Cormedix Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing is an annual report, not a standalone quarterly filing; it also provides unaudited fourth-quarter results. CorMedix is a development-stage biopharmaceutical company whose lead product, Neutrolin, is intended to prevent catheter-related infections and thrombosis. It had CE Mark approval and limited sales in certain European and Middle Eastern markets, but was not approved for sale in the United States.
Financial results and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $224,105 | $210,130 |
| Gross loss | $142,568 | $108,588 |
| Research and development expense | $15.74 million | $6.28 million |
| Selling, general and administrative expense | $8.88 million | $10.26 million |
| Operating loss | $24.76 million | $16.65 million |
| Net loss | $24.64 million | $18.19 million |
| Basic and diluted loss per share | $0.65 | $0.58 |
| Cash and short-term investments at year-end | $20.17 million | $35.39 million |
| Net cash used in operating activities | $22.27 million | $12.53 million |
| Total liabilities at year-end | $4.09 million | $3.09 million |
- Revenue rose 7% year over year but remained very small relative to operating costs. FY2016 revenue included $106,000 recognized from previously deferred product sales; sales in Germany and the Middle East declined by $92,000.
- R&D expense increased 150%, principally reflecting the U.S. Phase 3 hemodialysis trial, clinical-supply manufacturing, and exploratory taurolidine studies. SG&A declined 13%, partly due to lower stock-based compensation and European selling costs.
- Cash and investments fell by about $15.2 million. The company raised $7.09 million through at-the-market share sales and option exercises during 2016; financing proceeds were substantially below operating cash use.
- Year-end current assets were $21.83 million and current liabilities were $4.09 million. Liabilities were principally accounts payable, accrued expenses and deferred revenue; the filing does not provide a clear material conventional borrowings balance. Restricted cash of $171,553 was separate from cash and investments.
- Fourth-quarter 2016 unaudited results: sales of $121,000, gross profit of $36,000, operating loss of $6.43 million and net loss of $6.40 million.
Business, changes and outlook
- LOCK-IT-100, a Phase 3 trial of Neutrolin in hemodialysis patients, began in December 2015. Management projected completing enrollment in Q4 2017, subject to funding. The trial was expected to cost approximately $26–$30 million and take about 30 months from initiation.
- A planned Phase 3 oncology-catheter trial remained subject to funding and finalization of its protocol with the FDA. Management did not provide a cost estimate.
- Neutrolin had FDA Qualified Infectious Disease Product and Fast Track designations. These designations do not assure approval. The company also described limited international commercialization and distributor arrangements.
- Management said year-end resources would not fund operations for at least 12 months following the 10-K filing and would not complete the hemodialysis trial or start the oncology trial. The auditor’s report included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- Funding options included equity or debt issuance and strategic partnerships or licensing. About $4.1 million remained under the existing ATM program; a separate $40 million ATM program could not be accessed until registration and Manchester participation-right conditions were resolved. The filing notes possible dilution and the possibility of delaying or reducing development if funding is unavailable.
- The filing reports an accumulated deficit of $119.2 million and no significant product revenue. Management expected continued operating losses and did not provide revenue or profitability guidance.
Risks, contingencies and unusual items
- CorMedix’s commercial prospects depend primarily on Neutrolin’s clinical success, FDA approval, manufacturing readiness, market adoption and reimbursement. Coverage, pricing and separate reimbursement are not assured.
- Manufacturing is outsourced. The company reported agreements with RC2 totaling $7.6 million for clinical supplies and a separate manufacturing-services arrangement expected to cost about $1.7 million. The former Navinta supply agreement expired in 2016.
- German patent and unfair-competition disputes with TauroPharm remained unresolved. A German court found infringement in proceedings involving the Prosl European Patent and utility model but deferred injunctive relief pending validity decisions; the German PTO found the expired utility model invalid, and CorMedix appealed. An EPO hearing on the Prosl patent was scheduled for November 2017.
- A securities class action was dismissed with prejudice in October 2016, and plaintiffs agreed not to appeal; no settlement payment was made. A related derivative action was dismissed without prejudice in January 2017.
- Potential dilution is material: at year-end, outstanding options, warrants and convertible preferred stock represented substantial additional shares. Common shares outstanding were 40.43 million at December 31, 2016 and 40.72 million at March 14, 2017.
- Management and the auditor reported effective internal control over financial reporting at year-end. The financial statement audit opinion was unqualified, with the separate going-concern explanatory paragraph.
Important facts for investors to verify
- Current cash runway, burn rate, and whether new financing or strategic funding is secured on acceptable terms.
- LOCK-IT-100 enrollment and completion progress, funding availability, and any revised clinical timetable or budget.
- FDA feedback and the status, design, funding and start date of the oncology Phase 3 trial.
- Neutrolin sales trends, distributor performance, manufacturing supply and product-expiry exposure; assess whether revenue growth can improve gross margins.
- Resolution of the Manchester participation rights and effectiveness/accessibility of the new ATM registration statement.
- Developments in the Prosl European Patent and TauroPharm proceedings, as well as the potential dilution from outstanding options, warrants and convertible preferred shares.