Cormedix Inc. quarterly report, Q1 FY2016

Business context and reporting period

CorMedix Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2016. The company develops and commercializes Neutrolin, a catheter-lock solution, and remains primarily focused on clinical development and early commercialization. Neutrolin had CE Mark approval and was sold in selected European and Middle Eastern markets; its U.S. hemodialysis Phase 3 trial began in December 2015.

Financial performance and liquidity

At March 31, cash and cash equivalents were $13.185 million and short-term investments were $17.044 million, totaling $30.229 million, excluding $172,000 of restricted cash. Current liabilities were $3.064 million; the filing reports no borrowings or debt balance. Total liabilities were $3.090 million. Accumulated deficit was $98.6 million.

Cash and investments together declined from $35.386 million at year-end 2015. Operating cash use was partly offset by $6.548 million of proceeds from short-term investment sales, $149,000 of net ATM proceeds, and $117,000 from option exercises. The filing reports no off-balance-sheet arrangements.

Material changes versus the prior comparable period

• Revenue rose by about $10,000 but remained immaterial relative to costs; cost of sales increased to $50,000, producing a gross loss. The company cited a $23,000 reserve for raw materials expected to expire and higher material costs.
• R&D rose mainly with U.S. Phase 3 trial and clinical-supply development spending. SG&A fell, including lower business-development and European commercialization costs, partly offset by increased legal and clinical-related costs.
• Net loss narrowed, in part because Q1 2015 included a $1.583 million non-cash charge for warrants issued in connection with backstop financing; no such charge was recorded in Q1 2016.
• Operating cash use more than doubled, primarily reflecting a $1.680 million increase in prepaid expenses. Common shares outstanding increased from 35.96 million at year-end to 36.14 million at quarter-end.

Outlook, risks, contingencies, and unusual items

• Management stated that available cash was expected to fund operations for at least 12 months after March 31, 2016, but additional funding would be needed thereafter to complete the hemodialysis trial and to conduct the planned oncology/total parenteral nutrition trial. Financing may require dilutive equity, debt, or strategic arrangements; availability and terms are uncertain.
• The company estimated the hemodialysis Phase 3 trial would take 18 months and cost approximately $26–$30 million. A separate PPD agreement for the trial is described as $19.2 million. The planned oncology/total parenteral nutrition Phase 3 trial was targeted for Q1 2017, contingent on funding and other factors; its cost estimate was not yet available.
• Material risks include clinical-trial outcomes, regulatory approval, limited product revenue, manufacturing and inventory risks, and the need to raise capital. The company cautioned that failure to obtain funding could delay or curtail trials and other programs.
• German patent and utility-model disputes with TauroPharm remain unresolved. Although a German court found infringement, it stayed the proceedings and declined to grant an injunction pending validity decisions; patent validity challenges remained ongoing. A separate German unfair-competition case also continued.
• A U.S. securities class action alleging misleading statements concerning Neutrolin competition and stock promoters was pending; defendants had moved to dismiss, with oral argument scheduled for July 18, 2016. The company said it intended to defend the case.
• Other notable items include $126,000 of deferred revenue and related costs for short-dated product subject to a replacement guarantee, and a $322,000 inventory reserve. Management reported effective disclosure controls and no material change in internal control over financial reporting.

Most important facts for investors to verify

• Whether management’s stated 12-month cash runway remains credible against the trial’s expected cost, operating burn, and further funding needs.
• Clinical-trial enrollment, progress, timing, and any changes to the hemodialysis trial budget or planned oncology trial start.
• Availability, timing, and dilution or other terms of additional financing, including remaining capacity under the ATM program.
• Sales growth, gross economics, customer concentration (89% of receivables was due from one customer), and potential inventory expiry or replacement obligations.
• Outcomes of TauroPharm patent-validity and infringement proceedings and the U.S. securities class action.
• Reconciliation of the $19.2 million PPD agreement with management’s broader $26–$30 million estimated cost for the hemodialysis trial.