Cormedix Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. CorMedix is a development-stage biopharmaceutical company focused primarily on Neutrolin, a catheter-lock solution being developed to prevent infections and thrombosis. Neutrolin is sold in certain overseas markets; U.S. approval requires two pivotal trials.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net sales | $23,210 | $39,559 reported |
| Gross loss | $5,365 | $54,012 |
| Research and development expense | $8.28 million | $4.92 million; up 68% |
| Selling, general and administrative expense | $1.90 million | $2.64 million; down 28% |
| Operating loss | $10.19 million | $7.62 million |
| Net loss | $10.19 million | $7.60 million |
| Basic and diluted loss per share | $0.14 | $0.19 |
| Net cash used in operating activities | $7.05 million | $6.76 million |
- At March 31, cash and cash equivalents were $8.16 million, restricted cash was $0.17 million, and short-term investments were zero. Cash, cash equivalents and restricted cash totaled $8.33 million.
- Current assets were $9.40 million and current liabilities $8.77 million, leaving working capital of approximately $0.64 million. Total liabilities were $8.77 million; the filing reports no long-term debt.
- Cash declined by $2.22 million during the quarter. Investing activities provided $1.57 million, mainly from selling short-term investments; ATM stock sales provided $3.27 million in financing.
- Stockholders’ equity fell from $7.19 million at year-end to $0.84 million, reflecting the quarterly loss and other equity activity. Common shares outstanding rose from 71.4 million to 81.8 million during the quarter.
Material changes and accounting effects
- R&D expense increased by $3.36 million, principally due to higher LOCK-IT-100 trial costs, including increased enrollment. SG&A decreased by $0.74 million, mainly because prior-year consulting and market-research costs were lower in the current period.
- Reported Q1 sales are not directly comparable with the prior period because CorMedix adopted ASC 606 on January 1, 2018. Q1 2018 revenue would have been $53,368 under the previous guidance versus $23,210 reported under ASC 606, a $30,158 difference related to warranty revenue timing. The company recorded a $17,655 cumulative-effect adjustment to opening equity.
- LOCK-IT-100 costs increased substantially: the CRO contract had risen from an original $19.2 million to $33 million, with approximately $26.5 million accrued through March 31 and about $12 million of budget remaining under the current contract.
Outlook, risks and unusual items
- Management estimated that existing cash would fund operations into the third quarter of 2018, subject to CRO negotiations and the consequences of a delay in the trial’s interim efficacy analysis. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- The LOCK-IT-100 interim analysis was delayed by data-quality issues. CorMedix was negotiating with its CRO over remediation and financial considerations and anticipated a DSMB review in July 2018, assuming no further significant delays. The company also took direct responsibility for certain trial activities.
- Management said additional capital would be needed to complete the ongoing trial and the further Phase 3 trial required for U.S. approval. A new ATM agreement permits up to $14.7 million in common-stock sales; its registration became effective April 16, 2018. The company had not sold shares under the new agreement as of the filing date. Equity financing may dilute shareholders; financing availability and terms are uncertain.
- A proposed $3 million Elliott backstop facility had not been finalized; the company delayed finalization while addressing CRO matters. A proposed reverse split of 1-for-5 to 1-for-10 was to be put to stockholders, with a special meeting planned for June 26, 2018. Management anticipated a possible rights offering after a reverse split, subject to approvals and available authorized shares.
- The EPO panel indicated in November 2017 that it would invalidate CorMedix’s Prosl European Patent for lack of novelty. CorMedix planned to appeal; the written opinion was expected in Q3 2018. Related German patent/utility-model and unfair-competition litigation remained unresolved. The utility model had been found invalid by the German PTO, and the patent court had previously declined to issue an injunction pending validity decisions.
- The FDA granted orphan drug designation to taurolidine for neuroblastoma in February 2018. This is not marketing approval; the company was seeking partners or capital to develop the program. The FDA also indicated that taurolidine medical-device indications would require a premarket approval pathway under the current circumstances.
- There is no formal earnings or revenue guidance in the filing. Management did not expect significant product revenue in the foreseeable future and expected continued operating cash deficits.
Investor verification priorities
- Verify current cash runway and financing needs, including any subsequent ATM sales, rights offering, or completion of the Elliott backstop facility.
- Track CRO remediation, the timing and findings of the LOCK-IT-100 interim DSMB review, trial enrollment and total remaining costs.
- Assess potential dilution and share availability: Q1 ATM issuance added 10.2 million shares, and 23.0 million warrants were outstanding at a weighted-average exercise price of $1.07; preferred stock and other awards also create potential dilution.
- Monitor the appeal and outcome of the Prosl patent proceedings and the separate unfair-competition litigation.
- Reconcile sales trends using the ASC 606 comparison, rather than treating reported Q1 sales and prior-period sales as directly comparable.