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 June 30, 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 ☐
|
Smaller reporting company ☒
|
|
|
Emerging Growth Company ☐
(Do not check if a smaller reporting 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 August 10, 2018 was 97,844,285.
CORMEDIX INC. AND SUBSIDIARY
INDEX
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
22
|
|
|
|
|
|
32
|
|
|
|
|
|
32
|
|
|
|
|
|
33
|
|
|
|
|
|
33
|
|
|
|
|
|
34
|
|
|
|
|
|
35
|
|
|
|
|
|
36
|
FINANCIAL
INFORMATION
Consolidated
Financial Statements.
CORMEDIX INC. AND
SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
$4,701,978
|
$10,379,729
|
|
Restricted
cash
|
171,553
|
171,553
|
|
Short-term
investments
|
-
|
1,604,198
|
|
Trade
receivables
|
3,478
|
64,148
|
|
Inventories,
net
|
672,937
|
594,194
|
|
Prepaid
research and development expenses
|
22,613
|
86,652
|
|
Other
prepaid expenses and current assets
|
168,188
|
367,177
|
|
Total
current assets
|
5,740,747
|
13,267,651
|
|
Property
and equipment, net
|
185,802
|
186,282
|
|
TOTAL ASSETS
|
$5,926,549
|
$13,453,933
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$7,308,823
|
$1,808,311
|
|
Accrued
expenses
|
5,080,302
|
4,363,867
|
|
Deferred
revenue
|
15,441
|
88,404
|
|
Total current
liabilities
|
12,404,566
|
6,260,582
|
|
TOTAL LIABILITIES
|
12,404,566
|
6,260,582
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
Preferred
stock - $0.001 par value: 2,000,000 shares authorized; 419,585
shares issued and outstanding at June 30, 2018 and December 31,
2017
|
420
|
420
|
|
Common
stock - $0.001 par value: 160,000,000 shares authorized; 85,019,240
and 71,413,790 shares issued and outstanding at June 30, 2018 and
December 31, 2017, respectively
|
85,019
|
71,414
|
|
Accumulated
other comprehensive income
|
97,403
|
98,433
|
|
Additional
paid-in capital
|
164,239,299
|
159,197,950
|
|
Accumulated
deficit
|
(170,900,158)
|
(152,174,866)
|
|
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
|
(6,478,017)
|
7,193,351
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
$5,926,549
|
$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
June
30,
|
For the Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
Net
sales
|
$7,551
|
$136,168
|
$30,760
|
$175,727
|
|
Cost of
sales
|
(33,663)
|
(18,052)
|
(62,238)
|
(111,624)
|
|
Gross profit
(loss)
|
(26,112)
|
118,116
|
(31,478)
|
64,103
|
|
Operating
Expenses:
|
|
|
|
|
|
Research and
development
|
(6,600,215)
|
(5,089,624)
|
(14,880,657)
|
(10,013,891)
|
|
Selling, general
and administrative
|
(1,945,825)
|
(2,051,093)
|
(3,848,838)
|
(4,691,819)
|
|
Total Operating
Expenses
|
(8,546,040)
|
(7,140,717)
|
(18,729,495)
|
(14,705,710)
|
|
Loss
From Operations
|
(8,572,152)
|
(7,022,601)
|
(18,760,973)
|
(14,641,607)
|
|
Other
Income (Expense):
|
|
|
|
|
|
Interest
income
|
10,196
|
28,578
|
24,971
|
52,009
|
|
Foreign exchange
transactions gain (loss)
|
5,043
|
(5,537)
|
(4,154)
|
(6,823)
|
|
Change in fair
value of derivative liability
|
-
|
1,853,365
|
-
|
1,853,365
|
|
Interest
expense
|
-
|
-
|
(1,873)
|
-
|
|
Total Other Income
(Expense)
|
15,239
|
1,876,406
|
18,944
|
1,898,551
|
|
Net
Loss
|
(8,556,913)
|
(5,146,195)
|
(18,742,029)
|
(12,743,056)
|
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
Unrealized gain
from investments
|
-
|
300
|
-
|
10,413
|
|
Foreign currency
translation gain (loss)
|
394
|
6,077
|
(1,030)
|
5,085
|
|
Total Other
Comprehensive Income (Loss)
|
394
|
6,377
|
(1,030)
|
15,498
|
|
Comprehensive
Loss
|
(8,556,519)
|
(5,139,818)
|
(18,743,059)
|
(12,727,558)
|
|
Net
Loss Per Common Share – Basic and Diluted
|
$(0.10)
|
$(0.10)
|
$(0.24)
|
$(0.27)
|
|
Weighted
Average Common Shares Outstanding – Basic and
Diluted
|
82,354,273
|
52,583,177
|
78,692,987
|
46,637,083
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY
(DEFICIT)
For the Six Months Ended June 30, 2018
(Unaudited)
|
|
|
Non-Voting
Preferred Stock – Series C-2, Series C-3, Series D, Series E
and Series F
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
Comprehensive Income
|
Additional
Paid-inCapital
|
|
Total
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
13,434,437
|
13,434
|
|
|
|
4,136,279
|
|
4,149,713
|
|
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
|
|
|
|
|
|
731,468
|
|
731,468
|
|
Cumulative effect of adoption of
ASC 606 (Note 1)
|
|
|
|
|
|
|
16,737
|
16,737
|
|
Other comprehensive
income
|
|
|
|
|
(1,030)
|
|
|
(1,030)
|
|
Net loss
|
|
|
|
|
|
|
(18,742,029)
|
(18,742,029)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30,
2018
|
85,019,240
|
$85,019
|
419,585
|
$420
|
$97,403
|
$164,239,299
|
$(170,900,058)
|
$(6,478,017)
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
CORMEDIX INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the
Six Months
Ended
June
30,
2018
|
For the
Six Months
Ended
June
30,
2017
|
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
loss
|
$(18,742,029)
|
$(12,743,056)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
731,468
|
849,643
|
|
Change in fair
value of derivative liability
|
-
|
(1,853,365)
|
|
Inventory reserve
decrease
|
-
|
(187,000)
|
|
Depreciation
|
38,734
|
17,671
|
|
Non-cash interest
expense
|
-
|
2,020
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Decrease (increase)
in trade receivables
|
61,220
|
(133,119)
|
|
(Increase) decrease
in inventory
|
(78,743)
|
40,598
|
|
Decrease (increase)
in prepaid expenses and other current assets
|
263,151
|
(400,152)
|
|
Increase in
accounts payable
|
5,498,465
|
117,509
|
|
Increase (decrease)
in accrued expenses
|
911,636
|
(212,061)
|
|
Decrease in
deferred revenue
|
(73,686)
|
(8,599)
|
|
Net cash used in
operating activities
|
(11,389,784)
|
(14,509,911)
|
|
Cash
Flows From Investing Activities:
|
|
|
|
Purchase of
short-term investments
|
-
|
(9,279,217)
|
|
Sale of short-term
investments
|
1,604,198
|
10,504,355
|
|
Purchase of
equipment
|
(38,225)
|
(3,922)
|
|
Net cash provided
by investing activities
|
1,565,973
|
1,221,216
|
|
Cash
Flows From Financing Activities:
|
|
|
|
Proceeds from sale
of common stock from at-the-market program
|
4,149,713
|
347,361
|
|
Proceeds from the
public offering of common stock and warrants
|
-
|
12,798,325
|
|
Proceeds from
exercise of stock options
|
-
|
6,800
|
|
Net cash provided
by financing activities
|
4,149,713
|
13,152,486
|
|
Foreign exchange
effect on cash
|
(3,653)
|
9,107
|
|
Net
Decrease In Cash
|
(5,677,751)
|
(127,102)
|
|
Cash
– Beginning of Period
|
10,551,282
|
8,236,043
|
|
Cash
– End of Period
|
$4,873,531
|
$8,108,941
|
|
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 vested restricted stock units
|
$43
|
|
|
Unrealized gain
from investments
|
$-
|
$10,413
|
|
Issuance of common
stock for payment of deferred fees
|
$173,773
|
$10,218
|
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 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.
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 designed 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. On
July 25, 2018, the Company announced that the independent Data
Safety Monitoring Board (“DSMB”) had completed its review of the interim analysis of
the data from the LOCK-IT-100 study and, because the pre-specified
level of statistical significance was reached and efficacy had been
demonstrated, the DSMB recommended the study be terminated early.
No safety concerns were reported by the DSMB based on the interim
analysis. The Company will initiate dialogue with the U.S. Food and Drug Administration
(“FDA”) on the appropriate next steps for
the development of Neutrolin based on the results of the interim
analysis.
Although two
pivotal clinical trials to demonstrate safety and effectiveness of
Neutrolin generally are required by the FDA to secure marketing
approval in the U.S., in light of the interim analysis results and
the DSMB recommendation, the Company plans to meet with the FDA as
soon as possible to seek agreement on the required next steps to
file a new drug application (“NDA”) for
Neutrolin.
The
necessary activities for the submission of an NDA for Neutrolin are
dependent on the Company’s ability to raise sufficient 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 the FDA will not require a second
clinical trial for an NDA for Neutrolin, or that financing or
strategic relationships will be available on acceptable terms, or
at all, to complete its clinical development program for
Neutrolin.
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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
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.
The
following table presents the Company’s revenue for the three
months ended June 30, 2018 under the ASC 606 model as compared to
revenue under the previous guidance:
|
|
|
Revenue Under Previous Guidance
|
|
|
Net
sales
|
$5,345
|
$5,345
|
$-
|
|
Revenue
recognized under agreement with warranty
|
-
|
7,511
|
7,511
|
|
Revenue
recognized under Wonik Agreement
|
2,206
|
2,206
|
-
|
|
Total
net sales
|
$7,551
|
$15,062
|
$7,511
|
The
following table presents the Company’s revenue for the six
months ended June 30, 2018 under the ASC 606 model as compared to
revenue under the previous guidance:
|
|
|
Revenue Under Previous Guidance
|
|
|
Net
sales
|
$26,348
|
$26,348
|
$-
|
|
Revenue
recognized under agreement with warranty
|
-
|
37,669
|
37,669
|
|
Revenue
recognized under Wonik Agreement
|
4,412
|
4,412
|
-
|
|
Total
net sales
|
$30,760
|
$68,429
|
$37,669
|
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 recognition of 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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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. 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 six months ended June 30, 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.
Recent Authoritative Accounting 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. In July 2018, the FASB
issued new guidance
with targeted improvements which include a new transition method
and a practical expedient for separating components of a contract
intended to reduce costs and ease implementation of the lease
standard. The guidance is
effective for the Company 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. The Company is evaluating the impact of adopting
this guidance on its consolidated financial
statements.
In June
2018, the FASB issued a new guidance which expands the scope of ASC
718 to include share-based payment transactions for acquiring goods
and services from nonemployees. The guidance is effective for the
Company beginning in the first quarter of fiscal year 2019. Early
adoption is permitted. The Company is evaluating the impact of
adopting this guidance on its consolidated financial
statements.
Note 2 — Summary of Significant Accounting
Policies:
Liquidity, Going Concern and Uncertainties
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; the 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
Management has
evaluated whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s
ability to continue as a going concern within a year after the date
the consolidated financial statements contained in this Report are
issued. As of June 30, 2018, the Company had an accumulated deficit
of $170.9 million, and had incurred losses from operations of $8.6
million and $18.8 million for the three and six months ended June
30, 2018, respectively, and its cash position decreased from $10.6
million at December 31, 2017 to $4.9 million at June 30,
2018. These factors raise
substantial doubt regarding the Company’s ability to continue
as a going concern. Based on the
current development plans for Neutrolin and the Company’s
other operating requirements, as well as the current status of its
negotiations with its contract research organization
(“CRO”), management believes that the existing cash and
cash equivalents at June 30, 2018, plus the funds raised under the
at-the-market common stock issuance program (the “ATM
Program”) through August 10, 2018, will be adequate to fund
the costs of closing the LOCK-IT-100 study and to hold its planned
meeting with the FDA with respect to Neutrolin’s proposed
development path. A successful outcome of the Company’s
negotiations with its CRO may enable the Company to continue its
operations into 2019; or if no such agreement is reached,
additional financing may be required during the fourth quarter of
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 same date on which the prior At-the-Market
Issuance Sales Agreement with B. Riley entered into in 2016
expired. Under the ATM Program, the Company sold 3,116,213 shares
of common stock and realized net proceeds of approximately $929,000
during the quarter ended June 30, 2018 and 13,434,437 shares and
realized $4.1 million of net proceeds for the six months ended June
30, 2018.
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 the development
and commercialization of Neutrolin, 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.
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.
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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
following table is the reconciliation under the aforementioned 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
|
$4,701,978
|
$7,937,388
|
|
Restricted
cash
|
171,553
|
171,553
|
|
Total cash, cash
equivalents and restricted cash
|
$4,873,531
|
$8,108,941
|
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 June 30, 2018 or December 31,
2017.
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 June 30, 2018, the Company has no marketable
securities and at 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 June 30, 2018 and December 31,
2017:
|
June
30, 2018:
|
|
|
|
|
|
Money
Market Funds included in Cash Equivalents
|
$-
|
$-
|
$-
|
$-
|
|
Total
June 30, 2018
|
$-
|
$-
|
$-
|
$-
|
|
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
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
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 June 30, 2018 and December 31,
2017:
|
June 30, 2018:
|
|
|
|
|
|
Money
Market Funds
|
$-
|
$-
|
$-
|
$-
|
|
Total
June 30, 2018
|
$-
|
$-
|
$-
|
$-
|
|
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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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
June 30, 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.
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
|
$93,716
|
$141,233
|
|
Work in
process
|
294,267
|
526,067
|
|
Finished
goods
|
387,954
|
29,894
|
|
Inventory
reserve
|
(103,000)
|
(103,000)
|
|
Total
|
$672,937
|
$594,194
|
Accounts Payable
Accounts payable
consist of invoices received from vendors. At June 30, 2018, the
balance increased by approximately $5,500,000 from $1,808,000
balance at December 31, 2017, due to the suspension of payments to
the CRO while negotiations regarding financial considerations for
the interim analysis continue.
Accrued Expenses
Accrued
expenses consist of the following:
|
|
|
|
|
Professional and
consulting fees
|
$324,286
|
$485,089
|
|
Accrued payroll and
payroll taxes
|
775,222
|
755,221
|
|
Clinical trial and
manufacturing development
|
3,756,595
|
2,884,924
|
|
Product
development
|
80,001
|
80,001
|
|
Market
research
|
-
|
116,466
|
|
Other
|
144,198
|
42,166
|
|
Total
|
$5,080,302
|
$4,363,867
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
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 June 30,2018 and 2017, and
$4,400 each for the six months ended June 30, 2018 and
2017.
Deferred
revenue related to the Wonik Agreement at June 30, 2018 and
December 31, 2017 amounted to approximately $15,400 and $19,800,
respectively.
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.
|
|
Six Months
Ended
June
30,
|
|
|
|
|
|
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
|
12,345,679
|
-
|
|
Shares underlying
outstanding warrants
|
22,892,891
|
33,052,578
|
|
Shares underlying
restricted stock units
|
97,529
|
61,414
|
|
Shares underlying
outstanding stock options
|
5,505,795
|
5,709,545
|
|
Total
|
46,820,893
|
45,052,536
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
Note 3 — Stockholders’ Equity:
Common Stock
The
Company had a prior sales agreement with B. Riley for its ATM
Program, which agreement expired on April 16, 2018, and under which
the Company could issue and sell up to an aggregate of $60.0
million of shares of its common stock. 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 under the
ATM Program, 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. Under the ATM Program, the Company may issue and
sell 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. B. Riley is entitled to a commission of up to 3%
of the gross proceeds from the sale of common stock sold under the
ATM Program. During the three and six months ended June 30,
2018, the Company sold 3,116,213 and
13,434,437 shares of common stock, respectively, under the ATM
Program and realized net proceeds of approximately $929,000 and
$4.1 million for the three and six months ended June 30, 2018,
respectively.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
During the six months ended June 30, 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 six months ended June 30, 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
|
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 will be mandatorily convertible
if certain equity conditions are met. As of June 30, 2018, the last
condition has not been met, which condition is the subordination of
the outstanding Series C-3 preferred stock to the Series F Stock,
therefore, the Series F Stock is not mandatorily convertible as of
June 30, 2018. 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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Stock Options
During
the six months ended June 30, 2018, the Company granted ten-year
qualified and non-qualified stock options covering an aggregate of
623,000 shares of the Company’s common stock under the 2013
Stock Incentive Plan. The weighted average exercise price of these
options is $0.41 per share.
During
the three and six months ended June 30, 2018, total compensation
expense for stock options issued to employees, directors, officers
and consultants was $337,000 and $687,000, respectively, and
$383,000 and $814,000 for the three and six months ended June 30,
2017, respectively.
As of
June 30, 2018, there was $2,275,000 in total unrecognized
compensation expense related to stock options granted which expense
will be recognized over an expected remaining weighted average
period of 1.5 years.
The
fair value of the grants are determined using the Black-Scholes
option pricing model with the following assumptions:
|
|
Six Months
Ended
June
30,
|
|
|
2018
|
|
2017
|
|
Expected
Term
|
5
years
|
|
5
years
|
|
Volatility
|
92.97%
- 95.51%
|
|
101.69%
- 105.07%
|
|
Dividend
yield
|
0.0%
|
|
0.0%
|
|
Risk-free
interest rate
|
2.63% -
2.92%
|
|
1.77% -
1.99%
|
|
Weighted average
grant date fair value of options granted during the
period
|
$0.30
|
|
$1.27
|
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. 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.
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 six months ended June 30,
2018:
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining 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
|
|
Expired
|
(30,818)
|
$1.17
|
|
$0
|
|
Granted
|
623,000
|
$0.41
|
|
$500
|
|
Outstanding at end
of period
|
5,505,795
|
$1.86
|
7.3
|
$500
|
|
Vested at end of
period
|
2,777,265
|
$1.86
|
5.9
|
$21
|
There
were no stock option exercises during the six months ended June 30,
2018 and during the six months ended June 30, 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 six months ended June 30, 2018, the Company granted an
aggregate of 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 and six months ended June 30, 2018, compensation expense
recorded for the RSUs was $21,000 and $44,000, respectively, and
$15,000 and $36,000 for the three and six months ended June 30,
2017. Unrecognized compensation expense for these RSUs amounted to
$48,000. The expected weighted average period for the expense to be
recognized is 0.57 years.
Warrants
As of
June 30, 2018, there were 22,892,891 outstanding warrants with a
weighted average exercise price of $1.07 per share and
a weighted average remaining contractual life of 2.9
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 the
DSMB recommendation to terminate the LOCK-IT-100 study for efficacy
and the Company’s ongoing negotiations with its CRO regarding
financial considerations for the interim efficacy analysis of the
LOCK-IT-100 study, the Company has determined to not draw down on
this facility.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Pursuant to the
November 2017 consulting agreement between the Company and Gary
Gelbfish, a director, in June 2018 the Company accrued $160,000 in
fees submitted by Dr. Gelbfish under the consulting agreement for
his work in the data quality review for the interim analysis of the
Company’s LOCK-IT-100 clinical trial for Neutrolin. Under the
terms of the consulting agreement, Dr. Gelbfish is compensated at
the rate of $800 per hour.
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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
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 June 30,
2018. During the three and six months ended June 30, 2018,
the Company recognized research and development expense of
approximately $56,000 and $159,000, respectively, related to these
agreements and approximately $349,000 and $896,000 for the three
and six months ended June 30, 2017, respectively. 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 budgeted 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 the changes to the
study agreed with the FDA, the Company signed a second contract
modification with its CRO increasing the budget by $6.3 million, to
cover the continuation of trial enrollment, the increased length of
time in which patients are enrolled and additional activities
related to the collection of retrospective data outside the
treatment centers. During the three and six months ended June 30,
2018, the Company recognized $3,242,000 and $9,040,000 in research
and development expense related to this agreement, respectively,
and $2,811,000 and $5,365,000 during the three and six months ended
June 30, 2017, respectively.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
At June
30, 2018, the total CRO contract was $33 million, increasing from
its original amount of $19.2 million. The Company determined that
certain issues delayed the completion of the interim efficacy
analysis, and it is in negotiations with its CRO regarding
financial considerations. The Company is assessing 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.
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 June 30, 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 being
$2,500,000 as of June 30, 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 six month periods ending
June 30, 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.
Note 6 — Concentrations:
At June
30, 2018, approximately 89% of net accounts receivable was due from
two customers (53% and 26%). During the three months and six months
ended June 30, 2018, the Company had revenue from two customers
that each exceeded 10% of its total sales (34% and 28%) and (36%
and 14%), respectively. During the three and six months ended June
30, 2017, two customers also exceeded 10% of the Company’s
total sales (48% and 36%) and (50% and 33%),
respectively.
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.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 7 — Subsequent Event:
During
July 2018 through August 10, 2018, the
Company issued an aggregate of 13,807,818 shares under its ATM Program with a weighted
average sale price of $0.51 per
share, resulting in net proceeds of approximately $6.9
million.
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 was 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 July 25, 2018, we
announced that the DSMB had completed
its review of the interim analysis of the data from the LOCK-IT-100
study and, because the pre-specified level of statistical
significance was reached and efficacy had been demonstrated, the
DSMB recommended the study be terminated early.
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.
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.
In August 2017, we secured a research grant from the National
Institutes of Health (NIH) to expand our antimicrobial hydrogel
medical device program. In addition to our ongoing
development of taurolidine-incorporated hydrogels to reduce
infections in common burns, this funding will be applied toward 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.
Since
our inception, 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 terminate our LOCK-IT-100 Phase 3 clinical trial
in hemodialysis patients with catheters, possibly plan a second
Phase 3 clinical trial for Neutrolin, if required by the FDA,
prepare and submit a new drug application for Neutrolin to the FDA,
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 June 30, 2018,
we had an accumulated deficit of approximately $170.9
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 would expect to incur higher
R&D expenses for the foreseeable future if we are required to
conduct a second Phase 3 clinical trial in order to submit a new
drug application to complete development of Neutrolin in the
U.S.
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 of
Neutrolin in the U.S. and optimization of sales in foreign markets
where Neutrolin is approved. In December 2015, we contracted with
our contract research organization, or 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 severe adverse
events, or 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 June 30, 2018, approximately $29.7 million
has been incurred related to the CRO contract. We continue our
negotiations with our CRO regarding financial considerations
related to the delay and additional costs we incurred in performing
the interim efficacy analysis of the LOCK-IT-100 study. Our CRO is
continuing to provide services for the LOCK-IT-100 trial to close
down study sites in light of the DSMB recommendation to terminate
the trial for efficacy.
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 and six months ended June 30, 2018 compared to three and six
months ended June 30, 2017
The
following is a tabular presentation of our consolidated operating
results:
|
|
For the Three
Months Ended
|
%
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$7,551
|
$136,168
|
(94)%
|
$30,760
|
$175,727
|
(82)%
|
|
Cost of sales
|
(33,663)
|
(18,052)
|
86%
|
(62,238)
|
(111,624)
|
(44)%
|
|
Gross profit
(loss)
|
(26,112)
|
118,116
|
(122)%
|
(31,478)
|
(31,478)
|
(149)%
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Research and
development
|
(6,600,215)
|
(5,089,624)
|
30%
|
(14,880,657)
|
(10,013,891)
|
49%
|
|
Selling, general and
administrative
|
(1,945,825)
|
(2,051,093)
|
(5)%
|
(3,848,838)
|
(4,691,819)
|
(18)%
|
|
Total operating
expenses
|
(8,546,040)
|
(7,140,717)
|
20%
|
(18,729,495)
|
(14,705,710)
|
27%
|
|
Loss from
operations
|
(8,572,152)
|
(7,022,601)
|
22%
|
(18,760,973)
|
(14,641,607)
|
28%
|
|
Interest income
|
10,196
|
28,578
|
(64)%
|
24,971
|
52,009
|
(52)%
|
|
Foreign exchange transaction gain
(loss)
|
5,043
|
(5,537)
|
(191)%
|
(4,154)
|
(6,823)
|
(39)%
|
|
Value of warrants issued in
connection with public offering
|
-
|
1,853,365
|
(100)%
|
-
|
1,853,365
|
(100)%
|
|
Interest
expense
|
-
|
-
|
|
(1,873)
|
-
|
-
|
|
Total Other
Income
|
15,239
|
1,876,406
|
(99)%
|
18,944
|
1,898,551
|
(99)%
|
|
Net loss
|
(8,556,913)
|
(5,146,195)
|
66%
|
(18,742,029)
|
(12,743,056)
|
47%
|
|
Other comprehensive income
(loss)
|
394
|
6,377
|
(94)%
|
(1,030)
|
15,498
|
(107)%
|
|
Comprehensive
loss
|
$(8,556,519)
|
$(5,139,818)
|
66%
|
(18,743,059)
|
(12,727,558)
|
47%
|
Revenue. Revenue was $8,000 for the
three months ended June 30, 2018 as compared to $136,000 in the
same period last year, a decrease of $128,000. The decrease was
primarily due to decreased sales in the European Union of $94,000
and the adoption of ASC 606 at January 1, 2018, which caused no
deferred revenue to be recognized for the products sold with
warranty for the three months ended June 30, 2018 as compared to
the $35,000 recognized for the same period last year.
Revenue
for the six months ended June 30, 2018 was $31,000 as compared to
$176,000 for the same period last year, a decrease of $145,000. The
decrease was primarily due to decreased sales in the European Union
of $81,000 and the adoption of ASC 606 at January 1, 2018, which
caused no deferred revenue to be recognized for the products sold
with warranty for the six months ended June 30, 2018 as compared to
the $64,000 recognized for the same period last year.
Cost of Sales. Cost of sales was
approximately $34,000 for the three months ended June 30, 2018
compared to $18,000 in the same period last year, an increase of
$16,000. The increase was due to a reduction of inventory reserve
in 2017 for $187,000, partially offset by a $155,000 decrease in
cost of materials and packaging due to lower sales in the European
Union during the three months ended June 30, 2018, and a decrease
in stability studies of $17,000.
Cost of
sales for the six months ended June 30, 2018 was $62,000 compared
to $112,000 in the same period last year, a decrease of
$50,000. The decrease is attributed to a $180,000 decrease in
cost of materials and packaging due lower sales in the European
Union during the six months ended June 30, 2017, and a decrease in
stability studies of $57,000, partially offset by a reduction in
inventory reserve during the six months ended June 30, 2017 in the
amount of $187,000.
Research and Development Expense.
R&D expense was approximately $6,600,000 for the three months
ended June 30, 2018, an increase of $1,510,000, from $5,090,000 for
the three months ended June 30, 2017. The increase was
primarily attributable to increased expenses related to the
LOCK-IT-100 trial of $1,207,000, due to increased number of
patients enrolled. Consulting fees and personnel expenses also
increased by $386,000 and $271,000, respectively. Increase in
consulting fees was due to increased regulatory activities and
increase in personnel expenses was mainly due to hiring of new
staff supporting the LOCK-IT-100 trial and the conversion of
several consultants into employee status. These increases were
partially offset by a decrease in costs to support the U.S.
clinical trial drug supply consisting of manufacturing process
development activities of $191,000, reduced cost of studies related
to wound closure, wound management and surgical meshes of $135,000,
and a decrease in non-cash stock-based compensation of
$27,000.
R&D
expense for the six months ended June 30, 2018 was $14,881,000,
compared to $10,014,000 for the same period last year, an increase
of $4,867,000. The increase was primarily attributable to a
$5,481,000 increase in expenses related to the LOCK-IT-100 clinical
trial in the U.S. Personnel expenses also increased by $423,000,
due to the hiring of new staff supporting the LOCK-IT-100 trial and
the conversion of several consultants to employee status. These
increases were partially offset by decreases in costs related to
manufacturing process development activities of $774,000 and cost
of new studies related to antimicrobial sutures, nanofiber webs,
wound management and osteoarthritis and visco-supplementation of
$265,000.
Selling, General and Administrative
Expense. SG&A expense was $1,946,000 for the three
months ended June 30, 2018, a decrease of $105,000 from $2,051,000
for the three months ended June 30, 2017. The decrease was
primarily attributable to reductions in selling and distribution
cost in the EU of $119,000, decreases in marketing research studies
and consulting fees of $100,000 and $61,000, respectively. These
decreases, among others of lesser significance, were partially
offset by an increase in legal fees of $182,000 mainly due to fees
related to the ongoing discussions with our CRO.
SG&A expense
for the six months ended June 30, 2018 was $3,849,000 compared to
$4,692,000 for the same period last year, a decrease of $843,000.
The decrease was primarily attributable to a decrease in consulting
fees of $553,000, mainly due to executive search fees that were
incurred in 2017, a decrease in marketing research studies of
$275,000, and a decrease in non-cash charge for stock-based
compensation expense of $108,000. These decreases among others of
lesser significance, were partially offset by a $115,000 increase
in legal fees, mainly due to fees related to the
ongoing discussions with our CRO.
Interest Income. Interest income was
$10,000 for the three months ended June 30, 2018 compared to
$29,000 for the same period last year, a decrease of $19,000. 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.
Interest income for
the six months ended June 30, 2018 was $25,000 as compared to
$52,000 for the same period last year, a decrease of $27,000. The
decrease was attributable to lower interest-bearing cash balance
during the first six months of 2018 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 $400 and $6,000 gain for the
three months ended June 30, 2018 and 2017,
respectively.
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 a $15,000 gain for the six months ended June 30, 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 six months ended June 30, 2018, we
received net proceeds of $4,150,000 from the issuance of 13,434,437
shares of common stock under our at-the-market-issuance sales
program.
Net Cash Used in Operating Activities
Net
cash used in operating activities for the six months ended June 30,
2018 was $11,390,000 as compared to $14,510,000 for the same period
in 2017, a decrease in net cash use of $3,120,000. The decrease was
primarily attributable to an increase in net loss of $5,795,000
driven by increased research and development expenses. The net loss
of $18,742,000 for the six months ended June 30, 2018 was higher
than cash used in operating activities by $7,352,000. The
difference is primarily attributable to increases in accounts
payable and accrued expenses of $5,498,000 and $912,000,
respectively, primarily due to the suspension of payments to our
CRO while negotiations continue. Additionally, there is also an
increase in non-cash stock-based compensation of $731,000, and
decreases in prepaid expenses and trade receivables of $263,000 and
$61,000, respectively, partially offset by an increase in inventory
and a decrease in deferred revenue of $79,000 and $74,000,
respectively.
Net Cash Provided by Investing Activities
Cash
provided by investing activities for the six months ended June 30,
2018 was $1,566,000 as compared to $1,221,000 for the same period
in 2017, both of which are mainly attributable to the proceeds
received on the sale of short-term investments.
Net Cash Provided by Financing Activities
Net
cash provided by financing activities for the six months ended June
30, 2018 was $4,150,000 as compared to $13,152,000 for the same
period in 2017. During the six months ended June 30, 2018, we
generated net proceeds of $4,150,000 from the sale of our common
stock in our at-the-market program. During the same period in 2017,
we generated $12,798,000 from the public offering of our common
stock and warrants, $347,000 from the sale of our common stock in
the 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 June 30, 2018
was $4.7 million, excluding restricted cash of $0.2 million,
compared with $12 million at December 31, 2017, excluding
restricted cash of $0.2 million.
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 are focused in
activities leading to the preparation and submission of a new drug
application for Neutrolin to the FDA will depend on our ability to
raise sufficient 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.
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 continue to utilize our ATM
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.
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 will continue to use cash as we
terminate our Phase 3 clinical trial, and increase other activities
leading to the preparation and submission of a new drug application
to seek marketing approval of Neutrolin in the U.S., pursue
business development activities, and incur additional legal costs
to defend our intellectual property.
Based on our cash resources at June 30, 2018, the
proceeds received under our ATM Program through August 10, 2018,
and the current status of our negotiations with our CRO, we
believe we have sufficient resources to fund the costs of closing
the LOCK-IT-100 study and to hold its planned meeting with the FDA
with respect to Neutrolin’s proposed development path. A
successful outcome of our negotiations with our CRO may enable us
to continue our operations into 2019; or if no such agreement is
reached, additional financing may be required during the fourth
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. We may 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.
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.
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. We accrue 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, we adjust our 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.
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 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 and $4,400 revenue related to the Wonik Agreement
for each of the three and six months ended June 30, 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. In July 2018, the FASB issued
new guidance with targeted
improvements which include a new transition method and a practical
expedient for separating components of a contract intended to
reduce costs and ease implementation of the lease standard.
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.
In June
2018, the FASB issued a new guidance which expands the scope of ASC
718 to include share-based payment transactions for acquiring goods
and services from nonemployees. 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.
Quantitative
and Qualitative Disclosure about Market Risk.
None.
Evaluation
of Disclosure Controls and Procedures
Disclosure controls
and procedures are designed only to provide reasonable assurance
that information to be disclosed in our reports filed pursuant to
the Securities Exchange Act of 1934, as amended, or the Exchange
Act, 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 Exchange Act) as of June
30, 2018. Based on the foregoing evaluation, our Chief
Executive Officer and Chief 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 Chief Executive
Officer and Chief 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 June 30, 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.
OTHER INFORMATION
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.
If we fail to comply with the continued listing standards of the
NYSE American, it may result in a delisting of our common stock
from the exchange.
Our
common stock is currently listed for trading on the NYSE American,
and the continued listing of our common stock on the NYSE American
is subject to our compliance with a number of listing standards.
These listing standards include the requirement for avoiding
sustained losses and
maintaining a minimum level of stockholders’
equity. In 2012, 2014, and 2018 we received notices from
the NYSE American that we did not meet continued listing standards
of the NYSE American as set forth in Part 10 of the Company
Guide. Specifically, we were not in compliance with Section
1003(a)(i), Section 1003(a)(ii) or Section 1003(iii) of the Company
Guide because we reported stockholders’ equity of less than
the required amounts.
On June
14, 2018, we received a notice from the NYSE American that, based
on our Form 10-Q for the quarter ended March 31, 2018, filed on May
15, 2018, we do not meet a continued listing standard of the NYSE
American as set forth in Part 10 of the NYSE American Company Guide
because we reported stockholders’ equity of less than the
required amounts. As a result, we have become subject to the
procedures and requirements of Section 1009 of the Company Guide.
We submitted to the NYSE American on July 16, 2018 a plan of
compliance to address how we intend to regain compliance with
Section 1003(a)(i), Section 1003(a)(ii) or Section 1003(a)(iii) of
the Company Guide by December 16, 2019. If the plan is accepted by
the NYSE American, we may be able to continue our listing during
the Sections 1003(a)(i)-(iii) Plan Period, during which time we
will be subject to periodic review to determine whether we are
making progress consistent with the plan.
If our common stock were no longer listed on the
NYSE American, investors might only be able to trade on one of the
over-the-counter markets, including the OTC Bulletin Board
® or in the Pink Sheets ® (a
quotation medium operated by Pink Sheets LLC). This would impair
the liquidity of our common stock not only in the number of shares
that could be bought and sold at a given price, which might be
depressed by the relative illiquidity, but also through delays in
the timing of transactions and reduction in media
coverage.
The
following is a list of exhibits filed as part of this Form
10-Q:
|
Exhibit Number
|
|
Description
|
|
|
|
|
|
|
|
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 June 30, 2018, formatted in Extensible Business
Reporting Language (XBRL): (i) Condensed Consolidated Balance
Sheets at June 30, 2018 and December 31, 2017, (ii) Condensed
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three and six months ended June 30, 2018 and 2017,
(iii) Condensed Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the six months ended June 30,
2018, (iv) Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 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.
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: August 14,
2018
|
By:
|
/s/ Khoso
Baluch
|
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|
Name: Khoso
Baluch
|
|
|
|
|
Title:
Chief
Executive Officer (Principal
Executive Officer)
|
|
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
|
|
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 June 30, 2018, formatted in Extensible Business
Reporting Language (XBRL): (i) Condensed Consolidated Balance
Sheets at June 30, 2018 and December 31, 2017, (ii) Condensed
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three and six months ended June 30, 2018 and 2017,
(iii) Condensed Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the six months ended June 30,
2018, (iv) Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 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.