Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
One)
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the
quarterly period ended March 31, 2018
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the
transition period from ________ to ________
Commission
file number 001-34673
|
CORMEDIX INC.
|
|
(Exact Name of Registrant as Specified in Its Charter)
|
|
Delaware
|
20-5894890
|
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
|
400 Connell Drive, Suite 5000, Berkeley Heights, NJ
|
07922
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
|
(908) 517-9500
|
|
(Registrant’s Telephone Number, Including Area
Code)
|
Indicate by check
mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer
|
☐ (Do not check if a smaller reporting
company)
|
Smaller reporting company
|
☒
|
|
|
|
Emerging
growth company
|
☐
|
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☒
The
number of shares outstanding of the issuer’s common stock, as
of May 11, 2018 was 81,903,027.
CORMEDIX INC. AND SUBSIDIARY
INDEX
|
PART I FINANCIAL INFORMATION
|
|
2
|
|
Item 1. Unaudited Condensed
Consolidated Financial Statements
|
2
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2018 and December 31,
2017
|
2
|
|
Condensed
Consolidated Statements of Operations and Comprehensive Loss for
the Three Months Ended March 31, 2018 and 2017
|
3
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity for
the Three Months Ended March 31, 2018
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2018 and 2017
|
5
|
|
Notes
to Unaudited Condensed Consolidated Financial
Statements
|
6
|
|
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
23
|
|
Item 3. Quantitative and Qualitative
Disclosure About Market Risk
|
33
|
|
Item 4. Controls and
Procedures
|
|
33
|
|
PART II OTHER INFORMATION
|
|
34
|
|
Item 1. Legal Procedings
|
|
34
|
|
Item 1A. Risk Factors
|
|
36
|
|
Item 6. Exhibits
|
|
37
|
|
SIGNATURES
|
|
38
|
PART I
FINANCIAL INFORMATION
Consolidated
Financial Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
$8,162,034
|
$10,379,729
|
|
Restricted
cash
|
171,553
|
171,553
|
|
Short-term
investments
|
-
|
1,604,198
|
|
Trade
receivables
|
8,651
|
64,148
|
|
Inventories,
net
|
578,912
|
594,194
|
|
Prepaid
research and development expenses
|
80,613
|
86,652
|
|
Other
prepaid expenses and current assets
|
401,903
|
367,177
|
|
Total
current assets
|
9,403,666
|
13,267,651
|
|
Property
and equipment, net
|
205,303
|
186,282
|
|
TOTAL ASSETS
|
$9,608,969
|
$13,453,933
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$3,659,744
|
$1,808,311
|
|
Accrued
expenses
|
5,090,886
|
4,363,867
|
|
Deferred
revenue
|
17,647
|
88,404
|
|
Total current
liabilities
|
8,768,277
|
6,260,582
|
|
TOTAL LIABILITIES
|
8,768,277
|
6,260,582
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
Preferred
stock - $0.001 par value: 2,000,000 shares authorized; 419,585
shares issued and outstanding at March 31, 2018 and December 31,
2017
|
420
|
420
|
|
Common
stock - $0.001 par value: 160,000,000 shares authorized; 81,786,902
and 71,413,790 shares issued and outstanding at March 31, 2018 and
December 31, 2017, respectively
|
81,787
|
71,414
|
|
Accumulated
other comprehensive income
|
97,008
|
98,433
|
|
Additional
paid-in capital
|
163,003,806
|
159,197,950
|
|
Accumulated
deficit
|
(162,342,329)
|
(152,174,866)
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
840,692
|
7,193,351
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$9,608,969
|
$13,453,933
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
|
|
For the Three
Months Ended
March
31,
|
|
|
|
|
|
Revenue
|
|
|
|
|
$23,210
|
$39,559
|
|
Cost
of sales
|
(28,575)
|
(93,571)
|
|
Gross
loss
|
(5,365)
|
(54,012)
|
|
Operating
Expenses
|
|
|
|
Research and
development
|
(8,280,442)
|
(4,924,267)
|
|
Selling, general
and administrative
|
(1,903,016)
|
(2,640,726)
|
|
Total operating
expenses
|
(10,183,458)
|
(7,564,993)
|
|
Loss
From Operations
|
(10,188,823)
|
(7,619,005)
|
|
Other
Income (Expense)
|
|
|
|
Interest
income
|
14,775
|
23,431
|
|
Foreign exchange
transaction loss
|
(9,197)
|
(1,286)
|
|
Interest
expense
|
(1,873)
|
-
|
|
Total
income
|
3,705
|
22,145
|
|
Net
Loss
|
(10,185,118)
|
(7,596,860)
|
|
Other
Comprehensive Income (Loss)
|
|
|
|
Unrealized gain
from investment
|
-
|
10,113
|
|
Foreign currency
translation loss
|
(1,425)
|
(992)
|
|
Total comprehensive
income (loss)
|
(1,425)
|
9,121
|
|
Comprehensive
Loss
|
$(10,186,543)
|
$(7,587,739)
|
|
Net
Loss Per Common Share – Basic and Diluted
|
$(0.14)
|
$(0.19)
|
|
Weighted
Average Common Shares Outstanding – Basic and
Diluted
|
75,356,388
|
40,624,920
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
Non-Voting
Preferred Stock – Series C-2, Series C-3, Series D, Series E
and Series F
|
Accumulated
Other Comprehen-
sive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2018
|
71,413,790
|
$71,414
|
419,585
|
$420
|
$98,433
|
$159,197,950
|
$(152,174,866)
|
$7,193,351
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from ATM sale of common
stock, net
|
10,202,099
|
10,202
|
|
|
|
3,258,961
|
|
3,269,163
|
|
Issuance of vested restricted
stock
|
43,385
|
43
|
|
|
|
(43)
|
|
-
|
|
Stock issued for payment of
deferred fees
|
127,628
|
128
|
|
|
|
173,645
|
|
173,773
|
|
Stock-based
compensation
|
|
|
|
|
|
373,293
|
|
373,293
|
|
Cumulative effect of adoption of
ASC 606 (Note 1)
|
|
|
|
|
|
|
17,655
|
17,655
|
|
Other comprehensive
income
|
|
|
|
|
(1,425)
|
|
|
(1,425)
|
|
Net loss
|
|
|
|
|
|
|
(10,185,118)
|
(10,185,118)
|
|
Balance at March 31,
2018
|
81,786,902
|
$81,787
|
419,585
|
$420
|
$97,008
|
$163,003,806
|
$(162,342,329)
|
$840,692
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three
Months Ended
March
31,
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$(10,185,118)
|
$(7,596,860)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
373,293
|
452,023
|
|
Loss on foreign
currency transactions
|
-
|
210
|
|
Depreciation
|
19,381
|
8,773
|
|
Changes in
operating assets and liabilities:
|
|
|
|
(Increase) decrease
in trade receivables
|
57,182
|
(63,509)
|
|
Decrease in
inventory
|
15,282
|
71,866
|
|
(Increase) decrease
in prepaid expenses and other current assets
|
(28,151)
|
563,180
|
|
Increase in
accounts payable
|
1,849,784
|
80,764
|
|
Increase (decrease)
in accrued expenses
|
916,578
|
(270,292)
|
|
Decrease in
deferred revenue
|
(72,534)
|
(4,881)
|
|
Net cash used in
operating activities
|
(7,054,303)
|
(6,758,726)
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Sale of short-term
investments
|
1,604,198
|
5,160,073
|
|
Purchase of
equipment
|
(38,226)
|
(1,998)
|
|
Net cash provided
by investing activities
|
1,565,972
|
5,158,075
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds from sale
of common stock from at-the-market program
|
3,269,163
|
347,361
|
|
Proceeds from
exercise of stock options
|
-
|
6,800
|
|
Net cash provided
by financing activities
|
3,269,163
|
354,161
|
|
Foreign exchange
effect on cash
|
1,473
|
668
|
|
NET
DECREASE IN CASH
|
(2,217,695)
|
(1,245,822)
|
|
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH – BEGINNING OF
PERIOD
|
10,551,282
|
8,236,043
|
|
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH – END OF
PERIOD
|
$8,333,587
|
$6,990,221
|
|
Cash
paid for interest
|
$1,873
|
$-
|
|
Supplemental
Disclosure of Non-Cash Financing Activities:
|
|
|
|
Conversion of
preferred stock to common stock
|
$-
|
$7
|
|
Issuance of common
stock for payment of deferred fees
|
$173,773
|
$10,218
|
|
Unrealized gain
from investments
|
$-
|
$10,113
|
|
Issuance of common
stock for vested restricted stock units
|
$43
|
$-
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 — Organization, Business and Basis of
Presentation:
Organization and Business
CorMedix Inc.
(“CorMedix” or the “Company”), a
biopharmaceutical company focused on developing and commercializing
therapeutic products for the prevention and treatment of infectious
and inflammatory diseases, was incorporated in the State of
Delaware on July 28, 2006. In 2013, the Company formed a
wholly-owned subsidiary, CorMedix Europe GmbH.
The
Company’s primary focus is to develop its lead product
candidate, Neutrolin®, for potential
commercialization in the United States (“U.S.”) and
other key markets. The Company has in-licensed the worldwide rights
to develop and commercialize Neutrolin, which is a novel
anti-infective solution (a formulation of taurolidine, citrate and
heparin 1000 u/ml) under development for the reduction and
prevention of catheter-related infections and thrombosis in
patients requiring central venous catheters in clinical settings
such as dialysis, critical/intensive care, and
oncology.
The
Company launched its first Phase 3 clinical trial in hemodialysis
patients with catheters in the U.S. in December 2015. The clinical
trial, named Catheter Lock Solution Investigational Trial or
LOCK-IT-100, is a prospective, multicenter, randomized,
double-blind, active control trial which aims to demonstrate the
efficacy and safety of Neutrolin in preventing catheter-related
bloodstream infections, or CRBSI, in subjects receiving
hemodialysis therapy as treatment for end stage renal disease. Two
pivotal clinical trials to demonstrate safety and effectiveness of
Neutrolin are required by the U.S. Food and Drug Administration
(“FDA”) to secure marketing approval in the U.S. The
design of the second Phase 3 clinical trial required for NDA
submission has not been determined.
The
Company received CE Mark approval for Neutrolin in 2013 and
commercially launched Neutrolin in Germany for the prevention of
catheter-related bloodstream infections and maintenance of catheter
patency in hemodialysis patients using a tunneled, cuffed central
venous catheter for vascular access. Neutrolin is registered and is
being sold in certain European Union and Middle Eastern
countries.
The
completion of the Company’s ongoing LOCK-IT-100 clinical
trial and the execution of the second Phase 3 clinical trial are
dependent on the Company’s ability to raise sufficient
additional funds through various potential sources, such as equity,
debt financings, and/or strategic relationships (See Notes 2 and
5). The Company can provide no assurances that financing or
strategic relationships will be available on acceptable terms, or
at all, to complete its clinical development program for
Neutrolin.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”) for interim financial information and with the
instructions for Form 10-Q and Article 8 of Regulation S-X.
Accordingly, the unaudited condensed consolidated financial
statements do not include all information and footnotes required by
GAAP for complete annual financial statements. In the opinion of
management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation
of such interim results. Interim operating results are not
necessarily indicative of results that may be expected for the full
year ending December 31, 2018 or for any subsequent period. These
unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements and notes
thereto of the Company which are included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange
Commission (“SEC”) on March 19, 2018. The accompanying
condensed balance sheet as of December 31, 2017 has been derived
from the audited financial statements included in such Form
10-K.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Recently Adopted Accounting Pronouncements
The
Financial Accounting Standards Board (“FASB”) issued
new guidance related to how an entity should recognize revenue. The
guidance specifies that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods and services. In
addition, the guidance expands the required disclosures related to
revenue and cash flows from contracts with customers. The Company
adopted the new revenue recognition standard as of January 1, 2018
using the modified retrospective method, which requires the
cumulative effect of adoption to be recognized as an adjustment to
opening retained earnings in the period of adoption. The majority
of the Company’s revenue relates to the sale of finished
products to various customers, and the adoption did not have a
material impact on revenue recognized from these transactions. The
Company accelerated the remaining deferred revenue under these
agreements and recorded the reserve for returns and allowances as
cumulative effect adjustments to opening retained earnings at
January 1, 2018 in net amount of $17,655.
The
following table presents the Company’s revenue for the three
months ended March 31, 2018 under the ASC 606 model as compared to
revenue under the previous guidance:
|
|
|
Revenue Under Previous Guidance
|
|
|
Net
revenue
|
$21,004
|
$21,004
|
$-
|
|
Revenue
recognized under agreement with warranty
|
-
|
30,158
|
30,158
|
|
Revenue
recognized under Wonik Agreement
|
2,206
|
2,206
|
-
|
|
Total
net revenue
|
$23,210
|
$53,368
|
$30,158
|
In
October 2015, the Company shipped product with less than 75% of its
remaining shelf life to a customer and issued a guarantee that the
specific product shipped would be replaced by the Company if the
customer was not able to sell the product before it expired. As a
result of this warranty, the Company may have an additional
performance obligation (i.e. accept returned product and deliver
new product to the customer) if the customer is unable to sell the
short-dated product. As the result of the adoption of ASC 606, the
Company accelerated the deferred revenue and related cost of sales
in the net amount of $70,500 and recorded the warranty obligation
in the amount of $52,900 upon adoption (see Note 1).
In
January 2016, the FASB issued a new standard that modifies certain
aspects of the recognition, measurement, presentation, and
disclosure of financial instruments. The accounting standard update
was effective for fiscal years, and interim periods within those
years, beginning after December 15, 2017, and early adoption is
permitted. The Company adopted this guidance on January 1, 2018,
which did not have a material impact on the Company’s
consolidated financial statements.
In
August 2016, the FASB issued new guidance which clarifies how
certain cash receipts and cash payments are presented and
classified in the statement of cash flows in order to reduce
diversity in practice. The guidance was effective for the Company
beginning in the first quarter of fiscal year 2018. The Company
adopted this guidance on January 1, 2018 and it did not have an
impact on its consolidated financial statements.
In
November 2016, the FASB issued new guidance which clarifies how
restricted cash is presented and classified in the statement of
cash flows. The guidance is effective for the Company beginning in
the first quarter of fiscal year 2018. Early adoption is permitted.
The Company adopted this guidance on January 1, 2018 and has
included restricted cash in its beginning and ending cash balances
on the statement of cash flows for the three months ended March 31,
2018 and 2017.
In
May 2017, the FASB issued new guidance which clarifies the
application of stock based accounting guidance when a change is
made to the terms or conditions of a share-based payment award. The
guidance was effective for the Company beginning in the first
quarter of fiscal year 2018. The Company adopted this guidance on
January 1, 2018 and it did not have an impact on its consolidated
financial statements.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 2 — Summary of Significant Accounting
Policies:
Liquidity, Going Concern and Uncertainties
The
financial statements have been prepared in conformity with GAAP
which contemplate continuation of the Company as a going concern.
To date, the Company’s commercial operations have not
generated sufficient revenues to enable profitability. As of March
31, 2018, the Company had an accumulated deficit of $162.3 million,
and had incurred losses from operations of $10.2 million for the
quarter then ended. Based on the current development plans for
Neutrolin in both the U.S. and foreign markets (including the
ongoing hemodialysis Phase 3 clinical trial in the U.S.) and the
Company’s other operating requirements, as well as the
current status of the Company’s negotiations with its
contract research organization (CRO), management believes that the
Company’s existing cash and cash equivalents at March 31,
2018 are expected to fund its operations into the third quarter of
2018, subject to the
outcome of the Company’s assessment and negotiations with its
CRO for the delay incurred in performing the interim efficacy
analysis of the LOCK-IT-100 clinical trial (see Note 5).
These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern.
At
March 31, 2018, approximately $14.5 million remained available for
sale under the Company’s August 2016 At-the-Market Issuance
Sales Agreement, as amended on December 8, 2017, (the “ATM
program”) with B. Riley FBR, Inc. (“B. Riley”)
(see Note 3 – Stockholders’ Equity). This ATM program
expired on April 16, 2018. On March 9, 2018, the Company entered
into a new At-the-Market Issuance Sales Agreement with B. Riley for
the sale of up to $14.7 million of the Company’s common
stock, the registration statement for which was filed on March 9,
2018 and became effective on April 16, 2018. The company has not
sold any shares under the new agreement as of the March 31, 2018
financial satement filing date.
The
Company’s continued operations will depend on its ability to
raise additional capital through various potential sources, such as
equity and/or debt financings, strategic relationships, or
out-licensing of its products in order to complete its Phase 3
clinical trials and until it achieves profitability, if ever.
Management is actively pursuing financing plans but can provide no
assurances that such financing or strategic relationships will be
available on acceptable terms, or at all. Without this funding, the
Company could be required to delay, scale back or eliminate some or
all of its research and development programs which would likely
have a material adverse effect on the Company.
The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
The
Company’s operations are subject to a number of other factors
that can affect its operating results and financial condition. Such
factors include, but are not limited to: the results of clinical
testing and trial activities of the Company’s product
candidates; the ability to obtain regulatory approval to market the
Company’s products; ability to manufacture successfully;
competition from products manufactured and sold or being developed
by other companies; the price of, and demand for, Company products;
and the Company’s ability to negotiate favorable licensing or
other manufacturing and marketing agreements for its
products.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Basis of Consolidation
The
condensed consolidated financial statements include the accounts of
the Company and CorMedix Europe GmbH, its wholly owned subsidiary.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Financial Instruments
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and
short-term investments. The Company maintains its cash and cash
equivalents in bank deposit and other interest bearing accounts,
the balances of which, at times, may exceed federally insured
limits.
The
following table is the reconciliation of the recently adopted new
accounting standard that modifies certain aspects of the
recognition, measurement, presentation and disclosure of financial
instruments as shown on the Company’s condensed consolidated
statement of cash flows:
|
|
|
|
|
Cash and cash
equivalents
|
$8,162,034
|
$6,818,668
|
|
Restricted
cash
|
171,553
|
171,553
|
|
Total cash, cash
equivalents and restricted cash
|
$8,333,587
|
$6,990,221
|
The
appropriate classification of marketable securities is determined
at the time of purchase and reevaluated as of each balance sheet
date. Investments in marketable debt and equity securities
classified as available-for-sale are reported at fair value. Fair
value is determined using quoted market prices in active markets
for identical assets or liabilities or quoted prices for similar
assets or liabilities or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities. Changes in fair value that are
considered temporary are reported in the condensed consolidated
statement of operations. Realized gains and losses, amortization of
premiums and discounts and interest and dividends earned are
included in income (expense). For declines in the fair value of
equity securities that are considered other-than-temporary,
impairment losses are charged to other (income) expense, net. The
Company considers available evidence in evaluating potential
impairments of its investments, including the duration and extent
to which fair value is less than cost. There were no deemed
permanent impairments at March 31, 2018 or December 31,
2017.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
Company’s marketable securities are highly liquid and consist
of U.S. government agency securities, high-grade corporate
obligations and commercial paper with original maturities of more
than 90 days. As of March 31, 2018 and December 31, 2017, all of
the Company’s investments had contractual maturities of less
than one year. The following table summarizes the amortized cost,
unrealized gains and losses and the fair value at March 31, 2018
and December 31, 2017:
|
March 31, 2018:
|
|
|
|
|
|
Money
Market Funds included in Cash Equivalents
|
$3,658,011
|
$-
|
$-
|
$3,658,011
|
|
Total
March 31, 2018
|
$3,658,011
|
$-
|
$-
|
$3,658,011
|
|
December 31, 2017:
|
|
|
|
|
|
Money
Market Funds included in Cash Equivalents
|
$6,032,034
|
$-
|
$-
|
$6,032,034
|
|
Corporate
Securities
|
905,625
|
(112)
|
-
|
905,516
|
|
Commercial
Paper
|
698,682
|
-
|
-
|
698,682
|
|
Subtotal
|
1,604,307
|
(112)
|
-
|
1,604,198
|
|
Total
December 31, 2017
|
$7,636,341
|
$(112)
|
$-
|
$7,636,232
|
Fair Value Measurements
The
Company’s financial instruments recorded in the consolidated
balance sheets include cash and cash equivalents, accounts
receivable, investment securities, accounts payable and accrued
expenses. The carrying value of certain financial
instruments, primarily cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate
their estimated fair values based upon the short-term nature of
their maturity dates.
The
Company categorizes its financial instruments into a three-level
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The fair value hierarchy
gives the highest priority to quoted prices in active markets for
identical assets (Level 1) and the lowest priority to unobservable
inputs (Level 3). If the inputs used to measure fair value fall
within different levels of the hierarchy, the category level is
based on the lowest priority level input that is significant to the
fair value measurement of the instrument. Financial assets recorded
at fair value on the Company’s condensed consolidated balance
sheets are categorized as follows:
●
Level 1
inputs—Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
●
Level 2
inputs— Significant other observable inputs (e.g., quoted
prices for similar items in active markets, quoted prices for
identical or similar items in markets that are not active, inputs
other than quoted prices that are observable such as interest rate
and yield curves, and market-corroborated inputs).
●
Level 3
inputs—Unobservable inputs for the asset or liability, which
are supported by little or no market activity and are valued based on management’s
estimates of assumptions that market participants would use in
pricing the asset or liability.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
following table provides the carrying value and fair value of the
Company’s financial assets measured at fair value on a
recurring basis as of March 31, 2018 and December 31,
2017:
|
March
31, 2018:
|
|
|
|
|
|
Money
Market Funds
|
$3,658,011
|
$3,658,011
|
$-
|
$-
|
|
Total
March 31, 2018
|
$3,658,011
|
$3,658,011
|
$-
|
$-
|
|
December
31, 2017:
|
|
|
|
|
|
Money
Market Funds
|
$6,032,034
|
$6,032,034
|
$-
|
$-
|
|
Corporate
Securities
|
905,516
|
-
|
905,516
|
-
|
|
Commercial
Paper
|
698,682
|
-
|
698,682
|
-
|
|
Subtotal
|
1,604,198
|
-
|
1,604,198
|
$-
|
|
Total
December 31, 2017
|
$7,636,232
|
$6,032,034
|
$1,604,198
|
$-
|
Foreign Currency Translation and Transactions
The
condensed consolidated financial statements are presented in U.S.
Dollars (“USD”), the reporting currency of the Company.
For the financial statements of the Company’s foreign
subsidiary, whose functional currency is the EURO, foreign currency
asset and liability amounts, are translated into USD at
end-of-period exchange rates. Foreign currency income and expenses
are translated at average exchange rates in effect during the
period in which the income and expenses were recognized.
Translation gains and losses are included in other comprehensive
loss.
The
Company has intercompany loans between the parent company based in
New Jersey and its German subsidiary. The intercompany loans
outstanding are not expected to be repaid in the foreseeable future
and unrealized foreign exchange movements related to long-term
intercompany loans are recognized in other comprehensive
income.
Foreign
currency exchange transaction gain (loss) is the result of
re-measuring transactions denominated in a currency other than the
functional currency of the entity recording the
transaction.
Restricted Cash
As of
March 31, 2018 and December 31, 2017, the Company has restricted
cash in connection with the patent and utility model infringement
proceedings against TauroPharm (see Note 5). The Company was
required by the District Court Mannheim to provide a security
deposit of approximately $132,000 to cover legal fees in the event
TauroPharm is entitled to reimbursement of these costs. The
Company furthermore had to provide a deposit in the amount of
$40,000 in connection with the unfair competition proceedings in
Cologne.
Prepaid Research and Development and Other Prepaid
Expenses
Prepaid
expenses consist of payments made in advance to vendors relating to
service contracts for clinical trial development, manufacturing,
preclinical development and insurance policies. These advanced
payments are amortized to expense either as services are performed
or over the relevant service period using the straight-line
method.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Inventories, net
Inventories are
valued at the lower of cost or net realizable value on a first in,
first out basis. Inventories consist of raw materials (including
labeling and packaging), work-in-process, and finished goods, if
any, for the Neutrolin product. Inventories consist of the
following:
|
|
|
|
|
Raw
materials
|
$140,691
|
$141,233
|
|
Work in
process
|
532,583
|
526,067
|
|
Finished
goods
|
8,638
|
29,894
|
|
Inventory
reserve
|
(103,000)
|
(103,000)
|
|
Total
|
$578,912
|
$594,194
|
Accrued Expenses
Accrued
expenses consist of the following:
|
|
|
|
|
Professional and
consulting fees
|
$515,349
|
$485,089
|
|
Accrued payroll and
payroll taxes
|
417,712
|
755,221
|
|
Clinical trial and
manufacturing development
|
3,866,000
|
2,884,924
|
|
Product
development
|
80,001
|
80,001
|
|
Market
research
|
116,466
|
116,466
|
|
Other
|
95,358
|
42,166
|
|
Total
|
$5,090,886
|
$4,363,867
|
Revenue Recognition
The
Company adopted Accounting Standards Codification
(“ASC”) 606, Revenue from Contracts with Customers, as
of January 1, 2018 using the modified retrospective method. ASC 606
prescribes a five step model for recognizing revenue which includes
(i) identifying contracts with customers; (ii) identifying
performance obligations; (iii) determining the transaction price;
(iv) allocating the transaction price and (v) recognizing
revenue.
The
Company recognizes net sales upon shipment of product to the
dialysis centers and upon meeting the five step model prescribed by
ASC 606 outlined above.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Deferred
Revenue
In August 2014, the Company entered into an
exclusive distribution agreement (the “Wonik
Agreement”) with Wonik Corporation, a South Korean company,
to market, sell and distribute Neutrolin for hemodialysis and
oncolytic patients upon receipt of regulatory approval in Korea.
Upon execution of the Wonik Agreement, Wonik paid the Company a
non-refundable $50,000 payment and will pay an additional
$50,000 upon receipt of the product registration necessary to sell
Neutrolin in the Republic of Korea (the “Territory”). Product
registration in the Territory is contingent upon the marketing
approval of Neutrolin in the U.S. The term of the Wonik Agreement
commenced on August 8, 2014 and will continue for three years after
the first commercial sale of Neutrolin in the Territory. The
non-refundable up-front payment is being recognized as revenue on a
straight-line basis over the contractual term of the Agreement. The
Company recognized $2,200 revenue related to the Wonik agreement
for each of the three months ended March 31, 2018 and
2017.
Deferred
revenue related to this agreement at March 31, 2018 and December
31, 2017 amounted to approximately $17,600 and $19,800,
respectively.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Loss per common share
Basic
loss per common share excludes any potential dilution and is
computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per
common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
However, since their effect is anti-dilutive, the Company has
excluded potentially dilutive shares. The following potentially
dilutive shares have been excluded from the calculation of diluted
net loss per share as their effect would be
anti-dilutive.
|
|
Three Months
Ended
March
31,
|
|
|
|
|
|
Series C non-voting
convertible preferred stock
|
2,540,000
|
2,790,000
|
|
Series D non-voting
convertible preferred stock
|
1,479,240
|
1,479,240
|
|
Series E non-voting
convertible preferred stock
|
1,959,759
|
1,959,759
|
|
Series F non-voting
convertible preferred stock
|
3,157,561
|
-
|
|
Shares underlying
outstanding warrants
|
23,017,891
|
4,006,468
|
|
Shares underlying
restricted stock units
|
97,529
|
107,931
|
|
Shares underlying
outstanding stock options
|
5,501,613
|
5,637,045
|
|
Total
|
37,753,593
|
15,980,443
|
Stock-Based Compensation
The
Company accounts for stock options granted to employees, officers
and directors according to ASC No. 718, “Compensation — Stock
Compensation” (“ASC 718”).
Share-based compensation cost is measured at grant date, based on
the estimated fair value of the award using the Black-Scholes
option pricing model for options with service or performance based
conditions. Stock-based compensation is recognized as expense over
the employee’s requisite service period on a straight-line
basis.
The
Company accounts for stock options granted to non-employees on a
fair value basis using the Black-Scholes option pricing model in
accordance with ASC 718 and ASC No. 505-50, “Equity-Based Payments to
Non-Employees”. The non-cash charge to
operations for non-employee options with time-based vesting
provisions is based on the fair value of the options remeasured
each reporting period and amortized to expense over the related
vesting period. The non-cash charge to operations for non-employee
options with performance based vesting provisions is recorded when
the achievement of the performance condition is probable and
remeasured each reporting period until the performance condition is
achieved.
Research and Development
Research and
development costs are charged to expense as incurred. Research and
development includes fees associated with operational consultants,
contract clinical research organizations, contract manufacturing
organizations, clinical site fees, contract laboratory research
organizations, contract central testing laboratories, licensing
activities, and allocated executive, human resources and facilities
expenses. The Company accrues for costs incurred as the services
are being provided by monitoring the status of the trial and the
invoices received from its external service providers. As actual
costs become known, the Company adjusts its accruals in the period
when actual costs become known. Costs related to the acquisition of
technology rights and patents for which development work is still
in process are charged to operations as incurred and considered a
component of research and development expense.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 3 — Stockholders’ Equity:
Common Stock
At
March 31, 2018, the Company had a sales agreement, as amended on
December 8, 2017, with B. Riley (the “Sales Agreement”)
under which the Company may issue and sell up to an aggregate of
$60.0 million of shares of its common stock from time to time
through B. Riley acting as agent, subject to limitations imposed by
the Company and subject to B. Riley’s acceptance, such as the
number or dollar amount of shares registered under the registration
statement to which the offering relates. When the Company wishes to
issue and sell common stock under the Sales Agreement, it notifies
B. Riley of the number of shares to be issued, the dates on which
such sales are anticipated to be made, any minimum price below
which sales may not be made and other sales parameters as the
Company deems appropriate. B. Riley is entitled to a commission of
up to 3% of the gross proceeds from the sale of common stock sold
under the Sales Agreement. The shares of common stock to be sold
under the Sales Agreement are registered under an effective
registration statement filed with the SEC. The Sales Agreement
expired on April 16, 2018. During the quarter ended March 31, 2018,
the Company issued 10,202,099 shares of common stock under the
Sales Agreement and realized net proceeds of approximately
$3,269,000.
On
March 9, 2018, the Company entered into a new agreement with B.
Riley for the sale of up to $14.7 million of the Company’s
common stock, the registration statement for which was filed on
March 9, 2018 and became effective on April 16, 2018. The
registration statement is for an aggregate of $70.0 million of the
Company’s securities, including the $14.7 million of common
stock allocated to the ATM program.
During the quarter ended March 31, 2018,
the Company issued an aggregate of 43,385 shares of its common
stock upon the vesting of restricted stock units issued to the
Company’s board of directors.
During
the quarter ended March 31, 2018, the Company issued an aggregate
of 127,628 shares of its common stock to its certain board members
for payment of deferred fees.
Preferred Stock
The
Company is authorized to issue up to 2,000,000 shares of preferred
stock in one or more series without stockholder approval. The
Company’s board of directors has the discretion to determine
the rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of preferred
stock. Of the 2,000,000 shares of preferred stock authorized, the
Company’s board of directors has designated (all with par
value of $0.001 per share) the following:
|
|
|
|
|
|
Preferred Shares
Outstanding
|
Liquidation
Preference (Per
Share)
|
Total Liquidation
Preference
|
Preferred Shares
Outstanding
|
Liquidation
Preference (Per
Share)
|
Total Liquidation
Preference
|
|
Series
C-2
|
150,000
|
10.0
|
1,500,000
|
150,000
|
10.0
|
1,500,000
|
|
Series
C-3
|
104,000
|
10.0
|
1,040,000
|
104,000
|
10.0
|
1,040,000
|
|
Series
D
|
73,962
|
21.0
|
1,553,202
|
73,962
|
21.0
|
1,553,202
|
|
Series
E
|
89,623
|
49.2
|
4,409,452
|
89,623
|
49.2
|
4,409,452
|
|
Series
F
|
2,000
|
1,000
|
2,000,000
|
2,000
|
1,000
|
2,000,000
|
|
Total
|
419,585
|
|
10,502,654
|
419,585
|
|
10,502,654
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On
November 9, 2017, the Company entered into a securities purchase
agreement with existing institutional investors (the
“Buyers”), pursuant to which, on November 16, 2017, the
Company sold $2.0 million of its Series F convertible preferred
stock (“Series F Stock”) at $1,000 per share. Based on
the terms of the Series F Stock, the conversion price was set at
$0.162 on April 2, 2018, currently convertible anytime at the
Buyers' option. The conversion price of the Series F Stock is
subject to anti-dilution adjustment for customary recapitalization
events such as stock splits, as well as full ratchet anti-dilution
protection in the event that the Company does not obtain the
subordination of the Series C-3 preferred stock to that of the
Series F Stock or obtain stockholder approval, if required by NYSE
American rules, of the issuance of common stock that exceeds NYSE
American rules. The Series F Stock became mandatorily convertible
on April 2, 2018, subject to certain equity conditions, one of
which was not met as of March 31, 2018. The last condition to be
met is the subordination of the outstanding Series C-3 preferred
stock to the Series F Stock. When and if that condition is met, the
Series F Stock will be mandatorily convertible.Pursuant to the terms of the Series F Stock, a
holder will be prohibited from converting shares of Series F Stock
into shares of common stock if, as a result of such conversion, (i)
such holder, together with its affiliates, would beneficially own
more than 9.99% of the total number of shares of the
Company’s common stock then issued and outstanding, or (ii)
the Company would issue shares in an amount equal to or greater
than 20% of the shares of common stock outstanding on
November 9, 2017, unless the Company has received the approval of
its stockholders for such overage.
Stock Options
During
the three months ended March 31, 2018, the Company granted ten-year
qualified and non-qualified stock options covering an aggregate of
588,000 shares of the Company’s common stock under the 2013
Stock Incentive Plan. The weighted average exercise price of these
options is $0.42 per share.
During
the three months ended March 31, 2018, and 2017, total compensation
expense for stock options issued to employees, directors, officers
and consultants was $350,000 and $431,000,
respectively.
As of
March 31, 2018, there was $2,606,000 in total unrecognized
compensation expense related to stock options granted which expense
will be recognized over an expected remaining weighted average
period of 1.6 years.
The
fair value of the grants are determined using the Black-Scholes
option pricing model with the following assumptions:
|
|
Three Months
Ended March 31,
|
|
|
2018
|
|
2017
|
|
Expected
Term
|
5
years
|
|
5
years
|
|
Volatility
|
92.97%
- 94.6%
|
|
103.78%
- 104.67%
|
|
Dividend
yield
|
0.0%
|
|
0.0%
|
|
Risk-free
interest rate
|
2.63% -
2.65%
|
|
1.93% -
1.99%
|
|
Weighted average
grant date fair value of options granted during the
period
|
$0.31
|
|
$1.42
|
The
Company estimated the expected term of the stock options granted
based on anticipated exercises in future periods. The expected term
of the stock options granted to consultants is based upon the full
term of the respective option agreements. Beginning January 1,
2017, the expected stock price volatility for the Company’s
stock options is calculated based on the historical volatility
since the initial public offering of the Company’s common
stock in March 2010, with a lookback period equal to the expected
term of the respective award. In 2016, the expected stock price
volatility was calculated based on the historical volatility since
the initial public offering, weighted between the period pre and
post CE Mark approval in the European Union. The expected dividend
yield of 0.0% reflects the Company’s current and expected
future policy for dividends on the Company’s common stock. To
determine the risk-free interest rate, the Company utilized the
U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of the Company’s
awards which is 5 years for employees and 10 years for
non-employees.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
following table summarizes the Company’s stock options
activity and related information for the three months ended March
31, 2018:
|
|
|
Weighted
AverageExercise Price
|
Weighted
AverageRemaining Contractual Term (Years)
|
Aggregate
Intrinsic Value
|
|
Outstanding at
beginning of period
|
4,962,795
|
$2.04
|
7.5
|
$247,500
|
|
Forfeited
|
(49,182)
|
$1.41
|
|
$0
|
|
Granted
|
588,000
|
$0.42
|
|
$0
|
|
Outstanding at end
of period
|
5,501,613
|
$1.87
|
7.4
|
$0
|
|
Vested at end of
period
|
2,637,837
|
$1.89
|
6.0
|
$0
|
There
were no stock option exercises during the quarter ended March 31,
2018 and during the quarter ended March 31, 2017, the total
intrinsic value of stock options exercised was $13,200. The
aggregate intrinsic value was calculated as the difference between
the exercise prices of the underlying options and the quoted
closing price of the common stock of the Company at the end of the
reporting period for those options that have an exercise price
below the quoted closing price.
Restricted Stock Units
During
the three months ended March 31, 2018, the Company granted an
aggregate 74,500 restricted stock units (“RSUs”) to its
directors under its 2013 Stock Incentive Plan with a weighted
average grant date fair value of $0.57 per share. The fair value of
each RSU was estimated to be the closing price of the
Company’s common stock on each date of grant. These RSUs will
vest in full on the first anniversary of the grant date, subject to
continued service on the board.
During
the three months ended March 31, 2018 and 2017, compensation
expense recorded for these RSUs was $23,000 and $21,000,
respectively. Unrecognized compensation expense for these RSUs
amounted to $68,700. The expected weighted average period for the
expense to be recognized is 0.82 years.
Warrants
As of
March 31, 2018, there were 23,017,891 outstanding warrants with a
weighted average exercise price of $1.07 per share and
a weighted average remaining contractual life of 3.2
years.
Note 4 — Related Party Transactions:
On
March 19, 2018, the Company entered into a binding term sheet with
Elliott Management Corporation for a proposed $3.0 million backstop
facility. The proposed backstop facility would be available for
drawing between April 16, 2018 and July 31, 2018. In view of its
ongoing negotiations with its CRO regarding certain remediation
efforts and financial considerations for the delay incurred by the
Company in performing the interim efficacy analysis of the
LOCK-IT-100 study, the Company has determined to delay the
finalization of this transaction.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 5 — Commitments and
Contingencies:
Contingency Matters
On
September 9, 2014, the Company filed in the District Court of
Mannheim, Germany a patent infringement action against TauroPharm
GmbH and Tauro-Implant GmbH as well as their respective CEOs (the
“Defendants”) claiming infringement of the
Company’s European Patent EP 1 814 562 B1, which was granted
by the European Patent Office (the “EPO”) on January 8,
2014 (the “Prosl European Patent”). The Prosl
European Patent covers the formulation of taurolidine and citrate
with low dose heparin in a catheter lock solution for maintaining
patency and preventing infection in hemodialysis catheters. In this
action, the Company claims that the Defendants infringe on the
Prosl European Patent by manufacturing and distributing catheter
locking solutions to the extent they are covered by the claims of
the Prosl European Patent. The Company believes that its
patent is sound, and is seeking injunctive relief and raising
claims for information, rendering of accounts, calling back,
destruction and damages. Separately, TauroPharm has filed an
opposition with the EPO against the Prosl European Patent alleging
that it lacks novelty and inventive step. The Company
cannot predict what other defenses the Defendants may raise, or the
ultimate outcome of either of these related matters.
In the
same complaint against the same Defendants, the Company also
alleged an infringement (requesting the same remedies) of ND
Partners’ utility model DE 20 2005 022 124 U1 (the
“Utility Model”), which the Company believes is
fundamentally identical to the Prosl European Patent in its main
aspects and claims. The Court separated the two proceedings and the
Prosl European Patent and the Utility Model claims are now being
tried separately. TauroPharm has filed a cancellation action
against the Utility Model before the German Patent and Trademark
Office (the “German PTO”) based on the similar
arguments as those in the opposition against the Prosl European
Patent.
On
March 27, 2015, the District Court held a hearing to evaluate
whether the Utility Model has been infringed by TauroPharm in
connection with the manufacture, sale and distribution of its
TauroLock-HEP100TM and
TauroLock-HEP500TM products. A hearing
before the same court was held on January 30, 2015 on the separate,
but related, question of infringement of the Prosl European Patent
by TauroPharm.
The
Court issued its decisions on May 8, 2015, staying both
proceedings. In its decisions, the Court found that the
commercialization by TauroPharm in Germany of its TauroLock
catheter lock solutions Hep100 and Hep500 infringes both the
Prosl European Patent and the Utility Model and further that there
is no prior use right that would allow TauroPharm to continue to
make, use or sell its product in Germany. However, the Court
declined to issue an injunction in favor of the Company that would
preclude the continued commercialization by TauroPharm based upon
its finding that there is a sufficient likelihood that the EPO, in
the case of the Prosl European Patent, or the German PTO, in the
case of the Utility Model, may find that such patent or utility
model is invalid. Specifically, the Court noted the possible
publication of certain instructions for product use that may be
deemed to constitute prior art. As such, the District Court
determined that it will defer any consideration of the request by
the Company for injunctive and other relief until such time as the
EPO or the German PTO made a final decision on the underlying
validity of the Prosl European Patent and the Utility
Model.
The
opposition proceeding against the Prosl European Patent before the
EPO is ongoing. The EPO held a hearing in the opposition proceeding
on November 25, 2015. In its preliminary consideration of the
matter, the EPO (and the German PTO) had regarded the patent as not
inventive or novel due to publication of prior art. However, the
EPO did not issue a decision at the end of the hearing but
adjourned the matter due to the fact that the panel was of the view
that Claus Herdeis, one of the managing directors of TauroPharm,
has to be heard as a witness in a further hearing in order to close
some gaps in the documentation presented by TauroPharm as regards
the publication of the prior art.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
German PTO held a hearing in the validity proceedings relating to
the Utility Model on June 29, 2016, at which the panel affirmed its
preliminary finding that the Utility Model was invalid based upon
prior publication of a reference to the benefits that may be
associated with adding heparin to a taurolidine based solution. The
decision has only a declaratory effect, as the Utility Model had
expired in November 2015. Furthermore, it has no bearing on the
ongoing consideration by the EPO of the validity and possible
infringement of the Prosl European Patent. The Company filed an
appeal against the ruling on September 7, 2016.
In
October 2016, TauroPharm submitted a further writ to the EPO
requesting a date for the hearing and bringing forward further
arguments, in particular in view of the June 2016 decision of the
German PTO on the invalidity of the utility model, which we have
appealed. On November 22, 2017, the EPO in Munich, Germany held a
further oral hearing in this matter. At the hearing, the panel held
that the Prosl European Patent would be invalidated because it did
not meet the requirements of novelty based on a technical aspect of
the European intellectual property law. The Company disagrees with
this decision and plans to appeal. The Company’s appeal will
be based, in part, on the written opinion to be issued by the
Opposition Division, which is expected by the third quarter of
2018. The Company continues to believe that the Prosl European
Patent is indeed novel and that its validity should be maintained.
There can be no assurance that the Company will prevail in this
matter with either the German PTO or the EPO. In addition, the
ongoing Unfair Competition litigation brought by the Company
against TauroPharm is not affected and will continue.
On
January 16, 2015, the Company filed a complaint against TauroPharm
GmbH and its managing directors in the District Court of
Cologne, Germany. In the complaint, the Company alleges
violation of the German Unfair Competition Act by TauroPharm for
the unauthorized use of its proprietary information obtained in
confidence by TauroPharm. The Company alleges that
TauroPharm is improperly and unfairly using its proprietary
information relating to the composition and manufacture of
Neutrolin, in the manufacture and sale of TauroPharm’s
products TauroLockTM, TauroLock-HEP100
and TauroLock-HEP500. The Company seeks a cease and
desist order against TauroPharm from continuing to manufacture and
sell any product containing taurolidine (the active pharmaceutical
ingredient (“API”) of Neutrolin) and citric acid in
addition to possible other components, damages for any sales in the
past and the removal of all such products from the market. An
initial hearing in the District Court of Cologne, Germany was held
on November 19, 2015 to consider the Company’s claims. In
this hearing, the presiding judge explained that the court needed
more information with regard to several aspects of the case. As a
consequence, the court issued an interim decision in the form of a
court order outlining several issues of concern that relate
primarily to the court's interest in clarifying the facts and
reviewing any and all available documentation, in particular with
regard to the question which specific know-how was provided to
TauroPharm by whom and when. The Company's legal team has prepared
the requested reply and produced the respective documentation.
TauroPharm has also filed another writ within the same deadline and
both parties have filed further writs at the end of April setting
out their respective argumentation in more detail. A further oral
hearing in this matter was held on November 15, 2016. In this
hearing, the court heard arguments from CorMedix and TauroPharm
concerning the allegations of unfair competition. The court made no
rulings from the bench, and indicated that it is prepared to
further examine the underlying facts of the Company's allegations.
On March 7, 2017, the court issued another interim decision in the
form of a court order outlining again several issues relating to
the argumentation of both sides in the proceedings. In particular
the court requested the Company to further specify its requests and
to further substantiate in even more detail which know know-how was
provided by Biolink to TauroPharm by whom and when. The court also
raised the question whether the know-how provided at the time to
TauroPharm could still be considered to be secret know-how or may
have become public in the meantime. The court granted both sides
the opportunity to reply to this court order and provide additional
facts and evidence until May 15, 2017. Both parties have submitted
further writs in this matter and the court has now scheduled a
further hearing on May 8, 2018. After
having been rescheduled several times, the hearing will now take
place on November 20, 2018. The Company intends to continue
to pursue this matter, and to provide additional supplemental
documentary and other evidence as may be necessary to support its
claims.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In
connection with the aforementioned patent and utility model
infringement proceedings against TauroPharm, the Company was
required by the District Court Mannheim to provide a security
deposit of approximately $132,000 to cover legal fees in the event
TauroPharm is entitled to reimbursement of these costs. The
Company recorded the deposit as restricted cash for the year ended
December 31, 2015. The Company furthermore had to provide a deposit
in the amount of $40,000 in connection with the unfair competition
proceedings in Cologne. These amounts are shown as restricted cash
on the condensed consolidated balance sheets.
Commitments
Manufacturing
The
Company has developed a program aimed at reducing the cost of goods
of Neutrolin through a more efficient, custom synthesis of the
active ingredient taurolidine. As part of that program, on April 8,
2015, the Company entered into a Preliminary Services Agreement
with [RC]2
Pharma Connect LLC (“RC2”), pursuant to which RC2 will
coordinate certain manufacturing services related to taurolidine
that the Company believes are necessary for the submission of its
planned new drug application for Neutrolin to the FDA, as well as
any foreign regulatory applications. The services related to this
agreement were completed in the first quarter of 2017 at a total
cost of $1.8 million. The API produced under this agreement has
been manufactured for future commercial sales in the EU and Middle
East and used for the U.S. Phase 3 clinical
trial.
The
Company also has several service agreements with RC2 for the
manufacture of clinical supplies to support its Phase 3 clinical
trials for an aggregate amount of $8.9 million at March 31,
2018. During the quarters ended March 31, 2018 and 2017, the
Company recognized research and development expense of
approximately $129,000 and $543,000, respectively, related to these
agreements. The Company may terminate these agreements upon 30 days
written notice and is only obligated for project costs and
reasonable project shut down costs provided through the date of
termination.
Clinical and Regulatory
In
December 2015, the Company entered into a Master Service Agreement
and Work Orders (the “Master Service Agreement”) with a
CRO to help the Company conduct its Phase 3 multicenter,
double-blind, randomized active control study to demonstrate the
safety and effectiveness of Neutrolin in preventing
catheter-related bloodstream infections and blood clotting in
subjects receiving hemodialysis therapy as treatment for end stage
renal disease. In May 2017, the Company signed a contract
modification with its CRO for an additional cost of $7.2 million to
cover the extension of the estimated study timeline, incorporate
several protocol amendments and take on several new tasks related
to the enrollment sites. Given several changes to the study agreed
with the FDA, the Company signed a second contract modification
with its CRO for an additional $6.3 million, to cover the
continuation of trial enrollment which is anticipated to continue
into the third quarter of 2018, the increased length of time in
which patients are enrolled and additional activities related to
the collection of retrospective data outside the treatment centers.
At March 31, 2018, the total cost of the contract increased to $33
million from its original amount of $19.2 million. During the
quarters ended March 31, 2018 and 2017, the Company recognized
$5,798,000 and $2,555,000 in research and development expense
related to this agreement, respectively. The remaining
budget under this current contract is approximately $12 million at
March 31, 2018.
The
Company has determined that issues in data quality have delayed the
timing of the completion of the interim efficacy analysis and is in
negotiations with its CRO regarding certain remediation efforts and
financial considerations. The Company is assessing the impact of
this delay and the possible outcomes of its discussions with its
CRO on its anticipated cash needs and future commitments. As such,
the current contract is subject to further modifications as the
clinical trial progresses.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In-Licensing
In
2008, the Company entered into a License and Assignment Agreement
(the “NDP License Agreement”) with ND Partners, LLP
(“NDP”). Pursuant to the NDP License Agreement, NDP
granted the Company exclusive, worldwide licenses for certain
antimicrobial catheter lock solutions, processes for treating and
inhibiting infections, a biocidal lock system and a taurolidine
delivery apparatus, and the corresponding United States and foreign
patents and applications (the “NDP Technology”). The
Company acquired such licenses and patents through its assignment
and assumption of NDP’s rights under certain separate license
agreements by and between NDP and Dr. Hans-Dietrich Polaschegg, Dr.
Klaus Sodemann and Dr. Johannes Reinmueller. As consideration in
part for the rights to the NDP Technology, the Company paid NDP an
initial licensing fee of $325,000 and granted NDP a 5% equity
interest in the Company, consisting of 39,980 shares of the
Company’s common stock.
The
Company is required to make payments to NDP upon the achievement of
certain regulatory and sales-based milestones. Certain of the
milestone payments are to be made in the form of shares of common
stock currently held in escrow for NDP, and other milestone
payments are to be paid in cash. The maximum aggregate number of
shares issuable upon achievement of milestones is 145,543 shares.
In 2014, a certain milestone was achieved resulting in the release
of 36,386 shares held in escrow. The number of shares held in
escrow as of March 31, 2018 and 2017 is 109,157 shares of common
stock. The maximum aggregate amount of cash payments due upon
achievement of milestones is $3,000,000 with the balance of
$2,500,000 for the quarters ended March 31, 2018 and 2017. Events
that trigger milestone payments include but are not limited to the
reaching of various stages of regulatory approval and upon
achieving certain worldwide net sales amounts. There were no milestones achieved during the
quarters ended March 31, 2018 and 2017.
The NDP
License Agreement may be terminated by the Company on a
country-by-country basis upon 60 days prior written notice. If the
NDP License Agreement is terminated by either party, the
Company’s rights to the NDP Technology will revert back to
NDP.
Employment Agreements
On
March 19, 2018, the Company entered into an employment agreement
with Elizabeth Masson, its Executive Vice President and Head of
Clinical Operations. Unless renewed pursuant to the terms thereof,
the agreement will expire on March 18, 2021. After the initial
three-year term of the employment agreement, the agreement will
automatically renew for additional successive one-year periods,
unless either party notifies the other in writing at least 90 days
before the expiration of the then current term that the agreement
will not be renewed. In connection with Ms. Masson’s
employment, the Company granted her stock options to purchase
310,000 shares of common stock, 186,000 of which vest over four
years and 124,000 of which vest upon the achievement of designated
milestones.
If
the Company terminates Ms. Masson’s employment other than for
Cause (as defined in the agreement), death or disability, other
than by notice of nonrenewal, or if she resigns for Good Reason (as
defined in the agreement), Ms. Masson will receive her base salary
and benefits for a period of nine months following the effective
date of the termination of her employment, and all unvested stock
options held by her will be accelerated and deemed to have vested
as of the termination date, provided that any milestone option
whose vesting requirements have not been met as of the termination
date will not be accelerated.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 6 — Concentrations:
At
March 31, 2018, approximately 70% of net accounts receivable was
due from two customers (45% and 25%). During the quarter ended
March 31, 2018, the Company had revenue from two customers that
each exceeded 10% of its total sales (45% and 17%).
At
December 31, 2017, approximately 81% of net accounts receivable was
due from two customers (57% and 24%). During the year ended
December 31, 2017 and 2016, the Company had revenue from two
customers that each exceeded 10% of its total sales (25% and 19%)
and (24% and 12%), respectively.
Note 7 — Subsequent Event:
The
Company intends to ask its stockholders to approve a reverse split
of the Company’s common stock and grant to the Board the
authority to set the ratio for the reverse split in the range of
1-for-5 and 1-for-10, as determined by the Board of Directors, at
any time before June 26, 2019, if and as determined by the Board of
Directors (the “Reverse Stock Split”). A special
stockholders’ meeting is planned to be held on June 26, 2018.
If the proposal is approved by the stockholders, the Board will
have authority to effect the Reverse Stock Split, if and at such
time and in such ratio as it determines to be appropriate within
that range and time period. Currently, if approved by the
stockholders, the Company expects to effect the Reverse Stock Split
shortly after such approval.
On April 2, 2018,
pursuant to its terms, the conversion price of the Company’s
Series F Stock was set at $0.162 and the Series F Stock also became
mandatorily convertible, subject to certain equity conditions, one
of which has not been met as of the date of this report. The last
condition to be met is the subordination of the Company’s
outstanding Series C-3 preferred stock to the Series F Stock. When
and if that condition is met, the Series F Stock will be
mandatorily convertible.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis of our financial
condition and results of operations should be read in conjunction
with our 2017 Annual Report on Form 10-K, filed with the Securities
and Exchange Commission, or the SEC, on March 19,
2018.
Forward Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking
statements” that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect,
could cause our results to differ materially from those expressed
or implied by such forward-looking statements. The statements
contained in this Quarterly Report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended
or the Exchange Act. Forward-looking statements are often
identified by the use of words such as, but not limited to,
“anticipate,” “believe,” “can,”
“continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “will,” “plan,”
“project,” “seek,” “should,”
“target,” “will,” “would,” and
similar expressions or variations intended to identify
forward-looking statements. These statements are based on the
beliefs and assumptions of our management based on information
currently available to management. Such forward-looking statements
are subject to risks, uncertainties and other important factors
that could cause actual results and the timing of certain events to
differ materially from future results expressed or implied by such
forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to, those
identified below and in Part II. Item 1A of this report, and those
discussed in the section titled “Risk Factors” included
in our most recent annual report on Form 10-K, as well as any
amendments thereto, as filed with the SEC and which are
incorporated herein by reference. Furthermore, such forward-looking
statements speak only as of the date of this report. Except as
required by law, we undertake no obligation to update any
forward-looking statements to reflect events or circumstances after
the date of such statements.
Overview
CorMedix Inc. and
Subsidiary (referred to herein as “we,”
“us,” “our” and the “Company”),
is a biopharmaceutical company
focused on developing and commercializing therapeutic products for
the prevention and treatment of infectious and inflammatory
diseases.
Our
primary focus is to develop our lead product candidate,
Neutrolin®, for potential
commercialization in the U.S. and other key markets. We have
in-licensed the worldwide rights to develop and commercialize
Neutrolin, which is a novel anti-infective solution (a formulation
of taurolidine, citrate and heparin 1000 u/ml) under development in
the U.S. for the reduction and prevention of catheter-related
infections and thrombosis in patients requiring central venous
catheters in clinical settings such as dialysis, critical/intensive
care, and oncology. Infection and thrombosis represent key
complications among critical care/ intensive care and cancer
patients with central venous catheters. These complications can
lead to treatment delays and increased costs to the healthcare
system when they occur due to hospitalizations, the need for IV
antibiotic treatment, long-term anticoagulation therapy,
removal/replacement of the central venous catheter, related
treatment costs and increased mortality. We believe Neutrolin has
the potential to address a significant unmet medical need and
represents a significant market opportunity.
In July
2013, we received CE Mark approval for Neutrolin. In
December 2013, we commercially launched Neutrolin in Germany
for the prevention of catheter-related bloodstream infections and
maintenance of catheter patency in hemodialysis patients using a
tunneled, cuffed central venous catheter for vascular
access. To date, Neutrolin is registered and may be sold
in certain European Union and Middle Eastern countries for such
treatment. In April 2017, we entered into a commercial
collaboration with Hemotech SAS covering France and French overseas
territories.
We
initiated a Phase 3 clinical trial in hemodialysis patients with a
central venous catheter (“LOCK-IT-100”) in December
2015. Two successful pivotal trials to demonstrate the safety and
effectiveness of Neutrolin are required by the U.S. Food and Drug
Administration (“FDA”) to secure marketing approval in
the United States.
In
April 2017, a safety review by an independent Data Safety
Monitoring Board, or DSMB was completed. The DSMB unanimously
concluded that it is safe to continue the LOCK-IT-100 clinical
trial as designed based on its evaluation of data from the first
279 patients randomized into the trial.
On
August 2, 2017, we announced that the FDA had agreed to key changes
to the LOCK-IT-100 clinical trial. We believe that the changes
endorsed by the FDA will facilitate our ability to complete patient
enrollment of our ongoing Phase 3 clinical trial in hemodialysis
patients with central venous catheters by the third quarter of
2018, and to complete the trial once we have accumulated the
requisite number of CRBSI events. We sought guidance from the FDA
to address, in part, the apparent overall lower rate of
catheter-related blood stream infection (CRBSI) events from
patients in the study, as announced in April 2017. Changes to the
study included 1) the utilization of a Clinical Adjudication
Committee (CAC) to assess suspected CRBSIs; 2) the use of the CAC
to critically and independently assess suspected CRBSIs in a
blinded fashion based on a single positive blood culture and
supporting documentation, rather than two positive blood cultures
as required per protocol; 3) the ability to capture cases occurring
outside of dialysis centers to facilitate more complete capture of
CRBSI events in the study, particularly when patients present with
CRBSI events outside of the dialysis center setting, e.g. emergency
rooms or urgent care centers; and 4) a revision of the design of
the study to detect a treatment effect of 55% or greater when
comparing the Neutrolin and heparin control arms. The FDA agreed
that cases adjudicated by the CAC to be CRBSI events and the per
protocol definition of CRBSI events will be included in the primary
analysis of the primary efficacy endpoint of the LOCK-IT-100 study.
The amended study assumptions including a reduction in statistical
power have resulted in a reduction in the total number of CRBSI
events required from 161 events to 56 events to complete the
study.
We
recently announced that we are in negotiations with our contract
research organization (CRO) regarding certain remediation efforts
and financial considerations for the ongoing delay we incurred in
performing the interim efficacy analysis of the LOCK-IT-100 study.
We are currently anticipating that the DSMB will review the interim
analysis and make its recommendations in July 2018, assuming no
further significant delays in obtaining the additional data needed
to assess secondary endpoints and severe adverse events (SAEs) to
complete the review process are encountered. We are assessing the
impact of this delay and the possible outcomes of our CRO
negotiations on our anticipated cash needs.
We are sponsoring a pre-clinical research
collaboration for the use of taurolidine as a possible combination
treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug
designation to taurolidine for the treatment of neuroblastoma. We
are seeking one or more strategic partners or other sources of
capital to help us develop and commercialize taurolidine for the
treatment of neuroblastoma.
We are
also evaluating opportunities for the
possible expansion of taurolidine as a platform compound for use in
certain medical devices. Patent applications have been filed in
wound closure, surgical meshes, wound management, and
osteoarthritis, including
visco-supplementation. Based on initial
feasibility work, we are advancing pre-clinical studies for
taurolidine-infused surgical meshes, suture materials, and
hydrogels. We will seek to
establish development/commercial partnerships as these programs
advance.
In August 2017, the Company secured a research grant from the
National Institutes of Health (NIH) to expand the Company’s
antimicrobial hydrogel medical device program. In addition to
our ongoing development of taurolidine-incorporated hydrogels to
reduce infections in common burns, this funding will finance the
development of an advanced hydrogel formulation that is designed to
reduce the risk of potentially life-threatening infection and
promote healing of more severe burn injuries, for which there is
significant need.
The FDA
recently informed us that it regards taurolidine as a new chemical
entity and therefore an unapproved drug. Consequently, there is no
appropriate predicate device currently marketed in the U.S. on
which a 510k approval process could be based. As a result, we will
be required to submit a premarket approval application for
marketing authorization for these indications. In the event that
the New Drug Application for Neutrolin is approved by the FDA, the
regulatory pathway can be revisited with the FDA. Although
there will presumably still be no appropriate
predicate, de
novo Class II designation can be proposed, based on a
risk assessment and a reasonable assurance of safety and
effectiveness.
Since
our inception, we have not generated sufficient revenue from
product sales to be profitable. Our operations to date
have been primarily limited to conducting clinical trials and
establishing manufacturing for our product candidates, licensing
product candidates, business and financial planning, research and
development, seeking regulatory approval for our products, initial
commercialization activities for Neutrolin in the European Union
and other foreign markets, and maintaining and improving our patent
portfolio. We have funded our operations primarily
through debt and equity financings. We have generated
significant losses to date, and we expect to use substantial
amounts of cash for our operations as we continue to conduct our
ongoing Phase 3 clinical trial in hemodialysis patients with
catheters, plan a second Phase 3 clinical trial for Neutrolin,
commercialize Neutrolin in the European Union and other foreign
markets, pursue business development activities, incur additional
legal costs to defend our intellectual property, and seek FDA
approval of Neutrolin in the U.S. As of March 31, 2018,
we had an accumulated deficit of approximately $162.3
million. We are unable to predict the extent of any
future losses or when we will become profitable, if
ever.
Financial Operations Overview
Research and Development Expense
Research and
development, or R&D, expense consists of: (i) internal costs
associated with our development activities; (ii) payments we make
to third party contract research organizations, contract
manufacturers, investigative sites, and consultants; (iii)
technology and intellectual property license costs; (iv)
manufacturing development costs; (v) personnel related expenses,
including salaries, stock–based compensation expense,
benefits, travel and related costs for the personnel involved in
drug development; (vi) activities relating to regulatory filings
and the advancement of our product candidates through preclinical
studies and clinical trials; and (vii) facilities and other
allocated expenses, which include direct and allocated expenses for
rent, facility maintenance, as well as laboratory and other
supplies. All R&D is expensed as incurred.
Conducting a
significant amount of development is central to our business model.
Product candidates in later-stage clinical development generally
have higher development costs than those in earlier stages of
development, primarily due to the significantly increased size and
duration of the clinical trials. We expect to incur higher R&D
expenses for the foreseeable future in order to complete
development of Neutrolin in the U.S., especially the ongoing
LOCK-IT-100 clinical trial and an anticipated second Phase 3
trial.
The
process of conducting pre-clinical studies and clinical trials
necessary to obtain regulatory approval is costly and time
consuming. The probability of success for each product candidate
and clinical trial may be affected by a variety of factors,
including, among others, the quality of the product
candidate’s early clinical data, investment in the program,
competition, manufacturing capabilities and commercial viability.
As a result of the uncertainties associated with clinical trial
enrollments and the risks inherent in the development process, we
are unable to determine the duration and completion costs of
current or future clinical stages of our product candidates or
when, or to what extent, we will generate revenues from the
commercialization and sale of any of our product
candidates.
Development
timelines, probability of success and development costs vary
widely. We are currently focused on clinical development in the
U.S. and optimization of sales in foreign markets where Neutrolin
is approved. In December 2015, we contracted with our CRO to help
us conduct our multicenter, double-blind, randomized, active
control Phase 3 clinical trial in hemodialysis patients with
central venous catheters to demonstrate the efficacy and safety of
Neutrolin in preventing catheter-related bloodstream infections and
blood clotting in subjects receiving hemodialysis therapy as
treatment for end stage renal disease. In May 2017 and again in
November 2017 we modified the original contract to cover various
changes in cost due to timeline extensions, protocol changes, and
additional activities related to the collection of retrospective
data outside the treatment centers. In April 2018 we announced that
we brought in-house and assumed direct responsibility for several
aspects of the study, among them site management and review of
SAE’s for the remainder of the study. Our CRO is currently
working cooperatively with us on the other operational aspects of
the study. At March 31, 2018, the total cost of the contract had
increased to $33 million from its original amount of $19.2 million,
of which approximately $26.5 million has been accrued through March
31, 2018. An additional contract modification is currently expected
to be executed to reflect the impact of the recent changes in
timeline and reduced CRO activity.
We are
pursuing additional opportunities to generate value based on
taurolidine, an active component of Neutrolin. Based on initial
feasibility work, we have completed an initial round of
pre-clinical studies for taurolidine-infused surgical meshes,
suture materials, and hydrogels, which will require a PMA
regulatory pathway for approval. We
are also involved in a
pre-clinical research collaboration for the use of taurolidine as a
possible treatment for rare orphan pediatric tumors.
In February 2018, the FDA granted
orphan drug designation to taurolidine for the treatment of
neuroblastoma. We are seeking one or more strategic partners or
other sources of capital to help us develop and commercialize
taurolidine for the treatment of neuroblastoma.
Selling, General and Administrative Expense
Selling, general
and administrative, or SG&A, expense includes costs related to
commercial personnel, medical education professionals, marketing
and advertising, salaries and other related costs, including
stock-based compensation expense, for persons serving in our
executive, sales, finance and accounting functions. Other SG&A
expense includes facility-related costs not included in R&D
expense, promotional expenses, costs associated with industry and
trade shows, and professional fees for legal services and
accounting services.
Foreign Currency Exchange Transaction Gain (Loss)
Foreign
currency exchange transaction gain (loss) is the result of
re-measuring transactions denominated in a currency other than our
functional currency and is reported in the consolidated statement
of operations as a separate line item within other income
(expense). In 2014, foreign currency exchange transaction gain
(loss) consists of foreign exchange transaction gains and losses on
intercompany loans that are in place between our company, which is
based in New Jersey, and our German subsidiary. Effective October
1, 2014, we determined that the intercompany loans outstanding are
not expected to be repaid in the foreseeable future and the nature
of the funding advanced is of a long-term investment nature. As
such, beginning October 1, 2014, unrealized foreign exchange
movements related to long-term intercompany loans are recorded in
other comprehensive income (loss).
Interest Income
Interest income
consists of interest earned on our cash and cash
equivalents.
Interest Expense
Interest expense
consists of interest incurred on financing of
expenditures.
Results of Operations
Three months ended March 31, 2018 compared to three months ended
March 31, 2017
The
following is a tabular presentation of our consolidated operating
results (in
thousands):
|
|
For the Three
Months
Ended March
31,
|
|
|
|
|
|
|
|
Revenue
|
$23
|
$40
|
41%
|
|
Cost of
sales
|
(29)
|
(94)
|
(69)%
|
|
Gross profit
(loss)
|
(6)
|
(54)
|
(90)%
|
|
Operating
Expenses:
|
|
|
|
|
Research and
development
|
(8,280)
|
(4,924)
|
68%
|
|
Selling, general
and administrative
|
(1,903)
|
(2,641)
|
(28)%
|
|
Total operating
expenses
|
(10,183)
|
(7,565)
|
35%
|
|
Loss from
operations
|
(10,189)
|
(7,619)
|
34%
|
|
Interest
income
|
15
|
23
|
(37)%
|
|
Foreign exchange
transaction loss
|
(9)
|
(1)
|
615%
|
|
Interest
expense
|
(2)
|
-
|
N/A
|
|
Net
loss
|
(10,185)
|
(7,597)
|
34%
|
|
Other comprehensive
income
|
(1)
|
9
|
(114)%
|
|
Comprehensive
loss
|
$(10,186)
|
$(7,588)
|
34%
|
Revenue. Revenue was $23,000 for the
three months ended March 31, 2018 as compared to $40,000 in the
same period last year, a decrease of $17,000. The decrease was
primarily due to the adoption of ASC 606 at January 1, 2018 of
which, no deferred revenue for the products sold with warranty was
recognized for the three months ended March 31, 2018 as compared to
the $30,000 deferred revenue recognized for the same period last
year. This decrease was offset by an increase in product sales in
the amount of $13,000 for the three months ended March 31,
2018.
Cost of Sales. Cost of sales was
approximately $29,000 for the three months ended March 31, 2018
compared to $94,000 in the same period last year, a decrease of
$65,000. The decrease was primarily due to the stability studies
initiated in 2017 and recognition of cost of sales associated with
deferred revenue. The decrease was
primarily due to the adoption of ASC 606 at January 1, 2018 of
which, no deferred revenue for the products sold with warranty was
recognized for the three months ended March 31, 2018 as compared to
the $30,000 deferred revenue recognized for the same period last
year. This decrease was offset by an increase in product sales in
the amount of $13,000 for the three months ended March 31,
2018.
Research and Development Expense.
R&D expense was approximately $8,280,000 for the three months
ended March 31, 2018, an increase of $3,356,000, from $4,924,000
for the three months ended March 31, 2017. The increase was
primarily attributable to increased expenses related to the
LOCK-IT-100 trial of $3,880,000, due to increased number of
patients enrolled, and an increase in personnel costs mainly due to
conversion of several consultants into employee status of $152,000,
including the chief medical officer, partially offset by a decrease
in costs to support the U.S. clinical trial drug supply consisting
of manufacturing process development activities of $538,000,
reduced cost of studies related to wound closure, would management
and surgical meshes of $130,000, and a decrease in consulting fees
of $32,000.
Selling, General and Administrative
Expense. SG&A expense was $1,903,000 for the three
months ended March 31, 2018, a decrease of $738,000 from $2,641,000
for the three months ended March 31, 2017. The decrease was
primarily attributable to reductions in consulting fees of
$492,000, mainly due to executive search fees that were incurred in
2017, a decrease in marketing research studies of $175,000, and a
decrease in non-cash charge for stock-based compensation expense of
$96,000. These decreases, among others of lesser significance, were
partially offset by an increase in investor relations expense of
$44,000.
Interest Income. Interest income was
$15,000 for the three months ended March 31, 2018 compared to
$23,000 for the same period last year, a decrease of $8,000. The
decrease was attributable to lower average interest-bearing cash
balances and short-term investments during 2018 as compared to the
same period in 2017.
Other Comprehensive Income (Loss).
Unrealized foreign exchange movements related to long-term
intercompany loans and the translation of the foreign affiliate
financial statements to U.S. dollars and unrealized movements
related to short-term investment are recorded in other
comprehensive income (loss) totaling a $1,000 loss and $9,000 gain
for the three months ended March 31, 2018 and 2017,
respectively.
Liquidity and Capital Resources
Sources of Liquidity
As a
result of our cost of sales, R&D and SG&A expenditures and
the lack of substantial product sales revenue, we have not been
profitable and have generated operating losses since our
incorporation. During the three months ended March 31, 2018, we
received net proceeds of $3,269,000 from the issuance of 10,202,099
shares of common stock under our then current
at-the-market-issuance sales agreement.
Net Cash Used in Operating Activities
Net
cash used in operating activities for the three months ended March
31, 2018 was $7,054,000 as compared to $6,759,000 for the same
period in 2016, an increase in net cash use of $295,000. The
increase was primarily attributable to an increase in net loss of
$2,588,000 driven by increased research and development expenses.
The net loss of $10,185,000 for the quarter ended March 31, 2018
was higher than cash used in operating activities by $3,131,000.
The difference is primarily attributable to increases in accounts
payable and accrued expenses of $1,850,000 and $917,000,
respectively, non-cash stock-based compensation of $373,000, and
decreases in prepaid expenses, trade receivables and inventory of
$87,000, $57,000 and $15,000, respectively, partially offset by a
decrease in deferred revenue of $73,000.
Net Cash Provided by Investing Activities
Cash
provided by investing activities for the three months ended March
31, 2018 was $1,566,000 as compared to $5,158,000 for the same
period in 2017, both of which are mainly attributable to the
proceeds on the sale of short-term investments.
Net Cash Provided by Financing Activities
Net
cash provided by financing activities for the three months ended
March 31, 2018 was $3,269,000 as compared to $354,000 for the same
period in 2017. During the quarter ended March 31, 2018, we
generated net proceeds of $3,269,000 from the sale of our common
stock in our then current at-the-market program. During the same
period in 2017, we generated $347,000 from the sale of our common
stock in the current at-the-market program and received net
proceeds of $7,000 from the exercise of stock options.
Funding Requirements and Liquidity
Our
total cash on hand and short-term investments as of March 31, 2018
was $8.2 million, excluding restricted cash of $0.2 million,
compared with $12 million at December 31, 2017. As of the
date of this report, we have
$14.7 million available under our at-the-market program. On March 9, 2018, we entered into a new
ATM agreement for the sale of up to $14.7 million of our common
stock, for which the registration statement was filed on March 9,
2018 and became effective on April 16, 2018. This ATM agreement and
registration statement is for an aggregate of $70.0 million of our
securities, including the $14.7 million of common stock allocated
to the ATM program, and replaced the prior ATM and related
registration statement, both of which expired on April 16,
2018.
Because
our business has not generated positive operating cash flow, we
will need to raise additional capital in order to continue to fund
our research and development activities, as well as to fund
operations generally. Our continued operations and specifically the
completion of our ongoing LOCK-IT-100 clinical trial for Neutrolin
in the U.S., which was initiated in December 2015, will depend on
our ability to raise sufficient additional funds through various
potential sources, such as equity, debt financings, and/or
strategic relationships. We can provide no assurances that
financing or strategic relationships will be available on
acceptable terms, or at all, that may enable us to complete our
LOCK-IT-100 clinical trial and a second Phase 3 trial that is
currently required in order to receive FDA marketing
approval.
We
expect to continue to fund operations from cash on hand and through
capital raising sources as previously described, which may be
dilutive to existing stockholders, through revenues from the
licensing of our products, or through strategic alliances.
We may utilize our new at-the-market
program, if conditions allow, to support our ongoing funding
requirements. Additionally, we may seek to sell additional equity
or debt securities through one or more discrete transactions, or
enter into a strategic alliance arrangement, but can provide
no assurances that any such financing or strategic alliance
arrangement will be available on acceptable terms, or at all.
Moreover, the incurrence of indebtedness would result in increased
fixed obligations and could contain covenants that would restrict
our operations. Raising additional
funds through strategic alliance arrangements with third parties
may require significant time to complete and could force us to
relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates, or to grant
licenses on terms that may not be favorable to us or our
stockholders. Our actual cash requirements may vary
materially from those now planned due to a number of factors,
including any change in the focus and direction of our research and
development programs, any acquisition or pursuit of development of
new product candidates, competitive and technical advances, the
costs of commercializing any of our product candidates, and costs
of filing, prosecuting, defending and enforcing any patent claims
and any other intellectual property rights.
We
intend to hold a special meeting of stockholders to seek approval
to amend our certificate of incorporation to effect a reverse stock
split at a ratio of any whole number between 1-for-5 and to
1-for-10, as determined by our board, at any time before June 26,
2019, if and as determined by our board of directors. Such approval
may not be obtained. If approved, following the implementation of a reverse stock
split, and as a critical part of our ongoing efforts to finance our
ongoing LOCK-IT-100 clinical trial, we anticipate conducting a
rights offering whereby our stockholders as of a record date to be
selected by our board of directors would receive rights to purchase
shares of common stock and possibly other securities. The rights
offering would be dependent upon having a sufficient number of
authorized but unissued shares of common stock needed to complete
the transaction, which our board of directors believe is vital and
in our best interests.This
report does not constitute an offer of any of our securities for
sale or the solicitation of an offer to buy any of our securities.
Any such rights offering can be made only by a prospectus that we
would make available to our stockholders upon the effectiveness of
the registration statement for the securities to be offered in the
rights offering.
While
we expect to grow product sales, we do not anticipate that we will
generate significant product revenues in the foreseeable future. In
the absence of such revenue, we are likely to continue generating
operating cash flow deficits. We expect to incur increases in our
cash used in operations as we continue our Phase 3 clinical trials,
pursue business development activities, incur additional legal
costs to defend our intellectual property and seek FDA approval of
Neutrolin in the U.S.
Based on our cash resources at March 31,
2018, the expected timing and cost of the ongoing
LOCK-IT-100 clinical trial in the U.S., and the current status of
our negotiations with our CRO, we believe that our existing cash
and cash equivalents will fund our operations into the third
quarter of 2018. If we are unable to raise additional funds when
needed, we may be forced to slow or discontinue our Neutrolin Phase
3 program, including our ongoing LOCK-IT-100 clinical trial. We
could also be required to delay, scale back or eliminate some or
all of our research and development programs. Each of these
alternatives would likely have a material adverse effect on our
business. These factors raise substantial doubt regarding our
ability to continue as a going concern.
Critical Accounting Policies
Our
management’s discussion and analysis of our financial
condition and results of operations is based on our financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities and expenses. On an ongoing basis, we evaluate these
estimates and judgments, including those described below. We base
our estimates on our historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. These estimates and assumptions form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results and experiences may differ materially from these
estimates.
While
our significant accounting policies are more fully described in
Note 2 to our financial statements included with this report, we
believe that the following accounting policies are the most
critical to aid you in fully understanding and evaluating our
reported financial results and affect the more significant
judgments and estimates that we use in the preparation of our
financial statements.
Stock-Based Compensation
We
account for stock options according to the Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) No. 718, “Compensation
— Stock Compensation” (“ASC 718”).
Under ASC 718, share-based compensation cost is measured at grant
date, based on the estimated fair value of the award, and is
recognized as expense over the employee’s requisite service
period on a straight-line basis.
We
account for stock options granted to non-employees on a fair value
basis using the Black-Scholes option pricing model in accordance
with ASC 718 and ASC No. 505-50, “Equity-Based Payments to
Non-Employees”. For the purpose of valuing options and
warrants granted to our directors, officers, employees and
consultants, we use the Black-Scholes option pricing model. The
non-cash charge to operations for non-employee options with time
based vesting provisions is based on the fair value of the options
re-measured each reporting period and amortized to expense over the
related vesting period, and the non-cash charge to operations for
non-employee options with performance based vesting provisions is
recorded when the achievement of the performance condition is
probable.
Valuations
incorporate several variables, including expected term, expected
volatility, expected dividend yield and a risk-free interest rate.
We estimate the expected term of the options granted based on
anticipated exercises in future periods. The expected stock price
volatility for our stock options is calculated based on the
historical volatility since the initial public offering of our
common stock in March 2010. The expected dividend yield reflects
our current and expected future policy for dividends on our common
stock. To determine the risk-free interest rate, we utilize
the U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of our
awards.
Revenue Recognition
We
adopted ASC 606, Revenue from
Contracts with Customers, as of January 1, 2018. ASC 606 prescribes
a five step model for recognizing revenue which includes (i)
identifying the contract; (ii) identifying performance obligations;
(iii) determining the transaction price; (iv) allocating the
transaction price; and (v) recognizing revenue.
Our
product Neutrolin received its CE Mark in Europe in July 2013 and
shipment of product to the dialysis centers began in December 2013.
In accordance with ASC 606, we recognize revenue from product sales
based on the five-step model. As such, we recognize revenue upon
shipment of product to the dialysis centers.
For our
exclusive distribution agreements in which we received upfront
payments, revenue is recognized based on the five-step
model.
In
October 2015, we shipped product with less than 75% of its
remaining shelf life to a customer and issued a guarantee that the
specific product shipped would be replaced by us if the customer
was not able to sell the product before it expired. As a result of
this warranty, we may have an additional performance obligation
(i.e. accept returned product and deliver new product to the
customer) if the customer is unable to sell the short-dated
product. As the result of the adoption of ASC 606, we accelerated
the deferred revenue and related cost of sales associated with the
shipment of this product in the net amount of $70,500 and recorded
the warranty obligation in the amount of $52,900.
In August 2014, we entered into an exclusive
distribution agreement (the “Wonik Agreement”) with
Wonik Corporation, a South Korean company, to market, sell and
distribute Neutrolin for hemodialysis and oncolytic patients upon
receipt of regulatory approval in Korea. Upon execution of the
Wonik Agreement, Wonik paid to us a non-refundable $50,000 payment
and will pay an additional $50,000 upon receipt of the
product registration necessary to sell Neutrolin in the Republic of
Korea (the “Territory”).
Product registration in the Territory is contingent upon the
marketing approval of Neutrolin in the U.S. The term of the Wonik
Agreement commenced on August 8, 2014 and will continue for three
years after the first commercial sale of Neutrolin in the
Territory. The non-refundable up-front payment has been recorded as
deferred revenue and will be recognized as revenue on a
straight-line basis over the contractual term of the Agreement. We
recognized $2,200 revenue related to the Wonik agreement for each
of the three months ended March 31, 2018 and
2017.
Inventory Valuation
We
engage third parties to manufacture and package inventory held for
sale and warehouse such goods until packaged for final distribution
and sale. Inventories are stated at the lower of cost or net
realizable value with cost determined on a first-in, first-out
basis. Inventories are reviewed periodically to identify
slow-moving or obsolete inventory based on sales activity, both
projected and historical, as well as product shelf-life. In
evaluating the recoverability of our inventories, we consider the
probability that revenue will be obtained from the future sale of
the related inventory and, if required, will write down inventory
quantities in excess of expected requirements. Expired inventory is
disposed of and the related costs are recognized as cost of product
sales in our consolidated statements of operations.
We
analyze our inventory levels to identify inventory that may expire
prior to sale, inventory that has a cost basis in excess of its
estimated realizable value, or inventory in excess of expected
sales requirements. Although the manufacturing of our products is
subject to strict quality controls, certain batches or units of
product may no longer meet quality specifications or may expire,
which would require adjustments to our inventory
values.
In the
future, reduced demand, quality issues or excess supply beyond
those anticipated by management may result in an adjustment to
inventory levels, which would be recorded as an increase to cost of
product sales. The determination of whether or not inventory costs
will be realizable requires estimates by our management. A critical
input in this determination is future expected inventory
requirements based on our internal sales forecasts which we then
compare to the expiry dates of inventory on hand. To the extent
that inventory is expected to expire prior to being sold, we will
write down the value of inventory. If actual results differ from
those estimates, additional inventory write-offs may be
required.
Short-Term Investments
We
determine the appropriate classification of marketable securities
at the time of purchase and reevaluate such designation as of each
balance sheet date. Investments in marketable debt and equity
securities classified as available-for-sale are reported at fair
value. Fair values of our investments are determined using quoted
market prices in active markets for identical assets or liabilities
or quoted prices for similar assets or liabilities or other inputs
that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Our marketable securities are highly liquid and consist of U.S.
government agency securities, high-grade corporate obligations and
commercial paper with maturities of more than 90 days but less than
12 months. Changes in fair value that are considered temporary are
reported net of tax in other comprehensive income (loss). Realized
gains and losses, amortization of premiums and discounts and
interest and dividends earned are included in income (expense) on
the condensed consolidated statements of operations and
comprehensive income (loss). The cost of investments for purposes
of computing realized and unrealized gains and losses is based on
the specific identification method. Investments with maturities
beyond one year, if any, are classified as short-term based on
management’s intent to fund current operations with these
securities or to make them available for current operations. For
declines, if any, in the fair value of equity securities that are
considered other-than-temporary, impairment losses are charged to
other (income) expense, net. We consider available evidence in
evaluating potential impairments of our investments, including the
duration and extent to which fair value is less than cost and, for
equity securities, our ability and intent to hold the
investments.
Fair Value Measurements
We
categorize our financial instruments into a three-level fair value
hierarchy that prioritize the inputs to valuation techniques used
to measure fair value. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets
(Level 1) and the lowest priority to unobservable inputs (Level 3).
If the inputs used to measure fair value fall within different
levels of the hierarchy, the category level is based on the lowest
priority level input that is significant to the fair value
measurement of the instrument. Financial assets recorded at fair
value on our condensed consolidated balance sheets are categorized
as follows:
●
Level 1
inputs—Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
●
Level 2
inputs— Significant other observable inputs (e.g., quoted
prices for similar items in active markets, quoted prices for
identical or similar items in markets that are not active, inputs
other than quoted prices that are observable such as interest rate
and yield curves, and market-corroborated inputs).
●
Level 3 inputs
—Unobservable inputs for the asset or liability, which are
supported by little or no market activity and are valued based on management’s
estimates of assumptions that market participants would use in
pricing the asset or liability.
Recent Authoritative Pronouncements
In
February 2016, the FASB issued new guidance related to how an
entity should lease assets and lease liabilities. The guidance
specifies that an entity who is a lessee under lease agreements
should recognize lease assets and lease liabilities for those
leases classified as operating leases under previous FASB
guidance. Accounting for leases by lessors is largely
unchanged under the new guidance. The guidance is effective for us
beginning in the first quarter of 2019. Early adoption is
permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. We
are evaluating the impact of adopting this guidance on our
consolidated financial statements.
In
June 2016, the FASB issued new guidance which replaces the incurred
loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform
credit loss estimates. The guidance is effective for us beginning
in the first quarter of fiscal year 2020. Early adoption is
permitted beginning in the first quarter of fiscal year 2019. We
are evaluating the impact of adopting this guidance on our
consolidated financial statements.
In
July 2017, the FASB issued new guidance which changes the
classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features and
recharacterizes the indefinite deferral of certain provisions
within the guidance for distinguishing liabilities from equity. The
guidance is effective for us beginning in the first quarter of
fiscal year 2019. Early adoption is permitted. We are evaluating
the impact of adopting this guidance on our consolidated financial
statements.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements.
Item
3.
Quantitative
and Qualitative Disclosure about Market Risk.
None.
Item
4.
Controls
and Procedures.
Evaluation
of Disclosure Controls and Procedures
Disclosure controls
and procedures are designed only to provide reasonable assurance
that information to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Under the
supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we carried
out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
as amended, or the Exchange Act) as of March 31,
2018. Based on the foregoing evaluation, our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports we file
or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and
forms of the SEC, and that such information is accumulated and
communicated to our management, including our principal executive
officer and principal financial officer, to allow timely decisions
regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
during the quarter ended March 31, 2018, or in other factors that
could significantly affect these controls, that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II
OTHER INFORMATION
Item
1.
Legal
Proceedings.
On
September 9, 2014, we filed in the District Court of Mannheim,
Germany a patent infringement action against TauroPharm GmbH and
Tauro-Implant GmbH as well as their respective CEOs (the
“Defendants”) claiming infringement of our European
Patent EP 1 814 562 B1, which was granted by the EPO on January 8,
2014 (the “Prosl European Patent”). The Prosl European
Patent covers a low dose heparin catheter lock solution for
maintaining patency and preventing infection in a hemodialysis
catheter. In this action, we claim that the Defendants infringe on
the Prosl European Patent by manufacturing and distributing
catheter locking solutions to the extent they are covered by the
claims of the Prosl European Patent. We believe that our patent is
sound, and are seeking injunctive relief and raising claims for
information, rendering of accounts, calling back, destruction and
damages. Separately, TauroPharm has filed an opposition with the
EPO against the Prosl European Patent alleging that it lacks
novelty and inventive step. We cannot predict what other defenses
the Defendants may raise, or the ultimate outcome of either of
these related matters.
In
the same complaint against the same Defendants, we also alleged an
infringement (requesting the same remedies) of NDP’s utility
model DE 20 2005 022 124 U1 (the “Utility Model”),
which we believe is fundamentally identical to the Prosl European
Patent in its main aspects and claims. The Court separated the two
proceedings and the Prosl European Patent and the Utility Model
claims are now being tried separately. TauroPharm has filed a
cancellation action against the Utility Model before the German
Patent and Trademark Office (the “German PTO”) based on
the similar arguments as those in the opposition against the Prosl
European Patent.
On
March 27, 2015, the District Court held a hearing to evaluate
whether the Utility Model has been infringed by TauroPharm in
connection with the manufacture, sale and distribution of its
TauroLock-HEP100TM and TauroLock-HEP500TM products. A hearing
before the same court was held on January 30, 2015 on the separate,
but related, question of infringement of the Prosl European Patent
by TauroPharm.
The
Court issued its decisions on May 8, 2015, staying both
proceedings. In its decisions, the Court found that the
commercialization by TauroPharm in Germany of its TauroLock
catheter lock solutions Hep100 and Hep500 infringes both the Prosl
European Patent and the Utility Model and further that there is no
prior use right that would allow TauroPharm to continue to make,
use or sell its product in Germany. However, the Court declined to
issue an injunction in favor of us that would preclude the
continued commercialization by TauroPharm based upon its finding
that there is a sufficient likelihood that the EPO, in the case of
the Prosl European Patent, or the German PTO, in the case of the
Utility Model, may find that such patent or utility model is
invalid. Specifically, the Court noted the possible publication of
certain instructions for product use that may be deemed to
constitute prior art. As such, the District Court determined that
it will defer any consideration of the request by us for injunctive
and other relief until such time as the EPO or the German PTO made
a final decision on the underlying validity of the Prosl European
Patent and the Utility Model.
The
opposition proceeding against the Prosl European Patent before the
EPO is ongoing. In its preliminary consideration of the matter, the
EPO (and the German PTO) regarded the patent as not inventive or
novel due to publication of prior art. Oral proceedings before the
Opposition Division at the EPO were held on November 25, 2015, at
which the three judge patent examiner panel considered arguments
related to the validity of the Prosl European Patent. The hearing
was adjourned due to the fact that the panel was of the view that
Claus Herdeis, one of the managing directors of TauroPharm, has to
be heard as a witness in a further hearing in order to close some
gaps in the documentation presented by TauroPharm as regards the
publication of prior art.
The
German PTO held a hearing in the validity proceedings relating to
the Utility Model on June 29, 2016, at which the panel affirmed its
preliminary finding that the Utility Model was invalid based upon
prior publication of a reference to the benefits that may be
associated with adding heparin to a taurolidine based solution. The
decision has only a declaratory effect, as the Utility Model had
expired in November 2015. Furthermore, it has no bearing on the
ongoing consideration by the EPO of the validity and possible
infringement of the Prosl European Patent. We filed an appeal
against the ruling on September 7, 2016.
In
October 2016, TauroPharm submitted a further writ to the EPO
requesting a date for the hearing and bringing forward further
arguments, in particular in view of the June 2016 decision of the
German PTO on the invalidity of the utility model, which we have
appealed. On November 22, 2017, the EPO in Munich, Germany held a
further oral hearing in this matter. At the hearing, the panel held
that the Prosl European Patent would be invalidated because it did
not meet the requirements of novelty based on a technical aspect of
the European intellectual property law. We disagree with this
decision and plan to appeal. Our appeal will be based, in part, on
the written opinion to be issued by the Opposition Division, which
is expected by the third quarter of 2018. We continue to believe
that the Prosl European Patent is indeed novel and that its
validity should be maintained. There can be no assurance that we
will prevail in this matter with either the German PTO or the EPO.
In addition, the ongoing Unfair Competition litigation against
TauroPharm is not affected and will continue.
On
January 16, 2015, we filed a complaint against TauroPharm GmbH and
its managing directors in the District Court of Cologne, Germany.
In the complaint, we allege violation of the German Unfair
Competition Act by TauroPharm for the unauthorized use of its
proprietary information obtained in confidence by TauroPharm. We
allege that TauroPharm is improperly and unfairly using its
proprietary information relating to the composition and manufacture
of Neutrolin, in the manufacture and sale of TauroPharm’s
products TauroLockTM, TauroLock-HEP100 and TauroLock-HEP500. We
seek a cease and desist order against TauroPharm from continuing to
manufacture and sell any product containing taurolidine (the active
pharmaceutical ingredient (“API”) of Neutrolin) and
citric acid in addition to possible other components, damages for
any sales in the past and the removal of all such products from the
market. An initial hearing in the District Court of Cologne,
Germany was held on November 19, 2015 to consider our claims. The
judge made no decision on the merits of our complaint. On January
14, 2016, the court issued an interim decision in the form of a
court order outlining several issues of concern that relate
primarily to court's interest in clarifying the facts and reviewing
any and all available documentation, in particular with regard to
the question which specific know-how was provided to TauroPharm by
whom and when. We have prepared the requested reply and produced
the respective documentation. TauroPharm has also filed another
writ within the same deadline and both parties have filed further
writs at the end of April setting out their respective
argumentation in more detail. A further oral hearing in this matter
was held on November 15, 2016. In this hearing, the court heard
arguments from CorMedix and TauroPharm concerning the allegations
of unfair competition. The court made no rulings from the bench,
and indicated that it is prepared to further examine the underlying
facts of our allegations. On March 7, 2017, the court issued
another interim decision in the form of a court order outlining
again several issues relating to the argumentation of both sides in
the proceedings. In particular the court requested us to further
specify our requests and to further substantiate in even more
detail which know know-how was provided by Biolink to TauroPharm by
whom and when. The court also raised the question whether the
know-how provided at the time to TauroPharm could still be
considered to be secret know-how or may have become public in the
meantime. The court granted both sides the opportunity to reply to
this court order and provide additional facts and evidence until
May 15, 2017. Both parties have submitted further writs in this
matter and the court had scheduled a further hearing for May 8,
2018. After having been rescheduled several times, the hearing is
now scheduled to take place on November 20, 2018. The Company
intends to continue to pursue this matter, and to provide
additional supplemental documentary and other evidence as may be
necessary to support its claims.
There
have been no material changes to the risk factors previously
disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2017 except the additional detailed risk as set
forth below.
We will need to finance our future cash needs through public or
private equity offerings, debt financings or corporate
collaboration and licensing arrangements. Any additional funds that
we obtain may not be on terms favorable to us or our stockholders
and may require us to relinquish valuable
rights.
We have launched Neutrolin in certain European
Union and Middle East countries, but to date have no other approved
product on the market and have not generated significant product
revenue from Neutrolin to date. Unless and until we receive
applicable regulatory approval for Neutrolin in the U.S., we cannot
sell Neutrolin in the U.S. Therefore, for the foreseeable future,
we will have to fund all of our operations and capital expenditures
from Neutrolin sales in Europe and other foreign markets, if
approved, cash on hand, additional financings, licensing fees and
grants.
Based on our cash resources at March 31,
2018, the expected timing and cost of the ongoing
LOCK-IT-100 clinical trial in the U.S., and the current status of
our negotiations with our CRO, we
believe that our existing cash and short-term investments
will fund operations into the third
quarter of 2018. We will need additional funding thereafter to
complete our ongoing and anticipated Phase 3 clinical trials
in the U.S., and to continue the Neutrolin development program
through to NDA filing and approval. If we are unable to raise
additional funds when needed, we may not be able to complete our
ongoing Phase 3 clinical trial, to complete the Neutrolin
development program through to NDA filing and marketing approval or
commercialize Neutrolin and we could be required to delay, scale
back or eliminate some or all of our research and development
programs. We can provide no assurances that any financing or
strategic relationships will be available to us on acceptable
terms, or at all. We expect to incur increases in our cash used in
operations as we continue to conduct our ongoing Phase 3 clinical
trial and prepare for additional Phase 3 clinical trials, seek FDA
approval of Neutrolin in the U.S., commercialize Neutrolin in
Europe and other markets, pursue development of our medical devices
and other business development activities, and incur additional
legal costs to defend our intellectual property.
To raise needed capital, we may sell additional
equity or debt securities, obtain a bank credit facility, or enter
into a corporate collaboration or licensing arrangement.
The sale of additional equity or debt
securities, if convertible, could result in dilution to our
stockholders. The incurrence of indebtedness would result in fixed
obligations and could also result in covenants that would restrict
our operations. Raising additional funds through collaboration or
licensing arrangements with third parties may require us to
relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates, or to grant
licenses on terms that may not be favorable to us or our
stockholders.
At the
time that we may need additional financing, we may not have
sufficient authorized shares of common stock available, depending
on the amount of the financing, the price of our common stock and
our obligations to reserve shares for our outstanding convertible
preferred stock, warrants and options. We currently have
160,000,000 shares of common stock authorized and at May 11, 2018,
we had 81,903,027 shares outstanding and 47,901,830 shares reserved
for issuance upon the exercise and conversion of our outstanding
convertible preferred stock, warrants and options. To increase our
authorized common stock, we would need stockholder approval to
amend our certificate of incorporation, which approval may not be
obtained. We intend to seek stockholder approval at a special
meeting of stockholders to amend our certificate of incorporation
to effect a reverse stock split at a ratio of any whole number
between 1-for-5 and to 1-for-10, as determined by our board, at any
time before June 26, 2019, if and as determined by our board. A
reverse stock split would increase the shares available for
issuance without increasing our authorized shares.
Until
the date that none of the shares of common stock or warrants that
we issued to Elliott Associates, L.P. and Elliott International,
L.P in November 2017 as part of the backstop financing are
outstanding, we are prohibited from issuing or selling any
securities convertible into common stock on terms more favorable
than the backstop financing terms and with a conversion, exchange
or exercise price that is based upon and/or varies with the trading
prices of or quotations for the shares of our common stock or that
is subject to being reset at some future date or upon the
occurrence of specified or contingent events directly or indirectly
related to our business (other than pursuant to a customary
“weighted average” anti-dilution provision) or the
market for our common stock or enter into any agreement to sell
securities at a future determined price (other than standard and
customary “preemptive” or “participation”
rights and other than pursuant to an at-the-market offering through
a registered broker-dealer). This restriction could make raising
capital through the sale of equity securities very difficult and
could have a material adverse impact on our business, financial
condition and prospects.
The
following is a list of exhibits filed as part of this Form
10-Q:
|
Exhibit Number
|
|
Description
|
|
|
|
Employment
Agreement, effective March 19, 2018, between CorMedix Inc. and
Elizabeth Masson.* +
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
101
|
|
The following materials from CorMedix Inc. Form 10-Q for
the quarter ended March 31, 2018, formatted in Extensible Business
Reporting Language (XBRL): (i) Condensed Consolidated Balance
Sheets at March 31, 2018 and December 31, 2017, (ii) Condensed
Consolidated Statements of Operations for the three months
ended March 31, 2018 and 2017, (iii) Condensed Consolidated
Statements of Changes in Stockholders' Equity for the three
months ended March 31, 2018, (iv) Condensed Consolidated Statements
of Cash Flows for the three months ended March 31, 2018 and 2017,
and (v) Notes to the Unaudited Condensed Consolidated
Financial Statements.**
|
_____________
**
Pursuant to Rule
406T of Regulation S-T, the Interactive Data Files in Exhibit 101
hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, as amended and
otherwise are not subject to liability under those
sections.
+
Confidential
treatment has been requested with respect to certain portions of
this exhibit. The omitted portions have been filed separately with
the SEC.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
|
CORMEDIX
INC.
|
|
|
|
|
|
|
|
Date: May 15,
2018
|
By:
|
/s/
Khoso
Baluch
|
|
|
|
Name:
|
Khoso
Baluch
|
|
|
|
Title:
|
Chief Executive
Officer
(Principal
Executive Officer)
|
|
EXHIBIT
INDEX
|
Exhibit Number
|
|
Description
|
|
|
|
Employment
Agreement, effective March 19, 2018, between CorMedix Inc. and
Elizabeth Masson.* +
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
101
|
|
The following materials from CorMedix Inc. Form 10-Q for
the quarter ended March 31, 2018, formatted in Extensible Business
Reporting Language (XBRL): (i) Condensed Consolidated Balance
Sheets at March 31, 2018 and December 31, 2017, (ii) Condensed
Consolidated Statements of Operations for the three months
ended March 31, 2018 and 2017, (iii) Condensed Consolidated
Statements of Changes in Stockholders' Equity for the three
months ended March 31, 2018, (iv) Condensed Consolidated Statements
of Cash Flows for the three months ended March 31, 2018 and 2017,
and (v) Notes to the Unaudited Condensed Consolidated
Financial Statements.**
|
_____________
**
Pursuant to Rule
406T of Regulation S-T, the Interactive Data Files in Exhibit 101
hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, as amended and
otherwise are not subject to liability under those
sections.
+
Confidential
treatment has been requested with respect to certain portions of
this exhibit. The omitted portions have been filed separately with
the SEC.