Cormedix Inc. — 2013 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2013, CorMedix was a development-stage pharmaceutical and medical-device company transitioning toward commercialization. Its lead product, Neutrolin (CRMD003), is a catheter-lock solution intended to prevent catheter-related bloodstream infections and maintain catheter patency. The company received European CE Mark approval in July 2013 and began a commercial launch in Germany in the fourth quarter. Neutrolin was not approved for sale in the United States; CRMD004 remained preclinical.
Financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $2,001 | $0 |
| Cost of sales / gross profit (loss) | $201,605 / $(199,604) | $0 / $0 |
| Research and development | $1.227 million | $1.143 million |
| Selling, general and administrative | $3.489 million | $1.857 million |
| Operating loss | $(4.915) million | $(3.000) million |
| Net loss | $(9.133) million | $(3.381) million |
| Net loss per common share | $(0.69) | $(0.30) |
| Cash used in operating activities | $(3.619) million | $(2.276) million |
| Cash and cash equivalents at year-end | $2.374 million | $0.835 million |
Revenue remained negligible, so the reported gross loss reflects launch-period cost of sales against only $2,001 in sales; a meaningful gross margin is not established. The 2013 net loss included substantial financing-related charges: $945,892 loss on issuance of convertible notes and warrants, $363,919 fair-value change, $1.460 million loss on extinguishment of convertible notes, and $1.444 million interest expense. SG&A rose mainly due to stock-based compensation and European launch costs. R&D increased modestly, including the $500,000 CE Mark milestone licensing fee.
At December 31, 2013, total assets were $2.968 million, including $220,586 of restricted cash. Total liabilities were $6.990 million, including $1.674 million of current liabilities and $5.309 million of derivative liabilities. The balance sheet reported a stockholders’ deficit of $4.022 million. Convertible notes were converted, redeemed, or exchanged by year-end; the filing does not report an outstanding convertible-note balance at that date.
Changes versus the prior year
- Net loss increased to $9.133 million from $3.381 million, while operating cash use rose to $3.619 million from $2.276 million.
- SG&A increased by $1.632 million; R&D increased by $84,243.
- CorMedix recorded its first product sales, but sales were only $2,001. The commercial launch began late in the year, and cost of sales exceeded sales.
- Cash increased by $1.538 million, principally because financing cash inflows of $5.204 million exceeded operating and investing outflows.
- The company added European operations and reported $5.309 million in derivative liabilities, chiefly associated with preferred-stock conversion features and warrants.
Outlook, risks and unusual items
Management expected no significant product sales in 2014 and anticipated continued operating losses and negative operating cash flow. After approximately $8.6 million in aggregate net proceeds from January and March 2014 financings, management believed available capital would fund operations into 2015; additional funding would be needed thereafter, absent sufficient revenue. The company warned that financing might not be available on acceptable terms and could dilute shareholders.
Following FDA discussions in late 2013, management expected U.S. approval to require at least one Phase 3 hemodialysis-catheter trial, with another indication potentially requiring an additional trial. The company planned to work toward an acceptable clinical program and anticipated trials could begin in the second half of 2014, finish in 2015 or early 2016, and potentially support an NDA submission and approval in late 2016 or late 2017. These were estimates, not assured milestones. European expansion also depended on country-specific approvals, distributors, reimbursement, and market adoption.
- Funding and dilution: ongoing losses, limited product revenue, financing dependence, and substantial outstanding warrants, options, and convertible preferred shares.
- Controls: management identified a material weakness in internal control over financial reporting related to limited finance staffing and ineffective management review. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end.
- Commercial and supply execution: Germany sales depended on human4farma; manufacturing was outsourced. Navinta’s supply terms called for minimum annual purchases of $2.25 million for five years following the first commercial sale, subject to the agreement’s terms.
- Regulatory, reimbursement, and competition: U.S. clinical and regulatory success was uncertain, and reimbursement and acceptance were not assured. Neutrolin faced competing catheter-lock products.
- Patent contingency: Geistlich’s opposition proceeding involving a licensed Neutrolin patent remained unresolved; the patent had been upheld in part, with further proceedings regarding restricted claims.
- Listing and liquidity: year-end stockholders’ equity was below the NYSE MKT’s stated $4 million threshold. The company said subsequent financing and other transactions put equity above that level, but gave no assurance of continued compliance.
Important facts for investors to verify
- Whether German sales grew after launch, and the actual revenue, cost of sales, and gross margin from Neutrolin.
- Current cash, cash burn, financing needs, and whether the stated runway into 2015 was achieved.
- FDA-agreed trial requirements, trial funding and enrollment plans, and any changes to the anticipated U.S. development timeline.
- Progress in obtaining country-level European approvals, reimbursement, distribution, and commercial uptake.
- Remediation of the material weakness and the effect of derivative accounting and financing instruments on reported liabilities and equity.
- Status and potential impact of the Geistlich patent proceeding, the Navinta purchase commitments, and outstanding dilutive securities.