Cormedix Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2014. CorMedix is a development-stage company transitioning toward commercialization, focused principally on Neutrolin, a catheter-lock product. Neutrolin received a European CE Mark in July 2013, and shipments to dialysis centers began in December 2013.
Financial results and liquidity
- Revenue: Net sales were $12,203, all from European operations, versus none in Q1 2013. Cost of sales was $81,026, producing a gross loss of $68,823.
- Expenses and loss: Research and development expense was $353,018, up from $255,035. Selling, general and administrative expense was $2.513 million, up from $551,741. Net loss was $16.713 million, compared with $1.247 million; net loss attributable to common shareholders was $16.740 million versus $1.557 million. Basic and diluted loss per share was $0.87 versus $0.13.
- Noncash valuation impact: The $16.713 million quarterly net loss included a $13.682 million loss from the increase in fair value of derivative liabilities, and $1.415 million of stock-based compensation. Derivative liabilities were $12.361 million at quarter-end and were valued using Level 3 inputs.
- Cash flow: Cash used in operating activities was $1.429 million; investing activities used no cash. Financing activities provided $8.253 million, primarily from equity offerings and option exercises. Cash rose to $9.189 million from $2.374 million at December 31, 2013. Restricted cash was an additional $220,662.
- Balance sheet: Total assets were $9.761 million and total liabilities were $13.490 million, including $12.361 million in derivative liabilities. Current liabilities were $1.122 million; stockholders’ deficiency was $3.729 million. The filing does not show a material conventional debt balance at March 31, 2014.
Changes versus Q1 2013
- Sales commenced following the European launch; revenue remained very small and cost of sales exceeded sales.
- SG&A increased substantially, mainly due to stock-based compensation, European launch and commercialization costs, and higher accounting and legal fees. R&D rose modestly, with increased stock compensation and U.S. development and EU label-expansion work partly offset by lower EU development costs after CE Mark approval.
- The reported net loss rose sharply, primarily reflecting the derivative fair-value charge. The prior-year quarter included $440,403 of interest expense, versus $465 in Q1 2014.
- Financing materially strengthened cash: the company received $6.723 million net from a March common-stock offering and $1.319 million net cash from the January Series C-3 financing. The March offering issued 2.96 million shares and warrants to purchase 1.036 million shares.
Outlook, risks and unusual items
- Management believed available cash would fund operations into 2015, but expected to need additional financing thereafter and gave no assurance financing would be available on acceptable terms. The company cautioned that significant product-sales revenue might not be generated in 2014 and expected operating cash use to increase as commercialization and U.S. development proceed.
- U.S. approval of Neutrolin is expected to require at least one Phase III hemodialysis trial and potentially a Phase III trial in another indication. Additional funds will be needed to complete U.S. development and pursue other candidates.
- Neutrolin’s European patent remains subject to opposition proceedings. The European Patent Office had given the opposing party an extension to respond by the end of July 2014; CorMedix intended to defend the patent but could not assure the outcome.
- The Navinta supply agreement requires annual purchases of at least $2.25 million for five years following the first commercial sale and provides for sales-based milestone payments of up to $1.975 million if achieved.
- Management disclosed a material weakness in internal control over financial reporting related to limited finance staffing and ineffective review amid increasingly complex accounting. Disclosure controls were concluded to be ineffective as of March 31, 2014; remediation was underway but not assured.
- Equity and preferred-stock financings, warrants, and options create potential dilution. The filing reports 21.582 million potentially dilutive shares excluded from diluted loss per share as anti-dilutive.
Important facts for investors to verify
- Subsequent European Neutrolin sales, collections, launch costs, and progress toward meaningful revenue.
- Cash runway against actual operating and clinical-development spending, and the timing and terms of any additional financing.
- FDA feedback and the scope, timing, and funding needs of required Phase III trials.
- Developments in the European patent opposition and the company’s ability to meet Navinta purchase and milestone obligations.
- Changes in Level 3 derivative valuations and related accounting judgments, and progress in remediating the disclosed material weakness.
- Potential dilution from outstanding preferred shares, warrants, options, and future capital raises.