CorMedix Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited consolidated results. CorMedix is commercializing Neutrolin in Europe while developing it for U.S. approval; it reported that it had not yet generated substantial revenue.
Key financial metrics
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $52,441 | $0 | $104,373 | $0 |
| Gross profit (loss) | $15,766 | $0 | $(67,807) | $0 |
| Operating expenses | $1,879,302 | $1,255,302 | $6,619,999 | $3,350,989 |
| Operating loss | $(1,863,536) | $(1,255,302) | $(6,687,806) | $(3,350,989) |
| Net loss | $(5,035,117) | $(2,499,899) | $(18,239,118) | $(5,697,821) |
| Net loss per common share | $(0.23) | $(0.18) | $(0.87) | $(0.46) |
- Q3 gross margin was approximately 30%; nine-month gross margin was negative. The filing attributes much of the nine-month cost of sales to manufacturing, stability studies, and label and packaging transition costs.
- Cash and cash equivalents were $5.92 million at September 30, 2014, versus $2.37 million at December 31, 2013. Nine-month operating cash use was $4.75 million; investing cash use was $25,898; financing provided $8.35 million.
- Current assets were $6.78 million and current liabilities $1.23 million. Total liabilities were $1.27 million; derivative liabilities were zero after reclassification to equity. No interest-bearing debt balance is shown on the September 30 balance sheet.
- Common shares outstanding were 22,325,609 at September 30, compared with 16,606,695 at year-end 2013; 22,383,101 were outstanding November 10, 2014.
Changes versus comparable periods
- Revenue began to appear in 2014 following European commercialization; Q3 sales were about $51,000, with the balance principally from deferred-revenue amortization. Nine-month sales were about $103,000, likewise mainly European product sales.
- Q3 net loss roughly doubled year over year; nine-month net loss increased substantially. SG&A rose to $5.80 million for the nine months from $1.97 million, driven by European commercialization, stock compensation, legal and professional fees, and personnel costs.
- R&D declined to $818,000 for the nine months from $1.39 million, partly because the prior-year period included a $500,000 CE Mark-related license fee. Management said R&D spending is expected to rise as U.S. development advances.
- Reported losses included significant noncash and financing-related items: nine-month derivative revaluation expense of $8.85 million and modification/extinguishment loss of $2.46 million. The September 15 amendments eliminated specified reset, anti-dilution, cash-settlement and other provisions; derivative liabilities were reclassified to equity.
Outlook, risks, and unusual items
- Management estimated existing cash would fund operations through Q3 2015, based on current sales and development assumptions. Operations beyond then, including the planned U.S. Phase III hemodialysis trial, depend on product revenue and/or additional financing, partnerships, or licensing. Funding availability and terms are not assured; further financing may dilute shareholders.
- The FDA accepted the hemodialysis Phase III protocol in August 2014; the company filed an IND in September. In October, after the reporting date, FDA advised that the IND was not on clinical hold and the trial could begin. Management anticipated at least one additional Phase III trial for oncology/total parenteral nutrition.
- Wonik Corporation agreed to distribute Neutrolin in South Korea subject to regulatory approval. CorMedix received a nonrefundable $50,000 upfront payment and may receive another $50,000 upon product registration; no sales to Wonik had occurred by the reporting date.
- Liquidity remains a key risk: nine-month operating cash use was $4.75 million, revenue was minimal, and management expected operating cash use to increase. CorMedix also disclosed it would not meet its 2014 minimum purchase requirement under the Navinta supply agreement.
- Legal and intellectual-property risks include a European patent opposition concerning the Sodemann patent and CorMedix’s September 2014 patent infringement action against TauroPharm and Tauro-Implant; outcomes were uncertain. The filing also notes potential milestone and royalty obligations under license agreements.
- Management reported a material weakness in internal control over financial reporting related to limited finance staffing and ineffective management review amid complex accounting. Controls and procedures were deemed ineffective as of September 30, 2014; remediation was underway but not assured.
Important facts for investors to verify
- Actual European sales growth, gross margins, and repeatability of costs currently classified in cost of sales.
- Cash burn, the assumptions supporting runway through Q3 2015, and timing and terms of any additional capital or strategic partnership.
- FDA trial start, enrollment, costs, and development requirements for the hemodialysis and oncology/TPN programs.
- Potential dilution from preferred stock, warrants, options, and future financing; confirm the impact of the September 2014 instrument amendments.
- Progress on the disclosed material weakness, and developments in the patent proceedings and Navinta supply requirements.