Cormedix Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. CorMedix is a development-stage biopharmaceutical company focused primarily on Neutrolin, a catheter-lock solution intended to prevent catheter-related infections and thrombosis. Neutrolin had CE Mark approval and limited sales in certain overseas markets; U.S. approval requires two pivotal Phase 3 trials.
Financial performance and position
- Revenue: Q2 revenue was $136,000 versus $17,000 in Q2 2016; first-half revenue was $176,000 versus $58,000. Revenue remained very small and largely reflected European sales, including an initial Hemotech shipment, and recognition of previously deferred sales.
- Loss and expenses: Q2 net loss was $5.15 million ($0.10 per share), compared with $4.89 million ($0.13 per share). First-half net loss was $12.74 million ($0.27 per share), up from $9.12 million ($0.25 per share). First-half R&D expense rose 106% to $10.01 million, mainly due to LOCK-IT-100; SG&A rose 14% to $4.69 million.
- Gross profit: Q2 gross profit was $118,000, compared with a $171,000 gross loss in Q2 2016. First-half gross profit was $64,000, versus a $179,000 gross loss.
- Cash flow: First-half operating cash use was $14.51 million, compared with $9.22 million in 2016. Investing activities provided $1.22 million and financing provided $13.15 million, principally from the May equity-and-warrant offering.
- Liquidity: At June 30, cash and cash equivalents were $7.94 million and short-term investments were $10.88 million, totaling $18.82 million; restricted cash was $172,000. Management estimated these resources would fund operations into the first quarter of 2018 and concluded substantial doubt existed about the company’s ability to continue as a going concern without additional financing.
- Balance sheet and capitalization: Total assets were $21.16 million, total liabilities $5.79 million, and stockholders’ equity $15.37 million. The filing reports no conventional borrowings; current liabilities include a $1.88 million warrant derivative liability. Common shares outstanding increased from 40.43 million at year-end 2016 to 59.34 million at June 30, 2017.
Material changes and notable items
- On May 3, 2017, CorMedix raised approximately $12.8 million net in an underwritten offering of 18.62 million common shares and warrants. The offering included 29.05 million warrants; because authorized shares were insufficient at the reporting date, the warrants were recorded as liabilities and remeasured through earnings. A $1.85 million gain from the decrease in their fair value reduced reported loss.
- On August 8, 2017, shareholders approved increasing authorized common shares from 80 million to 160 million. The company said it intended to make the amendment effective by filing it with Delaware. The warrants become exercisable only after the amendment is effective and publicly announced.
- Q2 sales growth included an initial Hemotech shipment that had not yet reached end users by June 30; management cautioned subsequent shipments could be lower depending on initial sales.
Outlook, risks and contingencies
- LOCK-IT-100: In April, an independent safety board recommended continuing the trial as designed after reviewing the first 279 randomized patients. On August 2, 2017, after the quarter, the FDA agreed to protocol changes including independent adjudication of suspected infections and broader event capture. The required event count was reduced from 161 to 56; management anticipated an interim analysis in Q4 2017 and said completion by year-end 2018 was possible, with earlier completion possible if interim efficacy supported it.
- The PPD contract for LOCK-IT-100 increased from $19.2 million to $26.4 million; management expected trial cost to exceed $30 million, with enrollment likely continuing into 2018. Further contract costs were still being negotiated. The cost of the planned second Phase 3 trial was not yet estimated, and its design was under reassessment.
- Additional capital is needed to complete the current trial and fund the second pivotal trial. If financing or strategic arrangements are unavailable on acceptable terms, CorMedix may have to delay, scale back or stop clinical development. Potential financing could dilute shareholders; debt could add fixed obligations and restrictive covenants.
- Material legal matters include German patent and unfair-competition disputes with TauroPharm. The court found infringement in the patent and utility-model cases but stayed proceedings pending validity decisions and did not grant an injunction. The EPO hearing on the Prosl patent was scheduled for November 22–23, 2017; a separate unfair-competition hearing was scheduled for May 8, 2018. Outcomes remain uncertain.
- Sales are concentrated: two customers represented 48% and 36% of Q2 revenue; one customer accounted for approximately 91% of receivables. The company also identified clinical, regulatory, manufacturing, intellectual-property, financing and product-demand risks.
Most important facts for investors to verify
- Whether the charter amendment was filed and became effective, and the resulting exercisability, dilution potential and accounting treatment of the offering warrants.
- Subsequent cash use, access to financing, and whether the stated first-quarter 2018 runway was extended.
- LOCK-IT-100 enrollment, adjudicated event accrual, interim-analysis results, final completion timing and total cost; also the design, funding and estimated cost of the second Phase 3 trial.
- Whether Hemotech’s initial shipment converted to end-user sales and whether European revenue and customer concentration changed.
- Developments and rulings in the TauroPharm patent and unfair-competition proceedings.