CorMedix Inc. — Q2 2015 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2015. CorMedix is developing and commercializing anti-infective products, principally Neutrolin, a catheter-lock solution. Neutrolin had limited commercial sales in Europe and other approved markets; the company had not generated significant revenue.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $120,000 vs. $40,000 in 2014 | $151,000 vs. $52,000 in 2014 |
| Gross profit (loss) | $18,000 vs. $(15,000) | $32,000 vs. $(84,000) |
| Gross margin | 15.1% vs. (37.1%) | 21.2% vs. (160.9%) |
| R&D expense | $1.80 million vs. $172,000 | $3.03 million vs. $525,000 |
| SG&A expense | $2.36 million vs. $1.70 million | $6.63 million vs. $4.22 million |
| Operating loss | $(4.13) million vs. $(1.89) million | $(9.63) million vs. $(4.82) million |
| Net income (loss) | $(4.14) million vs. $3.51 million | $(9.63) million vs. $(13.20) million |
Q2 2014 net income included a $5.42 million gain from changes in fair value of derivative liabilities; the comparable six-month 2014 period included an $8.26 million derivative revaluation expense. These non-operating items make reported net results less comparable than operating losses.
At June 30, cash and cash equivalents were $24.11 million, short-term investments $13.38 million, and restricted cash $132,000. Cash plus short-term investments totaled approximately $37.49 million, excluding restricted cash, versus $4.34 million in cash at December 31, 2014. Six-month operating cash use was $5.95 million; investing cash use was $13.40 million, mainly purchases of short-term investments. Financing provided $39.12 million.
Total liabilities were $1.95 million, primarily accounts payable and accrued expenses; the filing reports no borrowings. Stockholders’ equity was $36.85 million. The company raised approximately $23.98 million net through an at-the-market stock program and received $14.66 million from warrant exercises, substantially increasing shares outstanding.
Changes, outlook, and notable items
- Revenue increased from a small base, but remained immaterial relative to operating costs. Six-month R&D growth reflected manufacturing development, clinical-trial preparation, market research, consulting, and stock-based compensation.
- Management planned to start a U.S. hemodialysis Phase 3 trial in Q4 2015 and an oncology/total parenteral nutrition Phase 3 trial in Q2 2016. The hemodialysis study was estimated to cost $19–22 million and take 18 months after initiation; no cost estimate was provided for the second study. Neutrolin had FDA Fast Track and Qualified Infectious Disease Product designations.
- Management expected no significant product-sales revenue in 2015. It believed existing cash would fund operations for at least 12 months after June 30, 2015, but said additional financing would be needed thereafter. Approximately $15 million remained available under the ATM program. Management warned financing might not be available on acceptable terms and that failure to raise funds could delay or curtail trials and operations.
- Commercial and manufacturing risks include limited sales, the need to establish market adoption, and loss of Navinta exclusivity after the company missed a 2014 minimum purchase requirement. The supply agreement was amended through March 31, 2016. A separate manufacturing-development agreement with RC2 was expected to cost approximately $1.7 million through Q1 2016.
- Patent disputes with TauroPharm remain material. A German court found infringement of the Prosl European Patent and a utility model but stayed proceedings and deferred injunctive relief pending validity decisions; patent-office proceedings were ongoing. The company also pursued a separate unfair-competition case. A $132,000 legal security deposit was recorded as restricted cash.
- A putative securities class action was filed July 7, 2015; the company said it intended to defend the case. On July 17, the board announced a search for a successor CEO with greater regulatory, clinical, and reimbursement experience. Severance terms disclosed for Randy Milby include 12 months of salary and benefits and acceleration of unvested equity upon termination.
- Disclosure controls were deemed ineffective as of June 30, 2015 because a previously identified material weakness in financial reporting controls had not been fully remediated. The company reported no off-balance-sheet arrangements.
Investor verification priorities
- Check subsequent cash use, remaining ATM capacity, dilution, and whether financing or strategic partnerships secure funding beyond management’s stated 12-month runway.
- Track whether the two planned Phase 3 trials begin on schedule, their final protocols and costs, and the cash required to complete them.
- Assess Neutrolin sales growth, gross margins, distribution uptake, and whether commercial revenue can meaningfully offset development and operating costs.
- Monitor patent validity rulings, injunction prospects, and costs or outcomes of the TauroPharm litigation, as well as the securities class action.
- Confirm remediation of the material weakness and review CEO succession and associated severance/equity consequences.