U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-38174
Citius Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 27-3425913 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 11 Commerce Drive, First Floor, Cranford, NJ | 07016 | |
| (Address of principal executive offices) | (Zip code) |
(908) 967-6677
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Common stock, $0.001 par value | CTXR | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 10, 2023, there were 158,857,798 shares of common stock, $0.001 par value, of the registrant issued and outstanding.
Citius Pharmaceuticals, Inc.
FORM 10-Q
TABLE OF CONTENTS
March 31, 2023
i
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q, and unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to Citius Pharmaceuticals, Inc. and its wholly-owned subsidiaries Citius Pharmaceuticals, LLC, Leonard-Meron Biosciences, Inc., Citius Acquisition Corp., and its majority-owned subsidiary, NoveCite, Inc., taken as a whole.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in this Report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:
| ● | the cost, timing and results of our pre-clinical and clinical trials; | |
| ● | our ability to raise funds for general corporate purposes and operations, including our pre-clinical and clinical trials; |
| ● | our ability to obtain and maintain required regulatory approvals for our product candidates; |
| ● | the commercial feasibility and success of our technology and product candidates; |
| ● | our ability to recruit and retain qualified management and scientific and technical personnel to carry out our operations; and |
| ● | the other factors discussed in the “Risk Factors” section of our most recent Annual Report on Form 10-K and elsewhere in this report. |
Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the filing date of this Report.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CITIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | September 30, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 29,065,522 | $ | 41,711,690 | ||||
| Prepaid expenses | 5,835,602 | 2,852,580 | ||||||
| Total Current Assets | 34,901,124 | 44,564,270 | ||||||
| Property and equipment, net | 2,639 | 4,100 | ||||||
| Operating lease right-of-use asset, net | 552,205 | 646,074 | ||||||
| Other Assets: | ||||||||
| Deposits | 38,062 | 38,062 | ||||||
| In-process research and development | 59,400,000 | 59,400,000 | ||||||
| Goodwill | 9,346,796 | 9,346,796 | ||||||
| Total Other Assets | 68,784,858 | 68,784,858 | ||||||
| Total Assets | $ | 104,240,826 | $ | 113,999,302 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 2,725,593 | $ | 1,165,378 | ||||
| Accrued expenses | 2,250,836 | 1,405,394 | ||||||
| Accrued compensation | 1,025,777 | 1,762,251 | ||||||
| Operating lease liability | 207,471 | 196,989 | ||||||
| Total Current Liabilities | 6,209,677 | 4,530,012 | ||||||
| Deferred tax liability | 5,849,800 | 5,561,800 | ||||||
| Operating lease liability – noncurrent | 374,831 | 481,245 | ||||||
| Total Liabilities | 12,434,308 | 10,573,057 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock – $0.001 par value; 10,000,000 shares authorized; shares issued and outstanding | ||||||||
| Common stock – $0.001 par value; 400,000,000 shares authorized; 146,357,797 and 146,211,130 shares issued and outstanding at March 31, 2023 and September 30, 2022, respectively | 146,358 | 146,211 | ||||||
| Additional paid-in capital | 234,867,917 | 232,368,121 | ||||||
| Accumulated deficit | (143,808,137 | ) | (129,688,467 | ) | ||||
| Total Citius Pharmaceuticals, Inc. Stockholders’ Equity | 91,206,138 | 102,825,865 | ||||||
| Non-controlling interest | 600,380 | 600,380 | ||||||
| Total Equity | 91,806,518 | 103,426,245 | ||||||
| Total Liabilities and Equity | $ | 104,240,826 | $ | 113,999,302 | ||||
See notes to unaudited condensed consolidated financial statements.
1
CITIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | 4,726,855 | 3,452,210 | 8,172,370 | 8,910,059 | ||||||||||||
| General and administrative | 4,792,850 | 3,117,417 | 7,396,137 | 6,014,166 | ||||||||||||
| Stock-based compensation – general and administrative | 1,165,595 | 1,020,998 | 2,366,676 | 1,925,602 | ||||||||||||
| Total Operating Expenses | 10,685,300 | 7,590,625 | 17,935,183 | 16,849,827 | ||||||||||||
| Operating Loss | (10,685,300 | ) | (7,590,625 | ) | (17,935,183 | ) | (16,849,827 | ) | ||||||||
| Other Income | ||||||||||||||||
| Interest income | 303,275 | 29,571 | 517,824 | 63,553 | ||||||||||||
| Gain on sale of New Jersey net operating losses | 3,585,689 | |||||||||||||||
| Total Other Income | 303,275 | 29,571 | 4,103,513 | 63,553 | ||||||||||||
| Loss before Income Taxes | (10,382,025 | ) | (7,561,054 | ) | (13,831,670 | ) | (16,786,274 | ) | ||||||||
| Income tax expense | 144,000 | 288,000 | ||||||||||||||
| Net Loss | $ | (10,526,025 | ) | $ | (7,561,054 | ) | $ | (14,119,670 | ) | $ | (16,786,274 | ) | ||||
| $ | (0.07 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.11 | ) | |||||
| Weighted Average Common Shares Outstanding | ||||||||||||||||
| 146,251,945 | 146,041,852 | 146,231,313 | 146,026,847 | |||||||||||||
See notes to unaudited condensed consolidated financial statements.
2
CITIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
| Preferred | Common Stock | Additional Paid-In | Accumulated | Total Citius Pharmaceuticals, Inc. Shareholder’s | Non-Controlling | Total | ||||||||||||||||||||||||||
| Stock | Shares | Amount | Capital | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
| Balance, October 1, 2022 | $ | 146,211,130 | $ | 146,211 | $ | 232,368,121 | $ | (129,688,467 | ) | $ | 102,825,865 | $ | 600,380 | $ | 103,426,245 | |||||||||||||||||
| Stock-based compensation expense | — | 1,201,081 | 1,201,081 | 1,201,081 | ||||||||||||||||||||||||||||
| Net loss | — | (3,593,645 | ) | (3,593,645 | ) | (3,593,645 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2022 | 146,211,130 | 146,211 | 233,569,202 | $ | (133,282,112 | ) | $ | 100,433,301 | $ | 600,380 | $ | 101,033,681 | ||||||||||||||||||||
| Issuance of common stock for services | 100,000 | 100 | 101,900 | 102,000 | 102,000 | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 46,667 | 47 | 31,220 | 31,267 | 31,267 | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | 1,165,595 | 1,165,595 | 1,165,595 | ||||||||||||||||||||||||||||
| Net loss | — | (10,526,025 | ) | (10,526,025 | ) | (10,526,025 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | 146,357,797 | $ | 146,358 | $ | 234,867,917 | $ | (143,808,137 | ) | $ | 91,206,138 | $ | 600,380 | $ | 91,806,518 | |||||||||||||||||
| Balance, October 1, 2021 | $ | 145,979,429 | $ | 145,979 | $ | 228,084,195 | $ | (96,047,821 | ) | $ | 132,182,353 | $ | 600,380 | $ | 132,782,733 | |||||||||||||||||
| Issuance of common stock for services | 50,201 | 50 | 95,834 | 95,884 | 95,884 | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | 904,604 | 904,604 | 904,604 | ||||||||||||||||||||||||||||
| Net loss | — | (9,225,220 | ) | (9,225,220 | ) | (9,225,220 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2021 | 146,029,630 | 146,029 | 229,084,633 | (105,273,041 | ) | 123,957,621 | 600,380 | 124,558,001 | ||||||||||||||||||||||||
| Issuance of common stock for services | 100,000 | 100 | 177,900 | 178,000 | 178,000 | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | 1,020,998 | 1,020,998 | 1,020,998 | ||||||||||||||||||||||||||||
| Net loss | — | (7,561,054 | ) | (7,561,054 | ) | (7,561,054 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 146,129,630 | $ | 146,129 | $ | 230,283,531 | $ | (112,834,095 | ) | $ | 117,595,565 | $ | 600,380 | $ | 118,195,945 | |||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
3
CITIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (14,119,670 | ) | $ | (16,786,274 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | 2,366,676 | 1,925,602 | ||||||
| Issuance of common stock for services | 102,000 | 273,884 | ||||||
| Amortization of operating lease right-of-use asset | 93,869 | 86,619 | ||||||
| Depreciation | 1,461 | 1,461 | ||||||
| Deferred income tax expense | 288,000 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (2,983,022 | ) | 238,295 | |||||
| Accounts payable | 1,560,215 | 428,033 | ||||||
| Accrued expenses | 845,442 | 714,669 | ||||||
| Accrued compensation | (736,474 | ) | (1,112,750 | ) | ||||
| Operating lease liability | (95,932 | ) | (86,253 | ) | ||||
| Net Cash Used In Operating Activities | (12,677,435 | ) | (14,316,714 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from common stock option exercise | 31,267 | |||||||
| Net Cash Provided By Financing Activities | 31,267 | |||||||
| Net Change in Cash and Cash Equivalents | (12,646,168 | ) | (14,316,714 | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | 41,711,690 | 70,072,946 | ||||||
| Cash and Cash Equivalents - End of Period | $ | 29,065,522 | $ | 55,756,232 | ||||
See notes to unaudited condensed consolidated financial statements.
4
CITIUS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Citius Pharmaceuticals, Inc. (“Citius,” the “Company,” “we” or “us”) is a late-stage pharmaceutical company dedicated to the development and commercialization of first-in-class critical care products with a focus on oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell therapies.
On March 30, 2016, Citius acquired Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned subsidiary by issuing shares of its common stock.
On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% (7,500,000 shares) of the issued and outstanding capital stock (see Note 3).
On August 23, 2021, we formed Citius Acquisition Corp. (“Citius Acq.”), as a wholly-owned subsidiary in conjunction with the acquisition of I/ONTAK, which began operations in April 2022.
In-process research and development (“IPR&D”) consists of (i) the $19,400,000 acquisition value of LMB’s drug candidate Mino-Lok®, which is an antibiotic solution used to treat catheter-related bloodstream infections and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation, and (ii) the $40,000,000 acquisition value of the exclusive license for I/ONTAK (denileukin diftitox), which is a late-stage oncology immunotherapy for the treatment of cutaneous T-cell lymphoma (“CTCL”), a rare form of non-Hodgkin lymphoma, and is expected to be amortized on a straight-line basis over a period of twelve years commencing upon revenue generation.
Goodwill of $9,346,796 represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment.
Citius is subject to a number of risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development by Citius or its competitors of research and development stage product candidates, market acceptance of its product candidates that might be approved, competition from larger companies, dependence on key personnel, dependence on key suppliers and strategic partners, the Company’s ability to obtain additional financing and the Company’s compliance with governmental and other regulations.
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Preparation — The accompanying condensed consolidated financial statements include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC, LMB, and Citius Acq., and its majority-owned subsidiary NoveCite. Citius Acq. was inactive until April 1, 2022. All significant inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated financial position of the Company as of March 31, 2023, and the results of its operations and cash flows for the three and six month periods ended March 31, 2023 and 2022. The operating results for the three and six month periods ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 filed with the Securities and Exchange Commission (“SEC”).
5
Use of Estimates — Our accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates having relatively higher significance include the accounting for in-process research and development and goodwill impairment, stock-based compensation, valuation of warrants, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.
Basic and Diluted Net Loss per Common Share — Basic and diluted net loss per common share applicable to common stockholders is computed by dividing net loss applicable to common stockholders in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of stock options and warrants, were not included in the calculation of the diluted loss per share because they were anti-dilutive.
Recently Issued Accounting Standards
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities. Under the new guidance (ASC 805-20-30-28), the acquirer should determine what contract assets and/or contract liabilities it would have recorded under Accounting Standards Codification (“ASC”) 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2021-08 is effective for the Company in the first quarter of fiscal year 2024. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. The Company is currently evaluating the adoption date of ASU 2021-08 and the impact, if any, adoption will have on its financial position and results of operations.
2. LIQUIDITY AND MANAGEMENT’S PLAN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company experienced negative cash flows from operations of $12,677,435 for the six months ended March 31, 2023. As a result of the Company’s common stock offerings and common stock warrant exercises during the year ended September 30, 2021, the Company had working capital of approximately $28,700,000 at March 31, 2023. After giving effect to the closing of its registered direct offering on May 8, 2023, in which it raised gross proceeds of $15,000,000, the Company estimates that its available cash resources will be sufficient to fund its operations through May 2024.
The Company has generated no operating revenue to date and has principally raised capital through the issuance of debt and equity instruments to finance its operations. However, the Company’s continued operations beyond May 2024, including its development plans for I/ONTAK, Mino-Lok, Mino-Wrap, Halo-Lido and NoveCite, will depend on its ability to obtain regulatory approval to market I/ONTAK and/or Mino-Lok and generate substantial revenue from the sale of I/ONTAK and/or Mino-Lok and on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, or out-licensing of its product candidates. However, the Company can provide no assurances on regulatory approval, commercialization, or future sales of I/ONTAK and/or Mino-Lok or that financing or strategic relationships will be available on acceptable terms, or at all. If the Company is unable to raise sufficient capital, find strategic partners or generate substantial revenue from the sale of I/ONTAK and/or Mino-Lok, there would be a material adverse effect on its business. Further, the Company expects in the future to incur additional expenses as it continues to develop its product candidates, including seeking regulatory approval, and protecting its intellectual property.
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3. PATENT AND TECHNOLOGY LICENSE AGREEMENTS
Patent and Technology License Agreement – Mino-Lok
LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize Mino-Lok on an exclusive, worldwide sub licensable basis, as amended. LMB pays an annual maintenance fee each June until commercial sales of a product subject to the license commence. The Company recorded an annual maintenance fee of $90,000 in June 2022 and 2021.
LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low- to mid-single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties of $100,000 in the first commercial year which is prorated for a less than 12-month period, increasing $25,000 per year to a maximum of $150,000 annually. LMB must also pay NAT up to an aggregate of $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub-licensees.
Unless earlier terminated by NAT, based on the failure to achieve certain development and commercial milestones, the license agreement remains in effect until the date that all patents licensed under the agreement have expired and all patent applications within the licensed patent rights have been cancelled, withdrawn, or expressly abandoned.
Patent and Technology License Agreement – Mino-Wrap
On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop Mino-Wrap as a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries. We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the U.S. Food and Drug Administration (“FDA”).
Under the license agreement, the Company paid an annual maintenance fee of $75,000 and $60,000 in January 2023 and 2022, respectively. The annual maintenance fee increases by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for the filing, prosecution and maintenance of all patents. Unless earlier terminated by Licensor, based upon the failure by us to achieve certain development and commercial milestones or for various breaches by us, the agreement expires on the later of the expiration of the patents or January 2, 2034.
License Agreement with Novellus
On October 6, 2020, our subsidiary, NoveCite, signed an exclusive license agreement with a subsidiary of Novellus Inc. (“Novellus”). Upon execution of the license agreement, we paid $5,000,000 to Novellus, which was charged to research and development expense during the year ended September 30, 2021, and issued Novellus shares of NoveCite’s common stock representing 25% of the outstanding equity. We own the other 75% of NoveCite’s outstanding equity. Pursuant to the terms of the original stock subscription agreement between Novellus and NoveCite, if NoveCite issued additional equity, subject to certain exceptions, NoveCite had to maintain Novellus’s ownership at 25% by issuing additional shares to Novellus.
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In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. (“Brooklyn”). In connection with that transaction, the stock subscription agreement between Novellus and NoveCite was amended to assign to Brooklyn all of Novellus’s right, title, and interest in the stock subscription agreement and delete the anti-dilution protection and replace it with a right of first refusal whereby Brooklyn will have the right to purchase all or a portion of the securities that NoveCite intends to sell or in the alternative, at the option of NoveCite, Brooklyn may purchase that amount of the securities proposed to be sold by NoveCite to allow Brooklyn to maintain its then percentage ownership. In October 2022, Brooklyn changed its name to Eterna Therapeutics Inc. (“Eterna”).
Citius is responsible for the operational activities of NoveCite and bears all costs necessary to operate NoveCite. Citius’s officers are also the officers of NoveCite and oversee the business strategy and operations of NoveCite. As such, NoveCite is accounted for as a consolidated subsidiary with a noncontrolling interest.
Eterna has no operational or financial responsibility to NoveCite, and the Company has not allocated any losses to the noncontrolling interest.
NoveCite is obligated to pay Eterna up to $51,000,000 upon the achievement of various regulatory and developmental milestones. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the sale of a licensed product. This royalty is subject to downward adjustment to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) the date on which a biosimilar product is first marketed, sold, or distributed in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Eterna an amount equal to a mid-twenties percentage of any sublicensee fees it receives.
Under the terms of the license agreement, if Eterna receives any revenue involving the original cell line included in the licensed technology, then Eterna shall remit to NoveCite 50% of such revenue.
The term of the license agreement continues on a country-by-country and licensed product-by-licensed product basis until the expiration of the last-to-expire royalty term. Either party may terminate the license agreement upon written notice if the other party is in material default. NoveCite may terminate the license agreement at any time without cause upon 90 days prior written notice.
Eterna will be responsible for preparing, filing, prosecuting, and maintaining all patent applications and patents included in the licensed patents in the territory, provided however, that if Eterna decides that it is not interested in maintaining a particular licensed patent or in preparing, filing, or prosecuting a licensed patent, NoveCite will have the right, but not the obligation, to assume such responsibilities in the territory at NoveCite’s sole cost and expense.
License Agreement with Eisai
In September 2021, the Company entered into a definitive agreement with Dr. Reddy’s Laboratories SA, a subsidiary of Dr. Reddy’s Laboratories, Ltd. (collectively, “Dr. Reddy’s”) to acquire its exclusive license of I/ONTAK (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma.
Under the terms of this agreement, Citius acquired Dr. Reddy’s exclusive license of I/ONTAK from Eisai Co., Ltd. (“Eisai”) and other related assets owned by Dr. Reddy’s. Citius’s exclusive license include rights to develop and commercialize I/ONTAK in all markets except for Japan and certain parts of Asia. Additionally, Citius retained an option on the right to develop and market the product in India. Eisai retains exclusive development and marketing rights for denileukin diftitox in Japan and most Asian countries. Citius paid $40 million upfront payment which represents the acquisition date fair value of the in-process research and development acquired from Dr. Reddy’s. Dr. Reddy’s is entitled to up to $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets, up to $70 million in development milestones for additional indications, as well as commercial milestone payments and low double-digit tiered royalties on net product sales, and up to $300 million for commercial sales milestones. We also must pay on a fiscal quarter basis tiered royalties equal to low double-digit percentages of net product sales. The royalties will end on the earlier of (i) the 15-year anniversary of the first commercial sale of the latest indication that received regulatory approval in the applicable country and (ii) the date on which a biosimilar product results in the reduction of net sales in the applicable product by 50% in two consecutive quarters, as compared to the four quarters prior to the first commercial sale of the biosimilar product. We will also pay to Dr. Reddy’s an amount equal to a low-thirties percentage of any sublicense upfront consideration or milestone payments (or the like) received by us and the greater of (i) a low-thirties percentage of any sublicensee sales-based royalties or (ii) a mid-single digit percentage of such licensee’s net sales.
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Under the license agreement, Eisai is to receive a $6.0 million development milestone payment upon initial approval and additional commercial milestone payments related to the achievement of net product sales thresholds (which increases to $7 million in the event we have exercised our option to add India to the licensed territory prior to FDA approval) and an aggregate of up to $22 million related to the achievement of net product sales thresholds. We also are required to reimburse Eisai for up to $2.65 million of its costs to complete the ongoing Phase 3 pivotal clinical trial for I/ONTAK for the CTCL indication and reimburse Eisai for all reasonable costs associated with the preparation of a biologics license application (“BLA”) for I/ONTAK. Eisai will be responsible for completing the current CTCL clinical trial, and chemistry, manufacturing, and controls (CMC) activities through the filing of the BLA for I/ONTAK with the FDA (which was filed in September 2022). Citius will be responsible for development costs associated with potential additional indications.
The term of the license agreement will continue until (i) if there has not been a commercial sale of a licensed product in the territory, until the 10-year anniversary of the original license effective date, March 30, 2016, or (ii) if there has been a first commercial sale of a licensed product in the territory within the 10-year anniversary of the original license effective date, the 10-year anniversary of the first commercial sale on a country-by-country basis. The term of the license may be extended for additional 10-year periods for all countries in the territory by notifying Eisai and paying an extension fee equal to $10 million. Either party may terminate the license agreement upon written notice if the other party is in material breach of the agreement, subject to cure within the designated time periods. Either party also may terminate the license agreement immediately upon written notice if the other party files for bankruptcy or takes related actions or is unable to pay its debts as they become due. Additionally, either party will have the right to terminate the agreement if the other party directly or indirectly challenges the patentability, enforceability or validity of any licensed patent.
Also under the agreement with Dr. Reddy’s, we are required to (i) use commercially reasonable efforts to make commercially available products in the CTCL indication, (ii) initiate two investigator initiated immuno-oncology trials (which we initiated in June 2021 and September 2022, respectively), (iii) use commercially reasonable efforts to achieve each of the approval milestones, and (iv) complete each specified immuno-oncology investigator trial on or before the four-year anniversary of the effective date of the definitive agreement. Additionally, we are required to commercially launch a product in a territory within six months of receiving regulatory approval for such product in each such jurisdiction.
4. COMMON STOCK, STOCK OPTIONS AND WARRANTS
Common Stock Issued for Services
On November 2, 2021, the Company issued 50,201 shares of common stock for investor relations services and expensed the $95,884 fair value of the common stock issued.
On March 21, 2022, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the $178,000 fair value of the common stock issued.
On September 13, 2022, the Company issued 81,500 shares of common stock for media, public and investor relations services and expensed the $104,320 fair value of the common stock issued.
On March 27, 2023, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the $102,000 fair value of the common stock issued.
Stock Option Plans
Under our 2014 Stock Incentive Plan, we reserved 866,667 common shares for issuance to employees, directors and consultants. As of March 31, 2023, options to purchase 855,171 shares were outstanding and no shares remain available for future grants.
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Under our 2018 Omnibus Stock Incentive Plan and we reserved 2,000,000 common shares for issuance to employees, directors and consultants. As of March 31, 2023, options to purchase 1,733,333 shares were outstanding and no shares remain available for future grants.
Under our 2020 Omnibus Stock Incentive Plan and we reserved 3,110,000 common shares for issuance to employees, directors, and consultants. As of March 31, 2023, options to purchase 1,870,000 shares were outstanding and the remaining 1,240,000 shares were transferred to the 2021 Omnibus Stock Incentive Plan (“2021 Stock Plan”).
Under our 2021 Omnibus Stock Incentive Plan and we reserved 8,740,000 shares for issuance to employees, directors, and consultants through options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of March 31, 2023, options to purchase 8,705,000 shares were outstanding and the remaining 35,000 shares were transferred to the 2023 Omnibus Stock Incentive Plan (the “2023 Stock Plan”).
In November 2022, our Board approved the Citius Pharmaceuticals, Inc. 2023 Stock Plan, subject to stockholder approval, which was received on February 7, 2023. The 2023 Stock Plan has reserved for issuance 12,035,000 shares of our common stock. As of March 31, 2023, options to purchase 225,000 shares were outstanding under the 2023 Stock Plan and 11,810,000 share remain available for future grants.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The expected term of stock options granted, all of which qualify as “plain vanilla,” is based on the average of the contractual term (generally 10 years) and the vesting period. For non-employee options, the expected term is the contractual term.
A summary of option activity under our stock option plans (excluding the NoveCite 2020 Omnibus Stock Incentive Plan) is presented below:
| Option Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||
| Outstanding at October 1, 2022 | 9,400,171 | $ | 2.07 | 7.81 years | $ | 869,509 | ||||||||
| Granted | 4,075,000 | 1.26 | ||||||||||||
| Exercised | (46,667 | ) | 0.67 | 34,067 | ||||||||||
| Forfeited or expired | ||||||||||||||
| Outstanding at March 31, 2023 | 13,428,504 | $ | 1.83 | 7.99 years | $ | 750,721 | ||||||||
| Exercisable at March 31, 2023 | 6,179,962 | $ | 2.17 | 6.76 years | $ | 688,121 | ||||||||
On October 4, 2022, the Board of Directors granted options to purchase 3,375,000 shares to employees, 375,000 shares to directors and 50,000 shares to a consultant at $1.25 per share. On November 8, 2022, the Board of Directors granted options to purchase 50,000 shares to a consultant at $1.04 per share. On February 7, 2023, the Board of Directors granted options to purchase 150,000 shares to an employee and 75,000 shares to a director at $1.42 per share. The weighted average grant date fair value of the options granted during the six months ended March 31, 2023 was estimated at $0.97 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years.
On October 11, 2021, the Board of Directors granted options to purchase 2,515,000 shares to employees, 375,000 shares to directors and 175,000 shares to consultants at $2.04 per share. On November 1, 2021, the Board of Directors granted options to purchase 200,000 shares to an employee at $1.87 per share. During January and February 2022, options to purchase 300,000 shares were granted to three new employees at exercise prices ranging from $1.44 to $1.49 per share. The weighted average grant date fair value of the options granted during the six months ended March 31, 2022 was estimated at $1.69 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years.
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Stock-based compensation expense for the three months ended March 31, 2023 and 2022 was $1,165,595 (including $33,333 for the NoveCite Stock Plan) and $1,020,998 (including $33,333 for the NoveCite Stock Plan), respectively. Stock-based compensation expense for the six months ended March 31, 2023 and 2022 was $2,366,676 (including $66,666 for the NoveCite Stock Plan) and $1,925,602 (including $66,666 for the NoveCite Stock Plan), respectively.
At March 31, 2023, unrecognized total compensation cost related to unvested awards under the Citius stock plans of $6,989,559 is expected to be recognized over a weighted average period of 1.9 years.
Under the NoveCite Stock Plan, we reserved 2,000,000 common shares of NoveCite for issuance. The NoveCite Stock Plan provides incentives to employees, directors, and consultants through grants of options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of March 31, 2023, there were options outstanding to purchase 2,000,000 common shares of NoveCite and no shares available for future grants.
As of March 31, 2023, NoveCite has options outstanding to purchase 2,000,000 common shares at a weighted average exercise price of $0.24 per share, of which 1,417,778 are exercisable. All of these options vest over 36 months and have a term of 10 years. The weighted average remaining contractual term of options outstanding under the NoveCite Stock Plan is 7.9 years. At March 31, 2023, unrecognized total compensation cost related to unvested awards under the NoveCite Stock Plan of $116,444 is expected to be recognized over a weighted average period of 1.0 years.
Warrants
As of March 31, 2023, we have reserved shares of common stock for the exercise of outstanding warrants as follows:
| Exercise price | Number | Expiration Date | ||||||||
| December 2017 Registered Direct/Private Placement Investors | $ | 4.63 | 640,180 | June 19, 2023 | ||||||
| March 2018 Registered Direct/Private Placement Investors | 2.86 | 218,972 | October 2, 2023 | |||||||
| August 2018 Offering Investors | 1.15 | 3,921,569 | August 14, 2023 | |||||||
| August 2018 Offering Agent | 1.59 | 189,412 | August 8, 2023 | |||||||
| April 2019 Registered Direct/Private Placement Investors | 1.42 | 1,294,498 | April 5, 2024 | |||||||
| April 2019 Registered Direct/Private Placement Agent | 1.93 | 240,130 | April 5, 2024 | |||||||
| September 2019 Offering Investors | 0.77 | 2,793,297 | September 27, 2024 | |||||||
| September 2019 Offering Underwriter | 1.12 | 194,358 | September 27, 2024 | |||||||
| February 2020 Exercise Agreement Agent | 1.28 | 138,886 | August 19, 2025 | |||||||
| May 2020 Registered Direct Offering Investors | 1.00 | 1,670,588 | November 18, 2025 | |||||||
| May 2020 Registered Direct Offering Agent | 1.33 | 155,647 | May 14, 2025 | |||||||
| August 2020 Underwriter | 1.31 | 201,967 | August 10, 2025 | |||||||
| January 2021 Private Placement Investors | 1.23 | 3,091,192 | July 27, 2026 | |||||||
| January 2021 Private Placement Agent | 1.62 | 351,623 | July 27, 2026 | |||||||
| February 2021 Offering Investors | 1.70 | 20,580,283 | February 19, 2026 | |||||||
| February 2021 Offering Agent | 1.88 | 2,506,396 | February 19, 2026 | |||||||
| 38,188,998 | ||||||||||
At March 31, 2023, the weighted average remaining life of the outstanding warrants is 2.4 years, all warrants are exercisable, and the aggregate intrinsic value of the warrants outstanding was $1,489,687.
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Common Stock Reserved
A summary of common stock reserved for future issuances as of March 31, 2023 is as follows:
| Stock plan options outstanding | 13,428,504 | |||
| Stock plan shares available for future grants | 11,810,000 | |||
| Warrants outstanding | 38,188,998 | |||
| Total | 63,427,502 |
5. OPERATING LEASE
Effective July 1, 2019, Citius entered into a 76-month lease for office space in Cranford, NJ. Citius pays its proportionate share of real estate taxes and operating expenses in excess of the base year expenses. These costs are variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability.
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
| ● | As the Company’s lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments based on the remaining lease term as of the adoption date. |
| ● | Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component. |
| ● | The expected lease terms include noncancelable lease periods. |
The elements of lease expense are as follows:
| Lease cost | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | ||||||
| Operating lease cost | $ | 119,412 | $ | 119,411 | ||||
| Variable lease cost | 2,363 | |||||||
| Total lease cost | $ | 121,775 | $ | 119,411 | ||||
| Other information | ||||||||
| Weighted-average remaining lease term - operating leases | 2.6 Years | 3.6 Years | ||||||
| Weighted-average discount rate - operating leases | 8.0 | % | 8.0 | % | ||||
Maturities of lease liabilities due under the Company’s non-cancellable leases as of March 31, 2023 is as follows:
| Year Ending September 30, | March 31, 2023 | |||
| 2023 (excluding the 6 months ended March 31, 2023) | $ | 122,690 | ||
| 2024 | 249,024 | |||
| 2025 | 253,883 | |||
| 2026 | 21,460 | |||
| Total lease payments | 647,057 | |||
| Less: interest | (64,755 | ) | ||
| Present value of lease liabilities | $ | 582,302 | ||
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| Leases | Classification | March 31, 2023 | September 30, 2022 | |||||||
| Assets | ||||||||||
| Lease asset | Operating | $ | 552,205 | $ | 646,074 | |||||
| Total lease assets | $ | 552,205 | $ | 646,074 | ||||||
| Liabilities | ||||||||||
| Current | Operating | $ | 207,471 | $ | 196,989 | |||||
| Non-current | Operating | 374,831 | 481,245 | |||||||
| Total lease liabilities | $ | 582,302 | $ | 678,234 | ||||||
Interest expense on the lease liability was $25,543 and $32,792 for the six months ended March 31, 2023 and 2022, respectively.
6. GAIN ON SALE OF NEW JERSEY NET OPERATING LOSSES
The Company recognized a gain of $3,585,689 for the six months ended March 31, 2023 in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.
7. SUBSEQUENT EVENTS
On May 4, 2023, the Company entered into definitive agreements with certain healthcare-focused and institutional investors for the purchase of an aggregate of 12,500,001 shares of its common stock and accompanying warrants to purchase up to an aggregate of 12,500,001 shares of its common stock, at a purchase price of $1.20 per share and accompanying warrant in a registered direct offering. The warrants have an exercise price of $1.50 per share, will be exercisable six months from the date of issuance, and will expire five years from the date of issuance.
The closing of the offering occurred on May 8, 2023, in which the aggregate gross proceeds were $15.0 million before deducting the placement agent fees and other offering expenses payable by the Company.
The Company also issued 875,000 warrants to the placement agent as part of the transaction.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and six month periods ended March 31, 2023 should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements of Citius Pharmaceuticals, Inc. included in our Annual Report on Form 10-K for the year ended September 30, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements” on page ii of this Report.
Historical Background
We are a late-stage biopharmaceutical company dedicated to the development and commercialization of first-in-class critical care products with a focus on oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell therapies. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary.
On March 30, 2016, we acquired all of the outstanding stock of Leonard-Meron Biosciences, Inc. (“LMB”) by issuing shares of our common stock. We acquired identifiable intangible assets of $19,400,000 related to in-process research and development and recorded goodwill of $9,346,796 for the excess of the purchase consideration over the net assets acquired.
On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% of the issued and outstanding capital stock.
On August 23, 2021, we formed Citius Acquisition Corp., a wholly owned subsidiary, which began operations in April 2022.
In-process research and development of $19,400,000 represents the value of LMB’s drug candidate Mino-Lok, which is an antibiotic solution used to treat catheter-related bloodstream infections and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. Goodwill of $9,346,796 represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment. In-process research and development of $40,000,000 represents the value of our September 2021 acquisition of an exclusive license for I/ONTAK (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma and is expected to be amortized on a straight-line basis over a period of twelve years commencing upon revenue generation.
Through March 31, 2023, we have devoted substantially all our efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities relating to our proprietary products. We have not yet realized any revenues from our operations.
Patent and Technology License Agreements
Mino-Lok® - LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize Mino-Lok on an exclusive, worldwide sub-licensable basis, as amended. Since May 2014, LMB has paid an annual maintenance fee, which began at $30,000 and that increased over five years to $90,000, where it will remain until the commencement of commercial sales of a product subject to the license. LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties that increase in subsequent years. LMB must also pay NAT up to $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub licensees.
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Mino-Wrap - On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop Mino-Wrap as a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries. We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the FDA.
Under the license agreement, we paid a nonrefundable upfront payment of $125,000. We are obligated to pay an annual maintenance fee of $30,000, commencing in January 2020 that increases annually by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for filing, prosecution, and maintenance of all patents.
NoveCite – On October 6, 2020, our subsidiary NoveCite entered into a license agreement with Novellus Therapeutics Limited (“Novellus”), whereby NoveCite acquired an exclusive, worldwide license, with the right to sublicense, to develop and commercialize a stem cell therapy based on the Novelllus’s patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans. Upon execution of the license agreement, NoveCite paid an upfront payment of $5,000,000 to Novellus issued to Novellus shares of Novecite’s common stock representing 25% of NoveCite’s currently outstanding equity. We own the other 75% of NoveCite’s currently outstanding equity.
In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. (“Brooklyn”). Pursuant to this transaction, the NoveCite license was assumed by Brooklyn with all original terms and conditions. In October 2021, Brooklyn changed its name to Eterna Therapeutics Inc.
As part of the Novellus and Brooklyn merger transaction, the 25% non-dilutive position as per the subscription agreement between Novellus and NoveCite was removed.
Under the license agreement, NoveCite is obligated to pay Eterna up to an aggregate of $51,000,000 in regulatory and developmental milestone payments. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the first commercial sale of a licensed product. This royalty is subject to downward adjustment on a product-by-product and country-by-country basis to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) date on which a biosimilar product is first marketed, sold, or distributed by Novellus or any third party in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Novellus an amount equal to a mid-twenties percentage of any sublicensee fees it receives.
Under the terms of the license agreement, in the event that Eterna receives any revenue involving the original cell line included in the licensed technology, then Eterna shall remit to NoveCite 50% of such revenue.
I/ONTAK – In September 2021, the Company entered into a definitive agreement with Dr. Reddy’s to acquire its exclusive license of I/ONTAK (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma.
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Under the terms of this agreement, Citius acquired Dr. Reddy’s exclusive license of I/ONTAL from Eisai and other related assets owned by Dr. Reddy’s. Citius’s exclusive license rights include rights to develop and commercialize I/ONTAK in all markets except for Japan and certain parts of Asia. Additionally, Citius has an option on the right to develop and market the product in India. Eisai retains exclusive development and marketing rights for denileukin diftitox in Japan and Asia. Dr. Reddy’s received a $40 million upfront payment and is entitled to up to $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets, up to $70 million in development milestones for additional indications, as well as commercial milestone payments and low double-digit tiered royalties on net product sales. Eisai is to receive a $6 million development milestone payment upon initial approval and additional commercial milestone payments related to the achievement of net product sales thresholds. Eisai will be responsible for completing the current CTCL clinical trial, and chemistry, manufacturing, and controls (CMC) activities through the filing of a BLA for I/ONTAK with the FDA. Citius will be responsible for development costs associated with potential additional indications.
RESULTS OF OPERATIONS
Three months ended March 31, 2023 compared with the three months ended March 31, 2022
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||
| Revenues | $ | — | $ | — | ||||
| Operating expenses: | ||||||||
| Research and development | 4,726,855 | 3,452,210 | ||||||
| General and administrative | 4,792,850 | 3,117,417 | ||||||
| Stock-based compensation expense | 1,165,595 | 1,020,998 | ||||||
| Total operating expenses | 10,685,300 | 7,590,625 | ||||||
| Operating loss | (10,685,300 | ) | (7,590,625 | ) | ||||
| Interest income | 303,275 | 29,571 | ||||||
| Loss before income taxes | (10,382,025 | ) | (7,561,054 | ) | ||||
| Income tax expense | 144,000 | — | ||||||
| Net loss | $ | (10,526,025 | ) | $ | (7,561,054 | ) | ||
Revenues
We did not generate any revenues for the three months ended March 31, 2023 or 2022.
Research and Development Expenses
For the three months ended March 31, 2023, research and development expenses were $4,726,855 as compared to $3,452,210 during the three months ended March 31, 2022, an increase of $1,274,645.
Research and development costs for Mino-Lok increased by $143,461 to $1,050,093 for the three months ended March 31, 2023 as compared to $906,632 for the three months ended March 31, 2022, due primarily to increased costs associated with the addition of Biorasi, LLC (“Biorasi”), a global clinical research organization (CRO), to help expand the Company’s Phase 3 Mino-Lok trial to additional sites outside the United States.
Research and development costs for Halo-Lido increased by $1,258,672 to $1,962,572 for the three months ended March 31, 2023 as compared to $703,900 for the three months ended March 31, 2022 due to higher costs associated with the Phase 2b trial incurred in the three months ended March 31, 2023. On April 3, 2023, Citius announced that enrollment in the Phase 2b trial has been completed. Results of the study are anticipated by the end of the second quarter of 2023.
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Research and development costs for I/ONTAK were $1,402,908 during the three months ended March 31, 2023 as compared to $1,582,571 for the three months ended March 31, 2022. The $179,663 decrease in expenses was primarily due to the completion and filing of our BLA with the FDA in September 2022.
We expect that research and development expenses will stabilize in fiscal 2023 as we focus on the commercialization of I/ONTAK, and complete our Phase 3 trial for Mino-Lok and our Phase 2b trial for Halo-Lido.
General and Administrative Expenses
For the three months ended March 31, 2023, general and administrative expenses were $4,792,850 as compared to $3,117,417 during the three months ended March 31, 2022. General and administrative expenses increased by $1,675,433 in comparison with the prior period. The primary reasons for the increase were costs associated with pre-launch and market research activities associated with I/ONTAK General and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.
Stock-based Compensation Expense
For the three months ended March 31, 2023, stock-based compensation expense was $1,165,595 as compared to $1,020,998 for the three months ended March 31, 2022. For the three months ended March 31, 2023 and 2022, stock-based compensation includes $33,333 in expense for the NoveCite stock option plan. Stock-based compensation expense for the most recently completed quarter increased by $144,597 in comparison to the prior year period primarily due to new grants made to employees (including new hires), directors and consultants.
Other Income
Interest income for the three months ended March 31, 2023 was $303,275 as compared to interest income of $29,571 for the prior period. The increase is due to higher interest rates.
Income Taxes
The Company recorded deferred income tax expense of $144,000 for the three months ended March 31, 2023, related to the amortization for taxable purposes of its in-process research and development asset. There was no provision for income taxes for the three months ended March 31, 2022 due to the Company’s operating losses and the valuation reserve on deferred tax assets.
Net Loss
For the three months ended March 31, 2023, we incurred a net loss of $10,526,025, compared to a net loss for the three months ended March 31, 2022 of $7,561,054. The $2,964,971 increase in the net loss was primarily due to the increase of $1,274,645 in research and development expenses and an increase of $1,675,433 in general and administrative expenses.
Six months ended March 31, 2023 compared with the six months ended March 31, 2022
| Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | |||||||
| Revenues | $ | — | $ | — | ||||
| Operating expenses: | ||||||||
| Research and development | 8,172,370 | 8,910,059 | ||||||
| General and administrative | 7,396,137 | 6,014,166 | ||||||
| Stock-based compensation expense | 2,366,676 | 1,925,602 | ||||||
| Total operating expenses | 17,935,183 | 16,849,827 | ||||||
| Operating loss | (17,935,183 | ) | (16,849,827 | ) | ||||
| Interest income | 517,824 | 63,553 | ||||||
| Gain on sale of New Jersey net operating losses | 3,585,689 | — | ||||||
| Loss before income taxes | (13,831,670 | ) | (16,786,274 | ) | ||||
| Income tax expense | 288,000 | — | ||||||
| Net loss | $ | (14,119,670 | ) | $ | (16,786,274 | ) | ||
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Revenues
We did not generate any revenues for the six months ended March 31, 2023 or 2022.
Research and Development Expenses
For the six months ended March 31, 2023, research and development expenses were $8,172,370 as compared to $8,910,059 during the six months ended March 31, 2022, a decrease of $737,689.
Research and development costs for Mino-Lok increased by $335,463 to $2,217,748 for the six months ended March 31, 2023 as compared to $1,882,285 for the six months ended March 31, 2022, due primarily to increased costs associated with the addition of Biorasi, LLC (“Biorasi”), a global clinical research organization (CRO), to help expand the Company’s Phase 3 Mino-Lok trial to additional sites outside the United States.
Research and development costs for Halo-Lido increased by $1,029,621 to $2,731,098 for the six months ended March 31, 2023 as compared to $1,701,477 for the six months ended March 31, 2022 due to higher costs associated with the Phase 2b trial incurred in the six months ended March 31, 2023. On April 3, 2023, Citius announced that enrollment in the Phase 2b trial has been completed. Results of the study are anticipated by the end of the second quarter of 2023.
Research and development costs for I/ONTAK were $2,831,453 during the six months ended March 31, 2023 as compared to $4,520,365 for the six months ended March 31, 2022. The $1,688,912 decrease in expenses was primarily due to costs associated with the completed I/ONTAK phase 3 clinical trial which were incurred in the six months ended March 31, 2022.
We expect that research and development expenses will stabilize in fiscal 2023 as we focus on the commercialization of I/ONTAK, and complete our Phase 3 trial for Mino-Lok and our Phase 2b trial for Halo-Lido.
General and Administrative Expenses
For the six months ended March 31, 2023, general and administrative expenses were $7,396,137 as compared to $6,014,166 during the six months ended March 31, 2022. General and administrative expenses increased by $1,381,971 in comparison with the prior period. The primary reason for the increase were costs associated with pre-launch and market research activities associated with I/ONTAK. General and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.
Stock-based Compensation Expense
For the six months ended March 31, 2023, stock-based compensation expense was $2,366,676 as compared to $1,925,602 for the six months ended March 31, 2022. For the six months ended March 31, 2023 and 2022, stock-based compensation includes $66,666 in expense for the NoveCite stock option plan. Stock-based compensation expense for the most recently completed six months increased by $441,074 in comparison to the prior year period primarily due to new grants made to employees (including new hires), directors and consultants.
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Other Income
Interest income for the six months ended March 31, 2023 was $517,824 as compared to interest income of $63,553 for the prior period. The increase is due to higher interest rates.
Other income for the six months ended March 31, 2023 consists of the $3,585,689 gain recognized in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.
Income Taxes
The Company recorded deferred income tax expense of $288,000 for the six months ended March 31, 2023, related to the amortization for taxable purposes of its in-process research and development asset. There was no provision for income taxes for the six months ended March 31, 2022 due to the Company’s operating losses and the valuation reserve on deferred tax assets.
Net Loss
For the six months ended March 31, 2023, we incurred a net loss of $14,119,670, compared to a net loss for the six months ended March 31, 2022 of $16,786,274. The $2,666,604 decrease in the net loss was primarily due to the increase of $4,039,960 in other income offset by an aggregate increase in operating expenses of $1,085,356 and a $288,000 increase in income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Working Capital
Citius has incurred operating losses since inception and incurred a net loss of $14,119,670 for the six months ended March 31, 2023. At March 31, 2023, Citius had an accumulated deficit of $143,808,137. Citius’ net cash used in operations during the six months ended March 31, 2023 was $12,677,435.
As a result of the Company’s common stock offerings and common stock warrant exercises during the year ended September 30, 2021, the Company had working capital of approximately $28,700,000 at March 31, 2023. At March 31, 2023, Citius had cash and cash equivalents of $29,065,522 available to fund its operations. The Company’s primary sources of cash flow since inception have been from financing activities. Our primary uses of operating cash were for in-licensing of intellectual property, product development and commercialization activities, employee compensation, consulting fees, legal and accounting fees, insurance and investor relations expenses.
Based on our cash and cash equivalents at March 31, 2023, and after giving effect to the closing of our registered direct offering on May 8, 2023, in which we raised gross proceeds of $15,000,000, we expect that we will have sufficient funds to continue our operations through May 2024. We expect to need to raise additional capital in the future to support our operations beyond May 2024. There is no assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in an amount or in a timely manner to support our operations.
Inflation
Our management believes that inflation has not had a material effect on our results of operations.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the reporting periods. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
Our critical accounting policies and use of estimates are discussed in, and should be read in conjunction with, the annual consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 filed with the SEC.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Our Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer and principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2023. In designing and evaluating disclosure controls and procedures, we recognize that any disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective. As of March 31, 2023, based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Changes In Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There has been no change in the Company’s risk factors since the Company’s Form 10-K filed with the SEC on December 22, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 27, 2023, we issued 100,000 shares of our common stock to a consultant for investor relations services pursuant to the agreed upon compensation terms in the consulting agreement with the entity. The issuance of the shares was exempt from registration under Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| 10.1 | Patent and Technology License Agreement, dated May 14, 2014, between Novel Anti-Infective Technologies, LLC and Leonard-Meron Biosciences, Inc.*+ | |
| 31.1 | Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a).* | |
| 31.2 | Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a).* | |
| 32.1 | Certification of the Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.* | |
| EX-101.INS | Inline XBRL Instance Document* | |
| EX-101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| EX-101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| EX-101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| EX-101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| EX-101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| EX-104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| + | Portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CITIUS PHARMACEUTICALS, INC. | ||
| Date: May 12, 2023 | By: | /s/ Leonard Mazur |
| Leonard Mazur | ||
| Chief
Executive Officer (Principal Executive Officer) | ||
| Date: May 12, 2023 | By: | /s/ Jaime Bartushak |
| Jaime Bartushak | ||
| Chief
Financial Officer (Principal Financial and Accounting Officer) | ||
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Exhibit 10.1
Information in this exhibit marked [*] has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such information is not material and is the type of information that the registrant treats as private or confidential.
PATENT AND TECHNOLOGY LICENSE AGREEMENT
This AGREEMENT (“AGREEMENT”) is made on this 14th day of May, 2014, by and between Novel Anti-Infective Technologies, LLC, a limited liability corporation organized and existing under the laws of the State of Texas and having a principal place of business located at 4207 Clearwater Ct., Missouri City, TX 77459 (“LICENSOR”) and Leonard-Meron Biosciences, Inc., a Delaware corporation having a principal place of business located 11 Commerce Drive, First Floor, Cranford, NJ 07016 (“LICENSEE”).
RECITALS
| A. | LICENSOR obtained, pursuant to a Patent and Technology License Agreement dated as of May 7, 2014 (the “SYSTEM LICENSE AGREEMENT”), certain patent and technology rights from THE BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (“UTMDACC”), a member institution of SYSTEM. |
| B. | LICENSOR desires to have the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, BOARD, SYSTEM, UTMDACC, the inventor(s), and the public as outlined in BOARD’s Intellectual Property Policy. |
| C. | LICENSEE wishes to obtain a license from LICENSOR to practice LICENSED SUBJECT MATTER in the LICENSED FIELD. |
NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:
I. EFFECTIVE DATE
| 1.1 | This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”) which is the date fully executed by all parties. |
II. DEFINITIONS
As used in this AGREEMENT, the following terms have the meanings indicated:
| 2.1 | AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE. |
| 2.2 | INDIVIDUAL PRODUCT means a LICENSED PRODUCT that is distinctive from another LICENSED PRODUCT in a significant way, e.g., more than just a variation in color or size. By way of example, and not by way of limitation, if two LICENSED PRODUCTS require individual REGULATORY APPROVAL (excluding products that differ only in color, dosage and size) each shall be considered a different INDIVIDUAL PRODUCT. By way of further example, if two LICENSED PRODUCTS have substantially different, non-overlapping uses, each shall be considered a different INDIVIDUAL PRODUCT. If a LICENSED PRODUCT is determined to be a new INDIVIDUAL PRODUCT under the SYSTEM LICENSE AGREEMENT such determination shall govern for the purposes of this AGREEMENT. |
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| 2.3 | LICENSED FIELD means the field of use identified in Exhibit 2. |
| 2.4 | LICENSED PRODUCT(S) means any product or service sold by LICENSEE or its AFFILIATES or their sublicensees comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT. For clarity, LICENSED PRODUCTS will include such product and services sold in any jurisdiction in the TERRITORY even if no PATENT RIGHTS exist or are pending in that jurisdiction. |
| 2.5 | LICENSED SUBJECT MATTER means the inventions and discoveries covered by the PATENT RIGHTS or TECHNOLOGY RIGHTS within the LICENSED FIELD. |
| 2.6 | LICENSED TERRITORY means worldwide excluding only South America. |
| 2.7 | [RESERVED.] |
| 2.8 | NET SALES means the gross revenues received by LICENSEE or its AFFILIATES or sublicensees from a SALE, less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed, and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount), all as recorded by LICENSEE or its AFFILIATES or their sublicensees in their official books and records in accordance with generally accepted accounting practices and consistent with their published financial statements and/or regulatory filings with the United States Securities and Exchange Commission, if any. For clarity, it is understood and agreed that, with respect to NET SALES of a LICENSED PRODUCT made by a sublicensee or AFFILIATE (or by a sublicensee or AFFILIATE) to a third party, the “gross revenue” figure referenced above (for purposes of calculating the amount of NET SALES subject to the royalties specified in Section 4.1(d) below) shall be the greater of: (1) the gross revenue received by LICENSEE from the sublicensee, AFFILIATE or distributor for the transfer of such LICENSED PRODUCT to the sublicensee, or AFFILIATE for resale; or (2) the gross revenue received by such sublicensee, or AFFILIATE from such third party for the transfer or disposition of such LICENSED PRODUCT to the third party. If a LICENSED PRODUCT is SOLD by LICENSEE, a sublicensee, or an AFFILIATE of either, to a distributor in which LICENSEE, any sublicensee or an AFFILIATE of either has any economic interest, including but not limited to equity or debt, or with which any of them have any other agreement, then any SALE by such distributor shall be deemed to be a SALE by such LICENSEE, sublicensee or AFFILIATE for purposes of this AGREEMENT. |
| 2.9 | PATENT RIGHTS means BOARD's and LICENSOR’s rights in the information or discoveries described in invention disclosures, or claimed in any patents and/or patent applications, whether domestic or foreign, as identified in Exhibit 1 attached hereto, and all divisionals, continuations, continuations-in-part (to the extent the claims of such continuations-in-part are entitled to claim priority to the aforesaid patents and/or patent applications identified in Exhibit 1), reissues, reexaminations, extensions or foreign counterparts of the patents and/or patent applications identified in Exhibit 1, and any letters patent, domestic or foreign that issue thereon. |
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| 2.10 | REGULATORY APPROVAL means the approval required by the United States Food and Drug Administration (“FDA”) in the United States (or the equivalent regulatory agency or governmental authority for any country other than the United States) to market and sell a LICENSED PRODUCT for human use in the applicable country. |
| 2.11 | REGULATORY APPROVAL FILING means the filing or submission to the FDA (or equivalent regulatory agency or governmental authority for a country other than the United States) necessary to get REGULATORY APPROVAL to market and sell a LICENSED PRODUCT for human use in the applicable country, including, but not limited to, an IDE, 510K or IND application filed with/submitted to the FDA in the United States, or an equivalent filing or submission to an equivalent regulatory agency or governmental authority for a country other than the United States. For clarity, “REGULATORY APPROVAL FILING” means the filing or submission itself, and does not mean the actual approval which may ultimately be granted by the regulatory agency or governmental authority to actually market and sell a LICENSED PRODUCT for human use. |
| 2.12 | ROYALTY EXPIRATION DATE means the date that all patents within the PATENT RIGHTS have expired and all patent applications within the PATENT RIGHTS have been cancelled, withdrawn or expressly abandoned. |
| 2.13 | SALE or SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE or a ROYALTY-FREE PRACTITIONER. As used herein, “ROYALTY-FREE PRACTITIONER” means UTMDACC and the following individuals: Issam I. Raad, M.D. and Hend Hanna, M.D. (“PHYSICIAN INVENTORS”), and any partner or associate who practices medicine with one or more of the PHYSICIAN INVENTORS, but with respect to such partner or associate, only for such time as he/she is engaged in a bona fide medical practice with one or more of the PHYSICIAN INVENTORS. Notwithstanding the foregoing, the term “SALE” or “SOLD” shall not include transfers or dispositions of LICENSED PRODUCTS to third parties for no or nominal consideration in order to perform such clinical trials as are reasonably required to obtain the regulatory approval necessary to sell a LICENSED PRODUCT. In addition, the term “SALE” or “SOLD” shall not include transfer or disposition of a LICENSED PRODUCT for value to a sublicensee or AFFILIATE, unless the sublicensee or AFFILIATE is the end user of such LICENSED PRODUCT. |
| 2.14 | SUBLICENSING CONSIDERATION means all consideration (unless specifically excepted, below) received by LICENSEE from any sublicensee in consideration of a sublicense pursuant to Section 3.3 hereinbelow, including but not limited to, up-front payments, marketing, distribution, franchise, option, license, or documentation fees, assignment fees, bonus fees, equity, and milestone payments for milestones other than those milestones requiring a payment under Section 4.1(f) herein. SUBLICENSING CONSIDERATION shall not include patent fees paid by a sublicensee to LICENSEE as reimbursement for specific, identified patent expenses previously paid, or to be paid, by LICENSEE to LICENSOR or UTMDACC pursuant to an invoice sent to LICENSEE in accordance with Section 4.1(a), below, provided that LICENSEE has paid the amount owing under such invoice. In addition, SUBLICENSING CONSIDERATION shall not include funds paid by a sublicensee for future research to be performed by LICENSEE relating to LICENSED SUBJECT MATTER if: (a) the respective sublicense agreement expressly states that such funds are for research covering the LICENSED SUBJECT MATTER to be performed by LICENSEE after the actual date of signatory execution of the sublicense agreement; and (b) LICENSEE does in fact perform such research after execution of, and in accordance with, the sublicense agreement. For the avoidance of doubt, LICENSEE shall not deduct from SUBLICENSING CONSIDERATION: (1) any amounts received from a sublicensee as reimbursement or recoupment of research expenses incurred by LICENSEE before the actual date of full execution of the sublicense agreement by all parties thereto; (2) any overhead or indirect costs for research described in subparts (a) and (b) above; or (3) any payments by a sublicensee for LICENSEE’s achievement of research or similar milestone events. Notwithstanding anything in this Agreement to the contrary, SUBLICENSING CONSIDERATION will exclude any royalty revenue and other payments made to LICENSEE based on SALES. |
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| 2.15 | TECHNOLOGY RIGHTS means BOARD's and LICENSOR’s rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data created by the inventor(s) listed in Exhibit 1 at UTMDACC before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS. |
| 2.16 | VALID CLAIM means a claim of: (a) any issued, unexpired patent that has not been withdrawn, abandoned, canceled or disclaimed, or revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and that has not been disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise; or (b) any pending patent application that that has not been cancelled, withdrawn, abandoned or finally disallowed without the possibility of appeal or refilling, and that has not been pending for more than ten (10) years from the application’s file date. For purposes of clarification, if a claim in an application has been pending for more than ten (10) years from the application’s file date, and a patent subsequently issues on such application containing such claim, then upon the earlier of allowance of the claim (or issuance of the patent containing such claim, the claim shall thereafter be considered a VALID CLAIM. |
III. LICENSE
| 3.1 | LICENSOR hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within the LICENSED TERRITORY for use within LICENSED FIELD. This grant is subject to the payment by LICENSEE to LICENSOR of all consideration as provided herein (on the due date, or prior to the expiration of any cure period, if applicable), and is further subject to the following rights retained by BOARD and UTMDACC to: |
| (a) | Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of ARTICLE XI–Confidential Information and Publication; and |
| (b) | Use LICENSED SUBJECT MATTER for research, teaching, patient care, and other academically-related purposes; and |
| (c) | Transfer LICENSED SUBJECT MATTER to academic or research institutions for non-commercial research use. |
| 3.2 | LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE. LICENSEE agrees to deliver such contract to LICENSOR within thirty (30) calendar days following execution thereof. |
| 3.3 | LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER consistent with the terms of this AGREEMENT, provided that LICENSEE shall use all commercially reasonable efforts to diligently enforce the sublicenses including, but not limited to, collecting all amounts due LICENSEE from sublicensees and taking all commercially reasonable steps to terminate any sublicense in which the sublicensee is in default on any payments owed or any other material obligations existing thereunder. If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its commercially reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction. |
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| 3.4 | LICENSEE must deliver to LICENSOR a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination. |
| 3.5 | If this AGREEMENT is terminated pursuant to ARTICLE XIII-Term and Termination, LICENSOR agrees to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all of the terms and conditions of the SYSTEM LICENSE AGREEMENT. |
IV. LICENSE CONSIDERATION, PAYMENTS AND REPORTS
| 4.1 | In consideration of rights granted by LICENSOR to LICENSEE under this AGREEMENT, LICENSEE agrees to pay LICENSOR the following: |
| (a) | All out-of-pocket expenses LICENSOR is required to pay to or on behalf of UTMDACC in filing, prosecuting, enforcing and maintaining PATENT RIGHTS, and all such future expenses paid to or on behalf of UTMDACC, for so long as, and in such countries as this AGREEMENT remains in effect (“PATENT EXPENSES”). LICENSOR will invoice LICENSEE after the AGREEMENT has been fully executed by all parties for expenses incurred as of that time and on a quarterly basis thereafter. The invoiced amounts will be due and payable by LICENSEE within thirty (30) calendar days of the receipt of the invoice. Upon written request, LICENSOR shall provide LICENSEE with documentation of out-of-pocket expenses with respect to a particular invoice or invoices. Notwithstanding the foregoing, in the event that there are multiple licensees of an issued patent or a proposed or pending patent application within the PATENT RIGHTS (i.e., additional licensees to such patent or such proposed or pending patent application in other fields of use), then LICENSEE shall be obligated to pay only a pro rata share of the PATENT EXPENSES attributable to that patent or proposed or pending patent application. The pro rata share shall be calculated based on the total amount of PATENT EXPENSES attributable to that issued patent or proposed or pending patent application divided by the total number of licensees with active licenses to the patent or the proposed or pending patent application. At the time LICENSEE is sent an invoice for PATENT EXPENSES, LICENSOR shall notify LICENSEE of the total number of active licensees to such patents or proposed or pending patent applications for which such PATENT EXPENSES were incurred and shall specify the pro rata amount owed by LICENSEE for each, as applicable. In the event additional licensees to a patent or a proposed or pending patent application are added after LICENSEE has paid an invoice, LICENSEE shall not be entitled to a refund of any past payments for PATENT EXPENSES. However, the pro rata amount of prospective payments due to LICENSOR by LICENSEE for PATENT EXPENSES attributable to a patent or a proposed or pending patent application under this AGREEMENT shall be adjusted to reflect the total number of licensees with active licenses to such patent or proposed or pending patent application. It is understood and agreed that in the event that a license to an additional licensee is terminated, LICENSEE’s pro rata share of PATENT EXPENSES will increase, and shall be calculated based on the total unpaid amount owed to LICENSOR for PATENT EXPENSES attributable to that patent or patent application divided by the total number of licensees with active licenses to such patent or patent application. For clarity, if LICENSEE is the only licensee of a patent or a proposed or pending patent application within the PATENT RIGHTS, LICENSEE shall be responsible for all PATENT EXPENSES attributable to such patent or proposed or pending patent application; and |
| (b) | A nonrefundable license fee in the amount of $325,000. This fee will not reduce the amount of any other payment provided for in this ARTICLE IV, and is due and payable (with invoice) within thirty (30) calendar days after the AGREEMENT has been fully executed by all parties. This license fee is not subject to the forty-five (45) day cure period set forth in Section 13.4(b); and |
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| (c) | The following nonrefundable annual maintenance fees (“Annual Maintenance Fee(s)”) due and payable (without invoice) within thirty (30) calendar days of the applicable anniversary of the EFFECTIVE DATE until the first SALE as follows: |
| (1) | $30,000 due and payable within thirty (30) calendar days of the first anniversary of the EFFECTIVE DATE; and |
| (2) | $45,000 due and payable within thirty (30) calendar days of the second anniversary of the EFFECTIVE DATE; and |
| (3) | $50,000 due and payable within thirty (30) calendar days of the third anniversary of the EFFECTIVE DATE; and |
| (4) | $75,000 due and payable within thirty (30) calendar days of the fourth anniversary of the EFFECTIVE DATE; and |
| (5) | $90,000 due and payable within thirty (30) calendar days of the fifth and each subsequent anniversary of the EFFECTIVE DATE until the first SALE; and |
| (6) | for the year in which the first SALE occurs, a pro-rated portion of the Annual Maintenance Fee will be paid within thirty (30) calendar days of SALE which equals the percentage of the year remaining when the first SALE occurs multiplied by $90,000; provided that this final Annual Maintenance Fee will be credited against running royalties; and |
| (d) | A running royalty on NET SALES of LICENSED PRODUCTS, said royalty rate being calculated as follows on a per annum basis. As used in this Section 4.1(d), “per annum” means per each one year period commencing on each anniversary of the EFFECTIVE DATE: |
| (1) | For LICENSED PRODUCTS, the royalty rate shall be [*]% of NET SALES of LICENSED PRODUCTS. |
| (2) | In the event a LICENSED PRODUCT sold in the United States is not covered by a VALID CLAIM in the United States at the time of SALE, then LICENSEE may reduce the royalty rates specified in subsection (1) above from [*]% of NET SALES to [*]% of NET SALES of LICENSED PRODUCTS. |
| (3) | In the event a LICENSED PRODUCT sold in a country other than the United States is not covered by a VALID CLAIM in such country of SALE at the time of such SALE, then LICENSEE may reduce the royalty rates specified in subsection (1) above from [*]% of NET SALES to [*]% of NET SALES of LICENSED PRODUCTS. |
| (4) | In addition, with respect to NET SALES of LICENSED PRODUCTS that are not covered by a VALID CLAIM in the country of SALE at the time of SALE, if an unrelated third party (e.g., an independent third party who is not a sublicensee of or otherwise authorized by LICENSEE, any AFFILIATE, sublicensee or other entity owned or controlled by LICENSEE to make such SALE) is selling a competing product in that country that is the same or substantially the same as the LICENSED PRODUCT being sold by LICENSEE in such country and such unrelated third party sales of the competing product in that country accounts for [*] percent ([*]%) or more of aggregate sales of the LICENSED PRODUCT and competing product in such country in the preceding six (6) month period, then the running royalty in such country for such LICENSED PRODUCT shall thereafter be reduced to [*]% of NET SALES for so long as no VALID CLAIM exists, and such third party competition persists, in such country. |
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| (e) | After the first SALE of any LICENSED PRODUCT, minimum aggregate annual royalties (“Minimum Annual Royalty”) due and payable (without invoice) within thirty (30) calendar days of the first and subsequent anniversaries of the EFFECTIVE DATE which follow the first SALE as follows: |
| (1) | $100,000 due and payable within thirty (30) calendar days of the first anniversary of the EFFECTIVE DATE which follows the first SALE, provided, however, that in the event that there is less than a twelve (12) month period between the first SALE, and the first anniversary of the EFFECTIVE DATE which follows the first SALE, then LICENSEE shall pay the following as the Minimum Annual Royalty on the first anniversary of the EFFECTIVE DATE which follows the first SALE: (1) the Annual Maintenance Fee due for that year multiplied by the fraction, A/C, where A is the number of months between the anniversary of the EFFECTIVE DATE preceding the first SALE, and the first SALE, and C is twelve (12); and (2) the Minimum Annual Royalty multiplied by the fraction, B/C, where B is the number of months between the first SALE, and the first anniversary of the EFFECTIVE DATE which follows the first SALE, C is twelve (12), and A + B = twelve (12); and |
| (2) | Thereafter, Minimum Annual Royalty shall increase by $25,000 per year up to a maximum of $150,000 (i.e., $125,000 shall be due and payable within thirty (30) calendar days of the second anniversary of the EFFECTIVE DATE which follows the first SALE; $150,000 shall be due and payable within thirty (30) calendar days of the third anniversary of the EFFECTIVE DATE which follows the first SALE, and every anniversary occurring thereafter. |
Payments actually made to LICENSOR for running royalties accruing during the one year period preceding an anniversary of the EFFECTIVE DATE pursuant to Sections 4.1(d) and 4.1(i) may be credited against the Minimum Annual Royalty due on that anniversary date; and
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| (f) | The following milestone payments, due and payable one time for the first achievement of each milestone for each INDIVIDUAL PRODUCT, regardless of whether the milestone is achieved by LICENSEE, a sublicensee or AFFILIATE and regardless of whether such milestone is subsequently achieved multiple times for an INDIVIDUAL PRODUCT: |
| (1) | Acceptance by the FDA of a REGULATORY APPROVAL FILING submitted by LICENSEE, its AFFILIATES or SUBLICENSEES: $[*]; |
| (2) | first SALE of a LICENSED PRODUCT by LICENSEE, its AFFILIATES or SUBLICENSEES in the United States following REGULATORY APPROVAL: $[*] |
| (3) | cumulative NET SALES of a LICENSED PRODUCT in the U.S. exceed $[*]: [*] |
| (4) | REGULATORY APPROVAL in Japan with respect to REGULATORY APPROVAL FILING submitted by LICENSEE, its AFFILIATES or SUBLICENSEES: $[*]; |
| (5) | REGULATORY APPROVAL in EMEA with respect to REGULATORY APPROVAL FILING submitted by LICENSEE, its AFFILIATES or SUBLICENSEES: $[*]; and |
| (6) | REGULATORY APPROVAL in any one of the following: Canada, Australia, India, China, Taiwan, South Korea, Brazil or Russian, with respect to REGULATORY APPROVAL FILING submitted by LICENSEE, its AFFILIATES or SUBLICENSEES: $[*] |
| (7) | cumulative NET SALES of LICENSED PRODUCTs exceed $[*]: $[*] |
| (8) | cumulative NET SALES of LICENSED PRODUCTs exceed $[*]: $[*] |
Each of the foregoing milestone payments shall be made within thirty (30) calendar days of achievement of the applicable milestone. LICENSEE shall specify with each milestone payment the applicable milestone to which the payment pertains. The foregoing milestone payments shall not reduce the amount of any other payment provided for in this ARTICLE IV; and
| (g) | The following percentages of all SUBLICENSING CONSIDERATION, as defined above, will be calculated based on the status of REGULATORY APPROVAL and/or SALE of LICENSED PRODUCTS for which the SUBLICENSING CONSIDERATION is paid: |
| (1) | [*]% of all SUBLICENSING CONSIDERATION received for United States rights on or after the EFFECTIVE DATE but prior to the earlier of: (a) the first acceptance of a REGULATORY APPROVAL FILING in the United States by the applicable regulatory agency or governmental authority for a LICENSED PRODUCT; or (b) the first SALE of a LICENSED PRODUCT in the United States; and |
| (2) | [*]% of all SUBLICENSING CONSIDERATION received for United States rights on or after the earlier of: (a) the first acceptance of a REGULATORY APPROVAL FILING in the United States by the applicable regulatory agency or governmental authority for a LICENSED PRODUCT; or (b) the first SALE of a LICENSED PRODUCT in the United States; and |
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| (3) | [*]% of all SUBLICENSING CONSIDERATION received for rights outside the United States on or after the EFFECTIVE DATE but prior to the earlier of: (a) the first acceptance of a REGULATORY APPROVAL FILING outside the United States by the applicable regulatory agency or governmental authority for a LICENSED PRODUCT; (b) the first SALE of a LICENSED PRODUCT outside the United States or (c) 18 months from the Effective Date; and |
| (4) | [*]% of all SUBLICENSING CONSIDERATION received for rights outside the United States on or after the earlier of: (a) the first acceptance of a REGULATORY APPROVAL FILING outside the United States by the applicable regulatory agency or governmental authority for a LICENSED PRODUCT; (b) the first SALE of a LICENSED PRODUCT outside the United States or (c) 18 months from the Effective Date; and |
| (h) | a one-time Assignment Fee (in consideration for LICENSOR allowing the assignment), due and payable prior to any permitted assignment of this AGREEMENT pursuant to Section 12.1 below, in the amount of $[*]. Nothing in this Section 4.1(h) shall be construed as relieving LICENSEE of its obligations under Section 12.1, below, to obtain any necessary consent prior to assignment; and |
| 4.2 | Unless otherwise provided, all such payments are payable (without invoice) within thirty (30) calendar days after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to LICENSOR a true and accurate report, giving such particulars of the business conducted by LICENSEE, its AFFILIATES and its sublicensees, if any exist, during the preceding three (3) calendar months under this AGREEMENT as necessary for LICENSOR to account for LICENSEE's payments hereunder. This report will include pertinent data required to calculate the payments owed hereunder, including, but not limited to: |
| (a) | the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and |
| (b) | a list of LICENSED PRODUCTS produced for the three (3) preceding calendar months categorized by the INDIVIDUAL PRODUCT and country of sale; and |
| (c) | the total quantities of LICENSED PRODUCTS, itemized by the categories listed in Section 4.2(b); and |
| (d) | the total SALES, itemized by the categories listed in Section 4.2(b), and the calculation of NET SALES, showing the gross revenues and all deductions; and |
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| (e) | the royalties computed and due LICENSOR, itemized by the categories listed in Section 4.2(b), and/or minimum royalties; and |
| (f) | all consideration received from each sublicensee or assignee, itemized by the categories listed in Section 4.2(b) to the extent applicable, and the calculation of all payments due LICENSOR; and |
| (g) | all other amounts due LICENSOR herein, and an explanation as to how such amounts were calculated. |
Simultaneously with the delivery of each such report, LICENSEE agrees to pay LICENSOR the amount due, if any, for the period of such report. These reports are required after the first SALE or first receipt of consideration from a sublicensee or assignee, even if no payments are due. In addition, upon written request from LICENSOR, LICENSEE shall provide such quarterly reports prior to the first SALE.
| 4.3 | During the term of this AGREEMENT and for one (1) year thereafter, LICENSEE agrees to keep complete and accurate records of its and its AFFILIATES' SALES and NET SALES, SUBLICENSING CONSIDERATION and its sublicensees’ SALES and NET SALES, in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit LICENSOR or its representatives, at LICENSOR 's expense, to examine LICENSEE’s books, ledgers, and records during regular business hours, and upon reasonable notice, for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. Such examination shall be conducted no more frequently than once every twelve (12) months. If any amounts due LICENSOR are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate. |
| 4.4 | Within thirty (30) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to LICENSOR a written progress report as to LICENSEE's (and any sublicensee’s) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and LICENSEE's (and sublicensees') commercialization plans for the upcoming year. |
| 4.5 | All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind. |
V. RESEARCH
| 5.1 | LICENSOR will provide research services in the form of: (i) review and comment on the candidates for the Phase III clinical studies sponsored by LICENSEE for a Licensed Product (the “STUDIES”), (ii) consultation with regard to the conduct of the STUDIES and (iii) reviewing and providing comments and supplementary analysis of the results of the STUDIES (collectively, the “SERVICES”). As consideration for the performance of the SERVICES, LICENSEE will pay LICENSOR (i) $50,000.00 within thirty (30) days of the EFFECTIVE DATE; and (ii) $1,300.00 per patient enrolled in the STUDIES for which SERVICES are provided after the date hereof, up to a maximum of $450,000.00 The amount due per patient shall be determined and paid on July 1 and December 31 of each year. LICENSEE will provide LICENSOR the opportunity to provide the SERVICES with respect to all patients enrolled in the STUDIES after the date hereof. If the STUDIES are interrupted or halted for any reason, and then later restarted or alternative STUDIES are commenced, the payments shall immediately resume for the SERVICES provided. For the avoidance of doubt, no fees shall be due for any STUDY for which LICENSOR does not provide SERVICES. If LICENSEE breaches any of the foregoing payment obligations, and such breach is not cured within forty-five (45) days of receiving notice of such breach from LICENSOR, then LICENSOR may immediately terminate this AGREEMENT by giving written notice to LICENSEE. |
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LICENSEE has expressed an interest in possibly licensing additional anti-microbial technologies that LICENSOR has licensed under the SYSTEM LICENSE AGREEMENT. Any funds provided to LICENSOR pursuant to this Section that are not used to furnish the SERVICES related to the STUDIES shall be used by LICENSOR to conduct research on such other technologies. Provided, however, LICENSEE shall not be deemed to have any rights with respect to such technologies or potential license.
VI. PATENTS AND INVENTIONS
| 6.1 | The SYSTEM LICENSE grants UTMDACC the power to prosecute, and maintain the PATENT RIGHTS. LICENSOR will take reasonable action to require UTTMDACC to prosecute and maintain the PATENT RIGHTS pursuant to the SYSTEM LICENSE. LICENSEE will pay the out-of-pocket costs of searching, preparing, filing, prosecuting and maintaining patents and patent applications within the PATENT RIGHTS in accordance with Section 4.1(a), above. If LICENSEE notifies LICENSOR that it does not intend to pay the cost of filing, prosecuting or maintaining a patent application or patent included in the PATENT RIGHTS, or if LICENSEE fails to promptly confirm its intent to pay the cost of filing, prosecuting or maintaining a patent application or patent included in the PATENT RIGHTS upon inquiry from LICENSOR, or if LICENSEE is in arrears on any expense payments due under Section 4.1(a), then LICENSOR may elect to file, not file, continue prosecution or maintenance, or abandon such patent application or patent at its own expense without further notice to LICENSEE. In the event LICENSOR files or continues prosecution or maintenance of such patent application or patent at its expense, then LICENSEE’s rights to such patent application or patent under this AGREEMENT shall terminate in its entirety. With respect to those patent applications for which LICENSEE is paying costs (e.g., costs of preparation, filing and prosecution), LICENSOR will instruct its patent prosecution counsel to: provide LICENSEE with a copy of such patent application and all material documents received or filed during prosecution thereof; and provide copies of all material documents prepared by patent prosecution counsel for submission to governmental patent offices to LICENSEE for review and comment prior to filing, to the extent practicable under the circumstances. LICENSEE may at its own cost, provide comments to LICENSOR as to wording of claims, and responses to office actions prior to their submission to the appropriate patent office. LICENSOR shall consider comments made by LICENSEE regarding prosecution of the PATENT RIGHTS in good faith, but shall not be required to implement them. The parties agree that they share a common legal interest to get valid enforceable patents and that LICENSEE will keep all privileged information received pursuant to this Section confidential. LICENSOR agrees that to the extent UTMDACC controls the filings, prosecution or maintenance of patents and patent applications included in the PATENT RIGHTS, LICENSOR will be responsible for ensuring UTMDACC complies with the provisions of this Section applicable to such patents and patent applications. |
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VII. INFRINGEMENT BY THIRD PARTIES
| 7.1 | LICENSEE, at its expense, shall have the first option to enforce LICENSOR’s rights in any patent exclusively licensed hereunder against infringement by third parties in the LICENSED FIELD and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay LICENSOR 20% of any recovery (whether the award is for lost profits, a reasonable royalty, or another measure of damages). LICENSEE must notify LICENSOR in writing of any potential infringement in the LICENSED FIELD within thirty (30) calendar days of knowledge thereof. If LICENSEE does not file suit against a substantial infringer of an exclusively licensed patent in the LICENSED FIELD (or otherwise cause such substantial infringer to cease all infringing activities to LICENSOR’s reasonable satisfaction) within six (6) months of knowledge thereof, then LICENSOR may, at its sole discretion, enforce any patent licensed hereunder on behalf of itself and LICENSEE, with LICENSOR retaining 80% all recoveries from such enforcement and paying 20% to LICENSEE. |
| 7.2 | In any suit or dispute involving an infringer pursuant to Section 7.1, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession. |
VIII. PATENT MARKING
| 8.1 | LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and, when possible, actual LICENSED PRODUCT(S) sold by LICENSEE, AFFILIATES, and/or sublicensees of LICENSEE will be appropriately marked with the number of any applicable patent(s) licensed hereunder in accordance with each country's patent laws, including Title 35, United States Code, to the extent such marking is necessary or required to fully preserve PATENT RIGHTS in each such country. |
IX. INDEMNIFICATION, INSURANCE AND
REPRESENTATIONS AND WARRANTIES
| 9.1 | LICENSEE agrees to hold harmless and indemnify LICENSOR, its officers, employees, directors and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those arising under the SYSTEM LICENSE and those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from, the exercise or practice of the rights granted hereunder by LICENSEE, its SUBLICENSEES, its AFFILIATES or any of their officers, employees, agents or representatives, provided however that the following is excluded from LICENSEE’s obligation to indemnify and hold harmless: (a) the negligent failure of LICENSEE to substantially comply with any applicable governmental requirements; (b) the negligence or willful malfeasance by LICENSEE, its officers, agents, directors or employees; (c) licenses, research agreements, evaluation agreements, material transfer agreements, confidentiality agreements, inter-institutional agreements and other agreements entered into by LICENSOR, the BOARD or UTMDACC that relate to the LICENSED SUBJECT MATTER, PATENT RIGHTS TECHNOLOGY RIGHTS and/or antimicrobial/antiseptic/antibacterial devices, compositions and processes created by Dr. Raad, individually and with others; (d) Great Lakes Pharmaceuticals, Inc; or (e) any breach of its representations warranties or covenants herein. |
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| 9.2 | LICENSOR agrees to hold harmless and indemnify LICENSEE, its officers, employees, directors and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from (i) licenses, research agreements, evaluation and material transfer agreements, material transfer agreements, confidentiality agreements, inter-institutional agreements and other agreements entered into by LICENSOR, the BOARD or UTMDACC that relate to the LICENSED SUBJECT MATTER, PATENT RIGHTS TECHNOLOGY RIGHTS and/or antimicrobial/antiseptic/antibacterial devices, compositions and processes created by Dr. Raad, individually and with others; (ii) Great Lakes Pharmaceuticals, Inc or (iii) any breach of its representations warranties or covenants herein. |
| 9.3 | IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR EXPECTED SAVINGS OR OTHER ECONOMIC LOSSES, OR FOR INJURY TO PERSONS OR PROPERTY) ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER EITHER PARTY KNOWS OR SHOULD KNOW OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATION SHALL NOT LIMIT LICENSEE’S OBLIGATIONS UNDER SECTION 9.1 WITH RESPECT TO CLAIMS, DEMANDS AND CAUSES OF ACTION ARISING WITH RESPECT TO THE SYSTEM LICENSE. |
| 9.4 | Beginning at the time when any LICENSED SUBJECT MATTER is being distributed or sold for use in or by humans (including for the purpose of obtaining regulatory approvals) by LICENSEE, an AFFILIATE, or by a sublicensee, LICENSEE (directly, or indirectly through a sublicensee) shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $5,000,000 annual aggregate, and LICENSEE shall use reasonable efforts to have the LICENSEE, the Board of Regents of the University of Texas System, the University of Texas System, the University of Texas M. D. Anderson Cancer Center, their Regents, officers, employees, students and agents, named as an additional insured. Such commercial general liability insurance shall provide: (i) product liability coverage; (ii) broad form contractual liability coverage for LICENSEE's indemnification under this AGREEMENT; and (iii) coverage for litigation costs. The minimum amounts of insurance coverage required herein shall not be construed to create a limit of LICENSEE's liability with respect to its indemnification under this AGREEMENT. For clarity, LICENSEE will have been deemed to comply with this Section 9.3 if a sublicensee procures the insurance as described above on behalf of LICENSEE in full compliance with all the provisions of this Section. |
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| 9.5 | LICENSEE shall provide LICENSOR with written evidence of such insurance within thirty (30) calendar days of its procurement. Additionally, LICENSEE shall provide LICENSOR with written notice of at least fifteen (15) calendar days prior to the cancellation, non-renewal or material change in such insurance. |
| 9.6 | LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this AGREEMENT during: (i) the period that any LICENSED SUBJECT MATTER developed pursuant to this AGREEMENT is being commercially distributed or sold by LICENSEE, an AFFILIATE or by a sublicensee or agent of LICENSEE; and (ii) the five (5) year period immediately after such period. |
| 9.7 | LICENSOR represents and warrants to LICENSEE that: |
| (a) | it is a limited liability company duly organized and subsisting under the laws of the State of Texas, with the corporate power to own its assets and to carry on its business and has made all necessary filings under all applicable corporate, securities and taxation laws or any other laws to which Licensor is subject; |
| (b) | it has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; |
| (c) | it has taken all necessary company action on its part required to authorize the execution and delivery of this Agreement; |
| (d) | the entering into and the delivery of this Agreement will not result in the violation of: |
| (i) | any of the provisions of the certificate of organization or operating of the LICENSOR; |
| (ii) | any agreement or other instrument to which the LICENSOR is a party or by which the LICENSOR is bound; or |
| (iii) | any applicable laws, rules or regulations; |
| (e) | this Agreement is a legal and valid obligation binding LICENSOR and is enforceable in accordance with its terms; |
| (f) | it is the owner with full right, power and authority to grant LICENSEE the rights and licenses granted to LICENSEE hereunder in accordance with the terms and conditions of this Agreement; |
| (g) | LICENSOR has not previously licensed, assigned, transferred, or otherwise conveyed any right, title or interest in, to or under the LICENSED SUBJECT MATTER; and the LICENSED SUBJECT MATTER is free and clear of any liens, charges, encumbrances or rights of others to possession or use that would have the effect of preventing LICENSEE from exercising the rights and licenses granted to it hereunder; and |
| (h) | any underlying agreements upon which LICENSOR relies for purposes of granting the rights and licenses to LICENSEE hereunder (true and complete copies of which have been supplied to Company), including the SYSTEM LICENSE AGREEMENT, are in full force and effect in accordance with their terms, and LICENSOR is not in breach thereof or default thereunder. |
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| 9.8 | LICENSOR shall not amend or waive, or take any other action or commit any omission that would alter or affect, any of its rights under the SYSTEM LICENSE AGREEMENT, in any manner that would materially adversely affect LICENSEE’s rights and benefits hereunder or thereunder. |
| 9.9 | Except as expressly provided herein, LICENSOR disclaims all other warranties, express or implied, with respect to the LICENSED SUBJECT MATTER or LICENSOR’S rights thereto. |
X. USE OF NAME
| 10.1 | LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through: |
The University of Texas
M. D. Anderson Cancer Center
Legal Services, Unit 1674
P.O. Box 301407
Houston, TX 77230-1407
ATTENTION: [*]
Email: [*]
Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.
XI. CONFIDENTIAL INFORMATION AND PUBLICATION
| 11.1 | LICENSOR and LICENSEE each agree that information disclosed in connection with an examination under Section 4.3 and all information contained in documents marked “confidential” and forwarded to one by the other (i) are to be received in strict confidence, (ii) are to be used only for the purposes of this AGREEMENT, and (iii) will not be disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the disclosing party, except to the extent that the recipient party can establish by competent written proof that such information: |
| (a) | was in the public domain at the time of disclosure; or |
| (b) | later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or |
| (c) | was lawfully disclosed to the recipient party by a third party having the right to disclose it; or |
| (d) | was already known by the recipient party at the time of disclosure; or |
| (e) | was independently developed by the recipient party without use of the disclosing party’s confidential information; or |
| (f) | is required by law or regulation to be disclosed. |
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| 11.2 | Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the disclosing party's confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of five (5) years thereafter. |
| 11.3 | LICENSEE may disclose confidential information of LICENSOR, BOARD and/or UTMDACC to its sublicensees and potential sublicensees in accordance with Section 11.2, provided such recipient agrees in writing to keep such information confidential under obligations equivalent to or stricter than those agreed to by LICENSEE hereunder. The terms of this AGREEMENT (other than the identity of the parties and the LICENSED FIELD) shall be treated as confidential information of all parties, provided that LICENSEE may disclose the terms of this AGREEMENT to prospective sources of financing, investors, lenders, investment bankers and potential SUBLICENSEEs. Either party may disclose identity of the parties and the LICENSED FIELD to third parties. |
XII. ASSIGNMENT
| 12.1 | Except in connection with a merger or the sale or transfer of substantially all of LICENSEE's assets relating to this Agreement to a third party, this AGREEMENT may not be assigned by LICENSEE, in whole or in part, without the prior written consent of LICENSOR, which consent will not be unreasonably withheld or delayed. For any assignment to be effective: (a) the LICENSEE must timely pay LICENSOR the Assignment Fee specified in Section 4.1; and (b) the assignee must assume in writing (a copy of which writing will be provided to LICENSOR) all of LICENSEE's interests, rights, duties, and obligations under the AGREEMENT and agree to comply with all terms and conditions of the AGREEMENT as if the assignee were the original party (i.e., the LICENSEE) to the AGREEMENT. |
XIII. TERM AND TERMINATION
| 13.1 | Subject to Sections 13.2, 13.3 and 13.4 hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE until the ROYALTY EXPIRATION DATE. LICENSEE shall have no obligation under this AGREEMENT to pay royalties for NET SALES of LICENSED PRODUCTS occurring after the ROYALTY EXPIRATION DATE. |
| 13.2 | LICENSOR shall have the right to terminate this AGREEMENT in its entirety upon thirty (30) calendar days prior written notice from LICENSOR to LICENSEE, if LICENSEE fails to achieve each of the following diligence milestones and provide evidence, reasonably satisfactory to LICENSOR, that each such milestone has been achieved by the due date: |
| (a) | First SALE of a LICENSED PRODUCT on or before the earlier of (i) five years from the Effective Date or (ii) two years following receipt of the final report from a Pivotal Trial. “Pivotal Trial” means a human clinical trial intended to provide the substantial evidence of efficacy necessary to support the filing of n approvable NDA or PMA with the FDA; |
| (b) | Initiation of a Pivotal Trial for a LICENSED PRODUCT within 18 months following LICENSEE’s receipt of the final report from the first human clinical trial conducted by LICENSEE involving the Licensed Product; |
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| (c) | LICENSEE shall raise $7.5 Million in COMPANY FUNDING on or before the third anniversary of the EFFECTIVE DATE; and |
| (d) | During each of the three years of the Agreement following the Effective Date, the cumulative direct and indirect costs and expenses (including overhead) incurred by LICENSEE and its AFFILIATES AND SUBLICENSEES on the research, development, manufacture and commercialization of Licensed Products will, equal or exceed the following amounts: (i) year 1: $2,500,000, (ii) year 2, $1,000,000 and (iii) year 3, $1,000,000. |
As used in this Section 13.3, “COMPANY FUNDING” shall be calculated by adding together the following amounts: (1) one hundred percent (100%) of cash actually received by LICENSEE from investors to purchase an equity or ownership interest in LICENSEE; (2) fifty percent (50%) of grant money and/or research and development funds actually received by LICENSEE from a governmental body or independent third party, provided that such funds are required to be spent by or on behalf of LICENSEE for future research and development of a LICENSED PRODUCT; (3) one hundred percent (100%) of research and development funds actually received by LICENSEE from a sublicensee, provided that such funds are required to be spent by or on behalf of LICENSEE for future research and development of a LICENSED PRODUCT; and (4) 100% of royalties received by LICENSEE from a sublicensee from the SALE of a LICENSED PRODUCT less any royalty owed to LICENSOR pursuant to Section 4.1(d) and Section 4.1(i).
| 13.4 | Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety: |
| (a) | automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise; or |
| (b) | upon forty-five (45) calendar days written notice from LICENSOR, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE IV (excluding the license documentation fee specified in Section 4.1(b), for which no cure period applies), or use of name obligations of ARTICLE X, unless, before the end of such forty-five (45) -calendar day notice period, LICENSEE has cured the default or breach to LICENSOR’s reasonable satisfaction, and so notifies LICENSOR, stating the manner of the cure; or |
| (c) | upon ninety (90) calendar days written notice from LICENSOR if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of such ninety (90) calendar-day notice period, LICENSEE has cured the default or breach to LICENSOR’s reasonable satisfaction and so notifies LICENSOR, stating the manner of the cure; or |
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| (d) | at any time by mutual written agreement between LICENSEE and LICENSOR upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or |
| (e) | As set forth in Sections 13.3 and 15.9; or |
| (f) | immediately, upon written notice from LICENSOR, if LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any three (3) occasions in an eighteen (18) month period; or |
| (g) | immediately, upon written notice from LICENSOR, if LICENSEE fails to timely pay the license fee specified in Section 4.1(b); or |
| (h) | without cause, by LICENSEE, upon one hundred eighty (180) calendar days written notice from LICENSEE to LICENSOR; or |
| 13.5 | Upon termination of this AGREEMENT: |
| (a) | nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and |
| (b) | The provisions of ARTICLES IX (Indemnification and Insurance), X (Use of Name) and XI (Confidential Information and Publication) shall survive termination of this AGREEMENT; and |
| (c) | LICENSEE may, for a period of one year after the effective date of the termination of this AGREEMENT in its entirety, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to ARTICLE IV of this AGREEMENT; and |
| (d) | Subject to Section 13.5(c), LICENSEE agrees to cease and desist any use and all SALE of the LICENSED SUBJECT MATTER and LICENSED PRODUCTS upon termination of this AGREEMENT. |
XIV. SUPERIOR RIGHTS
| 14.1 | LICENSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America (“Government”) and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government's rights under any such agreement and any applicable law or regulation. To the extent that there is a conflict between any such agreement, applicable law or regulation and this AGREEMENT, the terms of such Government agreement, applicable law or regulation shall prevail. To the extent the LICENSED SUBJECT MATTER was developed under a funding agreement with the Government, LICENSEE shall comply with the requirements of such funding agreement and any applicable law or regulation, including any requirements for United States manufacture. Accordingly, LICENSEE agrees that any LICENSED PRODUCTS developed under a funding agreement with the Government will be manufactured substantially in the United States, to the full extent required under applicable law and regulations, unless a written waiver is obtained in advance from the GOVERNMENT. LICENSEE will promptly advise LICENSOR if such a written waiver is requested and/or obtained. |
| 14.2 | LICENSEE understands, acknowledges and agrees that LICENSOR, by this AGREEMENT, makes no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. LICENSOR, by this AGREEMENT, also makes no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by, LICENSOR, SYSTEM or UTMDACC in the LICENSED FIELD, nor does LICENSOR make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by LICENSOR, UTMDACC OR SYSTEM. |
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XV. GENERAL
| 15.1 | This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements and understandings are superseded hereby. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties. |
| 15.2 | Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, or by overnight delivery by a nationally recognized delivery service with signature proof of delivery, and addressed in the case of LICENSOR to: |
Novel Anti-Infective Technologies, LLC
4207 Clearwater Ct.
Missouri City, TX 77459
ATTENTION: David McWilliams
or in the case of LICENSEE to:
Leonard Meron Biosciences, Inc.
11 Commerce Drive, First Floor
Cranford, NJ 07016
ATTENTION: Myron Holubiak, CEO
or such other addresses as may be given from time to time under the terms of this notice provision.
| 15.3 | LICENSEE must comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT. LICENSEE acknowledges that the LICENSED SUBJECT MATTER is subject to U. S. export control jurisdiction. LICENSEE agrees to comply with all applicable international and national laws that apply to the LICENSED SUBJECT MATTER, including U.S. Export Administration Regulations, as well as end-user, end-use, and destination restrictions applied by the United States. |
| 15.4 | This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction and venue of such courts. Nothing in this AGREEMENT shall be deemed as a waiver by BOARD, SYSTEM or UTMDACC of its sovereign immunity. |
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| 15.5 | Omitted. |
| 15.6 | Failure of LICENSOR or LICENSEE to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved. |
| 15.7 | Headings included herein are for convenience only and will not be used to construe this AGREEMENT. |
| 15.8 | If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable. |
| 15.9 | In the event that LICENSEE brings an action before any court, agency or tribunal seeking to invalidate or otherwise challenge the enforceability of or BOARD’s ownership of any patent included in the PATENT RIGHTS, then LICENSOR may immediately terminate this AGREEMENT upon written notice to LICENSEE. Any such dispute regarding the validity, enforceability or ownership of any patent included in the PATENT RIGHTS shall be litigated in the courts located in Houston, Texas, and LICENSEE agrees not to challenge personal jurisdiction in that forum. To the extent that LICENSEE unsuccessfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, LICENSEE agrees to reimburse UTMDACC and BOARD for all costs and fees (including attorney’s fees) paid by UTMDACC and BOARD in defending against such challenge. LICENSEE understands and agrees that, in the event LICENSEE successfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, all payments or other consideration made or otherwise provided by LICENSEE to LICENSOR prior to a final, non-appealable adjudication of invalidity and/or unenforceability shall be non-refundable. The obligations of this Section shall survive the expiration or termination of this AGREEMENT. |
| 15.10 | This AGREEMENT may be executed by the parties in counterparts (each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement) and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. All signatures need not be on the same counterpart page. |
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this PATENT AND TECHNOLOGY LICENSE AGREEMENT.
| LEONARD-MERON BIOSCIENCES, INC. | NOVEL ANTI-INFECTIVE TECHNOLOGIES, LLC | |||
| By | /s/ Myron Holubiak | By | /s/ David B. McWilliams | |
| Printed Name: | Myron Holubiak | Printed Name: | David B. McWilliams | |
| Title: | Chief Executive Officer | Title: | Chairman | |
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EXHIBIT 1
PART A -SALVAGE
|
MDA No. (each an individual technology) |
Inventors | IDR Title | U.S. and foreign patent application/patent numbers |
| MDA03-038 | Issam I Raad, M.D. | Antimicrobials in Combination with Chelators and Ethanol for the Rapid Eradication of Microorganisms Embedded in Biofilm |
U.S. Patent No.: 7,601,731; EP Serial No.: 04754538.9; CA Serial No.: 2,528,522; U.S. Serial No.: 13/095,262; U.S. Serial No.: 13/621,628
|
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EXHIBIT 2
MDA03-038: “Licensed Field” means the medical use of compositions comprising tetracycline, a chelator, and an alcohol as a salvage catheter lock/flush (i.e. not maintenance catheter lock/flush) solution in indwelling catheters, provided that such composition does not contain any antibiotics or other antimicrobials other than one or more tetracyclines. As used in this AGREEMENT, “tetracycline” means minocycline, tigecycline, doxycycline, demeclocycline, anhydrotetracycline, chlorotetracycline, or epioxytetracycline or equivalent drug in the tetracycline class. Notwithstanding the foregoing, the Licensed Field shall not include the Excluded Fields, set forth below.
Excluded Fields:
The Licensed Field(s) of use set forth above shall not include any of the “Excluded Fields.” As used herein, “Excluded Fields” means the following:
| (1) | the coating of catheters in combination with antibiotics or other antimicrobials and the resultant catheters, including, but not limited to, any use of an antibiotic or other antimicrobial that creates a coating on or otherwise coats a catheter with an antibiotic or other antimicrobial; |
| (2) | Antimicrobial gloves, including but not limited to: antimicrobial medical gloves for examination and/or surgical applications; and antimicrobial gloves for industrial and/or food-service applications; and |
| (3) | cardiac pacemakers, cardiac defibrillators, cardiac pacemaker leads; and cardiac defibrillator leads, (collectively, “Cardiac Devices”) which either may be coated with antimicrobial agents or placed into or covered by a receptacle, mesh, envelope, pouch, sleeve, sheath, boot, jacket or other cover (collectively “Pouch(es)”) coated with antimicrobial agents; (b) surgical site repair mesh, including but not limited to hernia repair mesh and incisional wound closure mesh, in each case coated with antimicrobial agents, (c) Pouches into which one or more of the following devices are placed, in whole or in part: implantable infusion devices (i.e. drug pumps) (including leads, adapters and extensions for such devices); and (d) pulse generators (i.e., non-cardiac and vagus nerve stimulators) (including leads, adapters and extensions for such devices) which either may be coated with antimicrobial agents or placed into Pouch(es). |
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Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
| I, | Leonard Mazur, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Citius Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| May 12, 2023 | By: | /s/ Leonard Mazur |
| Leonard Mazur | ||
| Chief Executive Officer and Chairman | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
| I, | Jaime Bartushak, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Citius Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| May 12, 2023 | By: | /s/ Jaime Bartushak |
| Jaime Bartushak | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
AND THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Citius Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Leonard Mazur, Chief Executive Officer and Chairman Company, and Jaime Bartushak, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 12, 2023 | By: | /s/ Leonard Mazur |
| Leonard Mazur | ||
| Chief Executive Officer and Chairman | ||
| (Principal Executive Officer) |
| By: | /s/ Jaime Bartushak | |
| Jaime Bartushak | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) |