Cormedix Inc. annual report, FY2015

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CorMedix Inc. — 2015 Form 10-K

Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter report. The company develops and commercializes anti-infective products; its lead product, Neutrolin, is marketed in select non-U.S. markets and remains under U.S. clinical development.

Financial performance and position

  • Revenue: $210,000, up 11% from $189,000 in 2014; most came from Germany and Middle East markets. Revenue remains immaterial relative to operating costs.
  • Gross margin: Gross loss was $109,000 versus $257,000 in 2014, reflecting cost of sales of $319,000 against revenue of $210,000.
  • Expenses and profit: R&D was $6.28 million, up from $1.32 million, mainly due to U.S. Phase 3 trial and clinical-supply work. SG&A was $10.26 million, up from $7.33 million, including higher legal, personnel, consulting and business-development costs. Operating loss was $16.65 million; net loss was $18.19 million, compared with $20.45 million in 2014. Basic and diluted loss per share was $0.58, versus $0.96.
  • Cash flow: Operating cash use was $12.53 million; investing cash use was $23.61 million, largely for short-term investments; financing provided $43.63 million. Cash and cash equivalents ended at $11.82 million.
  • Liquidity and liabilities: Short-term investments were $23.57 million, bringing cash and investments to $35.39 million, excluding $172,000 of restricted cash. Current assets were $37.06 million and current liabilities $3.06 million; total liabilities were $3.09 million. The balance sheet shows no material conventional borrowings, but preferred-stock terms restrict certain borrowing and other actions.
  • Equity and dilution: Stockholders’ equity was $34.01 million, versus $3.63 million in 2014; accumulated deficit was $94.39 million. The company raised about $28.45 million net through an at-the-market stock program and $14.66 million from warrant exercises during 2015. Common shares outstanding rose from 22.46 million to 35.96 million.

Changes versus 2014

  • Revenue increased modestly, but remained very low. Operating expenses rose substantially as the company initiated the U.S. hemodialysis Phase 3 trial and advanced manufacturing work.
  • Net loss narrowed, chiefly because 2014 included large non-cash charges from derivative revaluation and modification of preferred stock and warrants. In 2015, a $1.58 million non-cash expense for warrants issued with a backstop arrangement was recorded.
  • Cash and investments increased sharply following equity issuance and warrant exercises. This was accompanied by significant common-share dilution.
  • The company terminated the CRMD004 gel-product license in November 2015; rights reverted to the licensor. Development focus is centered on Neutrolin.

Outlook, risks and unusual items

  • Management expected cash at year-end to fund operations for at least 12 months after the balance-sheet date, but said additional funding would be needed to complete the hemodialysis trial and pursue the planned oncology/total parenteral nutrition trial. Financing or strategic partnerships are not assured; failure to raise funds could delay, reduce or halt development.
  • The hemodialysis Phase 3 trial began in December 2015. Management estimated it would take about 18 months and cost $26–30 million; a separate PPD agreement describes a $19.2 million study contract. The planned oncology/total parenteral nutrition Phase 3 trial was targeted for the fourth quarter of 2016, conditional on funding and the hemodialysis trial staying within budget.
  • Neutrolin has CE Mark approval and is registered in listed European and Middle Eastern markets, but has no U.S. marketing approval. U.S. commercialization depends on successful trials, FDA review, manufacturing readiness, market acceptance and reimbursement. European sales to date have not generated significant revenue.
  • Material risks include clinical and regulatory failure or delay, reliance on third-party manufacturers and distributors, uncertain reimbursement, competition, potential dilution, and a low-revenue operating model. A major customer represented 48% of 2015 revenue and approximately 93% of year-end receivables.
  • CorMedix is involved in German patent and unfair-competition disputes with TauroPharm. Although a German court found infringement, it stayed the cases and withheld injunctive relief pending patent-validity proceedings; the filing notes preliminary validity concerns based on alleged prior art. A U.S. securities class action alleging misleading statements was also pending; the company said it intended to defend the claims.
  • The company reported that a previously identified material weakness in financial reporting controls was remediated in 2015. Management and the auditor concluded internal control over financial reporting was effective at year-end; the financial-statement audit opinion was unqualified.

Most important facts for investors to verify

  • Current cash runway and the financing required to complete both planned U.S. Phase 3 programs, including how the $19.2 million trial contract relates to the $26–30 million total-cost estimate.
  • Enrollment, interim analyses, safety and efficacy progress in LOCK-IT-100, and whether the oncology/TPN trial timing remains achievable.
  • Commercial uptake, sales trends, customer concentration, product replacement obligations and reimbursement status in approved markets.
  • Outcome and potential cost of the German patent and unfair-competition cases and the U.S. securities litigation.
  • Potential future dilution from equity financing, outstanding warrants, options and convertible preferred stock, as well as any restrictions imposed by preferred-stock terms.