CorMedix Inc. (CRMD) Q1 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the CorMedix First Quarter 2015 Results. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Randy Milby, the CEO of CorMedix. Thank you sir, Mr. Milby you may begin.

Good morning and welcome to the CorMedix's first quarter 2015 conference call. I will begin by providing you with an update of our commercial strategy and operational progress. Then Harry O'Grady our CFO, who is here with me today in New Jersey, will provide a more detailed summary of our financial results. First, I want to remind you that this conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical facts regarding management's expectations, beliefs, goals, plans or the Company's prospects, future financial position, future revenues and projected cost should be considered forward-looking. Our actual results may differ materially from these projections or estimates due to a variety of important factors including uncertainties related to clinical development, regulatory approvals and commercialization. These risks are described in greater detail in CorMedix filing with the SEC, copies of which are available free-of-charge at the SEC's website at www.sec.gov or upon request from CorMedix. CorMedix may not actually achieve the goals or plans described in these forward-looking statements and investors should not place undue reliance on these statements. Please note that CorMedix does not intend to update these forward-looking statements except as required by law. This has been an important period for the company. I am excited and encouraged about where we are today and the progress we have made strategically and tactically this quarter. And I want to update you on several important areas. First, we are continuing our multi-pronged effort to assert our intellectual property in Germany. Second, we submitted our second pivotal Phase III protocol to the FDA. We have completed market research studies evaluating the health economics which articulate the value of Neutrolin and we plan to publish in peer reviewed journals. Third, there is over 90% reduction in infection and thrombosis versus benchmark in studies to-date from the Neutrolin Usage Monitoring program which we refer to as NUM. A post-marketing surveillance survey in Germany. We continue to accelerate our efforts to collaborate with regional marketing partners that will further expand the availability of Neutrolin to patients in additional countries, particularly the Middle East. We continue to explore strategic alternatives to accelerate the development of Neutrolin in a process managed by Evercore. Third, we have initiated a plan to reduce our COGS which will improve our margins in 2015 and even more so in 2016 enabled us to go to market in a highly competitive position. Fourth, Neutrolin has been designated as QIDP, a Qualified Infectious Disease Product and has been granted Fast Track status. And last but definitely not least, we have added skill sets to our gene that makes us stronger. These people who have done it before and know how to get from here to there and I hope you will agree that we have accomplished a great deal during the quarter. Let me update you on the key near and longer term catalyst for CorMedix's growth. The patent infringement and unfair competition litigations. Status of the US Phase III clinical trial and commercial preparations. An effort to identify and engage strategic partners to accelerate the clinical development and commercialization of Neutrolin. Neutrolin in the European Union in the Middle East expanding the product label to include new invitations and the expansion beyond the EU through marketing and distribution progress in the Middle East, Asia and Latin America. We have just learned this morning, that the district court in Mannheim has considered our patent infringement and utility model claims, but have decided that it will not at this time issue an injunction in our favor against TauroPharm. As background recall that we are seeking both injunctive relief and monetary damages based on our contention that our competitor TauroPharm infringes our European patent by manufacturing selling, distributing in Germany its 100 unit and 500 unit Heparin products that compete with Neutrolin. You probably know, that the legal standard for issuing an injunction against another company in a patent case is quite high and it is often the case that German courts will look to the patent Agency experts to first determine, whether the patent in question is valid before ruling on a request for an injunction. And indeed, that is what happened appears to what have happened here to be clear. The Mannheim court now will await a decision from the European Patent Office on the patent's validity. And for decision from the German Patent and Trademark Office on the utility model before ruling on our infringement claims. In addition to the patented actions, there remains pending before the district court in Cologne, Germany. A separate action filed by CorMedix against TauroPharm under which CorMedix inserts a violation of German unfair competition law based on the misappropriation of confidential and proprietary knowhow that concerns the manufacturing and clinical development TauroLock products. In this matter, the court has scheduled the hearing for July 2, 2015. With all this said, I am sure it is clear to you that we will vehemently defend our intellectual property rights. This by continuous and well I'd hope for a better interim result today. I am determined to protect the technology that was developed more than a decade ago by our predecessor company Biolink and Dr Frank Prosl. As you know, Neutrolin is a class III medical drug device in European Union. But the FDA regards it, as a drug for purposes of regulatory approval in the United States. As we discussed during previous calls. The FDA Division of Anti-Infective Products in Cedar has said that, we can initiate a pivotal clinical study in United States. We are planning a pivotal Phase III clinical study for Neutrolin and hemodialysis patients, with approximately 600 patients with central venous catheters. Just to give you an idea of the market potential here, it is estimated there are approximately 130 million catheter days and hemodialysis in the US per year. On April 24, a second phase III clinical protocol was submitted to the FDA. This study will have approximately 500 patients for new indication in oncology patients undergoing total parental nutrition. It is estimated there are approximately 45 million catheter days in oncology. In both studies, the patients will be monitored for catheter related blood stream infection and the relevant comparison will be Neutrolin versus Heparin as the control one. In addition, we are developing a smaller 200 page, Phase IIB study to further illusinate the use of Neutrolin in critical care, intensive care patients as part of a Neutrolin label. It is estimated, there are approximately 35 million catheter days in the ICU, CT7 in the United States each year. As discussed last quarter, we received Fast Track designation from the FDA to prevent catheter-related blood stream infections in patients receiving hemodialysis. Fast Track is intended to facilitate the development and expedite the review of drugs to treat serious conditions until unmet medical needs. Importantly, products designated as Fast Track can obtain a rolling review of the marketing application that may lead to an expedited approval. In addition, Neutrolin has been designated a Qualified Infectious Disease Product or QIDP under the Federal GAIN Act, which provides incentives for the development of new antimicrobials. This provides an additional five years of market exclusivity after drug approval beyond the standard five years for a new chemical entity. When combined, with possible additional extension with possible additional extension for paediatric use. This means that Neutrolin could enjoy aggregate period of postmarks, post approval exclusivity in the United States as long as 10.5 years from the date of launch. On May, 21 we will host an educational investor breakfast in New York. The topic is understanding QIDP and the other 21st century incentives for developing and marketing anti-infective medicines. That is designed to help investors understand how leveraging various regulatory and commercial incentives translate to increased shareholder value. Please see registration and webcast information in the press release and on our Investor Relations section of the CorMedix website. Turning now to market research completed this quarter. We have been diligently working through a variety of market research iterations in multiple markets in which Neutrolin should be used and we are very encouraged. The market potential appears extremely good. We believe there is a real need for this product and a high level of receptivity to using it. As you know, the market potential is not singular. There are different needs in hemodialysis than there are in a oncology or critical care and intensive care. We plan to develop our products to fit the specialized needs of the markets and we have begun assessing product acceptance and reimbursement given the quality metrics from the Affordable Care Act. We are confident in the positioning of Neutrolin and have completed several health economics studies, which are to be published in peer reviewed journals. As we announced earlier this year, we have retained investment bank Evercore to help evaluate strategic alternatives. We believe, that this is best way to accelerate the development and regulatory approval of Neutrolin in the United States. Moreover, this process ensures that we explore all possible options to maximize Neutrolin's value and deliver the underlying value to our shareholders. There are a number of structures that may result from this effort including product development collaboration, a merger or a sale of assets or perhaps, a hybrid transaction. We cannot say, of course how this effort will turn out in the end but I am convinced that we must follow this course to explore all viable alternatives as I have mentioned before, I won't comment on any specifics until we haven't completed our strategic review. Now let me turn our efforts to Germany. Where we made a minimal investment with the goal of establishing relationships with key opinion leaders and gathering clinical data. The clinical data's that we have to-date is the 200 patient post-marketing registering study which we call the Neutrolin and usage monitoring program. This was conducted and selected dialysis centers in hospital throughout Germany. In data presented recently by Dr. Hollenbeck a member of our European Union Scientific Advisory Board at the vascular access society meeting in Barcelona on April 18. We had recorded two infections and one thrombosis during 17,106 hemodialysis catheter days. As a comparison, you would ordinarily expect per 1,000 catheter days on average 3.5 infections and 2.5 thrombosis. This is over 90% reduction in infections and thrombosis. Although, this study is not designed to shows statistical significance. We believe that it provides compelling evidence demonstrating the anti-infective and anti-clotting value of Neutrolin and helps de-risk the US Phase III studies, in which the FDA protocol requires only a 40% reduction infection. Dr Wagner, the Chairman of our EU Scientific Advisory Board gave a late breaker oral presentation at the National Kidney Foundation Annual Meeting in Dallas on March, 28 with earlier data. We will also present the latest data in a poster session at the upcoming European dialysis and Transplantation Association Meeting in London on May, 29. We are very encouraged by these NUM results and we have been working to translate this positive data into meeting medical communications for nephrologist, oncologist, intensive care physicians. Although, we're not satisfied with our sales revenues and commercial progress in Germany. We are now providing them with this additional data to support Neutrolin and we have restructured our teams to account for the label expansion. As you know, this label now includes new indications for the use of our product in oncology patients receiving chemotherapy IV hydration and IV medications via central venous catheters as well as patients receiving medication and IV fluids via central venous catheters in intensive care or critical care units. As you know, we believe the Middle East is an opportunity for CorMedix. During this quarter, we added a full time person and he has been working closely with Dr. Pfaffle meeting with different physicians. We currently have sales in Saudi Arabia, Kuwait, United Arab Emirates and Morocco. As I said, previously we seek to market Neutrolin on a global basis in those territories where there is evident medical needed and adequate reimbursement. We are evaluating all strategic options including identifying and pursuing commercial relationships in the European Union, Asia, Latin America and the Middle East. I strongly believe that this is the best commercial strategy for CorMedix in that, it will allow us to prudently introduce Neutrolin to a larger number of central venous catheters patients throughout the world, while minimizing our expenses and fixed capital commitments that would be substantial, if we would established in country operations. In summary, this is been an important period for the company. Our IP litigation battle continues Neutrolin has been designated as QIDP and has been granted fast tracked by the FDA. We are actively seeking a partner, to help execute our clinical development strategy. We are in the early phase of commercialization of Neutrolin outside of the United States, with our expanded label. And continue to collaborate with regional marketing partners that will further expand the availability of Neutrolin to patients in additional countries. We have completed several market research studies evaluating the health economics, which articulate the value of Neutrolin and we have planned to publish these results in peer reviewed journals. We have a program underway to reduce our COGS, which should improve our current margins in 2015 and even more so in 2016 and enable us to go to the market in a highly competitive position. But at the end, it all comes down to execution and therefore we have added skill sets to our team that makes us stronger. People have done this before and know how to get from here to there. I hope you'll agree that we've accomplished a great deal during the quarter. I look forward to your questions. With that I would like to turn the call over to Harry O'Grady to provide detail on our financial update.

Thank you again for joining us today. I would like to now review the financial summation you saw yesterday on Form 10-Q. As mentioned on our last call, we expected our cash burn to increase as we continued our commercialization efforts in Germany and the Middle East. Increased our business development activities, incurred and increased legal cost to defend our intellectual property and have additional R&D activities to support product registration and future commercialization initiatives. As a result, our cash spending in this quarter increased versus Q4, 2014 by approximately $1.1 million to $2.9 million. With the exercising warrants, demand from the IPO with the 343,75 strike price and options we raised and option in Q1. We raised approximately $6.8 million through March 31, 2015. We ended the quarter with a cash balance of approximately $8.9 million. On April 1 through April 30, our cash position net of market operational spend continue to improve to approximately $18 million driven mainly the excise of warrants and options, which resulted in an aggregate gross proceed with approximately $8 million. And in April, the company filed S3 [ph] sales registration statement for $100 million of securities which include an allocation of 40 million of common shares under an ATM program. On April 8, 2015 the company entered into at the market issuance sales agreement with MLB and company LLC. Under which the company made issuance fell up to $40 million this year to its common stock from time-to-time through MLB acting as agent. Subject to limitation imposed by the company such as the number or dollar amount of shares registered under the registration, statement to which the offering relates. And the company wishes to issues its common stock under the sales agreement. It will notify MLB as number of shares to be issued. The dates on which that shares are anticipating, any [indiscernible] on price which sales may not be made and other sales [indiscernible] as the company deems appropriate. Through April 30, 2015 the company issued 472,412 shares of common stock and realized net proceeds of approximately $309 million an average selling price of $8.50. Our Q1 results for the quarter ended March 31, 2015. We recorded a net loss of $5.5 million. Other than that, $2.6 million were non-cash items mainly consistent of $1 million stock-based compensation and $1.6 million charge in connection with [indiscernible] agreement entering into on March 10, 2015 which related to the issuance of new warrants and the extension certain warrants issued in connection with the IPO. Details of this agreement are contained in the 10-Q. As Randy mentioned in Q1, sales were approximately $31,000 and cost of goods were approximately $17,000. Our operating cost for $5.5 million comprised of $1.2 million for R&D and $4.3 million for SG&A generating a loss from operation $5.5 million. Included in these amounts were non-cash items mainly consisting of $1 million stock-based compensation and the aforementioned charge related to the issuance of warrants in connection with [indiscernible] agreement. Of $1.6 million resulting in operating cash loss of $2.9 million. This is approximately $1.1 million higher than the span in Q4, 2014. The main drivers of increase were higher R&D spend of approximately $300,000 primarily attributed to the cost related to regulatory development and manufacturing efficiency improvements. And the SG&A area cost increase private [indiscernible] by approximately $800,000 due mainly to higher legal fees related to in defence of our IP, increased business development activity and higher personnel accounting and consulting cost. As well as some increase spending in our commercial operations in the Europe and the Middle East. Based on our cash resources at March 31, 2015. Our expectations of the current 2015 revenues funds for new churn improved markets. and current development plan for new churn both the US and other markets excluding the expect the Phase III clinical trial and the proceeds receiving it's as warrant stock options and capital raised on the MLB sales agreement through April, 30. We believe that our existing cash will be sufficient to fund our operations for at least the next 12 months. This also assumes that we fought in the US clinical trial not be successful in signing other [indiscernible] and not offer our current operating spend. Should the company commence to Phase III clinical trial from Neutrolin [indiscernible] patients in the US in the fourth quarter, 2015. At present, base cash on hand, we will have funding into the first quarter of 2016. With that, I will turn it over back to Randy.

Thank you, Harry. Operator, now we are available for questions.

[Operator Instructions] our first question comes from the line of Dan Trang with Stonegate Partners. Please proceed with your question.

I'm wondering what are some of the opportunities that Evercore has brought to you guys since you guys disengaged them.

Well, as I've stated, we're not going to provide additional details on the Evercore process, but I can tell you, that they've been out they had a target list of companies and as I mentioned on the last quarter call. They had a target list and they reached out to a number of these companies and it's an ongoing process.

Okay and so they're really helping you with your initiatives in the United States, right am I correct?

Well it's actually global because many of the companies that they contacted have an international footprint. Yes because just to remind everyone I have had business development people working on CorMedix for several years. But what Evercore brings is a global footprint they have access to the senior people within a number of companies, where Neutrolin would be a nice fit. So if they have the ability to ring up people at senior levels and initiated discussion right away and that's what they've been able to do for us.

Okay and talking about the injunction, you tried to get for regarding TauroPharm. And I know it's not only would that only pertain to Germany if I'm correct?

That is correct. So what this injunction and damages was for Germany and then the other countries would have to do something separate but the first injunction would have been in Germany only. But that injunction would have, if it would have been granted though they would have to cease operations and pay monetary damages.

Okay, all right. I'll get back in the queue. Thank you.

Thank You. Our next question comes from the line of Doug Smegel [ph], private investor please proceed with your question.

Hi, Randy. Had a question with regards to the patent infringement and utility model attempted injunction. As I understand that I read from your queue last night. The expected or projected timeframe for any type of rulings with regards to the patent infringement and the termination from the EPO would be, is it mid-2016 or before mid-2016 and with regards to the utility model. Maybe later this year 2015.

What you've read yes, is correct that's what we've written previously. What we found out today was that, obviously these decisions don't come quickly and from a timeline point of view. The utility model now the patent infringement have been put together. So what I had mentioned in the call is that, now the Mannheim court will await the decision from the European patent office for the patent's validity. So this includes both Doug the patent infringement as well as the utility model before they make their ruling.

So they're waiting to hear the rule - before they make a ruling, they're waiting to see if upholding the validity of the patent before the proposal patent from the EPO, when would be the timeframe that you would might project that we would know something. Are we talking in the 2016?

Well, as I mentioned these decisions don't come quickly, so we're talking about a 1 year or more.

Okay, is it and we wouldn't have to hear it from both the European patent office and the patent and trademark office in Germany.

Right, so what we hear most likely first would be the European patent office and then that would play back into the German, the Mannheim court, but just recall as we have this other action in the clone court system that's the unfair competition which is based upon the misappropriation of the confidential and proprietary knowhow, that hearing is scheduled for July, 2. So we have other activities that are ongoing and now the strategy was one, two, three, punch.

You've a little bit more color or granularity with regards to the unfair competition, action that you've filed. If CorMedix were to be successful in that, what could that potentially yield and damages, what could we see? I'm not quite as familiar with that.

Well that, whatever I would say be conjunction and speculation. So this has to do with, this has to do with as you recall the Biolink or the predecessor company and TauroPharm had privy to information knowhow when they were working for Biolink. So this has to do with the misappropriation of that confidential and proprietary knowhow and I don't want to be speculating as far as the actions. But you could anticipate an similar type infringement.

And so by no means, we haven't lost anything off of this, it's just the court has said, listen we want more information with regards to the actions in Mannheim and we're going to sit back and await to hear the re-evaluation of the validity of the patent and the utility model. Also that, if we were to be successful in some type of injunction could we expect that there would be stoppage of the manufacturing sales and distribution of product, would we pursue have to pursue a different course on that. How does that work?

Well that would be a decision obviously that we would take internally and with the board discussions because you know all these actions are subject to appeal. But you're correct we could take injunctive and monetary damages. But you're also correct, this is what we were going after here, we were sick seeking an injunction against the company and the legal standard for issuing an injunction for another company and the patent case is quite high. But we took a shot at it, we felt that it was worth taking. But here again, the validity of the patent now just goes to the European patent office.

Okay. And one final pursuit on in this line of questioning. TauroPharm is manufacturing other products, is there one site and that is in Germany is that correct?

That's correct, in Lahr.

Okay, I kind of get an idea of what's going on there. All right, thank you very much.

[Operator Instructions] our next question comes from the line of Chet Steadman with PSB [ph] Capital. Please proceed with your question.

Hi, Randy. It's a question in regards to how this decision is going to impact the overall sales as you've been guiding since day one, since like big make stress the opportunities at least in Europe and US or quite similar to one and other and just wondering, one if you had any insights into what the current sales for TauroLock in Germany and Europe in general right now and how this decision impacts those projections?

As you know that, TauroPharm is a privately held company, so we don't have access to their sales data. We do see them in the marketplace obviously and it has had an impact on our uptake, but as I mentioned on this call, is that we had minimal investment into Germany and what the value that we're painting out in Germany is the neutral and usage monitoring program and that type of data is something that our competition has not collected. We're approaching this from a scientific way and we have over greater than 90% reduction in infection thrombosis. So we'll see how it plays out on the patent side and for competition side. But we continue to make inroads in the Middle East, which is opportunistic for us as I mentioned on earlier.

Okay, great. Thanks to that and one just quick follow-up there in regards to that and the 90% figure. Does that take into account, is that the level of reduction that's observed in most installed file is typically highly there depending on the clinical trial side and other numerous factors that being a benchmark of 3.5 per thousand catheter days, is it necessary always accurate?

That's a great question. So this is not a controlled clinical study as I mentioned. The reason we're encouraged its real world data. So even what you would expect the 3.5 out of thousand catheter days. Is from, we have in this case about four different literate sources for that as same on the thrombosis, which was 2.5. So here again, it is as you correctly assert, and is not a controlled clinical study. But what we're doing is, is comparing the real world data versus other data that's been collected from a multiple sources.

Right okay, understand. All right, thank you.

Thank you. Our next question comes from the line of Mitch [indiscernible]. Please proceed with your question.

Congratulations on your role first and foremost. My question is, with this tremendous results of reduction are we trying to get into Latin America or are we having problems in rest of Europe because of [indiscernible] whole competition?

We have discussions with some companies in Latin America. However, as I've mentioned earlier for an earlier previous question. Since, we have the Evercore process underway and many of the companies that they've, they're having discussions with having international footprint. Although, we're having these discussions at many of these companies we send to Evercore to incorporate into their process. So there is a lot of interest particularly and that's another reason frankly, why we're putting this data out and we're having abstract and well presentations globally, so that the information can get out there and it should help in the Evercore process.

As a follow-up, I'm a little not confused, but I don't particularly understand or know, we are allowed to sell CorMedix's procedure of [indiscernible] in Europe now.

Yes, so we have it's in the European Union, it's a Class III medical drug device. So it's been, so you can sell in the European Union. However, you need to go country-by-country and get the appropriate registration within the each individual country. And we've done that in Italy, Malta, Australia, Netherlands and Germany.

And do we have a sales team that's involved in calling on these hospitals and etc?

We have a minimal footprint in Germany of four contracts sales organization individuals. One other contractors that we've started beta testing oncology and then we use independent sales reps and one in Austria and one in the Netherlands.

Yes, that would seem like for me that would seem like a virgin market there. Do the amount of cases that with benefit by this process. You know my sister has leukaemia, she has a fourth [ph] nervous system and of course, I don't know what procedure cleans out the [indiscernible] system and she to reset she has to get some [technical difficulty] and it seems like its [technical difficulty] market [technical difficulty].

Well in the European Union as you recall and you see it in the, we put it out in the K. there are competitive products. There is Citrolock [ph] which is high concentration citric solution. TauroPharm is in these markets and they use the distributor and saline and heparin are competitive products. I think your point is though and Neutrolin be the first in class in the United States. There are no competitive products, but with the calibre with both the anti-infective and anti-thrombotic effect as Neutrolin as. So the United States will be first in class.

Sounds good. Thank you.

Our next question comes from the line of John Siegel with Private Investor. Please proceed with your question.

Hi, Randy. Where we're at, I didn't hear you mention with regards to the South Korea.

South Korea, that's one export we'd signed the agreement with. Their FDA follows the US FDA. So what they're doing is. They will actually not be able to launch the product until after we've launched in the US. It's treated as drug there, not a device. So when we structure the agreement with them. They were unclear at the time, since we were Class III drug device, they were trying within Korea to be classified as a Class III medical device. But their FDA decided just like the US FDA that this should be viewed a drug and therefore, they can't launch until after we've finished the Phase III studies in the US.

Okay, thank you.

There are no further questions at this. I'd like to turn the floor back over to management for closing remarks.

Thanks to everyone for dialling in today and I would just like to reiterate a couple of points. I'm truly excited and encouraged by what we've been able to accomplish this quarter and I would just like to highlight those key activities again, before we close. First, we continue or multi-pronged effort to assert our intellectual property in Germany. We've submitted that second Phase III protocol to the FDA. We've got very positive and interesting health economics data that we're going to publish in peer reviewed journals. But Neutrolin and usage monitoring programmed data shows over 90% reduction in infection and thrombosis versus a benchmark. We've initiated and planned and have underway to reduce our COGS which will improve our margins both in 2015 and even more greatly in 2016. We have the QIDP designation and have the Fast Track and it has Fast Track design and we're building the strong team to execute this. So thank you everyone for dialling in. I appreciate you support.