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CRMD > SEC Filings for CRMD > Form 10-Q/A on 4-Mar-2014All Recent SEC Filings

Show all filings for CORMEDIX INC.

Form 10-Q/A for CORMEDIX INC.


4-Mar-2014

Quarterly Report


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 2012 Annual Report on Form 10-K, as amended by our amended Form 10-K/A filed with the Securities and Exchange Commission, or the SEC.

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 our quarterly reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013 and 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. (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 cardio-renal and infectious disease, 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 we believe address potentially large 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 is CRMD003 (Neutrolin®) for the prevention of catheter related infections in the dialysis and non-dialysis markets, which we believe addresses a medical need and a potentially large market opportunity. Neutrolin is a liquid formulation designed to prevent central venous catheter infection as well as catheter obstruction, also referred to as maintenance of catheter patency, in central venous catheters, which we initially plan for use in hemodialysis catheters.

During the third quarter of 2011, we received a notice from the U.S. Food and Drug Administration, or FDA, that Neutrolin had been assigned to the Center for Drug Evaluation and Research, or CDER, for review as a drug rather than a device. As a result of this, and given our limited resources, we decided to change our business strategy and focus the majority of our resources on the research and development of Neutrolin rather than CRMD004 and to seek regulatory and commercialization approval for Neutrolin in Europe through a CE Mark application rather than pursue FDA approval at this time. 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 SÜD and we successfully completed the stage 2 audit in the third quarter of 2012.

On October 10, 2012, we received ISO 13485:2003 certification from TÜV SÜD. This certification, which is a stand-alone standard developed by the International Organization for Standardization, 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 conformity of medical devices and in-vitro diagnostic medical devices according to applicable European Union, or EU, standards must be assessed before sale is permitted. The preferred method to prove conformity is the certification by a notified body of the quality management system according to ISO 9001 and/or ISO 13485 and ISO 14971. The result of a positive assessment is the issuance of a certificate of conformity allowing the CE Mark and the permission to sell the medical device in the European Union.


On July 5, 2013, we received CE Mark approval for Neutrolin. As a result, after receipt of final German regional authority approval, we anticipate the commercial launch of Neutrolin for the prevention of catheter-related bloodstream infections, or CRBI, and maintenance of catheter patency in hemodialysis patients in Europe late in the fourth quarter of 2013. However, we cannot be assured of our planned commercialization timeline for Neutrolin.

We have four pillars to our Neutrolin strategy: (i) successfully launch the product in Germany; (ii) expand the product into additional applications; (iii) expand sales into other foreign countries; and (iv) apply for and receive marketing approval and launch the product in the United States.

In anticipation of receiving CE Mark approval, on January 10, 2013, we entered into an agreement with MKM Co-Pharma GmbH, or MKM, regarding Neutrolin, pursuant to which, MKM hired a national sales manager to market Neutrolin in Germany according to a negotiated work plan. While the plan may be revised, it currently provides that the sales manager will market Neutrolin in three phases. In the first phase, which began in January 2013, the sales manager visited hemodialysis centers and doctors to, among other things, provide them information. The sales manager has also produced a market review of our product, negotiated wholesaler relationships for initial stocking of our product, and is determining sales projections for launching Neutrolin. In the second phase, which began with the receipt of CE Mark approval, the sales manager initiated the process to launch Neutrolin in the fourth quarter of 2013, and is to generate sales on a best efforts basis and supervise sales representatives. The sales manager will be responsible for growing Neutrolin sales and expanding the promotional plans.

On November 14, 2013, we met with the FDA to determine the pathway for U.S. approval of Neutrolin, which we expect will entail a Phase 3 clinical trial. We expect to receive minutes of that meeting within 30 days from that date.

Our other product candidate is CRMD004, which is the gel formulation of Neutrolin that we intend to develop for the prevention of catheter-related blood stream infections and maintenance of catheter patency in hemodialysis patients who are asymptomatic for catheter-related blood stream infections using both incident and prevalent catheters with any brand of central venous catheter. CRMD004 is in the pre-clinical stage. However, at this time, we intend to defer the development of CRMD004 until we launch Neutrolin in the European Union and have commenced the FDA regulatory approval process for Neutrolin.

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 funded our operations primarily with debt and equity financings. 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 Neutrolin. As of September 30, 2013, we had a deficit accumulated during the development stage of $52,294,245. As a result of the CE Mark approval in the EU, we expect to generate revenue from sales or licenses of Neutrolin. However, our losses will continue as we advance our product candidates towards commercialization in the EU and regulatory approval in the United States. As a result, our operating losses are likely to continue at least through 2014 depending on the successful launch of Neutrolin in Europe, any resultant revenue levels and potential strategic partnerships. We are unable to predict the extent of any future losses or when we will become profitable, if ever.


Financial Operations Overview

Revenue

We have not generated any revenue since our inception. If the commercialization for Neutrolin in Europe is successful and our product development efforts in the United States result in clinical success, regulatory approval and successful commercialization, 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, 2013, we incurred $24.6 million 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. We expect our R&D expenditures to increase for the foreseeable future in order to undertake development of Neutrolin in the United States, if the commercialization for Neutrolin in the EU is successful.

The following table summarizes the percentages of our R&D expenses 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, 2006 (Inception)
               September 30,                   through September 30,
            2013            2012                        2013
CRMD001           0 %          24 %                                         44 %
CRMD002           0 %           0 %                                          0 %
CRMD003          96 %          70 %                                         53 %
CRMD004           4 %           6 %                                          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. In addition, development timelines, probability of success and development costs vary widely. As a result of these uncertainties, 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.

Our current focus on commercializing Neutrolin® in Europe may impact our other development efforts and timelines. If we are successful in the commercialization of Neutrolin® in Europe, we plan to pursue developing Neutrolin for the prevention of CRBI and maintenance of catheter patency in the United States. We will need and plan to raise additional funds at a later date to fully complete the development of Neutrolin in both Europe and the U.S. as well as to pursue development of any other 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 2013. From our inception on July 28, 2006 through September 30, 2013, we incurred G&A expenses of $14.7 million.

Loss on Issuance of Convertible Notes and Warrants

As discussed in Note 3, we sold convertible notes and warrants during the three months ended September 30, 2013 for which we received net proceeds of $1,372,500 after transaction-related fees and expenses. We elected to account for the convertible notes under the fair value option and the warrants are required to be recorded at fair value as a derivative liability. The loss on the issuance of convertible notes and warrants represents the difference on the issuance date between the combined fair value of the convertible notes and the warrants, and the proceeds that were received net of all fees and expenses related to the issuance.

Change in Fair Value of Convertible Notes and Warrants

The change in the value of convertible notes and warrants represents the change in the fair value of the convertible notes for which we elected the fair value option, and the change in the fair value of warrants that are required to be recorded at fair value on a recurring basis under generally accepted accounting principles. This excludes any reductions in fair value resulting from the redemption or conversion of the convertible notes and the exercise of warrants.

Loss on Extinguishment of Convertible Notes

The loss on extinguishment of convertible notes represents the difference between the fair value of convertible notes redeemed and converted and the cash paid or fair value of shares issued to noteholders in connection with the redemptions and conversions.

Interest Income and Interest Expense

Interest income consists of interest earned on our cash. Interest expense consists of interest incurred on our convertible notes up to their conversion into units or common stock, as well as the amortization and write-off of deferred financing costs, debt discounts and beneficial conversion charges related to certain of our convertible notes and preferred shares.

Results of Operations

Three months ended September 30, 2013 compared to three months ended September 30, 2012

Research and Development Expense. R&D expense was $750,774 for the three months ended September 30, 2013, an increase of $506,286 from $244,488 for the three months ended September 30, 2012. The increase was primarily attributable to the license fee of $500,000 as a result of the CE Mark approval for Neutrolin in the European Union, or the EU, expenses related to the planned launch of Neutrolin in the EU, and the non-cash value of the warrants issued to ND Partners, LLC as a result of the amendment to the License and Assignment Agreement, dated January 30, 2008 between the Company and ND Partners, LLC.

General and Administrative Expense. G&A expense was $504,528 for the three months ended September 30, 2013, a decrease of $242,125 from $746,653 for the three months ended September 30, 2012. The decrease was primarily attributable to the $325,000 non-cash litigation expense in 2012 which resulted from the board authorization to settle the action in Germany against the Sodemann patent covering Neutrolin, offset by increased stock-based compensation expense.

Loss on Issuance of Convertible Notes and Warrants. The loss on the issuance of convertible notes and warrants represents the difference on the issuance date between the combined fair value of the convertible notes and the warrants of $2,231,100, and the proceeds received, net of all issuance-related fees and expenses, of $1,285,208.

Change in Fair Value of Convertible Notes and Warrants. The change in the value of convertible notes and warrants of $45,934 consists of a decrease in the fair value of warrants between the issuance date and September 30, 2013 of $4,800 and a reduction in the fair value of convertible notes of $41,134. The reduction in the fair value of the convertible notes includes the combined changes in (i) the fair value of the converted and redeemed amounts between the issuance date and the relevant conversion and redemption dates and (ii) the change in fair value of the outstanding convertible notes and warrants at September 30, 2013 between the issuance date and September 30, 2013.


Loss on Extinguishment of Convertible Notes. The $33,626 loss on extinguishment of convertible notes for the three months ended September 30, 2013 represents the excess of the fair value of shares issued in connection with the conversions and redemptions over the fair value of the convertible notes that were converted or redeemed for shares.

Interest Income. Interest income was $61 for the three months ended September 30, 2013, a decrease of $213 from $274 for the three months ended September 30, 2012. The decrease was attributable to having lower interest-bearing cash balances during the third quarter of 2013 compared to the same quarter of 2012.

Interest Expense. Interest expense was $312,368 for the three months ended September 30, 2013, an increase of $286,313 from $26,055 for the same period last year, primarily due to the amortization of beneficial conversion feature and warrants valuation related to the senior convertible notes and warrants issued in 2012 and 2013, amortization of deferred financing fees and accrued interest related to the senior convertible notes.

Nine months ended September 30, 2013 compared to nine months ended September 30, 2012

Research and Development Expense. R&D expense was $1,385,983 for the nine months ended September 30, 2013, an increase of $540,948 from $845,035 for the nine months ended September 30, 2012. The increase was primarily attributable to the license fee of $500,000 as a result of the CE Mark approval for Neutrolin in the EU and the non-cash value of the warrants issued to ND Partners, LLC as a result of the amendment to the License and Assignment Agreement, dated January 30, 2008 between the Company and ND Partners, LLC.

General and Administrative Expense. G&A expense was $1,965,006 for the nine months ended September 30, 2013, an increase of $305,484 from $1,659,522 for the nine months ended September 30, 2012. The increase was primarily attributable to stock-based compensation expense, professional services and filing fees related to SEC filings.

Loss on Issuance of Convertible Notes and Warrants. The loss on the issuance of convertible notes and warrants represents the difference on the issuance date between the combined fair value of the convertible notes and the warrants of $2,231,100, and the proceeds received, net of all issuance-related fees and expenses, of $1,285,208.

Change in Fair Value of Convertible Notes and Warrants. The change in the value of convertible notes and warrants of $45,934 consists of a decrease in the fair value of warrants between the issuance date and September 30, 2013 of $4,800 and a reduction in the fair value of convertible notes of $41,134. The reduction in the fair value of the convertible notes includes the combined changes in (i) the fair value of the converted and redeemed amounts between the issuance date and the relevant conversion and redemption dates and (ii) the change in fair value of the outstanding convertible notes and warrants at September 30, 2013 between the issuance date and September 30, 2013.

Loss on Extinguishment of Convertible Notes. The $33,626 loss on extinguishment of convertible notes for the nine months ended September 30, 2013 represents the excess of the fair value of shares issued in connection with the conversions and redemptions over the fair value of the convertible notes that were converted or redeemed for shares.

Interest Income. Interest income was $295 for the nine months ended September 30, 2013, a decrease of $1,519 from $1,814 for the nine months ended September 30, 2012. The decrease was attributable to having lower interest-bearing cash balances during the nine months period ended September 30, 2013 compared to the same period last year.

Interest Expense. Interest expense was $1,413,933 for the nine months ended September 30, 2013, an increase of $1,387,878 from $26,055 for the same period last year, primarily due to the amortization of beneficial conversion feature and warrants valuation related to the senior convertible notes and warrants issued in 2012 and 2013, amortization of deferred financing fees and accrued interest related to the senior convertible notes.

Liquidity and Capital Resources

Sources of Liquidity

We have not generated product sales revenue. As a result of our R&D and G&A expenditures, we have not been profitable. We received CE Mark approval in July 2013 and are in the process of launching our product in the European Union. We have generated operating losses since we were incorporated in July 2006. Prior to our initial public offering, or IPO, in 2010, we had funded our operations principally with $14,364,973 in convertible notes sold in private placements and $625,464 in related party convertible notes. 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 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 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 year ended December 31, 2012, we completed two tranches of a private placement for a total of 1,324 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 at an initial exercise price of $0.40 per share. We received gross proceeds of $1,324,000 or net proceeds of approximately $1,095,600 from the private placement. The notes issued have maturity dates of September 20, 2013 (all of which were converted to common stock) for 850 units and November 13, 2013 for 474 units.

On February 19, 2013, we sold 761,429 shares of our newly created Series A Non-Voting Convertible preferred stock and a warrant to purchase up to 400,000 shares of our common stock, for gross proceeds of $533,000. As of September 30, 2013, all shares of Series A preferred stock were converted to common stock.

On July 5, 2013, upon the CE Mark approval, we received net proceeds of $1,372,500 from the May 2013 financing of senior secured convertible notes in the aggregate principal amount of $1,500,000 and warrants to purchase up to an aggregate of 1,000,000 shares of our common stock. The notes were sold at a discount of $75,000 and the Company paid transaction-related fees of $52,500. The notes bear interest at the rate of 8.0% per annum and are subject to a "make-whole" upon any conversion of the notes into common stock, as if the notes being converted were outstanding to April 1, 2014. Interest was first payable on September 3, 2013 and is payable on the first trading day of each month thereafter. The notes mature on April 1, 2016 unless redeemed prior to that date, subject to amortization. A noteholder may elect to have any interest due prior to April 1, 2014 added to the principal amount of a note; thereafter, interest will be paid in cash only. The warrants are exercisable one year after issuance, have an exercise price of $1.10 per share, subject to adjustment (and decreased to $1.00 in October 2013 as a result of our October 2013 preferred stock financing), and a term of five years from the date they are first exercisable. The holders of the notes and warrants will be prohibited from converting the notes into or exercising the warrants for shares of common stock if, as a result of such conversion or exercise, the holder, together with its affiliates, would own more than 4.99% or 9.99%, at the initial holder's election, of the total number of shares of our common stock then issued and outstanding.

On July 30, 2013, we sold to an existing institutional investor 454,546 shares of our Series B Non-Voting Convertible preferred stock and a warrant to purchase up to 227,273 shares of common stock, for gross proceeds of $500,000. The Series B shares and the warrant were sold together at a price of $1.10 per share for each share of Series B stock.

Net Cash Used in Operating Activities

Net cash used in operating activities was $2,695,295 for the nine months ended September 30, 2013. The net loss of $5,697,821 for the nine months ended September 30, 2013 was higher than cash used in operating activities by $3,002,526. The difference is attributable primarily to a non-cash loss on the . . .

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