CorMedix Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited consolidated results. CorMedix develops and commercializes products for infectious-disease prevention. Its lead product, Neutrolin, is marketed in certain international markets and is in development for U.S. approval.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $31,264 | $12,203 |
| Gross profit (loss) | $13,945 | $(68,823) |
| Research and development | $1.235 million | $353,018 |
| Selling, general and administrative | $4.276 million | $2.513 million |
| Net loss | $(5.498) million | $(16.713) million |
| Net loss per common share | $(0.23) | $(0.87) |
| Operating cash flow | $(2.348) million | $(1.429) million |
- At March 31, cash and cash equivalents were $8.799 million, restricted cash $132,000, current assets $9.686 million, and current liabilities $2.120 million. Total liabilities were $2.156 million; the filing reports no conventional debt balance.
- Accumulated deficit was $81.7 million. Net loss attributable to common shareholders was $5.531 million, including $33,121 of dividends and beneficial conversion feature.
- Financing activities provided $6.828 million, primarily from warrant exercises; cash rose from $4.340 million at year-end. Capital spending was $12,944.
Material changes and operating context
- Revenue increased year over year but remained immaterial relative to expenses; most Q1 2015 revenue came from Neutrolin sales in Germany and Middle East markets.
- Gross profit improved partly because Q1 2014 cost of sales included label and packaging transition costs. Some product manufacturing and raw-material costs had previously been charged to R&D before CE Mark approval.
- R&D rose by about $882,000, chiefly due to U.S. regulatory development costs and stock-based compensation. SG&A rose by about $1.763 million, including a $1.583 million noncash warrant charge related to a backstop agreement and higher legal, personnel, and business-development costs.
- The much smaller net loss versus Q1 2014 principally reflects the absence of the prior-year $13.682 million derivative-liability revaluation loss and $89,590 issuance loss; those were not recurring operating improvements.
- Common shares outstanding increased from 22.462 million at December 31, 2014 to 27.865 million at March 31, 2015, largely from warrant exercises and conversions. The filing lists 17.209 million potentially dilutive shares excluded from diluted loss per share.
Outlook, risks, and unusual items
- Management said available cash, expected 2015 sales, then-current development plans excluding the expected U.S. Phase III trial, and financing proceeds through April 30 were expected to fund operations for at least 12 months from the balance-sheet date. If the hemodialysis Phase III trial starts in Q4 2015, management estimated funding would cover operations and expected trial spending only into Q1 2016. The company anticipates no significant product-sales revenue in 2015.
- After quarter-end, warrant and option exercises generated approximately $8.0 million gross proceeds through April 30. An at-the-market agreement permits up to $40 million of stock sales; by April 30, 472,412 shares had generated approximately $3.9 million net. These financings increase liquidity but dilute shareholders.
- CorMedix is evaluating strategic alternatives, including partnerships, licensing, a merger, or a sale; no timetable or outcome is assured. The FDA had accepted the hemodialysis Phase III protocol and determined the IND was not on clinical hold. Neutrolin received Fast Track and Qualified Infectious Disease Product designations in January 2015; neither constitutes approval.
- Risks include continued losses, dependence on additional financing and commercial uptake, clinical and regulatory uncertainty, competition, and potential further cash needs. Management warned that inability to raise funds or generate substantial sales could materially harm the business and require delays or reductions in programs.
- Patent infringement and related competition proceedings against TauroPharm were ongoing in Germany, alongside patent opposition and utility-model cancellation actions. Outcomes are uncertain. A $132,000 court-required security deposit was recorded as restricted cash.
- The company did not meet Navinta’s prior minimum purchase requirement in 2014 and lost exclusive manufacturing rights. A March 2015 amendment extended the supply agreement to March 31, 2016, lowered the API price, and established a revised 2015 minimum purchase.
- Management concluded disclosure controls were ineffective at March 31, 2015 because a material weakness in financial-reporting controls had not been fully remediated; the weakness related to limited finance staffing and review capacity amid complex accounting.
- An April 2015 manufacturing-services agreement was expected to cost approximately $1.7 million during the remainder of 2015 to support taurolidine synthesis and regulatory submissions.
Important facts for investors to verify
- Whether the company starts and funds the U.S. Phase III trial, and whether additional capital is required sooner than management’s base-case estimate.
- Actual Neutrolin sales, market adoption, gross margins, and the costs of expanding manufacturing and commercialization.
- Progress and outcomes in the German patent and competition cases, and any resulting legal costs or commercial restrictions.
- Terms and use of ATM proceeds, further share issuance, and the dilution from outstanding warrants, options, and preferred stock.
- Remediation of the material weakness and whether future filings report effective disclosure controls.