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CRMD > SEC Filings for CRMD > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for CORMEDIX INC.

Form 10-Q for CORMEDIX INC.


13-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The followingdiscussion and analysis of our financial condition and results of operations should be read in conjunction with our 2011 Annual Report on Form 10-K and 10-K/A filed with the Securities and Exchange Commission, or the SEC, on March 19, 2012 and April 26, 2012, respectively.

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 those discussed in the section titled "Risk Factors" included in this quarterly report on Form 10-Q. 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. (referred to herein as "we," "us," "our" and the "Company"), is a development stage pharmaceutical and medical device company that seeks to in-license, develop and commercialize therapeutic products for the treatment of cardiac and renal dysfunction, specifically in the dialysis and non-dialysis areas. Specifically, our goal is to treat kidney disease by reducing the commonly associated cardiovascular and metabolic complications - in effect, "Treating the kidney to treat the heart." As of the date of this report, we have licensed all of the product candidates in our pipeline.

We have the worldwide rights to develop and commercialize our product candidates, CRMD003 (Neutrolin®) and CRMD004 that address significant market opportunities in the instances in which a central venous catheter is used, such as hemodialysis, intensive care units, oncology and total parenteral nutrition patients.

Our primary product candidate in development is CRMD003 (Neutrolin®) for the prevention of catheter related infections in the dialysis and non-dialysis markets, which we believe addresses a large unmet medical need and market opportunity. CRMD003 is a liquid formulation designed to prevent central venous catheter infection and maintenance of catheter patency in central venous catheters (initially in hemodialysis catheters). There are approximately 780,000 hemodialysis patients in the United States and the European Union. We believe the patients undergoing hemodialysis using a tunneled central vein catheter will be our initial target market. We project 91,000 patients in the European Union and 104,000 patients in the United States. These patients represent nearly 30 million hemodialysis sessions per year and we believe has a market potential of approximately $300 - $400 million.

During the third quarter of 2011, we received a notice from the U.S. Food and Drug Administration, or the FDA, that our product candidate, CRMD003, Neutrolin® had been assigned to the Center for Drug Evaluation and Research, or CDER. As a result of this notice and our current capital position, we decided to change our business strategy and focus the majority of our resources on the research and development of CRMD003 and seek regulatory and commercialization approval for Neutrolin® in Europe through a CE Mark application. During the first half of 2011, we submitted our design dossier to TÜV SÜD the European notified body managing our CE Mark application. In the fourth quarter of 2011 we successfully completed our stage 1 audit with TÜV. Upon the successful completion of the stage 2 audit and the implementation and approval of our quality management system and approval of our design dossier, we anticipate being in a position to obtain a CE Mark approval by the end of the fourth quarter of 2012/first quarter 2013. If we obtain CE Mark approval in Europe, we intend to be in a position to launch Neutrolin® for the prevention of Catheter Related Bloodstream Infections, or CRBI and maintenance of catheter patency in hemodialysis patients in Europe by first/second quarter 2013. We cannot be assured of CE Mark approval of Neutrolin® on that timeline or at all. We are currently exploring the various methods of launching Neutrolin® in Europe, whether through a distributorship or partnership arrangement, or otherwise.

On October 10, 2012, the Company received ISO 13485:2003 certification. ISO 13485 is awarded by TÜV SÜD and is the globally recognized standard that outlines consistent international processes for the design and manufacturing of medical devices, including many supply chain functions such as assembly, packaging, warehousing and distribution. Compliance with ISO 13485 is often seen as a step towards achieving compliance with European regulatory requirements. The ISO 13485:2003 certification is a stand-alone standard developed by the International Organization for Standardization that provides harmonized quality management systems requirements for manufacturers of medical devices. The conformity of Medical Devices and In-vitro Diagnostic Medical Device according to EEC-decrees 93/42/EEC, 90/385/EEC and 98/79/EEC must be assessed before sale is permitted. The preferred method to prove conformity is the certification of the Quality Management System according to ISO 9001 and/or ISO 13485 and ISO 14971 by a Notified Body. The result of a positive assessment is the certificate of conformity allowing the CE Mark and the permission to sell the medical device in the European Union.

We are a development stage company. We were organized as a Delaware corporation on July 28, 2006 under the name "Picton Holding Company, Inc." and we changed our corporate name to "CorMedix Inc." on January 18, 2007. Since our inception, we have had no revenue from product sales. Our operations to date have been primarily limited to organizing and staffing, licensing product candidates, developing clinical trials for our product candidates, establishing manufacturing for our product candidates and maintaining and improving our patent portfolio. We have generated significant losses to date, and we expect to continue to generate losses as we progress towards the commercialization of our product candidate CRMD003. As of September 30, 2012, we had an accumulated deficit of $45,185,100. Since we do not generate revenue from any of our product candidates, our losses will continue as we advance our product candidates towards regulatory approval and eventual commercialization. As a result, our operating losses are likely to be substantial over the next several years. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

In March 2010, we completed our Initial Public Offering, or the IPO, whereby we sold 1,925,000 units, each unit consisting of two shares of our common stock and a warrant to purchase one share of common stock, each a Unit, at $6.50 per Unit resulting in gross proceeds of $12,512,500 and net proceeds to us of $10,457,270 after deducting underwriting discounts and commissions and offering expenses payable by us. All of our convertible notes and accrued interest thereon and all of our outstanding shares of Non-Voting Subordinated Class A Common Stock automatically converted into Units or common stock upon the completion of the IPO.

During the quarter ended September 30, 2012, we completed an initial closing of our private placement of 850 Units, each Unit consisting of (i) a one-year $1,000 aggregate principal amount 9% Senior Convertible Note, convertible into shares of common stock, at a conversion price of $0.35 per Note, and (ii) a five-year redeemable Warrant, to purchase 2,500 shares of common stock, to certain accredited investors pursuant to a Subscription Agreement dated September 20, 2012. The Units were offered on a "reasonable efforts, all-or-none" basis as to 500 Units for a minimum amount of $500,000, and, thereafter on a "reasonable efforts" basis as to the remaining 2,500 Units for a maximum amount of $3,000,000. We received gross proceeds of $850,000 and net proceeds of approximately $689,000 in the September 20, 2012 initial closing. The maturity date of the Notes issued in the initial closing is September 20, 2013. (See Notes to the Financial Statements - Note 3.)

We believe that as a result of our recent decision to focus the majority of our resources, including our research and development efforts primarily on CE Marking approval and the commercialization of Neutrolin® (CRMD003) in Europe, the net proceeds from the IPO and the initial closing from our 2012 convertible note private placement financing, our existing cash will be sufficient to fund our projected operating requirements into the first quarter of 2013. We intend to raise additional funds through various potential sources, such as equity and/or debt financings, strategic relationships, or out-licensing of our products, however, we can provide no assurances that such financing will be available on acceptable terms, or at all.

Financial Operations Overview

Revenue

We have not generated any revenue since our inception. As of September 30, 2012, we have funded our operations primarily through debt financings and the IPO, and our receipt of a total of approximately $490,000 from Federal grants under the Qualifying Therapeutic Discovery Project program and a total of approximately $775,000 from the sale of our unused net operating losses through the State of New Jersey's Economic Development Authority Technology Business Tax Certificate Transfer Program and a total of approximately $35,000 from qualified research and development expenditures refunded to us through the New York State Department of Taxation and Finance under the Qualifying Emerging Technology Incentive Program.

If our product development efforts result in clinical success, regulatory approval and successful commercialization of any of our products, we could generate revenue from sales or licenses of any such products.

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 R&D is central to our business model. Through September 30, 2012, we incurred $23,034,457 in R&D expenses since our inception in July 2006. 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. As a result of our recent strategic changes, we expect our R&D expenditures to decrease and be primarily attributed to the CE Marking approval and commercialization of Neutrolin® in Europe. If the CE Marking approval and commercialization for Neutrolin® is successful, we intend to increase our R&D expenses for the foreseeable future in order to complete development of CRMD003 in the United States.

The following table summarizes the percentages of our R&D payments related to our two most advanced product candidates and other projects. The percentages summarized in the following table reflect payments directly attributable to each development candidate, which are tracked on a project basis. A portion of our internal costs, including indirect costs relating to our product candidates, are not tracked on a project basis and are allocated based on management's estimate.

                         Nine Months Ended            Period from July 28,
                           September 30,                2006 (Inception)
                        2012            2011       through September 30, 2012
            CRMD001          24 %          45 %                             53 %
            CRMD002           0 %           0 %                              0 %
            CRMD003          70 %          53 %                             44 %
            CRMD004           6 %           2 %                              3 %

The process of conducting pre-clinical studies and clinical trials necessary to obtain FDA 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 discussed above, the uncertainty 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. In addition, our current focus on CE Marking approval and commercializing Neutrolin® in Europe by the CE Marking process may impact our other development efforts and timelines. If we are successful in the CE Marking designation for Neutrolin® in Europe and commercialization, we plan on continuing to develop CRMD003 for the prevention of CRBI and maintenance of catheter patency in the United States. We expect to raise additional funds at a later date in order to fully complete the development of CRMD003 or to develop any new product candidates.

General and Administrative Expense

General and administrative, or G&A, expense consists primarily of salaries and other related costs, including stock-based compensation expense, for persons serving in our executive, finance and accounting functions. Other G&A expense includes facility-related costs not otherwise included in R&D expense, promotional expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services. We expect that our G&A expenses will remain consistent for the remainder of 2012. From our inception on July 28, 2006 through September 30, 2012, we spent $12,253,479 on G&A expense.

Interest Income and Interest Expense

Interest income consists of interest earned on our cash and cash equivalents. Interest expense consists of interest incurred on our convertible notes up to their automatic conversion into Units or common stock upon the completion of the IPO on March 30, 2010, as well as the amortization and write-off of deferred financing costs and debt discounts and a charge for the beneficial conversion feature relating to our convertible notes.

Results of Operations

Three months ended September 30, 2012 compared to three months ended September 30, 2011

Research and Development Expense. R&D expense was $255,738 for the three months ended September 30, 2012, a decrease of $1,469,059 from $1,724,797 for the three months ended September 30, 2011. The decrease was attributable to our strategic change of direction during September 2011, which is to focus primarily on CE Marking approval for Neutrolin®. During the fourth quarter of 2011, we also discontinued the development of CRMD001, deferirprone and returned the product candidate to the licensor in December 2011. Our strategic change of direction also resulted in lower clinical research organization, manufacturing and regulatory expenses related to the development of CRMD003 during the second quarter of 2012 and lower personnel costs as a result of our Chief Medical Officer ("CMO") transitioning to a part-time status and a 50% reduction of salary effective March 2012.

General and Administrative Expense. G&A expense was $421,653 for the three months ended September 30, 2012, a decrease of $455,367 from $877,020 for the three months ended September 30, 2011. The decrease was primarily attributable to lower compensation and stock-based compensation expense as a result of the separation of our former President and Chief Executive Officer in September 2011 and the resignation of our Chief Financial Officer in April 2012 and lower expenses related to investor relations.

Interest Income. Interest income was $274 for the three months ended September 30, 2012, a decrease of $1,925 from $2,199 for the three months ended September 30, 2011. The decrease was attributable to having lower interest-bearing cash balances during the second quarter of 2012 compared to the same quarter of 2011.

Interest Expense. Interest expense was $26,055 for the three months ended September 30, 2012, an increase of $26,055 from $0 for the same period last year, primarily due to the beneficial conversion feature and warrants valuation of the 9% convertible notes and warrants issued in September 2012.

Nine months ended September 30, 2012 compared to nine months ended September 30, 2011

Research and Development Expense. R&D expense was $878,785 for the nine months ended September 30, 2012, a decrease of $3,603,902 from $4,482,687 for the nine months ended September 30, 2011. The decrease was attributable to our strategic change of direction during September 2011, which was to focus primarily on CE Marking approval for Neutrolin®. During the fourth quarter of 2011, we also discontinued the development of CRMD001, deferiprone and returned the product candidate to the licensor in December 2011. Our strategic change of direction also resulted in lower clinical research organization, manufacturing and regulatory expenses related to the development of CRMD003 during the first half of 2012 and lower personnel costs as a result of our Chief Medical Officer transitioning to a part-time status and a 50% reduction of salary effective March 2012.

General and Administrative Expense. G&A expense was $1,334,522 for the nine months ended September 30, 2012, a decrease of $1,275,004 from $2,609,526 for the nine months ended September 30, 2011. The decrease was primarily attributable to lower compensation and stock-based compensation expense as a result of the separation of our former President and Chief Executive Officer in September 2011 and the resignation of our Chief Financial Officer in April 2012 and lower expenses related to investor relations.

Interest Income. Interest income was $1,814 for the nine months ended September 30, 2012, a decrease of $8,811 from $10,625 for the nine months ended September 30, 2011. The decrease was attributable to having lower interest-bearing cash balances during the nine months period ended September 30, 2012 compared to the same period last year.

Interest Expense. Interest expense was $26,055 for the nine months ended September 30, 2012, an increase of $26,055 from $0 for the same period last year, primarily due to the beneficial conversion feature and warrants valuation of the 9% convertible notes and warrants issued in September 2012.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our significant R&D expenditures and the lack of any approved products to generate product sales revenue, we have not been profitable and have generated operating losses since we were incorporated in July 2006. Prior to the IPO, we had funded our operations principally with $14,364,973 in convertible notes sold in private placements and $625,464 in related party notes, which were also convertible. All of our convertible notes were automatically converted into 1,237,293 shares of common stock and 2,338,576 Units comprised of 4,677,152 shares of common stock and 2,841,603 warrants at an exercise price of $3.4375. We received net proceeds of $10,457,270 from the IPO, after deducting underwriting discounts, commissions and offering expenses payable by us upon the closing of the IPO on March 30, 2010. Additionally, we received a total of approximately $490,000 from Federal grants under the Qualifying Therapeutic Discovery Project program and a total of approximately $775,000 from the sale of our unused net operating losses through the State of New Jersey's Economic Development Authority Technology Business Tax Certificate Transfer Program and a total of approximately $35,000 from qualified R&D expenditures refunded to us through the New York State Department of Taxation and Finance under the Qualifying Emerging Technology Incentive Program.

During the quarter ended September 30, 2012, we completed an initial closing on our private placement of 850 Units, each Unit consisting of (i) a one-year $1,000 aggregate principal amount 9% Senior Convertible Note (the "Notes"), convertible into shares (the "Conversion Shares") of common stock, at a conversion price of $0.35 per Note, and (ii) a five-year redeemable Warrant (the "Warrants"), to purchase 2,500 shares of Common Stock (the "Warrant Shares"), to certain accredited investors (the "Purchasers") pursuant to a Subscription Agreement dated September 20, 2012. The Units were offered on a "reasonable efforts, all-or-none" basis as to 500 Units for a minimum amount of $500,000, and, thereafter on a "reasonable efforts" basis as to the remaining 2,500 Units for a maximum amount of $3,000,000 (the "Maximum Amount"). We received gross proceeds of $850,000 and net proceeds of approximately $689,000. The maturity date of the Notes issued in the initial closing is September 20, 2013.

The Notes bear interest at a rate of 9% per annum payable quarterly in arrears. We shall have the right to prepay, in certain instances, all (but not less than all, subject to certain share ownership limitations) of the then outstanding Notes by paying 120% of the principal and accrued but unpaid interest through and including the date each Note is repaid.

At the initial closing, the Purchasers were issued Warrants to purchase the our Common Stock, exercisable for a period of five (5) years at an initial exercise price of $0.40, subject to adjustment. The Warrants provide for customary adjustments to the exercise price in the event of stock splits, stock dividends and other similar corporate events and may be exercised on a cashless basis. The Warrants do not confer any voting rights or any other rights as a shareholder.

Upon thirty-day notice to holders of outstanding Warrants, we have the right, subject to certain limitations, to redeem all or any portion of the Warrants then outstanding for consideration of $0.001 per Warrant if (i) either (a) there is an effective registration statement for resale of all of the Conversion Shares, or (b) all of the Conversion Shares may be resold pursuant to Rule 144 without any restrictions or limitations, and (ii) for the ten consecutive trading days prior to the date that we notify such holders of such redemption,
(a) the daily volume-weight adjusted market price of the Common Stock is equal to or greater than 140% of the then exercise price, and (b) the average daily value of the trading volume is not less than $100,000.

After the initial closing, we may sell up to the Maximum Amount and further closings may be conducted for the sale of the Units until November 14, 2012.

Net Cash Used in Operating Activities

Net cash used in operating activities was $1,747,993 for the nine months ended September 30, 2012. The net loss of $2,237,548 for the nine months ended September 30, 2012 was higher than cash used in operating activities by $489,555. The difference is attributable primarily to a stock-based compensation charge of $183,177, net amortization of debt discount and deferred financing cost of $23,616, a decrease in prepaid expenses and other current assets of $456,871, which consisted primarily of collection of other receivables related to the sale of our unused net operating losses through the State of New Jersey's Economic Development Authority Technology Business Tax Certificate Transfer Program and the amortization of insurance premiums during the nine months ended September 30, 2012. These were offset by a decrease in accounts payable of $146,079 and accrued expenses of $33,167 related to the reversal of year end 2011 bonuses accrued but not paid as a result of conserving cash during the period and additional accruals of professional fees related to debt financing.

Net Cash Used in Investing Activities

Net cash used in investing activities was $0 for the nine months ended September 30, 2012 a decrease of $1,625 for the same period last year due to a purchase of office equipment during the nine months ended September 30, 2011.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was $755,000 for the nine months ended September 30, 2012 as compared to $0 for the same period last year, attributable to the gross proceeds received from senior convertible notes of $850,000 offset by deferred financing cost of $95,000.

Funding Requirements

Our total cash and cash equivalents as of September 30, 2012 was $992,341, compared to $1,985,334 at December 31, 2011. Since our business does not generate positive operating cash flow, we will need to either raise additional capital before we exhaust our current cash resources in order to continue to fund our R&D, including our long-term plans for clinical trials and new product development, as well as to fund operations generally. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and or debt financing, strategic relationships, or out-licensing of our products. As of September 30, 2012, we have funded our operations primarily through debt financing in September 2012, resulting in gross proceeds of $850,000, the IPO, and our receipt of a total of approximately $490,000 from Federal grants under the Qualifying Therapeutic Discovery Project program, approximately $775,000 from the sale of our unused net operating losses through the State of New Jersey's Economic Development Authority Technology Business Tax Certificate Transfer Program and $35,000 from qualified R&D expenditures refunded to us through the New York State Department of Taxation and Finance under the Qualifying Emerging Technology Incentive Program.

We expect to continue to fund operations from cash and cash equivalents and through either capital raising sources as described above, which may be dilutive to existing stockholders, or through generating revenues from the licensing of our products or strategic alliances. We plan to seek additional debt and/or equity financing, but can provide no assurances that such financing will be . . .

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