CorMedix Inc. — Q3 2018 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2018. CorMedix is a development-stage biopharmaceutical company focused on Neutrolin, a catheter-lock solution intended to prevent infections and thrombosis. It sells Neutrolin in certain European and Middle Eastern markets; U.S. approval remains pending.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $373,000 | $61,000 | $403,000 | $237,000 |
| Gross profit (loss) | $60,000 | $(6,000) | $29,000 | $59,000 |
| Gross margin | 16.1% | Negative | 7.1% | 24.7% |
| Research and development | $8.29 million | $6.01 million | $23.17 million | $16.03 million |
| Net loss | $(10.24) million | $(9.96) million | $(28.98) million | $(22.70) million |
| Loss per share, basic and diluted | $(0.11) | $(0.17) | $(0.35) | $(0.44) |
| Operating cash flow | Not presented quarterly | $(16.50) million | $(21.31) million |
- Quarterly revenue rose primarily on higher Middle East sales. Nine-month revenue increased, with Middle East growth partly offset by lower EU sales. Revenue remained small relative to operating costs.
- Q3 R&D expense increased 38%, mainly due to LOCK-IT-100 interim-analysis and wind-down work. Nine-month R&D rose 45%. Nine-month SG&A declined 12% to $5.86 million.
- At September 30, cash and cash equivalents were $6.44 million; restricted cash was $0.17 million and there were no short-term investments. Current assets of $7.87 million were below current liabilities of $17.55 million. Stockholders’ equity was a deficit of $9.50 million. The balance sheet reports no debt at quarter-end.
- Operating cash use was lower year over year despite higher net loss, substantially because accounts payable and accrued expenses increased while payments to the CRO were suspended during negotiations. This is not necessarily a recurring cash-flow improvement.
- The company raised $11.01 million net through its ATM program in the first nine months, issuing 27.24 million shares. Common shares outstanding were 98.83 million at September 30 and 105.31 million as of November 9.
Material developments, outlook and risks
- In July, the independent data safety monitoring board reported that LOCK-IT-100 met its prespecified interim efficacy threshold and recommended early termination; it reported no safety concerns. The company was winding down the study and discussing next steps with the FDA. A second pivotal trial may still be required before an NDA, and the filing gives no assurance of the FDA’s position.
- Management stated that quarter-end cash, subsequent ATM proceeds, CRO settlement consideration and expected proceeds from a proposed $7.5 million convertible facility were expected to fund operations into Q2 2019. The company disclosed substantial doubt about its ability to continue as a going concern; the runway estimate depends on financing and other assumptions.
- After quarter-end, the company reported about $6.5 million net ATM proceeds through the filing date. It also signed a binding term sheet, not a completed financing, for a proposed three-year $7.5 million convertible facility at 10% interest, convertible at $1.50 per share and secured by substantially all assets. Closing was anticipated before year-end. The transaction would add debt, collateral encumbrance and potential dilution.
- A November 2018 CRO settlement provided cash, credits and other consideration in exchange for cumulative net payments of approximately $6.2 million through January 2019, plus certain unbilled investigator and third-party costs. It was expected to satisfy recorded CRO payables and accruals; a separate study-closeout work order had a budget of approximately $1.4 million.
- Other risks include continued operating losses and financing needs; uncertainty over U.S. regulatory approval and commercialization; customer concentration (two customers represented 81% and 14% of Q3 sales, respectively); and German litigation. The European patent opposition resulted in an adverse EPO position on validity, which CorMedix appealed. Patent and unfair-competition proceedings remain unresolved.
- ASC 606 adoption affected timing of certain revenue and cost recognition, including accelerated recognition of deferred amounts and a warranty obligation. The filing reports no off-balance-sheet arrangements and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the FDA will accept the LOCK-IT-100 interim results for an NDA or require another pivotal trial, and the resulting timeline and cost.
- Whether the proposed convertible financing closed, its final terms and related dilution, and whether actual liquidity supports management’s runway estimate.
- The final CRO settlement payments, additional unbilled costs and closeout-work-order spending.
- Cash burn excluding the temporary benefit from deferred CRO payments, and the company’s ability to meet its near-term liabilities.
- Developments in the EPO appeal and German unfair-competition litigation, including potential effects on Neutrolin’s competitive position.