Cormedix Inc. quarterly report, Q2 FY2014

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CorMedix Inc. — Form 10-Q Summary

Business context and reporting period

Unaudited results cover the quarter and six months ended June 30, 2014, compared with the same 2013 periods. CorMedix is a development-stage biopharmaceutical company transitioning to commercialization. Its lead product, Neutrolin, received a European CE Mark in July 2013, and shipments to European dialysis centers began in December 2013. The company had not generated substantial product revenue.

Financial results and liquidity

  • Revenue: Second-quarter sales were $39,729 versus none in Q2 2013; first-half sales were $51,932 versus none in the prior-year period. Sales were from Europe.
  • Gross margin: Cost of sales exceeded revenue, producing a gross loss of $14,750 in Q2 and $83,573 for the first half. Some manufacturing and material costs had been expensed as R&D before CE Mark approval.
  • Expenses: Q2 R&D was $171,929, down from $380,174; SG&A was $1.703 million, up from $908,736. First-half R&D was $524,947, down from $635,209, while SG&A rose to $4.216 million from $1.460 million. Commercial launch costs and stock-based compensation contributed to higher SG&A.
  • Profit/loss: Q2 reported net income of $3.509 million, compared with a $1.951 million loss in Q2 2013; basic EPS was $0.12 and diluted EPS was a loss of $0.05. The Q2 result included a $5.419 million noncash gain from changes in derivative fair value. First-half net loss was $13.204 million versus $3.198 million; basic and diluted loss per share were each $0.64.
  • Cash flow: First-half operating cash use was $2.935 million versus $1.177 million in 2013. Investing cash use was $19,613. Financing provided $8.253 million, principally from equity offerings and preferred stock.
  • Cash and liquidity: Cash and cash equivalents were $7.652 million at June 30, 2014, up from $2.374 million at year-end 2013. Management believed cash would fund operations into the third quarter of 2015, based on current plans and sales expectations.
  • Balance sheet: Total assets were $8.256 million; current liabilities were $1.181 million. Derivative liabilities were $8.671 million, and stockholders’ deficiency was $1.601 million. The filing reports no conventional debt balance at June 30, 2014.

Material changes versus prior period

  • First-half revenue began following the European launch, but remained small and did not cover cost of sales.
  • SG&A increased sharply, reflecting commercialization activity, higher stock-based compensation, and professional fees. R&D declined as EU development costs fell after CE Mark approval, partly offset by U.S. development and EU label-expansion spending.
  • Financing increased cash substantially: March 2014 common-stock-and-warrant offering proceeds were $6.723 million net; January Series C-3 financing provided $1.319 million net cash plus settlement of certain payables.
  • Results were affected by complex derivative accounting: a Q2 fair-value gain boosted reported income, while the first-half fair-value change was an $8.263 million expense. These amounts are not operating revenue or cash flow.

Outlook, risks, contingencies, and unusual items

  • Management expected operating cash use to rise as Neutrolin commercialization expands and U.S. development advances. The company warned it may need additional financing and gave no assurance that funding, partnerships, or substantial product sales will be available on acceptable terms.
  • The FDA accepted the protocol for a planned Phase III hemodialysis study in August 2014, after quarter-end. The company planned to submit an IND in mid-to-late September 2014, expected at least one Phase III trial in hemodialysis and another in oncology/total parenteral nutrition, and was seeking U.S. development partners.
  • NYSE MKT accepted the company’s compliance plan on July 18, 2014 and extended the period to regain listing compliance through May 31, 2015. Continued listing is not assured.
  • An opposition concerning the European Sodemann patent remained unresolved; the company said it intended to defend the patent, but could not assure the outcome.
  • Management identified a material weakness in internal control over financial reporting related to limited finance staffing and ineffective review amid complex accounting. Disclosure controls were concluded to be ineffective as of June 30, 2014; remediation was ongoing.
  • Most derivative liabilities were Level 3 fair-value measurements relying on significant unobservable assumptions, including volatility. Changes in assumptions could materially affect reported earnings and liabilities.
  • On July 21, 2014, the company appointed a CFO and a Chief Scientific Officer under employment agreements. These appointments occurred after the reporting date.

Most important facts for investors to verify

  • Whether Neutrolin sales grow enough to support commercialization and improve the negative gross margin.
  • Cash burn, actual cash runway, and the timing and terms of any additional financing or strategic partnership.
  • FDA development milestones, including IND submission, trial initiation, funding, and regulatory requirements.
  • Progress toward NYSE MKT compliance by May 31, 2015 and the status of the European patent opposition.
  • Remediation of the material weakness and the valuation assumptions and disclosures for derivative liabilities.
  • The filing contains inconsistent six-month weighted-average share counts between statements and notes; verify the correct figure against the filed financial statements and XBRL.