CorMedix Inc. (CRMD) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the CorMedix Fourth Quarter 2016 Results Conference Call. 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. And it is now my pleasure to introduce your host, Mr. Joshua Drumm, Investor Relations for CorMedix. Thank you. You may begin.

Thank you, Michele. Good morning and welcome to the CorMedix fourth quarter and year-end 2016 investor conference call. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. During the call, we may make what are known as forward-looking statements within the meaning set forth in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties and include, but are not limited to, any of the following. Any statements other than statements of historical fact regarding management’s expectations, beliefs, goals and plans about the company’s prospects, including its clinical development program for Neutrolin in the U.S. and other product candidates, future financial position, future revenues and projected costs, and market acceptance of Neutrolin and other product candidates. More specifically, forward-looking statements include any statements about our clinical development plans and the timing, costs and results thereof, projections as to the company’s future capital raising, spending and cash position, expectations as to the timing and nature of anticipated regulatory actions, possible product licensing or other business development transactions, any commercial plans and expectations, market projections for our product candidates, and expectations as to manufacturing and product component costs. Our actual results may differ materially from these projections or estimates due to a variety of important factors including, but not limited to, uncertainties related to clinical development, regulatory approvals, and commercialization. These risks are described in greater detail in CorMedix’s 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 is now my pleasure to turn the call over to Mr. Khoso Baluch, Chief Executive Officer of CorMedix. Khoso, please go ahead.

Thank you, Josh. Good morning, everyone, and thanks for joining us. On the call today, we will review a number of key advancements at CorMedix that we believe positioned the company for success. On our November conference call, we provided a comprehensive update on our lead Phase 3 program for Neutrolin, including sharing with some issues we discover that were impacting the trial enrollment rate. Since identifying these issues and instituting various strategies to overcome them. I’m pleased to say that we are on track to complete the study as outlined, on which I will go into further details in a few minutes. We continue to maintain our primary focus on enrolling the Phase 3 study for Neutrolin as effectively as possible. In addition to diligent trial execution, we’ve made significant effort to optimize our infrastructure to support significant future growth, both for Neutrolin and beyond. This includes a significant expansion of our senior leadership team two of whom are joining me on the call this morning. We’re excited to enhance the senior management team with these experienced leaders, which we believe will enable CorMedix to execute effectively across multiple fronts. So to start the call, I would like to introduce a new member of our leadership team, Chief Financial Officer, Bob Cook, who joins CorMedix with 25 years of experience in senior financial leadership positions across the healthcare industry and will takeover our financial forecasting, compliance, and reporting responsibilities, as well as business development for CorMedix. Bob will provide an update on our financial results for the fourth quarter and full-year later on this call. Next, I’m pleased to welcome Jack Armstrong as Executive Vice President for Technical Operations and Head of HR. Jack has been with CorMedix for sometime in this role as a consultant, and we are pleased to now add him to the team, bringing his 40 years of experience in the pharmaceutical industry withdraw cost functional experience in all facets of supply chain and quality assurance and significant senior management experience. Finally, we’re pleased to welcome Judith Abrams as our Chief Medical Officer. Judith most recently led an asset to clinical trials to global approval and launch for Celgene. She previously managed clinical product portfolios for large pharma players, including J&J, BMS, and Amgen. In this newly created role, Judith will assume responsibility for clinical development of our product pipeline, including the current and planned Phase 3 studies for Neutrolin and any future programs that we may advance to clinical stage. Judith is unfortunately unable to join us today. This expansion of our senior management underscores our commitment to advancing Neutrolin to FDA approval as expeditiously as possible. Our Chief Scientific Officer, Tony Pfaffle who is a nephrologist by training will continue to support patient recruitment in the current LOCK-IT 100 hemodialysis study. Working alongside Judith in parallel, he will drive future value for CorMedix by continuing to develop a taurolidine-based product pipeline. Before we dive into the clinical and financial details, I have some other positive news to share during the fourth quarter. We resolved both outstanding class action lawsuits against CorMedix. The putative security class action lawsuit was dismissed with prejudice, with an agreement not to appeal. In addition, the shareholders derivative action lawsuit was also dismissed with a stipulation to Forego Appeal. No payments were made to settle either lawsuits. We are glad, these lawsuits have been settled and we can firmly put them behind us, allowing us to focus completely on the approval and commercialization of Neutrolin. With that, I would now like to give you an update on our LOCK-IT 100 trial current underway. As you know, our core focus here at CorMedix is bringing Neutrolin, a broad spectrum, non-antibiotic, anti-infective solution to the U.S. market. As I mentioned on our last quarterly update, we discussed overcoming certain hurdles in enrolling hemodialysis patients to our trial. I’m very pleased to say, that our efforts to get patient enrollment back on track has been successfully and recently we surpassed the midpoint in terms of enrolling the total 632 patients in the study. Importantly, we remain on track for hitting our anticipated 100% enrollment milestone as projected on the last call in the fourth quarter of 2017. Our efforts to enhance enrollment were four-fold. First, we implemented various initiatives to increase enrollment at well-performing clinical trial sites, including additional staff training and providing enhanced trial literature for patients. Second, we terminated under-performing sites and dialysis centers and redirected our efforts to bring online additional sites with enthusiastic investors – investigators and high number of hemodialysis catheter patients into the study. Third, we put into place additional measures to ensure that we capture patients initially lost during the screening period due to antibiotic use, or other criteria that cause only a temporary exclusion from the trial. This is an important pool of patients that otherwise meet our inclusion criteria, and we have improved our efforts to rescreen them once the temporary situation results. Lastly, by working closely with our sites, both existing and new, we and our investigators have identified specific ways to further streamline the process for identifying, screening and enrolling patients into the LOCK-IT 100. This diligent over site at the individual site level has made a tangible impact in the enrollment rates. Currently, we’re enrolling patients at greater than 50% of our target, clinical trial sites, and we continue to activate and enroll patients regularly at additional sites. We expect that we will complete patient enrollment in the fourth quarter of this year. And following a patient follow-up period, we should be in a position to discuss top line data in the second-half of 2018. Looking ahead towards approval of Neutrolin in the U.S., we’re also continuing to prepare for our second Phase 3 study, as required by the FDA. As a reminder, the second registrational study LOCK-IT 200 is anticipated to be in oncology patients with central venous catheters. We anticipate the start of the study later this year subject to available funding. Relative to hemodialysis, the oncology market is significantly larger and we remain grateful to the FDA for allowing us to pursue approval of Neutrolin to prevent catheter- infections in the second major patient population. If successful in these studies, Neutrolin stands to be approved for commercialization within a very broad market, and that is why we’re committed to efficiently clinical execution. We look forward to continuing to update you on our clinical progress throughout this year. Before we move to the financial update, I want to highlight how CorMedix is continuing to explore additional ways to develop and commercialize new products based on taurolidine. 2016 was marked by significant progress in this area, and this progress has continued into the early part of this year. Scientific literature demonstrate that taurolidine can enhance the activity of standard cytotoxic chemotherapy drugs like vincristine. And then this effect is particularly effective against certain cancers like neuroblastoma. We have now formally started preclinical work with a POETIC group, which consist of many leading National Cancer Institutes, including the Memorial Sloan-Kettering, Cornell Medical Center, and the Alberta Children’s Hospitals, to conduct preclinical studies of taurolidine vincristine focusing on pediatric tumors, including neuroblastoma and osteosarcoma. In addition, we’re moving forward with feasibility work, taking advantage of the 5-K – 510(k) pathway to incorporate taurolidine in sutures, mesh and hydrogels. We anticipate this feasibility work to be completed within the next 12 months and we expect to be talking to you about these efforts over the next few quarters. I would now like to turn the call over to Bob Cook, our new Chief Financial Officer to provide an update on our corporate finances. Bob?

Thank you very much, Khoso. I’m delighted to join the CorMedix team at this exciting time in the company’s history, and to report today our financial results for the fourth quarter and full-year 2016. The company filed its 10-K for the year ended December 31, 2016 yesterday. My comments today are a partial summary of the information contained in that report, which I very much urge you to read. With respect to our fourth quarter 2016 results, our net loss was $6.4 million, or $0.16 per share, compared with a loss – a net loss of $9.1 million, or $0.23 per share in the third quarter 2016, and a net loss of $3.9 million, or a $0.11 per share for the fourth quarter 2015. Operating expenses in the fourth quarter 2016 were $6.5 million compared with $9.2 million in the third quarter. The decrease in operating expenses compared with the previous quarter was due to a 41% decline in R&D expense, partially offset by a 5% increase in G&A expense. R&D expense in the third quarter was at its high for the year due to significant Neutrolin, CMC-related development expenses, and new product development initiatives in addition to the ongoing ramp up of clinical trial expenses. R&D expense over the next several quarters is expected to significantly increase over the fourth quarter as a result of the continuing enrollment into the LOCK IT 100 trial and the ongoing preparations to commence the LOCK-IT 200 trial towards year-end. Cash used in operations in the fourth quarter 2016 was $6.5 million. Cash was used primarily after our Phase 3 study of Neutrolin and related G&A activities. Our operating cash burn was funded primarily be a drawdown of our cash on hand. For the full-year 2016, the company recorded a net loss of $24.6 million, or $0.65 per share, compared with a net loss of $18.2 million, or $0.58 per share in the previous year. The 2016 loss from operations of $24.8 million represented a 49% increase over 2015’s operating loss of $16.7 million, and was due to significant increases in clinical trial expenses, CMC and other other Neutrolin-related development expenses, and new product development expenses, partially offset by a 12% decline in G&A expense. Cash used in operations during 2016 amounted to $22.2 million, a 78% increase over 2015’s cash use of $12.5 million. The increased cash use compared with 2015 is primarily the result of the initiation of the LOCK-IT 100 clinical trial in late 2015 and other R&D expenses related to the development of Neutrolin. $6.2 million of the cash used was funded via the companies at the market program, with the balance drawn from existing cash on hand. As of December 31, 2016, the company has the ability to raise an additional $4.1 million via the ATM program should it wish to do so. Cash on hand as of December 31, 2016 was $20.2 million, including short-term investments versus $35.4 million on hand as of December 31, 2015. As we stated in our previous quarterly call and disclosed in our press release this morning, our existing cash and short-term investments will not be sufficient to fund our operations through 2017, including the completion of the ongoing Phase 3 trial and the commencement of the planed Phase 3 trial for oncology patients with catheters. Therefore, we are exploring various options while we aim to optimize our cash. We may seek to raise additional capital through one or more equities or debt transactions, as well as the strategic use of our ATM program under favorable conditions. We believe Neutrolin’s successful launch in the U.S. will unlock significant shareholder value. So raising sufficient capital on the most favorable terms possible to reach that milestone is my top priority. Our goal is to execute our Phase 3 clinical program, as planned and on schedule, while operating the company in the most capital efficient manner possible. I would now like to hand the call back to Khoso for some closing remarks. Thank you, Khoso.

Thank you, Bob. In conclusion, CorMedix is and will remain focused on securing approval of Neutrolin to prevent catheter-related bloodstream infections by successfully completing our Phase 3 clinical program. These infections remain a significant threat to the health of all patients in the U.S. with central venous catheters and with an ever-increasing threat of bacterial resistance blooming right on the horizon. And following physicians and patients with new antimicrobial is more important than ever. CorMedix is probably stepping up to the World Health Organization mandate for novel anti-infectives that combat resistance. Increased awareness and attention on the hospital-based microbial infection and overly aided our development and future commercial efforts by increasing the need for a product like Neutrolin. This is exemplified by Neutrolin receiving both FDA Fast Track and QIDP designation, significantly hesiting Neutrolin FDA review process, while securing potential market exclusivity for up to 10 years. We are committed to unlocking significant long-term value for our shareholders by launching this much needed product into a very broad and sizable U.S. market upon potential approval. And we look forward to providing future updates as we work diligently to complete the Phase 3 program. With that, we can now move on to the Q&A portions of this call.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ram Selvaraju with Rodman & Renshaw. Please proceed with your question. Mr. Selvaraju, your line is now open. So you can proceed with your question please. Perhaps your line is on mute.

Good morning, Rob. We’re not hearing you.

Okay. [Operator Instructions] Our next question comes from the line of Ben Reed with Maxim Group. Please proceed with your question.

Hi, guys. I was wondering, we passed the halfway point in enrollment. When can we expect interim data?

Hi, Ben, thanks for your question. Hence I covered it also in the previous call what we’re going to be doing is a safety check as we pass the midpoint. But it’s not an efficacy check. And so the Data Safety Monitor Board has been informed that we have passed the midpoint. So they will be doing a review over the coming weeks on the safety aspect of our Neutrolin product versus the control law. So I should be seeing that take place over the coming weeks. And that should be the only time you should hear from us in case we do find that there is an issue, or should I say, the Data Safety Monitor Board finds, there’s an issue. But as I indicated also on the previous call, I expect that to be very unlikely knowing that this part is already available in Europe on the market.

So would we get a press release on, if they say anything, or if they just say continue, everything looks good, anything like that at all?

If you don’t hear from me then that is good meals. So I do not expect to make any press release on the outcome. Now, if there are, obviously, we have any, or should I say the Data Safety Monitor Board has any concerns, at that point, I would obviously then put out a press release.

And there’s a chance they could say everything looks amazing and get early approval to write, although it’s small?

No, that is not possible, as they will not be looking at the efficacy part, it – they will not be able to say everything looks great from an efficacy perspective, if that’s what your question is. So they would be looking at the safety and be able to give us the green light to continue the study as we’re doing it, or if they see an issue, then we will obviously have to explore it.

All right. Thank you.

Welcome.

Thank you. Our next question comes from the line of Ram Selvaraju with Rodman & Renshaw. Please proceed with your question.

Hi, Khoso, can you hear me now?

Now I hear you, Ram. Good morning.

Good morning. I apologize, but anyway. So I have three quick questions. Firstly, could you walk us through what you anticipate to be the spending requirements through the course of 2017, as you approach fully enrolling the LOCK-IT 100 study? Secondly, could you perhaps give us some color on when you anticipate being able to start any other clinical development activities with Neutrolin like, for example, on the POETIC front, whether we might expect to see any of this move forward in clinical development over the course of 2017, or whether those activities might be pushed out further? And then finally, whether you see any additional potential impetus for Neutrolin as a product outside of the United States, and potentially whether there might be additional momentum in sales coming from outside of the U.S. over the course of 2017? Thank you.

Thanks, Ram. So, let’s begin the three questions you asked. So first and obviously, we don’t share what our projections are and our spend for 2017. But I think if you look historically what our spend rate has been for year, particularly 2016, you should – that should give you a gauge of roughly where our spend would be. In terms of our assets we employed, right now it would be feasibility work that we’re doing to better characterize the mechanism of action. So it won’t be, both cell line and animal model work that we will be doing and it will be all preclinical. I do not expect to get into clinical in 2017. As to your third question related to Neutrolin sales OUS, and I know, we covered it quite in depth last quarter call. As I indicated, we are ensuring that we focus all our resources here in the U.S, because the greatest inflection point for CorMedix will be to get Neutrolin completed their Phase 3 studies and approved in the U.S. and launch in the U.S. market. And, however, having said that, there’s always a time and place to look at Neutrolin for the other markets, where we already have the product approved under the CE Mark, which is like the 510(k) pathway in the U.S. And so, there will be a right time and place for Neutrolin in those other markets. And I would provide updates related to the steps we will take there at the right time. But at the moment, our focus is very much to make sure the first Phase 3 study is on track, and make sure, we get the second study up and running as soon as possible.

Okay, thank you. And then just a housekeeping question for Bob, if I may. What do you anticipate in terms of stock-based compensation expense for 2017 in terms of how that compares to 2016?

Ram, we’re working through the numbers right now and we’ll have more to say when we report the first quarter results. I think of the – just based on what I’ve seen so far I was expected to be roughly in the same ballpark. But again, I think we’ll have more details on that one when we show the first quarter numbers.

Thank you.

You’re welcome.

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Mr. Baluch for closing comments.

Well, thank you very much for those of you that took the time to get up early morning to be on this call. I very much appreciate it. It’s an exciting time for CorMedix. We’ve got the Phase 3 – the first Phase 3 study now moving in terms of the enrollment in the right direction. Our projected timeline to close the study would be Q4 of 2017. I’m confident with the addition of the senior leadership that – team that we’ve got together. We now have the bandwidth to execute on a variety of different fronts. I’m also excited on looking and moving forward. Although, we’re still in preclinical work, but our pipeline, which should add a lot of additional value to our shareholders. So, thank you very much and have a good day, and happy St. Patrick’s Day for those of you who are celebrating it. Thank you. Bye-bye.

Thank you. This conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.