CorMedix Inc. (CRMD) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the CorMedix Second Quarter 2016 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. I would now like to turn the conference over to Josh Drumm of Tiberend Strategic Advisors. Thank you. You may go ahead.

Good morning. And welcome to the CorMedix second quarter 2016 investor conference call. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. The forward-looking statements are 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 costs should be considered forward-looking. Forward-looking statements include statements about our clinical development plans and timing, regulatory actions, and cash needs. 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 filings 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. At this time, it’s my pleasure to turn the call over to Mr. Randy Milby, Chief Executive Officer of CorMedix. Randy, please go ahead.

Good morning, everyone. And thanks for joining us for our second quarter 2016 business update. With me is Jim Altland, our interim CFO; Dr. Anthony Pfaffle, our Chief Scientific Officer; Dr. Steve Howard our Medical Director; and Jack Armstrong, our Executive VP of Technical Operations. They will be available during the Q&A portion of the conference call. Before I began, I want to remind everyone listening about the motivation behind our mission and share with you a startling picture. Catheter-related bloodstream infections cost the U.S. health care system approximately $6 billion every year, that’s every year. We’re talking about infections that occur in patients who have an implanted central venous catheter CVC also known as a central line. This is essentially a thin tube that runs from outside the body and into a major blood vessel, which goes into the heart. Patients have to live with these for days, weeks or months depending upon the medical use. But most importantly, each day the catheter is emplaced, these patients are at risk for serious bloodstream infections. These infections can be devastating if not deadly for patients who are already very sick, either acutely in the ICU or chronically in the case of hemodialysis and oncology patients. Eliminating catheter-related bloodstream infections is a top priority for hospitals and dialysis centers globally. These infections have significant impact on patient morbidity and more mortality as well as the tremendous health economic burden, I’ve just shared with you a moment ago. Hospital programs enforcing stringent sterile techniques have been effective, but unfortunately infection rates still persist. From a patient point of view, reducing the ergative [ph] infection at best could mean the difference between significantly longer hospital stay and potentially living with the permanent health complication, at worst it leads the difference between life and death. From the hospitals point of view, hospitals are not reimbursed for patients who are readmitted with infections within 30 days. And this could mean the difference between profitability and loss for hospital. So, what’s the answer? Our novel anti-infective solution Neutrolin is designed to prevent catheter-related bloodstream infections and keep these sick patients from getting sicker. Completing the current Phase 3 clinical study of Neutrolin as efficiently as possible is our top priority. The first of the two Phase 3 trials required to file for FDA approval in the Unites States is in hemodialysis it’s called LOCK-IT 100. And we are on track towards achieving important milestones for the study. First, we anticipate the planned data safety monitoring board review to occur later this year, followed by completing the patient enrollment in late 2016 or first quarter of 2017. And we plan to release the topline data in the third quarter of 2017. We currently anticipate judiciously utilizing our existing at-the-market or ATM program. And if successful, we project to have sufficient funds through the release of the topline readout in the third quarter of 2017. However, we cannot assure we will be able to access the ATM when necessary or the amounts we may need. But before I go into detail on our clinical strategy for Neutrolin, I want to highlight some of the features that add value to this product and some encouraging data that give us confidence in its potential as a game-changer for infection control. First, Neutrolin’s key component taurolidine is a highly effective antimicrobial, but it’s not an antibiotic. We have seen no resistance develop against our compound, not even with highly resistant bacterial strains that are known to cause major problems in the hospital setting. This includes both, the gram-positive and gram-negative organisms. This is a key differentiator for Neutrolin, in an era of ever-increasing antibiotic resistance. Our current formulation of Neutrolin also contains effort, a common heparin a common anticoagulant to prevent the formation of blood clots or thrombosis which occur within the catheter, which is another major complication associated with central venous catheters. By simultaneously reducing infections and thrombosis, Neutrolin protects both patients and hospitals from treatment complications. In fact, we have already demonstrated the real world effectiveness of Neutrolin through our work overseas. Neutrolin is a CE Marked medical device product and is available for use in hospitals in Europe and the Middle East. However, at this time, we have elected not to commit significant financial resources to market the product in these regions. The importance of the CE Mark in these regions is simply this. To generate data in a real world clinical setting, we have collected data from more than 200 end stage renal patients with long term central venous catheters for hemodialysis. This observational open label study compared Neutrolin to historical benchmark rates for this population. The study demonstrated Neutrolin reduce infections by 96% and thrombosis by 97%. Although this was not a control clinical study and cannot be use to predict the outcome of our randomized controlled Phase 3 Neutrolin study, these real world findings are largely consistent with the prior clinical studies. And we are encouraged as we focus on seeking U.S. FDA program. The FDA has recognized in Neutrolin potential as well, granting us Fast Track designation as well as Qualified Infections Disease Product designation under the Federal GAIN Act. Both of these events [ph] add substantial potential value for our program. Fast Track designation of Neutrolin provides the Company with the opportunity to meet with the FDA on a more frequent basis during the development process. It also importantly provides eligibility for CorMedix to request priority review of our marketing application. The QIDP designation effectively doubles our potential period of market exclusivity for Neutrolin, adding an additional five years. I want to point out quickly that QIDP is normally reserved for new anti-infective therapeutics such as new antibiotics, but we received this important designation based on Neutrolin’s potential to prevent infections before they occur. We believe these factors speak to the market need for novel anti-infective product. We continue our discussions with the agency, and we remain focused on advancing Neutrolin for a renew drug application as efficiently as possible. As I mentioned, our clinical development strategy involves successful completion of two Phase 3 studies. The first study is currently underway in patients with central venous catheters or undergoing hemodialysis for end stage renal disease or ESRD. This is the same patient population where we saw strong results in Europe in previous clinical studies. The FDA has worked closely with us in their guidance for Neutrolin’s clinical development. They have accepted that our second and final Neutrolin Phase 3 study can be conducted in a distinct patient population since the goal is reduction of catheter-related infections. For this study, we have chosen to focus on another large patient population that is oncology patients receiving IV parenteral nutrition, chemotherapy and hydration via chronic central venous catheter. We are grateful to the FDA for enabling us to pursue these approvable pathways. And we’re working with them on the final program. So, why did we start with hemodialysis? Well, patients receiving hemodialysis have central venous catheters that remain in place for long periods of time. And the CVCs are used two to three times per week when the patient goes to the dialysis center to receive their treatment. When the treatment session is done, the catheter is injected with the fluid typically heparin and locked. Between the dialysis sessions, the patient is home going about his or her daily activities with the exposure of the catheter usually dressed and covered properly, but still they are at risk for infections which can and do occur. This is an ideal opportunity for Neutrolin to be used to fill the catheter lock and protect the catheter and the patient from bacterial colonization and blood clots. Our ongoing Phase 3 study is called LOCK-IT 100, which opened in December of last year. We continue to enroll patients and add new clinical sites. The study is expected to enroll 632 catheterized hemodialysis patients with end stage renal disease. The primary endpoint is the time to occurrence of catheter-related bloodstream infection in patients using Neutrolin versus heparin as their catheter lock solution. We believe success in this Phase 3 study will return significant value to our shareholders and completing this study as our top priority. We anticipate completing enrollment in the study by year-end or in early first quarter of next year, and we expect to have topline data available in the third quarter of 2017. I want to assure you that patient enrollment remains on track and we continue to project interim safety review around the end of the year. The Phase 3 study protocol has always been written to include this safety review. The Independent Data Safety Monitoring Board or DSMB will conduct a blinded analysis of the safety data and make a recommendation to us on whether or not to continue the study to completion. Importantly, CorMedix will not see the data, nor will the DSMB review the data for efficacy. The data will remain blinded to all parties. As I mentioned, we’re also in discussion with the FDA to finalize design of our second pivotal study to Neutrolin in oncology patients receiving IV, parenteral nutrition, chemotherapy and hydration via a central venous catheter. We are in the process of fine tuning this protocol with the FDA. We look forward to finalizing a protocol late this year. The timing of the initiation of the second Phase 3 study will be flushed out at a later date, based upon the final protocol and our capital resources. As we execute on our clinical strategy, we believe there are number of factors that may help drive Neutrolin adoption, if and when it is approved by the FDA. One, which I already mentioned, is increasing awareness and attention focused specifically on preventing catheter-related bloodstream infections. We believe there is a demand for a product like Neutrolin, which laired on it the effective sterile treatment protocol may help bring infection rates close to zero. Another important factor for hospitals is antibiotic resistance, which is an ever-growing problem. We’ve shown that Neutrolin is broadly active against all types of microbes, including the really active one like MRSA. We believe once Neutrolin is available, it will be viewed by physicians as a more responsible option to keep catheters function properly as compared to simply adding a broad spectrum antibiotic to the catheter lock, something that happens today, which may actually contribute to bacterial resistance or simply adding heparin or saline, which has no antimicrobial efficacy at all. Additionally, hospitals are now required to make their infection rates available to the public, which may drive patient decisions about which hospital they choose for their medical care. This further motivates hospitals to minimize the rate of catheter-related bloodstream infections and make the strong case for adopting Neutrolin. Finally, hospitals are no longer being reimbursed for care related to patients, who must be readmitted to the hospitals within 30 days of discharge with an infection. This substantial financial risk only adds to the various pressures for hospitals, to get their infection rate down to zero. And we believe this will ultimately drive Neutrolin adoption in the United States. To further support Neutrolin, CorMedix has remained committed to engaging the global medical community. And we’ve continued to leverage opportunities to highlight Neutrolin at medical and scientific conferences. In May, we presented a poster at the International Society for Pharmacoeconomics and Outcomes Research annual meeting, with new data highlighting the clinical and economic burden of catheter-related bloodstream infections in the ICU. A large research study supports and emphasizes the significance of using preventative anti-infectives like Neutrolin to minimize and potentially to eliminate bloodstream infections. In the study, we showed bloodstream infections were associated with the nearly doubling of average initial hospital stays, 15.4 days versus 8.6, as well as greater cost to the hospital, approximately $297,000 versus the $188,000. This excludes any readmission due to the infection. This health economic data will be important to us when we initiate conversations with hospitals and payers following FDA approval, should we receive it. In June, this study was published in the high-impact Journal of Critical Care, further augmenting our message that Neutrolin should be of interest to any treatment center that is concerned with reducing the number of infections related to central venous catheters. CorMedix was also selected to give an oral presentation of our European open label clinical data at the 53 Joint Congress of the European Renal Association and European Dialysis and Transplant Association. As we focus on executing our clinical strategy, we will continue to leverage similar opportunities in an effort to educate the medical community regarding the value of Neutrolin in anticipation of potential FDA approval. In parallel, we have begun exploring additional opportunities to expand our business beyond anti-infective solutions based upon the unique properties of our antimicrobial compound taurolidine. We discussed how taurolidine is broadly active against bacterial and fungal pathogens and how in a non-antibiotic anti-infective it appears to block the various mechanisms of bacterial resistance. These characteristics combined with taurolidine’s anti-inflammatory properties, may add significant value to various other health-related products, particularly in the topical and medical device space. We view at strategic partnerships to develop such products as a means to unlocking significant additional value for CorMedix even as we keep our operational focus on bringing Neutrolin to market. It’s something we’ve discussed on past calls and recently, we’ve taken major strides to bring some of these opportunities forward. Our goal is to build a broad pipeline of taurolidine-based assets and drive the future value without compromising our focus on Neutrolin. As we mentioned on the last quarterly call, one such opportunity is exploring the further potential taurolidine of in oncology. We have recently established a license agreement with NanoProteagen to test the feasibility of a novel taurolidine -based combination therapy for treating pediatric oncology patients with neuroblastoma. Our approach is based on evidence that taurolidine may enhance the activity of certain cytotoxic chemotherapy drugs such as vincristine. NanoProteagen is using its nano particle technology to package CRMD-005, a proprietary taurolidine formulation, together with vincristine, a chemotherapeutic into a targeted cancer therapy. If feasible, CorMedix will have the option to obtain an exclusive worldwide license to the technology where we can make a decision about its development. More recently, we entered into a material transfer agreement with Luna Innovations to create nanofibers loaded with CRMD-006, our proprietary formulation of taurolidine. This projects is also in the initial feasibility stage. If feasible, the novel and nanofiber meshes could be used for various biomedical indications including dressings, detrimental wound closure, and improved burn care. Now, let’s review the Company’s financial information, which is filed yesterday with the SEC in the Company’s 10Q. My comments will focus on the recent quarter and financial standards. Net loss for this quarter was $4.9 million by $0.13 per share versus last quarter or the loss of $4.2 million or $0.12 per share. The increase in the operating loss from the previous quarter reflects the increased activity in the Phase 3 trial in hemodialysis patients for LOCK-IT 100 trial. Cash on hand as of June 30 was $28.6 million versus $30.2 million on hand at the quarter-end of March 31, 2016. Cash used in operations of $3.8 million, the difference from the operating loss reflects non-cash expenses and working capital adjustments. The use of cash is primarily focused on conducting our Neutrolin Phase 3 program-related G&A activities. The operating cash burn was partially offset by cash from financing sources. We received approximately $300,000 for the exercise of stock options for 400,000 common shares and we received $1.9 million from the sale of 736,746 share of common stock under our existing ATM program. As of June 30, 2016, we have approximately $8.4 million remaining available under the ATM. To be clear, our goal is to stay focused on trial execution in our Phase 3 study and operate the Company as efficiently as possible. We have established a financial strategy that we expect will enable us to reach top line data in the LOCK-IT 100 study through conscience use of our current financial resources while minimizing dilution to our existing shareholders. As we drive toward that major inflection points, the most important being the release of the topline data from LOCK-IT 100, which is currently anticipated in the third quarter of 2017, we plan to leverage our existing cash and judiciously apply the ATM to offset a portion of the quarterly burn and keep appropriate cash on hand. Lastly, we remain active in sharing the CorMedix story, which we believe is a very powerful one, with the investment community. And we’ll continue to do so through 2016 and 2017. We have a number of additional investor conferences coming up this fall. So, I look forward to seeing many of you there. We believe this strategy has the potential to deliver maximum value for our shareholders upon clinical success. Now, I will turn it over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Scott Henry with Roth Capital. Please go ahead with your questions.

Thank you and good morning. Just a couple of quick questions. For starters, the blinded interim safety analysis in fourth quarter of this year, should we expect any information out of that or basically just proceed halt for safety or halt positively or negatively for efficacy?

The question is what to expect from the DSMB safety analysis review at the fourth quarter. I’ll turn that over to Dr. Pfaffle.

Yes, Dough; good morning. Our mission is just to complete the study, and we have relentless focus on that and getting to our interim analysis with the DSMB which meets monthly, will review the interim results primarily for safety. And they will have options to continue the study or stop the study for futility; that is the primary focus of the interim analysis. Under Fast Track, there is ability to request accelerated approval. If the DSMB were to find unusual efficacy signal and paralleling what we see in Europe, then they could come to the Company and request accelerated approval, but that’s not the primary focus of the DSMB’s interim analysis, primary is safety. But there is an accommodation available on the Fast Track to request accelerated review.

So, as a follow-on to that Scott, what you’d expect from us is the DSMB comes out just go forward, we’ll release that information as a press release.

Okay, great. Thank you that is helpful. Other, just a couple of quick modeling questions. First, the ex-U.S. revenues, clearly a the de minimis number at about 16,000, 17,000. Should I expect that to trickle along at those levels or should I expect to rebound, how should I think about that revenue line?

Right now, we’re expecting a rebound on mainly from the Middle East. As we’ve talked before, we’re starting to see some traction in Middle East, based upon the gender business that we’ve been submitted for.

Okay, all right, keep track of that. And then, the final question, with regards to spending levels, how should I think of Q2 as representative for the rest of the year; should I expect a slight uptick, or just trying to get a sense of that?

I’ll turn that over to Jim Altland, the CFO.

As we add new patients to the clinical trial, the expenses are going to continue to build. And you will see a major uptick in clinical expenses until we peak in the probably the first quarter of 2016, 2017 and then it will start to decline.

So, Scott, that’s consistent what I talked about as how that full patient enrollment fourth quarter 2016, first quarter 2017, now that’d be 632 patients. So, as Jim just highlighted, that’s when you’d see the biggest ramp, because we’d have all patients onboard.

Thank you. And our next question is coming from the line of Ed White with FBR. Please proceed with your questions.

The first question is just on, you had mentioned that you have cash through the third quarter of 2017, does that include the ATM or that’s the current cash on hand?

That would be the current cash on hand. We can use additional ATM financings and extend our runway farther.

Okay, great. Thanks. And then, just on the enrollment for the LOCK-IT trial, it seems like it slipped a little bit from the fourth quarter of 2016 to the fourth quarter of 2016 or early first quarter of 2017. Is there any reason for that slippage?

Ed, this is Tony Pfaffle. There is no slippage; enrollment is on track. We have a very dedicated multifaceted approach for getting the sites up and running and getting the patients identified, screened and enrolled in the trial. That’s going very well. And, we haven’t seen a slippage. At the beginning of the trial, with first patient in, you see a few patients entering but then we have geared up since then, and we’re on track.

And you’re still adding sites or are you…?

Yes.

One thing that we’re seeing is due to the hard work of Dr. Pfaffle and the team, because we do have see CRA oversized, [ph] we’re bidding more patients per site than we originally projected. So, originally, as you recall, I announced that we got 70 sites for 630 patients; we’re actually getting more patients for the sites enrolled. Some of the -- so, we’re seeing a lot more. That’s a good return on investment from a CRAs point of view.

Just the last question I have for you, we are still seeing the cost to sales outpacing net sales and this -- should we expect to see that going forward or is this due to inventory build up or how come we explain -- how do you explain that phenomenon in the second quarter?

At the end of the second quarter, we do an assessment looking forward and using our current run rate for units sales. We determined we needed to increase our result for obsolete material and inventory going forward, and we took charge of $166,000 in the quarter.

Thank you. And our next question comes from the line of Doug Schwegel [ph] who is a private investor? Please go ahead with your questions.

First of all, I wanted to see if things are still proceeding with regards to an executive search; is that still ongoing; and if so, how that’s proceeding?

Dough, this is Randy. Yes, the executive search is still underway. In the interim, I am 100% committed to continuing to deliver on these deliverables. And as you know, I am one of the very large private shareholder as well, I put my own personal money at stake. So, I am driven to make sure that the team hits on these deliverables in the timeline until we find the new CEO.

Where might we be in that process, Randy?

They are in the process of interviewing people now.

Secondly, could you give us a brief update with regards to things in Germany with regards to patent protection and that type of stuff?

Absolutely, as you know,, we will patent positions in various aspects of Neutrolin, and our underlying technology in United States and Europe and other territories. You’re referring most likely to the utility patent. And as I put out in the release, in June we reported that the German Patent Trademark Office affirmed its preliminary finding that utility patent or Prosl patent was invalid based upon prior publication. However, this judgment has no depletory effects as the utility modeling question has expired in 2015. This ruling to your point has really no bearing on the ongoing consideration with the European Patent Office for the validity and possible infringement of the Prosl patent. Unfortunately, we still not have the date yet set for this patent discussion with the EPO. As far as the ongoing Unfair Competition, that suit -- the hearing will be in the fourth quarter of 2016.

Great. Thanks so much.

Just as a highlight, Dough, what’s going on in European Patent Office has no effect on the U.S. patent situation.

Thank you. It seems we have no further questions at this time. I’d like to turn the floor back over to management for closing remarks.