Citius Oncology, Inc.(CTOR) - 2024 Q4 - Annual Report

PART I Item 1. Business The company is a biopharmaceutical firm focused on commercializing its FDA-approved CTCL therapy, LYMPHIR, while relying on third-party manufacturing - The company's lead product is LYMPHIR, an FDA-approved therapy for Cutaneous T-Cell Lymphoma (CTCL), a rare non-Hodgkin lymphoma[77] - The company was formed as a subsidiary of Citius Pharmaceuticals, Inc ("Citius Pharma") and became a public entity through a merger in August 2024, with Citius Pharma remaining the majority shareholder at approximately 92.3%[80] - The company estimates the addressable U.S. market for LYMPHIR to be over $400 million[216] - Citius Oncology relies on a shared services agreement with Citius Pharma for management and scientific services and uses third-party contractors for manufacturing[86][193] LYMPHIR (denileukin diftitox-cdxl) LYMPHIR, an improved IL-2 fusion protein, demonstrated a 36.2% ORR in its Phase 3 trial for CTCL with a manageable safety profile Phase 3 Trial (E7777-G000-302) Efficacy Results (N=69) | Efficacy Metric | Result | | :--- | :--- | | Objective Response Rate (ORR) | 36.2% | | Complete Response | 9% | | Partial Response | 27% | | Median Duration of Response | 6.5 months | | Median Time to Response | 1.4 months | - The most frequent adverse reactions (≥20%) in the Phase 3 trial were nausea (43%), fatigue (38%), and edema (33%), with serious adverse reactions occurring in 38% of patients[91][63] - A Phase 1 trial combining LYMPHIR with pembrolizumab in patients with recurrent solid tumors showed an ORR of 27% and a clinical benefit rate of 33%[173][201] Market Opportunity and Competition The company targets a CTCL market exceeding $400 million, competing with established systemic therapies like Adcetris and Poteligeo - The estimated incidence of Mycosis Fungoides/Sézary Syndrome (MF/SS) is 2,500 to 3,000 new cases per year in the U.S., with a total patient population of 30,000 to 40,000[188] - The company believes there is a significant opportunity for LYMPHIR due to the limitations of current therapies, such as toxicity and resistance[217] - Competitors for LYMPHIR in the systemic treatment of advanced CTCL include Brentuximab vedotin (Adcetris), Mogamulizumab (Poteligeo), Romidepsin (Istodax), and Vorinostat (Zolinza)[190][191][218][244] Commercialization and Manufacturing The company is building its commercial infrastructure via third-party contractors and relies entirely on external cGMP facilities for manufacturing - The company is contracting with a large third-party organization to build its sales and marketing capabilities for the launch of LYMPHIR[192] - LYMPHIR was included in the NCCN guidelines with a Category 2A recommendation, which is anticipated to aid in securing coverage and reimbursement from CMS[245] - The company does not own manufacturing facilities and has secured supply agreements with third-party cGMP manufacturers for LYMPHIR[193][220] License and Asset Purchase Agreements The company has significant milestone and royalty obligations to Eisai and Dr. Reddy's following LYMPHIR's FDA approval - Under the license agreement with Eisai, a $5.9 million development milestone payment became due upon FDA approval of LYMPHIR for CTCL[249] - The asset purchase agreement with Dr. Reddy's includes significant financial obligations, including up to $40 million for CTCL approvals, $70 million for additional indication development, and up to $300 million for commercial sales milestones[226] - The company is also obligated to pay Dr. Reddy's tiered royalties in the low double-digit percentages (10-15%) of net product sales[226] Government Regulation The company's operations are subject to extensive FDA regulation and healthcare laws that influence pricing, reimbursement, and marketing - The company is subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (FDCA), covering all stages from development to post-market surveillance[229][257] - Post-approval, the company is subject to ongoing FDA regulation regarding manufacturing, labeling, advertising, and promotion, with strict enforcement against off-label promotion[234][261] - Commercial success is highly dependent on coverage and reimbursement from government and private payers, who are increasingly implementing cost-containment measures[265][285] - Legislative changes, such as the Affordable Care Act (ACA) and the Inflation Reduction Act of 2022, could significantly impact drug pricing and profitability[267][268] Item 1A. Risk Factors The company faces risks from its single-product focus, funding needs, third-party reliance, and status as a controlled entity - The company is heavily dependent on the successful commercialization of its only approved product, LYMPHIR, and has a limited operating history[295][323] - The company requires substantial additional funding for commercialization, has a history of net losses, and has outstanding commitments of $25.7 million to suppliers and $28.4 million under license agreements as of September 30, 2024[280][297][300] - Reliance on a limited number of third-party manufacturers for LYMPHIR exposes the company to risks of supply disruption and quality control issues[310][311][312] - The company is a "controlled company" as Citius Pharma holds ~92.3% of its voting power, which could lead to conflicts of interest[410][680] Risks Related to Business and Industry Success hinges on LYMPHIR's market acceptance, with risks from a history of losses, need for capital, and reliance on third-party manufacturing - The company has a history of net losses, reporting a loss of $21.1 million for the year ended September 30, 2024, and expects to incur losses for the foreseeable future[280][319] - The company requires substantial additional funding and is evaluating strategic alternatives; failure to secure capital could delay commercialization[297][318] - The company relies exclusively on third-party manufacturers, which poses risks related to supply volume, quality, and cGMP compliance[310][311] - The pharmaceutical industry is highly competitive, and many competitors have substantially greater financial, marketing, and R&D resources[6][337] - The company is dependent on its executive management team, whose services are provided through a shared services agreement with Citius Pharma[13][14] Risks Related to Regulatory and Legal Environment The company faces significant ongoing regulatory obligations, enforcement against off-label promotion, and risks of inadequate reimbursement - Even after approval, the company remains subject to extensive and ongoing regulatory obligations from the FDA, which can be expensive[351][393] - The FDA and other agencies actively enforce laws prohibiting the promotion of off-label uses, and violations can lead to significant penalties[5][362] - The company's ability to generate revenue is diminished if LYMPHIR sells for inadequate prices or if patients cannot obtain adequate reimbursement[7][339] - Healthcare reform measures could hinder commercial success by impacting pricing, reimbursement, and market access[9][341] - The company faces the risk of product liability claims, and its current insurance coverage of $5.0 million may not be sufficient[394] Risks Related to Intellectual Property Success depends on protecting intellectual property, with risks of patent challenges, trade secret breaches, and infringement litigation - The company's business depends on protecting its intellectual property, but patent rights might be challenged, invalidated, or circumvented[22][354] - The company relies on trade secrets protected by confidentiality agreements, which could be breached[24][398] - The company could incur substantial costs if its technologies are found to infringe on third-party proprietary rights[45][381] - The company's trademarks, such as "LYMPHIR," may be challenged or infringed, which could impede its ability to build brand recognition[46][383] Risks Related to Common Stock The company's common stock is highly volatile, subject to dilution from future equity issuances, and at risk of delisting - The market price of the company's Common Stock is highly volatile due to factors like commercialization progress and regulatory news[27][384] - Future equity issuances to finance operations will result in dilution of existing stockholders' ownership interests[31][403] - A potential future pro rata distribution of the company's stock by its majority shareholder, Citius Pharma, could lead to a decline in the stock price[50][388] - Failure to meet Nasdaq's continued listing requirements, such as maintaining a minimum stock price of $1.00, could result in delisting[32][404] - The company has not paid and does not anticipate paying cash dividends in the foreseeable future[35][407] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments - Not applicable[413] Item 1C. Cybersecurity The company manages cybersecurity through an enterprise-wide program overseen by the Audit Committee, with no material incidents to date - The company's cybersecurity risk management is part of its enterprise-wide risk management system, overseen by the Board's Audit Committee[427][430] - The company utilizes an external IT consultant and various third-party tools to protect its information technology systems[428] - As of the date of the report, no cybersecurity threats have materially affected the company[429] Item 2. Properties The company does not own property and occupies office space under a lease held by its parent company, Citius Pharma - The company's office space in Cranford, New Jersey is leased by Citius Pharma, and the occupancy cost is covered under the A&R Shared Service Agreement[432] Item 3. Legal Proceedings The company is not currently involved in any material litigation - The company is not involved in any material litigation and is not aware of any pending or threatened legal proceedings[433][670] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[435] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq as "CTOR", and it does not anticipate paying dividends or repurchasing shares - The company's common stock trades on The Nasdaq Capital Market under the symbol "CTOR"[417] - The company has never paid dividends and does not intend to pay them in the foreseeable future[436] - The company made no purchases of its own equity securities during the fourth quarter ended September 30, 2024[459] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net loss widened to $21.1 million in FY2024, driven by increased pre-commercial and R&D expenses for LYMPHIR Results of Operations Comparison (in millions) | Metric | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Revenues | $0 | $0 | | Research & Development | $4.9 | $4.2 | | General & Administrative | $8.1 | $5.9 | | Stock-based Compensation | $7.5 | $2.0 | | Total Operating Expenses | $20.6 | $12.1 | | Net Loss | ($21.1) | ($12.7) | - The increase in net loss was primarily due to higher G&A expenses for LYMPHIR pre-commercial activities and a significant increase in stock-based compensation[468][516][673] - The company has an accumulated deficit of $39.3 million as of September 30, 2024, and is funded by its parent, Citius Pharma[493] - In-process research and development (IPR&D) is valued at $73.4 million, comprising a $40 million initial payment and $33.4 million in approval milestones for LYMPHIR[521][621] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section is not required for the company - Not required[525] Item 8. Financial Statements and Supplementary Data This section presents audited financial statements, which include a going concern uncertainty from the independent auditor - The financial statements are accompanied by the report of the independent registered public accounting firm, which includes an opinion on the financial statements and an emphasis of matter regarding the company's ability to continue as a going concern[574][575] Report of Independent Registered Public Accounting Firm The auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to recurring losses - The auditor's report expresses substantial doubt about the Company's ability to continue as a going concern due to recurring losses, a working capital deficit, and dependence on its parent company for funding[545] - The audit was conducted in accordance with PCAOB standards, and the firm has served as the company's auditor since 2022[546][578] Consolidated Financial Statements The company reported a net loss of $21.1 million for FY2024, with total assets of $84.4 million and total liabilities of $38.2 million Consolidated Balance Sheet Highlights (as of Sept 30, 2024) | Account | Amount (USD) | | :--- | :--- | | Cash and cash equivalents | $112 | | Total Assets | $84,368,878 | | License Payable | $28,400,000 | | Total Liabilities | $38,228,540 | | Total Stockholders' Equity | $46,140,339 | Consolidated Statement of Operations (Year Ended Sept 30, 2024) | Account | Amount (USD) | | :--- | :--- | | Revenues | $0 | | Total Operating Expenses | $20,572,747 | | Net Loss | ($21,148,747) | | Net Loss Per Share | ($0.31) | - In FY2024, net cash provided by operating activities was $126,353, net cash used in investing activities was $5.0 million for a license payment, and net cash provided by financing activities was $4.9 million[583] Notes to Consolidated Financial Statements The notes detail a going concern uncertainty, significant milestone obligations, and substantial commitments for commercial manufacturing - Note 2 (Going Concern): The company has a net loss of $21.1 million, negative working capital of $21.7 million, and funding from its parent is secured only through February 2025, raising substantial doubt about its ability to continue[589][616] - Note 4 (License Agreements): Upon FDA approval in August 2024, milestone payments totaling $33.4 million became due, with a balance of $28.4 million remaining payable as of September 30, 2024[621][635] - Note 6 (Related Party Transactions): The company is highly dependent on Citius Pharma, which charged $3.9 million for payroll and rent in FY2024; a $3.8 million note is payable to Citius Pharma[456][665] - Note 8 (Commitments): The company has minimum purchase commitments under manufacturing agreements totaling approximately $21.8 million for 2025 and 2026[646][669] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[527] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[504] - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2024, based on the COSO 2013 framework[505][529] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of fiscal 2024[506] Item 9B. Other Information The company reports that there is no other information to disclose - None[558] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[508] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, officers, and governance is incorporated by reference from the 2025 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2025 Annual Meeting of Stockholders[533] - The company has adopted a Code of Ethics and Business Conduct applicable to all directors, officers, and employees[560] Item 11. Executive Compensation Information regarding director and executive compensation is incorporated by reference from the 2025 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2025 Annual Meeting of Stockholders[561] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership details are incorporated by reference, with 17.25 million securities available for future issuance under equity plans Equity Compensation Plan Information (as of Sept 30, 2024) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 12,750,000 | $2.15 | 17,250,000 | - Other information on security ownership is incorporated by reference from the company's Proxy Statement[562] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2025 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2025 Annual Meeting of Stockholders[563] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2025 Annual Meeting of Stockholders[564] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits filed with the report, including material agreements and officer certifications - This section lists all exhibits filed with the Form 10-K, including foundational corporate documents, material contracts, and required certifications[538][566] Item 16. Form 10-K Summary This item is not applicable - Not applicable[539]