Cormedix Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The company is a biopharmaceutical developer focused on Neutrolin, a catheter-lock solution intended to reduce catheter-related infection and thrombosis. Results are unaudited.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $35,000 | $8,000 | $199,000 | $31,000 |
| Gross profit (loss) | $14,000 | $(26,000) | $(49,000) | $(31,000) |
| Research and development | $2.98 million | $6.60 million | $5.85 million | $14.88 million |
| Selling, general and administrative | $2.57 million | $1.95 million | $4.56 million | $3.85 million |
| Operating loss | $(5.54) million | $(8.57) million | $(10.46) million | $(18.76) million |
| Net loss | $(696,000) | $(8.56) million | $(5.86) million | $(18.74) million |
| Basic and diluted loss per share | $(0.03) | $(0.52) | $(0.25) | $(1.19) |
- Q2 gross margin was approximately 40%; first-half gross loss reflected cost of sales exceeding revenue. Product sales remain very small.
- Net loss included a $5.06 million tax benefit from selling New Jersey net operating losses. The company received approximately $5.1 million net from that sale; this was a significant, nonrecurring benefit.
- At June 30, cash and cash equivalents were $14.56 million and short-term investments were $11.82 million, totaling $26.39 million; restricted cash was $172,000. Total current assets were $27.41 million and current liabilities were $4.35 million.
- First-half operating cash use was $7.20 million; investing cash use was $11.84 million, mainly purchases of short-term investments; financing provided $15.98 million, primarily from common-stock ATM sales. Cash, cash equivalents and restricted cash declined $3.06 million to $14.73 million.
- Reported liabilities totaled $11.08 million, including a $6.73 million carrying value for the related-party convertible note. The note was issued for $7.5 million principal, is secured by company assets, bears 10% annual interest compounded quarterly, and matures December 30, 2021.
Changes versus prior period
- First-half R&D expense fell 61%, mainly because the LOCK-IT-100 Phase 3 trial was winding down after the DSMB recommended early termination in 2018 following an efficacy review; no safety concerns were reported.
- First-half SG&A increased 18%, including higher stock compensation, consulting, marketing and research costs, partly offset by lower legal and business-development costs.
- Revenue increased from a low base, mainly from higher Middle East sales. First-half cost of sales rose substantially due largely to product resale costs for a new Middle East distributor.
- First-half financing included $15.23 million net proceeds from ATM stock sales and approximately $747,000 from warrant and option exercises. Common shares outstanding rose from 21.78 million at year-end 2018 to 23.82 million at June 30, 2019. A 1-for-5 reverse stock split took effect March 26, 2019.
Outlook, risks and notable items
- Following written FDA feedback, management said in July 2019 that it believes LOCK-IT-100 is sufficient to support a planned Neutrolin NDA without a second clinical trial. Discussions with the FDA on other filing requirements continued. The FDA had agreed the company could request consideration under the Limited Population Pathway for Antibacterial and Antifungal Drugs.
- Management estimated existing cash and investments would fund operations into the third quarter of 2020, including NDA submission and initial launch preparation. It anticipated possible FDA marketing approval in the second half of 2020. Additional capital would be needed for a U.S. commercial infrastructure and ongoing operations; financing availability and terms are uncertain and could dilute shareholders.
- On August 14, 2019, after quarter-end, the company entered into an agreement to exchange certain investors’ warrants, the 10% secured convertible note, and Series C-2, D and F preferred shares, plus a $2.0 million cash payment, for 100,000 Series G preferred shares. Series G has an aggregate liquidation preference of about $18.74 million and is convertible into 5,560,138 common shares at $3.37 per share, subject to a 4.99% ownership conversion limit. Closing was anticipated by September 15, 2019, subject to customary conditions. Investors retain common and Series E shares.
- Legal uncertainty remains material: the company’s European patent appeal and related litigation with TauroPharm continue. A German court had dismissed the company’s unfair-competition complaint in December 2018; the company appealed. Hearings were scheduled for September 2019. Restricted cash of about $172,000 secures legal-cost deposits.
- Other risks include regulatory and manufacturing requirements, reliance on future capital, low commercial revenue, competition, and potential inventory or development-cost uncertainty. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor verification points
- Confirm the FDA’s remaining NDA requirements, filing timing, and whether the agency’s feedback and LPAD pathway expectations remain unchanged.
- Check progress and actual cash needs against management’s stated runway into Q3 2020, including anticipated launch costs and financing requirements.
- Verify whether the August 2019 Series G exchange closed as planned, its final terms, and the resulting dilution, voting rights and liquidation preferences.
- Assess recurring operating cash burn separately from the one-time $5.06 million NOL-related tax benefit and ATM proceeds.
- Track the TauroPharm patent and unfair-competition proceedings, including outcomes of the scheduled 2019 hearings and any related financial or commercial effects.