CTXR US Equity☆

Item 1A. Risk Factors 18

Item 1B Unresolved Staff Comments 41

Item 2. Properties 41

Item 3. Legal Proceedings 41

Item 4. Mine Safety Disclosures 41

PART II

Item 6. Selected Financial Data 42

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48

Item 8. Financial Statements and Supplementary Data F-1 to F-21

Item 9A. Controls and Procedures 49

Item 9B. Other Information 49

PART III

Item 10. Directors, Executive Officers and Corporate Governance 50

Item 11. Executive Compensation 50

Item 14. Principal Accountant Fees and Services 50

PART IV

Item 15. Exhibits and Financial Statement Schedules 51

Signatures 54

i

NOTES

In

this annual report on Form 10-K, and unless the context otherwise requires the “Company,” “we,” “us”

and “our” refer to Citius Pharmaceuticals, Inc. and its wholly-owned subsidiaries as of September 30, 2020, Citius

Pharmaceuticals, LLC, Leonard-Meron Biosciences, Inc., and NoveCite, Inc., taken as a whole.

Mino-Lok®

is our registered trademark. All other trade names, trademarks and service marks appearing in this prospectus are the property

of their respective owners. We have assumed that the reader understands that all such terms are source-indicating. Accordingly,

such terms, when first mentioned in this report, appear with the trade name, trademark or service mark notice and then throughout

the remainder of this report without trade name, trademark or service mark notices for convenience only and should not be construed

as being used in a descriptive or generic sense.

FORWARD-LOOKING

STATEMENTS

This

Annual Report on Form 10-K 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, including the risks described under Item 1A - “Risk Factors,”

and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this

report and in other documents which we file with the Securities and Exchange Commission (“SEC”). 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;

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.

SUMMARY

OF RISK FACTORS

An

investment in our securities involves a high degree of risk. You should carefully consider the risks summarized in Item 1A, “Risk

Factors” included in this report. These risks include, but are not limited to, the following:

ii

iii

iv

PART

I

Item

1. Business

Overview

Citius

Pharmaceuticals, Inc., headquartered in Cranford, New Jersey, is a specialty pharmaceutical company dedicated to the development

and commercialization of critical care products targeting important medical needs with a focus on anti-infective products in adjunct

cancer care, unique prescription products and, recently, mesenchymal stem cell therapy. Our goal generally is to achieve leading

market positions by providing therapeutic products that address unmet medical needs yet have a lower development risk than usually

is associated with new chemical entities. New formulations of previously approved drugs with substantial existing safety and efficacy

data are a core focus. We seek to reduce development and clinical risks associated with drug development, yet still focus on innovative

applications. Our strategy centers on products that have intellectual property and regulatory exclusivity protection, while providing

competitive advantages over other existing therapeutic approaches.

The

Company was founded as Citius Pharmaceuticals, LLC, a Massachusetts limited liability company, on January 23, 2007. On September

12, 2014, Citius Pharmaceuticals, LLC entered into a Share Exchange and Reorganization Agreement, with Citius Pharmaceuticals,

Inc. (formerly Trail One, Inc.), a publicly traded company incorporated under the laws of the State of Nevada. Citius Pharmaceuticals,

LLC became a wholly-owned subsidiary of Citius Pharmaceuticals, Inc. (“Citius”). On March 30, 2016, Citius acquired

Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned subsidiary. LMB was a pharmaceutical company focused on

the development and commercialization of critical care products with a concentration on anti-infectives. On September 11, 2020,

we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% of the issued and outstanding capital

stock. NoveCite is focused on the development and commercialization of its proprietary mesenchymal stem cells for the treatment

of acute respiratory disease syndrome (“ARDS”).

Since

its inception, the Company has devoted substantially all of its efforts to business planning, acquiring our proprietary

technology, research and development, recruiting management and technical staff, and raising capital. We are developing four

proprietary products: Mino-Lok, an antibiotic lock solution used to treat patients with catheter-related bloodstream

infections by salvaging the infected catheter; Mino-Wrap, a liquifying gel-based wrap for reduction of tissue expander

infections following breast reconstructive surgeries; Halo-Lido, a corticosteroid-lidocaine topical formulation that is

intended to provide anti-inflammatory and anesthetic relief to persons suffering from hemorrhoids; and NoveCite, in-licensed

in October 2020, a mesenchymal stem cell therapy for the treatment of ARDS. We believe these unique markets for our products

are large, growing, and underserved by the current prescription products or procedures.

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 products, market acceptance of its products

that receive regulatory approval, 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.

Mino-Lok®

Overview

Mino-Lok

is a patented solution containing minocycline, disodium ethylenediaminetetraacetic acid (edetate), and ethyl alcohol, all of which

act synergistically to treat and salvage infected central venous catheters (“CVCs”) in patients with catheter related

bloodstream infections (“CRBSIs”). Mino-Lok breaks down biofilm barriers formed by bacterial colonies, eradicates

the bacteria, and provides anti-clotting properties to maintain patency in CVCs.

1

The

administration of Mino-Lok consists of filling the lumen of the catheter with 0.8 ml to 2.0 ml of Mino-Lok solution. The catheter

is then “locked”, meaning that the solution remains in the catheter without flowing into the vein. The lock is maintained

for a dwell-time of two hours while the catheter is not in use. If the catheter has multiple lumens, all lumens may be locked

with the Mino-Lok solution either simultaneously or sequentially. If patients are receiving continuous infusion therapy, the catheters

alternate between being locked with the Mino-Lok solution and delivering therapy. The Mino-Lok therapy is two hours per day for

at least five days, usually with two additional locks in the subsequent two weeks. After locking the catheter for two hours, the

Mino-Lok solution is aspirated, and the catheter is flushed with normal saline. At that time, either the infusion will be continued,

or will be locked with the standard-of-care lock solution until further use of the catheter is required. In a clinical study conducted

by MD Anderson Cancer Center (“MDACC”), there were no serum levels of either minocycline or edetate detected in the

sera of several patients who underwent daily catheter lock solution with minocycline and edetate (“M-EDTA”) at the

concentration level proposed in Mino-Lok treatment. Thus, it has been demonstrated that the amount of either minocycline or edetate

that leaks into the serum is very low or none at all.

Phase

2b Results

From

April 2013 to July 2014, 30 patients with CVC-related bloodstream infection were enrolled at MDACC in a prospective Phase 2b study.

Patients received Mino-Lok therapy for two hours once daily for a minimum of five days within the first week, followed by two

additional locks within the next two weeks. Patients were followed for one month post-lock therapy. Demographic information, clinical

characteristics, laboratory data, therapy, as well as adverse events and outcome were collected for each patient. Median age at

diagnosis was 56 years (range: 21-73 years). In all patients, prior to the use of lock therapy, systemic treatment with a culture-directed,

first-line intravenous antibiotic was started. Microbiological eradication was achieved at the end of therapy in all cases. None

of the patients experienced any serious adverse event related to the lock therapy.

The

active arm, which is the Mino-Lok treated group of patients, was then compared to 60 patients in a matched cohort that experienced

removal and replacement of their CVCs within the same contemporaneous timeframe. The patients were matched for cancer type, infecting

organism, and level of neutropenia. All patients were cancer patients and treated at MDACC. The efficacy of Mino-Lok therapy was

100% in salvaging CVCs, demonstrating equal effectiveness to removing the infected CVC and replacing it with a new catheter.

The

main purpose of the study was to show that Mino-Lok therapy was at least as effective as the removal and replacement of CVCs when

CRBSIs are present, and that the safety was better, that is, the complications of removing an infected catheter and replacing

with a new one could be avoided. In addition to having a 100% efficacy rate with all CVCs being salvaged, Mino-Lok therapy had

no significant adverse events (“SAEs”), compared to an 18% SAE rate in the matched cohort where patients had the infected

CVCs removed and replaced with a fresh catheter. There were no overall complication rates in the Mino-Lok arm group compared to

11 patients with events (18%) in the control group. These events included bacterial relapse (5%) at four weeks post-intervention,

and a number of complications associated with mechanical manipulation in the removal or replacement procedure for the catheter

(10%) or development of deep-seated infections such as septic thrombophlebitis and osteomyelitis (8%). As footnoted, six patients

had more than one complication in the control arm group.

Mino-Lok® Arm Control Arm

Parameter N (%) N (%)%

Cancer type

ICU Admission 4 (13 ) 4 (7 )

Mech.Ventilator 3 (10 ) 0 (0 )

Bacteremia

- Relapse 0 (0 ) 3 (5 )

Complications 0 (0 ) 8 (13 )

SAEs related R&R 0 (0 ) 6 (10 )

Overall Complication Rate 0 (0 )% 11 ** (18 )%

* 1 Polymicrobial patient had a Gram+ and a Gram- organism cultured

** 6 Patients had > 1 complication

Source:

Dr. Issam Raad, Antimicrobial Agents and Chemotherapy, June 2016, Vol. 60 No. 6, Page 3429

2

Phase

3 Trial

In

November 2016, the Company initiated site recruitment for Phase 3 clinical trials. From initiation through the first quarter of

2017, the Company received input from several sites related to the control arm as being less than standard-of-care for some of

the respective institutions. The Company worked closely with the U.S. Food and Drug Administration (“FDA”) with respect

to the design of the Phase 3 trial and received feedback on August 17, 2017. The FDA stated that they recognized that there is

an unmet medical need in salvaging infected catheters and agreed that an open label, superiority design would address the Company’s

concerns and would be acceptable to meet the requirements of a new drug application. The Company amended the Phase 3 study design

to remove the saline and heparin placebo control arm and to use an active control arm that conforms with today’s current

standard-of-care. Patient enrollment commenced in February 2018.

The

Mino-Lok Phase 3 Trial was originally planned to enroll 700 patients in 50 participating institutions, all located in the U.S.

There will be interim analyses at both the 50% and 75% points of the trial as measured by the number of patients treated. As of

November 15, 2020, there are 29 active sites currently enrolling patients including such academic centers as MDACC, Henry Ford

Health Center, Georgetown University Medical Center, and others. There are two additional medical centers in startup mode. There

are no other remaining sites in feasibility.

In

September 2019, the Company announced that the FDA agreed to a new primary efficacy endpoint of “time to catheter failure”

in comparing Mino-Lok to the antibiotic lock control arm. This change in the trial design reduced the required patient sample

size of the trial from 700 subjects to approximately 144 available subjects to achieve the pre-specified 92 catheter failure events

needed to conclude the trial. Additionally, the Company submitted a response to the FDA that it will implement this change in

the primary endpoint and expected it to result in less than 150 subjects needed in its Phase 3 trial. The new primary endpoints

require that the time to catheter failure be at least 38 days for Mino-Lok versus 21 days for the standard of care antibiotic

locks.

In

October 2019, the FDA agreed that the patient sample size of approximately 144 patients was acceptable.

In

October 2019, the Company announced that the Phase 3 trial had reached the 40% completion triggering an interim futility analysis

by the data monitoring committee (the “DMC”). The DMC is an independent panel of experts that review progress regarding

the safety and efficacy of drugs in clinical trials, and to determine if the trial may be futile in achieving its endpoints or

if the trial should be modified in any way.

In

December 2019, the DMC convened and recommended that the trial continue with no changes because the analysis showed a positive outcome,

as it met the prespecified interim futility analysis criteria.

In

May 2020, we announced that we are providing free access to Mino-Lok for healthcare providers under an Expanded Access protocol

to ease the burden associated with the COVID-19 pandemic. Through the Expanded Access protocol, an infected central venous catheter

can now be treated with Mino-Lok, potentially avoiding the need for the removal and replacement procedure.

In

June 2020, we announced that we had received positive feedback from the FDA on our proposed catheter compatibility studies for

Mino-Lok. The studies, if and when successfully completed, should allow Mino-Lok to be labeled for use with all commercially available

CVCs and peripherally inserted central catheters (PICCs) on the U.S. market. It is further assumed that these studies will meet

European and world standards. The ability to be labeled without restrictions with respect to catheter type would allow Mino-Lok

unrestricted access to the full U.S. and world markets for an effective antibiotic lock therapy for central line associated blood

stream infections (“CLABSIs”).

In

September 2020, we announced that another DMC meeting was held to review the data being generated and analyzed in the Mino-Lok

Phase 3 trial based on progress to date, and to make recommendations to us as to any action that may be necessary regarding the

study. After reviewing these data, the DMC members stated that they did not find any safety signals; and they also recommended

continuing the trial without any modifications. The DMC further conducted an ad hoc meeting and agreed with the Company

that a 75% interim analysis be conducted as planned in which superior efficacy is evaluated. The 75% interim analysis is expected

to be completed by March 2021.

3

In

September 2020 the Company announced that the three registration batches for all components of Mino Lok were manufactured and

that clinical sites were resupplied with registration product.

In

November 2020, the Company announced that the three components of Mino-Lok, minocycline, disodium edetate (“EDTA”),

and ethanol, were superior to EDTA and ethanol in their ability to eradicate resistant staphylococcal biofilms.

Fast

Track Designation

In

October 2017, the Company received official notice from FDA that the investigational program for Mino-Lok was granted “Fast

Track” status. Fast Track is a designation that expedites FDA review to facilitate development of drugs which treat a serious

or life-threatening condition and fill an unmet medical need. A drug that receives Fast Track designation is eligible for the

following:

Mino-Lok

International Study

In

October 2017, data from an international study on Mino-Lok was presented at the Infectious Disease Conference, (“ID Week”),

in San Diego, California. The 44-patient study was conducted in Brazil, Lebanon, and Japan and showed Mino-Lok therapy was an

effective intervention to salvage long-term, infected CVCs in CRBSIs in patients who had cancer with limited vascular access.

This study showed 95% effectiveness for Mino-Lok therapy in achieving microbiological eradication of the CVCs as compared to 83%

for the control. The single failure in the Mino-Lok arm was due to a patient with Burkholderia cepacia that was resistant

to all antibiotics tested.

Stability

Patent Application for Mino-Lok

In

October 2018, the U.S. Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 10,086,114, entitled “Antimicrobial

Solutions with Enhanced Stability.” This invention overcomes limitations in mixing antimicrobial solutions in which components

have precipitated because of physical and/or chemical factors, thus limiting the stability of the post-mix solutions. The scientists

and technologists at MDACC have been able to improve the stability of the post-mixed solutions through adjustments of the post-mixed

pH of the solution. This may allow for longer storage time of the ready-to-use solution. Citius holds the exclusive worldwide

license which provides access to this patented technology for development and commercialization of Mino-Lok.

On

October 9, 2019, the European Patent Office (“EPO”) granted European Patent No. 3370794, entitled “Antimicrobial

Solutions with Enhanced Stability.” The grant of this European patent strengthens the intellectual property protection for

Mino-Lok through November of 2036. This invention overcomes limitations in mixing antimicrobial solutions, in which components

have precipitated because of physical and/or chemical factors, thus limiting the stability of the post-mix solutions. The scientists

and technologists at MDACC have been able to improve the stability of the post-mixed solutions through adjustments of the post-mixed

pH of the solution. This may allow for longer storage time of the ready-to-use solution.

4

Market

Opportunity

In

spite of best clinical practice, catheters contribute to approximately 70% of blood stream infections that occur in the intensive

care unit or are associated with hemodialysis or cancer patients (approximately 470,000 per year). Bacteria enter the catheter

either from the skin or intraluminally through the catheter hub. Once in the catheter, bacteria tend to form a protective biofilm

on the interior surface of the catheter that is resistant to most antimicrobial solutions. The most frequently used maintenance

flush, heparin, actually stimulates biofilm formation. Heparin is widely used as a prophylactic lock solution, in spite of the

evidence that it contributes to the promotion of biofilm formation. The formation of bacterial biofilm usually precedes CRBSIs.

The

standard of care in the management of CRBSI patients consists of removing the infected CVC and replacing it with a new catheter

at a different vascular access site. However, in cancer and hemodialysis patients with long-term surgically implantable silicone

catheters, removal of the CVC and reinsertion of a new one at a different site might be difficult, or even impossible, because

of the unavailability of other accessible vascular sites and the need to maintain infusion therapy. Furthermore, critically ill

patients with short-term catheters often have underlying coagulopathy, which makes reinsertion of a new CVC at a different site,

in the setting of CRBSIs, risky in terms of mechanical complications, such as pneumothorax, misplacement, or arterial puncture.

Studies have also revealed that CRBSI patients may be associated with serious complications, including septic thrombosis, endocarditis

and disseminated infection, particularly if caused by Staphylococcus aureus or Candida species. Furthermore, catheter

retention in patients with CRBSIs is associated with a higher risk of relapse and poor response to antimicrobial therapy.

According

to Maki et al., published in the Mayo Clinic Proceedings in 2006, there are approximately 250,000 CRBSIs annually in the

U.S. Subsequent to this study, our estimates have ranged upwards to over 450,000 CLABSIs annually (see analysis in the table below).

CRBSIs are associated with a 12% to 35% mortality rate and an attributable cost of $35,000 to $56,000 per episode.

We

estimate that the potential market for Mino-Lok in the U.S. to be approximately $500 million to $1 billion as shown in the table

below based on a target price of up to $300 per dose of each salvage flush treatment.

Short-Term CVC Long-Term CVC Total

No. of Catheters 3 million 4 million 7 million

Avg. Duration (Days) 12 100 N/A

Catheter Days 36 million 400 million 436 million

Flushes/Catheter 5 7 6.7

Sources:

Ann Intern Med 2000; 132:391-402, Clev Clin J Med 2011; 78(1):10-17, JAVA 2007; 12(1):17-27, J Inf Nurs 2004;27(4):245-250, Joint

Commission website Monograph, CLABSI and Internal Estimates.

Under

various plausible pricing scenarios, we believe that Mino-Lok would be cost-saving to the healthcare system given that the removal

of an infected CVC and replacement of a new catheter in a different venous access site is estimated by us to cost between $8,000

and $10,000. Furthermore, there are potential additional medical benefits, a reduction in patient discomfort and avoidance of

serious adverse events with the Mino-Lok approach since the catheter remains in place and is not subject to manipulation. We believe

there will be an economic argument to enhance the adoption of Mino-Lok by infection control committees at acute care institutions.

5

In

January of 2017, we commissioned a primary market research study with MEDACore, a subsidiary of Leerink, a healthcare focused

network with more than 35,000 healthcare professionals, including key opinion leaders, experienced practitioners and other healthcare

professionals throughout North America, Europe, Asia and other locations around the world. This network includes approximately

55 clinical specialties, 21 basic sciences and 20 business specialties. As part of this market research project, we commissioned

a third party survey of 31 physicians to qualify the need for catheter salvage in patients with infected, indwelling central venous

lines, especially when the catheter is a tunneled or an implanted port. There were 19 infectious disease experts and 12 intensivists

surveyed who all agreed that salvage would be preferable to catheter exchange to avoid catheter misplacements, blood clots, or

vessel punctures that can potentially occur during reinsertion. Most were also concerned that viable venous access may not be

available in patients who were vitally dependent on a central line.

Mino-Wrap

Overview

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 MDACC, whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating

to breast implants, specifically the Mino-Wrap technology. This includes rights to U.S. Patent No. 9,849,217, which was issued

on December 16, 2017. 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. Mino-Wrap will require pre-clinical development prior to any regulatory

pathway. In July 2019, we announced that we intend to pursue the FDA’s Investigational New Drug (“IND”) regulatory

pathway for the development of Mino-Wrap. On August 4, 2020, we announced that we had submitted a briefing package to the FDA

for a pre-IND consultation on Mino-Wrap. In December 2020, we reported the FDA response to the briefing package and commented

that the FDA was in general agreement with our planned pre-clinical program and gave further guidance on our clinical plans.

Market

Opportunity

Breast

cancer is the most frequent cancer in women worldwide representing 25% of all cancer diagnoses with the exception of non-melanoma

skin cancer. In the United States, the overall rate of mastectomies, combining single and double mastectomies, has increased 36%

from 2005 to 2013. Additionally, the incidence of post-mastectomy breast reconstruction, following breast cancer treatment, has

been increasing on an annual basis.

In

2017, the American Society of Plastic Surgeons reported that over 105,000 women in the United States underwent a post-mastectomy

breast reconstructive procedure. Approximately 30% of these breast reconstruction occurs simultaneously with mastectomy, with

most reconstructions occurring weeks later.

The

current standard of care in post-mastectomy breast reconstruction is the use of a Tissue Expander (“TE”), which is

a temporary implant that is placed below the pectoralis muscle within the mastectomy space. Once a sufficiently large soft tissue

envelope has been created, the TE is then replaced by a permanent breast implant. Approximately 80% of the time, a TE is used

in breast reconstructions.

The

rate of infection following a mastectomy with a TE is 2.4 to 24% with an estimated mean of 12-14%. Once the implant becomes infected,

the patient is usually hospitalized requiring approximate two weeks of IV and/or oral antimicrobials. In addition, the TE is removed,

leading to a delay of lifesaving chemo-radiation therapy, and a more complex reconstruction in the future.

Currently,

preventive measures are used to decrease the rate of TE infections with include a systemic perioperative antimicrobial agent with

the perioperative immersion of the implant or irrigation of the surgical pocket with an antimicrobial solution prior to insertion

of the device. This is also administered with immediate postoperative oral antimicrobials.

Based

on the in vitro preclinical laboratory work, Mino-Wrap appears to have the characteristics necessary for advancement in the protection

of human implants from subsequent infection.

6

Halo-Lido

Overview

Halo-Lido

is a topical formulation of halobetasol propionate, a corticosteroid and lidocaine that is intended for the treatment of hemorrhoids.

To our knowledge, there are currently no FDA-approved prescription drug products for the treatment of hemorrhoids. Some physicians

are known to prescribe topical steroids for the treatment of hemorrhoids. In addition, there are various topical combination prescription

products containing halobetasol propionate along with lidocaine or pramoxine, each a topical anesthetic, that are prescribed by

physicians for the treatment of hemorrhoids. These products contain drugs that were in use prior to the start of the Drug Efficacy

Study Implementation (“DESI”) program and are commonly referred to as DESI drugs. However, none of these single-agent

or combination prescription products have been clinically evaluated for safety and efficacy and approved by the FDA for the treatment

of hemorrhoids. Further, many hemorrhoid patients use over the counter (“OTC”) products as their first line therapy.

OTC products contain any one of several active ingredients including glycerin, phenylephrine, pramoxine, white petrolatum, shark

liver oil and/or witch hazel, for symptomatic relief.

Development

of Hemorrhoids Drugs

Hemorrhoids

are a common gastrointestinal disorder, characterized by anal itching, pain, swelling, tenderness, bleeding and difficulty defecating.

In the U.S., hemorrhoids affect nearly 5% of the population, with approximately 10 million persons annually admitting to having

symptoms of hemorrhoidal disease. Of these persons, approximately one third visit a physician for evaluation and treatment of

their hemorrhoids. The data also indicate that for both sexes a peak of prevalence occurs from age 45 to 65 years with a subsequent

decrease after age 65 years. Caucasian populations are affected significantly more frequently than African Americans, and increased

prevalence rates are associated with higher socioeconomic status in men but not women. Development of hemorrhoids before age 20

is unusual. In addition, between 50% and 90% of the general U.S., Canadian and European population will experience hemorrhoidal

disease at least once in life. Although hemorrhoids and other anorectal diseases are not life-threatening, individual patients

can suffer from agonizing symptoms which can limit social activities and have a negative impact on the quality of life.

Hemorrhoids

are defined as internal or external according to their position relative to the dentate line. Classification is important for

selecting the optimal treatment for an individual patient. Accordingly, physicians use the following grading system referred to

as the Goligher’s classification of internal hemorrhoids:

Grade I Hemorrhoids not prolapsed but bleeding.

Grade II Hemorrhoids prolapse and reduce spontaneously with or without bleeding.

Grade III Prolapsed hemorrhoids that require reduction manually.

Development

Activities to Date

In

the fall of 2015, we completed dosing patients in a double-blind dose ranging placebo controlled Phase 2a study where six different

formulations containing hydrocortisone and lidocaine in various strengths were tested against the vehicle control. The objectives

of this study were to: (1) demonstrate the safety and efficacy of the formulations when applied twice daily for two weeks in subjects

with Grade I or II hemorrhoids, and (2) assess the potential contribution of lidocaine hydrochloride and hydrocortisone acetate,

alone or in combination for the treatment of symptoms of Goligher’s Classification Grade I or II hemorrhoids.

Symptom

improvement was observed based on a global score of disease severity (“GSDS”) and based on some of the individual

signs and symptoms of hemorrhoids, specifically itching and overall pain and discomfort. Within the first few days of treatment,

the combination products (containing both hydrocortisone and lidocaine) were directionally favorable versus the placebo and their

respective individual active treatment groups (e.g., hydrocortisone or lidocaine alone) in achieving ‘almost symptom free’

or ‘symptom free’ status according to the GSDS scale. These differences suggest the possibility of a benefit for the

combination product formulation.

7

Overall,

results from adverse event reporting support the safety profile of all test articles evaluated in this study and demonstrate similar

safety profiles as compared to the vehicle. The safety findings were unremarkable. There was a low occurrence of adverse events

and a similar rate of treatment related adverse events across all treatment groups. The majority of adverse events were mild and

only one was severe. None of the adverse events were an SAE and the majority of adverse events were recovered/resolved at the

end of the study. There were only two subjects who were discontinued from the study due to adverse events.

In

addition to the safety and dose-ranging information, information was obtained relating to the use of the GSDS as an assessment

tool for measuring the effectiveness of the test articles. Individual signs and symptoms were also assessed but can vary from

patient to patient. Therefore, the goal of the GSDS was to provide an assessment tool that could be used for all patients regardless

of which signs and symptoms they are experiencing. The GSDS proved to be a more effective tool for assessing the severity of the

disease and the effectiveness of the drug when compared to the assessment of the individual signs and symptoms. Citius believes

that we can continue to develop this assessment tool as well as other patient reported outcome endpoints for use in the next trials

and in the pivotal trial.

Information

was also obtained about the formulation of the drug and the vehicle. As a result of this study, we believe that the performance

of the active arms of the study relative to the vehicle could be improved by re-formulating our topical preparation. Therefore,

we initiated work on vehicle formulation and evaluation of higher potency steroids.

In

June and July 2016, we engaged the Dominion Group, a leading provider of healthcare and pharmaceutical marketing research services.

The primary market research was conducted to understand the symptoms that are most bothersome to patients better in order to develop

meaningful endpoints for the clinical trials. We also learned about the factors that drive patients to seek medical attention

for hemorrhoids in an effort to understand the disease impact on quality of life. The results of this survey are able to help

us develop patient reported outcome evaluation tools. These tools can be used in clinical trials to evaluate the patients’

conditions and to assess the performance of the test articles.

In

March 2018, we announced that we had selected a higher potency corticosteroid in our steroid/anesthetic topical formulation program

for the treatment of hemorrhoids. The original topical preparation, which we referred to as Hydro-Lido or CITI-001, which was

used in the Phase 2a study, was a combination of hydrocortisone acetate and lidocaine hydrochloride. The new formulation, CITI-002,

which we refer to as Halo-Lido, combine slidocaine with the higher potency corticosteroid halobetasol propionate for symptomatic

relief of the pain and discomfort of hemorrhoids.

We

held a Type C meeting with the FDA in December 2017 to discuss the results of the Phase 2a study and to obtain the FDA’s

view on development plans to support the potential formulation change for the planned Phase 2b study. We also requested the FDA’s

feedback on our Phase 2b study design, including target patient population, inclusion/exclusion criteria, and efficacy endpoints.

The pre-clinical and clinical development programs for CITI-002 are planned to be similar to those conducted for the development

of CITI-001 to support the design for a planned Phase 3 clinical trial. We anticipate beginning a Phase 2b clinical study in the

first quarter of 2021.

Market

Opportunity

The

current market for OTC and topical prescription (“Rx”) products for the symptomatic treatment of hemorrhoids is highly

fragmented, and includes approximately 20 million units of OTC and over 4 million prescriptions. None of the Rx products have

received FDA approval and are only available due to the DESI program, which started decades ago after enactment of the 1962 Kefauver-Harris

Drug Amendments. These DESI products have no FDA reviewed evidence of efficacy or safety, and may be subject to withdrawal if

an approved product were to be introduced. Several topical combination prescription products for the treatment of hemorrhoids

are available containing hydrocortisone in strengths ranging from 0.5% to 3.0%, combined with lidocaine in strengths ranging from

1.0% to 3.0%. The various topical formulations include creams, ointments, gels, lotions, enemas, pads, and suppositories. The

most commonly prescribed topical combination gel is sold as a branded generic product and contains 2.5% hydrocortisone and 3.0%

lidocaine.

8

We

believe there are currently no FDA-approved prescription drug products for the treatment of hemorrhoids. Although there are numerous

Rx and OTC products commonly used to treat hemorrhoids, none possess proven safety and efficacy data generated from rigorously

conducted clinical trials. We believe that a novel topical formulation of halobetasol propionate and lidocaine designed to provide

anti-inflammatory and anesthetic relief and which has an FDA-approved label specifically claiming the treatment of hemorrhoids

will become an important treatment option for physicians who want to provide their patients with a therapy that has demonstrated

safety and efficacy in treating this uncomfortable and often recurring disease. We believe that our Halo-Lido product represents

an attractive, low-risk product opportunity with meaningful upside potential.

Market

Exclusivity

We

believe that we will be the first company to conduct rigorous clinical trials and receive FDA approval of a topical corticosteroid-lidocaine

combination product for the treatment of hemorrhoids. If we receive FDA approval, we will qualify for three years of market exclusivity

for our dosage strength and formulation. In addition, we will also be the only product on the market specifically proven to be

safe and effective for the treatment of hemorrhoids. Generally, if a company conducts clinical trials and receives FDA approval

of a product for which there are similar, but non FDA-approved, prescription products on the market, the manufacturers of the

unapproved but marketed products are required to withdraw them from the market. However, the FDA has significant latitude in determining

how to enforce its regulatory powers in these circumstances. We have not had any communication with the FDA regarding this matter

and cannot predict what action, if any, the FDA will take with respect to the unapproved products.

We

believe that should Halo-Lido receive FDA approval and demonstrate, proven safety and efficacy data, and if Halo-Lido obtains

three years of market exclusivity based on our dosage strength and formulation, we are likely to have a meaningful advantage in

our pursuit of achieving a significant position in the market for topical combination prescription products for the treatment

of hemorrhoids.

NoveCite

Overview

In

October 2020, we, through our recently formed subsidiary, NoveCite, signed an exclusive agreement with Novellus Therapeutics Limited

(“Novellus”) to license iPSC-derived mesenchymal stem cells (iMSCs). Under this worldwide exclusive license, we will

be focused on developing cellular therapies. Specifically, we will seek to develop and commercialize the NoveCite mesenchymal

stem cells (“NC-iMSCs”) to treat acute respiratory conditions with a near term focus on ARDS associated with

COVID-19.

NC-iMSCs

are the next generation mesenchymal stem cell therapy. They are believed to be differentiated and superior to donor-derived MSCs.

Human donor-derived MSCs are sourced from human bone marrow, adipose tissue, placenta, umbilical tissue, etc. and have significant

challenges (e.g., variable donor and tissue sources, limited supply, low potency, inefficient and expensive manufacturing). iMSCs

overcome these challenges because they:

● Have practically unlimited supply for high doses and repeat doses;

● Have a significantly higher expansion capability.

Several

cell therapy companies using donor-derived MSC therapies in treating ARDS have demonstrated that MSCs reduce inflammation, enhance

clearance of pathogens and stimulate tissue repair in the lungs. Almost all these positive results are from early clinical trials

or under the emergency authorization program.

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Market

Opportunity

Globally,

there are 3 million cases of ARDS every year, out of which approximately 200,000 cases are in the United States. The COVID-19

pandemic has added significantly to the number of ARDS cases. Once the COVID patients advance to ARDS, they are put on mechanical

ventilators. Death rate among patients on ventilators can be as high as 50% depending on associated co-morbidities. There are

no approved treatments for ARDS, and the current standard of care only attempts to provide symptomatic relief.

Sales

and Marketing

We

are primarily focused on identifying opportunities within the critical care and cancer care market segments. In our product acquisition

criteria, we concentrate on markets that are highly influenced by key opinion leaders, commonly referred to as KOLs, and in which

products are prescribed by a relatively small number of physicians, yet provide opportunities for growth and market share. This

strategy allows for a manageable commercialization effort for our Company in terms of resources and capital. We also seek to provide

cost-effective therapies that would be endorsed by payers, patients, and providers. We believe that we will be able to commercialize

products within the scope of these criteria ourselves, and that we can create marketing synergies by having a common narrow audience

for our marketing efforts (“several products in the bag for the same customer”).

For

our product candidates that fall out of the narrow scope criteria, we have identified pharmaceutical companies with large sales

forces, experienced sales and marketing management teams, direct-to-consumer capabilities, significantly larger resources than

ours, and non-competing product portfolios that we believe would make excellent sales and marketing partners. We intend to license

our mass audience, non-specialty product candidates to such companies for sales and marketing.

Intellectual

Property

We

rely on a combination of patent, trade secret, copyright, and trademark laws, as well as confidentiality, licensing and other

agreements, to establish and protect our proprietary rights. Our policy is to actively seek to obtain, where appropriate, the

broadest intellectual property protection possible for our current product candidates and any future product candidates both in

the U.S. and abroad. However, patent protection may not provide us with complete protection against competitors who seek to circumvent

our patents. To help protect our proprietary know-how that is not patentable, and for inventions for which patents may be difficult

to enforce, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect

our interests.

Mino-Lok

Intellectual Property

In

May 2014, our subsidiary LMB entered into a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc.

(“NAT”), who licensed the intellectual property from MDACC, to develop and commercialize Mino-Lok on an exclusive,

worldwide (except for South America), sub-licensable basis. LMB incurred a one-time license fee in May 2014. On March 20, 2017,

LMB entered into an amendment to the license agreement that expanded the licensed territory to include South America, providing

LMB with worldwide rights. We are obligated to pay annual maintenance fees that increase annually until reaching a designated

amount, which we must pay until the first sale of product. We also must pay up to an aggregate of approximately $1.1 million in

milestone payments, depending on the achievement of various regulatory and commercial milestones. Under the terms of the license

agreement, we also must pay a royalty equal to mid-single digit percentages to low-double digit percentages of net sales, depending

on the level of sales in that year, 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 country of sale at the time of sale. After the first sale of product, we will

owe an annual minimum royalty payment that will increase annually until reaching a designated amount, which we must pay for the

duration of the term. We will be responsible for all patent expenses for the term of the agreement although MDACC is responsible

for filing, prosecution and maintenance of all patents.

Unless

earlier terminated by NAT based on the failure to achieve certain development or 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. The license agreement will terminate in the

event we breach any of our payment or reporting obligations or NAT breaches any of its obligations under the agreement. NAT will

have the right to terminate the agreement if we bring or participate in an action to challenge NAT’s ownership of any of

the licensed patent rights. We may terminate the license agreement upon 180 days’ notice. The license agreement may also

be terminated upon our and NAT’s mutual consent.

10

Mino-Lok

is covered in relation to the composition by issued U.S. patent No. 7,601,731, entitled “Antimicrobial Flush Solutions,”

which was issued on October 13, 2009. Mino-Lok is further covered in relation to its method of use by issued U.S. Patent No. 9,078,441,

which was issued on July 14, 2015. The patents provide intellectual property protection until June 7, 2024. There are corresponding

patents granted in Europe and Canada (European Patent No. EP 1644024, and Canadian Patent No. 2528522).

Stability

Patent Application for Mino-Lok

In

October 2018, the U.S. Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 10,086,114 (the “114 patent”),

entitled “Antimicrobial Solutions with Enhanced Stability.” On October 9, 2019, the European Patent Office (“EPO”)

granted European Patent No. 3370794, which corresponds to the ‘114 patent. The grant of these patents strengthens the intellectual

property protection for Mino-Lok through November 2036. While the original patents for Mino-Lok (discussed above) cover the basic

composition, this invention overcomes limitations in mixing antimicrobial solutions in which components have precipitated because

of physical and/or chemical factors, thus limiting the stability of the post-mix solutions. The scientists and technologists at

MDACC have been able to improve the stability of the post-mixed solutions through adjustments of the post-mixed pH of the solution.

This may allow for longer storage time of the ready-to-use solution. As such, the patents claiming the enhanced stability may

effectively extend patent protection for Mino-Lok beyond the 2024 expiration of the original patents since it is expected that

the compositions providing enhanced stability would be preferred over any non-stabilized versions that a competitor may introduce

after June 7, 2024. Citius holds the exclusive worldwide license which provides access to this patented technology for development

and commercialization of Mino-Lok.

Mino-Lok

has received a Qualified Infectious Disease Product (“QIDP”) designation. The QIDP designation provides New Drug Applications

an additional five years of market exclusivity, which together with the potential three years of exclusivity for the new strength

and formulation of Mino-Lok, would result in a combined total of eight years of market exclusivity regardless of patent protection.

Mino-Wrap

Intellectual Property

In

January 2019, we entered into a patent and technology license agreement with MDACC to develop and commercialize Mino-Wrap on an

exclusive worldwide basis, with no rights to sub-license. We paid a one-time upfront licensing fee upon execution of the agreement.

Under the agreement, we are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory

scenarios and achieve milestones that are associated with these regulatory options leading to an approval from the FDA. We are

obligated to pay annual maintenance fees that increase annually until reaching a designated amount, which we must pay until the

first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, depending on the achievement

of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty equal to

mid- to upper-single digit percentages of net sales, depending on the level of sales in that year, 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 that will increase annually for the duration

of the term. We will be responsible for all patent expenses incurred by MDACC for the term of the agreement although MDACC is

responsible for filing, prosecution and maintenance of all patents.

The

term of the license agreement will end on the later of the expiration of all licensed patents, or the fifteenth anniversary of

the agreement. MDACC may terminate the license agreement at any time after four years in any country if we have not commercialized

or are not actively attempting to commercialize a product in such country. The license agreement will terminate in the event we

breach any of our payment or reporting obligations or MDACC breaches any of its obligations under the agreement. MDACC will have

the right to terminate the agreement if we bring or participate in an action to challenge MDACC’s ownership of any of the

licensed patent rights. We may terminate the license agreement upon 180 days’ notice. The license agreement may also be

terminated upon our and MDACC’s mutual consent.

11

In

December 2017, the USPTO issued U.S. Patent No. 9,849,217, entitled “Antimicrobial Wraps for Medical Implants.” This

invention overcomes limitations in breast reconstruction utilizing tissue expanders and implants following mastectomies by providing,

in certain aspects, biodegradable antimicrobial film that may be wrapped around a medical implant such as a breast implant prior

to the insertion into a subject such as a human patient. The scientists and technologists at MDACC have developed a biodegradable

covering for a medical implant comprising a highly plasticized gelatin and at least one drug to reduce infection. Citius holds

the exclusive worldwide license, which provides access to this patented technology for development and commercialization of Mino-Wrap.

Halo-Lido

Intellectual Property

We