physicians, patients, healthcare payers or the medical community. The indication may be limited to a subset of the population or we may implement a distribution system and patient access program that is limited. Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary for commercial success. While LYMPHIR's approval was not so restricted, its acceptance in the marketplace as an effective treatment will depend on various factors as discussed herein. We believe that the degree of market acceptance and our ability to generate revenues from any approved product candidate, such as LYMPHIR, or acquired approved product will depend on a number of factors, including: - prevalence and severity of any side effects;         - potential or perceived advantages or disadvantages over alternative treatments;         - availability of coverage and reimbursement from government and other third-party payers;         - the willingness of patients to pay out of pocket in the absence of government or third-party coverage;         - the relative convenience and ease of administration and dosing schedule;         - strength of sales, marketing and distribution support;         - price of any future products, if approved, both in absolute terms and relative to alternative treatments;         - the effectiveness of our or any future collaborators' sales and marketing strategies;         - the effect of current and future healthcare laws on any approved products;         - patient access programs that require patients to provide certain information prior to receiving new and refill prescriptions;         - results of any post-approval studies of the product;         - product labeling or product insert requirements of the FDA or other regulatory authorities; and         - requirements for prescribing physicians to complete certain educational programs for prescribing drugs. If approved, any product candidate may fail to achieve market acceptance or generate significant revenue to achieve or sustain profitability, which would harm the Company's business. In addition, our efforts to educate the medical community and third-party payers on the benefits of any product candidate may require significant resources and may never be successful.

Even if the FDA approves one of our product candidates, physicians and patients might not accept and use it. Acceptance and use of our approved product candidates will depend upon a number of factors, including: - perceptions by members of the health care community, including physicians, about the safety and effectiveness of any of our product candidates;         - perceptions by members of the health care community, including physicians, about the use of our product candidates versus the then respective standards of care for the disease or problem that we seek to address with our product candidates;         - cost-effectiveness of our product candidates relative to competing products or therapies;- availability of reimbursement for our product candidates from government or other healthcare payers; and         - effective marketing and distribution efforts by us and/or our licensees and distributors, if any. If any of our current product candidates are approved, we expect their sales to generate substantially all of our revenues for the foreseeable future, and as a result, the failure of any of these product candidates to find market acceptance would harm our business and would require us to seek additional financing. Prior to the planned distribution of our Citius Oncology shares to our stockholders, we anticipate LYMPHIR will be our only revenue-generating product for the foreseeable future, unless and until we are able to gain approval for another product candidate, namely Mino-Lok.

Our Mino-Lok solution contains minocycline, disodium ethylenediaminetetraacetic acid (edetate), and ethyl alcohol, all of which have been separately approved by the FDA for other indications or are used as excipients in other parenteral products. Assuming FDA approval as a branded pharmaceutical product, we would need to obtain hospital formulary acceptance to generate sales of Mino-Lok. Additionally, we may encounter reluctance by the infectious disease physician community to vary from the existing standard of care to remove and replace an infected catheter. Currently, hospitals are reimbursed for the treatment of CRBSIs by the Center for Medicare and Medicare Services ("CMS") through a Diagnosis Related Group ("DRG") classification or code. Commercial insurance plans reimburse for CRBSIs in a similar manner. With Mino-Lok being priced as a branded FDA-approved pharmaceutical product, this could result in the participating hospital retaining a lower share of CMS or commercial reimbursement which may impact the acceptance and use of Mino-Lok by these institutions. Our Halo-Lido product candidate for the treatment of hemorrhoids is a combination product consisting of two drugs, halobetasol propionate, a corticosteroid, and lidocaine, that have each been separately approved by the FDA for other indications and which are commercially available and marketed by other companies. Halobetasol propionate cream is available in a 0.05% strength, and lidocaine creams are also available in strengths up to 5%. From our market analysis and discussions with a limited number of physicians, we know that patients sometimes obtain two separate cream products and co-administer them as prescribed, giving them a combination treatment that could be very similar to what we intend to study and seek approval for. As a branded, FDA-approved product with safety and efficacy data, we intend to price our product substantially higher than the generically available individual creams. We will then have to convince third-party payers and pharmacy benefit managers of the advantages of our product and justify our premium pricing. We may encounter resistance from these entities and will then be dependent on patients' willingness to pay the premium and not seek alternatives. In addition, pharmacists often suggest lower cost prescription treatment alternatives to both physicians and patients. If approved, our Section 505(b)(2) approval and the market exclusivity we may receive will not guarantee that such alternatives will not exist, that substitution will not occur, or that there will be immediate or any acceptance to our pricing by payer formularies.