CorMedix Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; filed May 10, 2017. CorMedix is a development-stage biopharmaceutical company focused primarily on Neutrolin (CRMD003), an anti-infective catheter-lock solution. Neutrolin had CE Mark approval and limited sales in certain overseas markets; its U.S. lead program, LOCK-IT-100, was a Phase 3 hemodialysis-catheter trial.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $39,559 | $41,427; down about 5% |
| Cost of sales / gross result | $93,571 / gross loss $54,012 | $50,229 / gross loss $8,802 |
| Research and development | $4.924 million | $2.090 million; up 136% |
| Selling, general and administrative | $2.641 million | $2.050 million; up 29% |
| Operating loss | $7.619 million | $4.149 million |
| Net loss / loss per share | $7.597 million / $0.19 | $4.118 million / $0.11 |
| Operating cash used | $6.759 million | $5.451 million |
- Gross margin was negative in both periods, worsening to approximately -137% of sales from approximately -21%, reflecting costs exceeding the very small sales base.
- At March 31, cash and cash equivalents were $6.819 million and short-term investments were $6.951 million; together, $13.770 million, excluding $0.172 million restricted cash. Total current assets were $14.865 million and current liabilities were $3.890 million.
- Total liabilities were $3.890 million; the balance sheet reported no debt. Accumulated deficit was $126.8 million and stockholders’ equity was $11.0 million.
- Cash and investments declined from approximately $20.2 million at December 31, 2016. Investing cash inflow of $5.158 million mainly reflected sales of short-term investments, rather than operating cash generation.
- Q1 financing included approximately $347,000 net proceeds from the at-the-market program and $6,800 from option exercises.
Material changes versus the prior comparable period
- Net loss widened by approximately 84%, principally as R&D spending increased, including $2.480 million more for the U.S. hemodialysis Phase 3 trial, alongside higher manufacturing-process development and personnel costs.
- SG&A increased 29%, reflecting personnel, executive-search consulting, marketing research and stock-based compensation costs; lower legal and European commercialization expenses partly offset the increase.
- Cost of sales rose 86%, including costs recognized with deferred revenue and higher stability-study costs. Sales remained approximately flat and immaterial relative to operating expenses.
- Net cash used in operations increased by $1.308 million year over year.
Outlook, risks and unusual items
- Going concern and funding: Management said cash and investments at March 31, even after the subsequent financing, would not fund operations for at least 12 months following the filing, and stated that this raised substantial doubt about the company’s ability to continue as a going concern. Additional capital is required to support operations and clinical development; management gave no assurance financing or strategic arrangements would be available on acceptable terms.
- Subsequent offering: On May 3, 2017, CorMedix completed an offering of 18,619,301 common shares at $0.75 per share, with associated Tranche 1 and Tranche 2 warrants. Gross share proceeds were approximately $14.0 million and reported net proceeds approximately $12.8 million. The offering was materially dilutive and included warrants for up to 27,928,950 shares, plus underwriter warrants for 1,117,158 shares.
- Authorized-share constraint: The company said it lacked enough authorized common shares to cover the new warrants. Warrant exercise depends on stockholder approval of a charter amendment to increase authorized shares to 200 million, scheduled for a June 6, 2017 vote. If not approved, the warrants may have no value and the company’s equity-fundraising capacity would be severely limited. The company also agreed not to sell equity securities until the later of approval or July 27, 2017.
- Clinical outlook: In April, the independent DSMB concluded LOCK-IT-100 was safe to continue as designed based on its review of the first 279 randomized patients. The filing noted a lower-than-anticipated infection-event rate and ongoing FDA discussions about protocol changes. FDA accepted the proposal for one or more interim efficacy analyses; the first could occur as early as Q4 2017 if enough events accrue. Management anticipated enrollment could continue into Q2 2018, with topline results around year-end 2018. These timings remain subject to trial events, enrollment, funding and final protocol details.
- The ongoing hemodialysis trial was expected to cost at least $30 million. A planned Phase 3 oncology trial remained subject to funding and protocol finalization; the filing said no cost estimate was available.
- Management expected operating cash deficits to continue and R&D spending to rise. It did not anticipate significant product revenue in the foreseeable future. If funding is unavailable, the company may delay, scale back or stop trials and other development programs.
- Legal and other contingencies: German patent and unfair-competition proceedings against TauroPharm remained unresolved. The German PTO had found the utility model invalid; the related patent opposition had a further EPO hearing scheduled for November 22–23, 2017. CorMedix said outcomes could not be predicted. The U.S. securities class action was dismissed with prejudice and the derivative action was dismissed without prejudice.
- The company recognized $30,000 of previously deferred revenue and $18,000 of associated cost of sales during the quarter for product shipped with a replacement warranty; it also recorded an additional $12,000 of deferred revenue. One customer represented approximately 86% of net receivables at quarter-end.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether CorMedix secured sufficient additional funding after the May offering, and how long available cash supports operations and LOCK-IT-100.
- The outcome of the June 6, 2017 charter-amendment vote, the resulting authorized-share capacity and the potential dilution from the offering warrants and other convertible securities.
- LOCK-IT-100 enrollment, event accrual, FDA protocol discussions, interim-analysis timing and trial cost versus the stated minimum estimate.
- Whether the anticipated trial timelines and year-end 2018 topline-results estimate remain achievable, and whether the oncology trial can be funded and initiated.
- Progress and outcomes in the TauroPharm patent and unfair-competition cases, including the scheduled EPO hearing.
- European sales traction, inventory recoverability and the concentration of receivables with one customer.