CorMedix Inc. (CRMD) Q2 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the CorMedix Second Quarter 2017 Results Conference Call. All lines have been place on listen-only mode. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Joshua Drumm, Investor Relations for CorMedix. Sir the floor is yours.

Thanks you. Good morning and welcome to the CorMedix second quarter 2017 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 United States and other product candidates, its future financial position, future revenues and projected costs, and potential market acceptance of Neutrolin and other product candidates. More specifically, any forward-looking statements include statements about our clinical development plans and the timing, the costs and results thereof, projections as to the company’s future capital raising, and 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 current 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. Also please note that there will not be a live Q&A at the conclusion of the call. Please email any questions you may have to cormedix@tiberend.com and we will try to answer as many of the submitted questions as possible at the end of the call. 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.

Thanks, Josh. Good afternoon, everyone, and thank you for joining us on our call today. During this call, I will provide updates on four key topics. Number one, our ongoing Phase 3, clinical trial of Neutrolin and our recent FDA communication. Number two, our robust pipeline of taurolidine-infused medical devices. Number three, our commercial strategy outside of the U.S. And number four the recent shareholders vote. Let me begin with the first topic, the ongoing Phase 3, clinical trials of Neutrolin. As you know our priority remains to bring Neutrolin, a broad spectrum a non-antibiotic, anti-infective solution to the U.S. markets. Neutrolin has already been shown safe and effective in the EU and we are working tirelessly to satisfy the regulatory obligations laid out by the FDA. As announced in April 2017, we saw a guidance from the FDA to address in part the apparent overall lower rate of catheter-related bloodstream infection events in the blinded study. Accurate and efficient capture of catheter-related bloodstream infections CRBSI events is absolutely critical. As the number of events in each study are, is the outcome measure for the primary efficacy end point. So we appreciate the FDA working with us to agree on a solution designed to help bring this study to a meaningful conclusion. Recently we concluded favorable correspondence with the FDA. Based on the information provided for the ongoing LOCK-IT-100 study and a revised plan that we submitted the FDA agreed to key changes to the study. Importantly we believe that these changes facilitate our ability to complete the ongoing Phase 3 study. Briefly the FDA, agreed to the following changes, which have already been implemented by CorMedix and which we expect to have a positive impact on our ability to more comprehensively include CRBSI events in the study. First the agency agreed to use – to the use of an independent Clinical Adjudication Committee or CAC to critically assess all suspected CRBSIs and determine, on a blinded, case-by-case basis, if the particular event will be included in the primary analysis of the primary efficacy endpoint of the study. The CAC determination will be based on a set of defined decision rules upon which, the FDA also agreed. The CAC will base its determination on a single positive blood culture along with supporting documentation previously the study protocol defined CRBSI events based on two positive blood cultures. The FDA agreed that both, that CAC adjudicated CRBSI events as well as the events captured under the per protocol definition of CRBSI can be included in the efficacy analysis. Third, use of the independent CAC and allowing CRBSI to be evaluated based on a single blood culture are material changes that were designed to enhance the capture of CRBSIs. Particularly when patients present outside of the dialysis center setting. We found that often patients go to the emergency rooms, or urgent care centers if they suspect they have a CRBSI and these non-participating centers and hospitals do not necessary adhere to our study protocol, resulting a potential loss of CRBSI events. So another important accommodation by the FDA was that they agreed to let the CAC evaluate suspected CRBSI retrospectively, made from the patient records and other documentation further enhancing our ability to capture these potential events. Finally, significant changes were made to the study design itself. Specifically we revised the target treatment effect to 55% or greater when comparing the Neutrolin and Heparin control arm. Previously the benchmark agreed to by the FDA was 40% reduction in CRBSI compared to the Heparin control arm. Based on previous clinical and observational studies of Neutrolin, which showed significant higher rates of CRBSI reductions, we believe this increased efficacy burden will be achieved. Based on the amended study assumptions, which include a reduction in statistical power from 90% to 80% the total number of CRBSI events required to complete the study was reduced from 161 events to 56 events. Again we are very pleased with the FDA accommodation and look forward to continuing LOCK-IT-100 with these changes. The study continues to enroll patients in what we believe is a good rate, and we plan to continue to identify and activate a few more additional signs to augment this. Our primary goal is to make sure, we're doing everything we can to capture the required number of events as quickly and efficiently as possible. As we've announced previously the FDA had agreed to a single interim efficacy analysis, which will occur after we reach 28 CRBSI events. Before on our current projections, we still expect this interim analysis to occur in the fourth quarter of this year. Giving the DSMB that is the Data Safety Monitoring Board the first look in the U.S. at neutral and potential ability to reduce catheter-related bloodstream in patients with end-state renal disease receiving hemodialysis through a central venous catheter. The interim analysis may also potentially allow us to conclude the study earlier than projected, if the interim data shows, sufficient Neutrolin efficacy. That said assuming the interim efficacy analysis does not result in an earlier halt in enrollment, we expect to finish enrollment in either the first or second quarter of 2018 dependant on how successful capture of the 56 events. With a six months follow-up we would expect to have top line results for the full study by year-end 2018. In either cash, the cash burn rate for LOCK-IT-100 may be lower in 2018 versus 2017. Additionally should the interim analysis hit the end-point, we may be able to conclude the study and potentially submit the NDA earlier than anticipated following the completion of the second and final pivotal study. Since I arrived in CorMedix in October of 2016, I have been focused on the LOCK-IT-100 study, specifically addressing the slow patient enrollment and low rate of event capture. I can now say that both these major focus areas have been addressed. We remain completely dedicated to the successful completion of the Neutrolin registration program and to bring Neutrolin to the market in the U.S. Based on its broad-spectrum anti-microbial activity, we believe Neutrolin has the potential to significantly reduce or eliminate costly and potentially deadly catheter-related bloodstream infections. We will continue to keep you abreast of the developments in the LOCK-IT-100 clinical trial. Now I would like to transition to the second topic. Our robust pipeline proper audience taurolidine-infused medical devices. We recently hosted an R&D Day to showcase the exciting science on which we have been working that is incorporate taurolidine into medical devices, and to exploring the potential for a taurolidine-based therapy for cancer. Several experts in the field join us to discuss the unmet need for the new anti-microbial anticancer products. And we've reviewed our strategy and recent advances in terms of new product development. We thank everyone that participated in the discussion. And look forward to providing updates on these pipeline activities, which we feel are a strong complement to the work we are doing to advance Neutrolin towards U.S. commercialization. We are specially excited about taurolidine medical devices, because we anticipate pursuing approval of these products under the 510(k) device pathway, which require less time and reduced development cost as compared to an NDA process for drugs. The 510(k) pathway leverage data from previously approved medical devices for similar indication, which reduces the amount of data and testing required for FDA clearance. We have already identified potential predicate devices for each of our product candidates and we plan to pursue this pathway as efficiently as possible. In parallel we plan to seek CE Mark for our medical devices to enable commercialization in the European countries and other territories. Within potential medical devices, we have focused our efforts on three initial areas, where we believe taurolidine incorporation may add value and potentially improve patient outcomes. These are taurolidine-infused surgical meshes, sutures, and hydrogels. Each all our potential devices would be entering larger markets, where we believe for minimum investment, our taurolidine based products can achieve significant market share upon FDA clearance. The 2018 the U.S. suture market is projected to generate $1.7 billion in revenue and $1 billion each for hybrid gel and non-woven meshes. As an example in the suture market segment CorMedix believe there's a significant opportunity due to be captured. Both the World Health Organization in 2016 and the CDC in 2017 have recommended the use of microbial sutures in surgery in order to reduce the risk of surgery site infections. Independent of the type of surgery, today there is only one option on the market and it has some drawbacks. We are currently conducting proof-of-concept studies in animal models for each of our medical device candidates. Based on encouraging in vitro data and these studies will continue during the second half of 2017 and should be completed before year-end. Assuming our predicate are accepted we expect to file 510 clearance for all three medical device platforms in the second half of 2018. It's important to highlight the capital efficiency of the medical device pathway. We can file for all three devices, at an incremental fully loaded cost to the Company of no more than $2.5 million for all three medical devices. The cost of $2.5 million includes the total cost of the remaining study, the single employ leading the project. By the way it's cheaper than having a consultant do the work as well as the ancillary to submit the 510(k) package to the FDA. Again assuming our predicates are accepted. My goal is to keep overheads down and costs under control. Upon FDA clearance, we intend to commercialize these medical devices through an appropriate partner. In addition to medical devices, we've also been active on our collaboration, with the Pediatric Oncology Experimental Therapeutics Investigators Consortium or in shot POETIC, on pre-clinical development for taurolidine-based therapies for cancer. Specifically we are investigating, nanoparticle delivery of taurolidine to develop either a monotherapy or potentially combination therapies including taurolidine plus another chemotherapy. Nanoparticle deliver remarkably enhance the ability of taurolidine to kill multiple diverse cancer cell in vitro compared to free taurolidine and co-administration with standard of care chemotherapy demonstrate a synergistic effect that's consistent with published scientific research. CorMedix employees are advancing this program through preclinical studies and will determine a potential clinical strategy once in vivo proof-of-concept is achieved. This represents another capital efficient strategy to explore new ways to capitalize on a taurolidine opportunity and build future value for CorMedix. These medical devices as well as nanoparticles deliver of the cancer therapy can provide CorMedix the opportunity to partner with big pharma on favorable jobs. For those of you interested in hearing the full webcast of the R&D day event it is available for replay on the events page of our website. Now let me move to our third topic, our commercial strategy outside of the U.S. First, let me say that we are pleased that with the work undertaken by our technical operations team over the last 18 months they have been successful in their mission to significantly reduce the cost of goods for Neutrolin. This will provide us the opportunity to effectively compete in the international marketplace at a competitive level. Outside the U.S. we are identifying partners that have the capabilities and infrastructure and an establish presence with our customer base. Our agreement with Hemotech is an example of this strategy. In April we announced that we had signed a distribution agreement with the Hemotech to offer Neutrolin to dialysis centers and major hospitals in France. We've begun to recognize revenue through this channel. So currently the revenue represents initial stocking of Neutrolin and not actual end-user sales off the product. And Hemotech introduces Neutrolin to hospitals and hemodialysis centers, we should begin to see a sales trend. We look forward to augmenting mention of commercial presence in the rest of Europe and other territories where we can leverage our CE Mark. In that regard we are actively pursuing additional partnerships and expect to announce similar distribution agreements in the quarters to come. While our resources remain focused on advancing Neutrolin in the U.S. we anticipate building value over-time by carefully selecting our ex-U.S. commercial partners. Now let's move to the fourth topic the recent shareholders vote. I know there's a sizable group of shareholders who oppose our proposed increase in authorized shares, in the belief that in the immediate term their respective positions would be significantly further diluted. Let me reassure all shareholders that is not the intent based on the information we have today. At present our plan is to carefully martial our available cash resources to get us to the interim LOCK-IT-100 analysis. With a positive outcome, we expect to reach a meaningful value inflection point that could enable us to raise sufficient capital while requiring less dilution than raising money at the current levels. Given our current evaluation, our plan is to raise as little money as necessary such that the Company has adequate cash on hand as the interim analysis is completed. We believe that after the interim analysis if it's favorable the market will better appreciate the value of our taurolidine franchise and feel confident with the time frame in which we believe we can obtain marketing approval for Neutrolin in the U.S. We believe that the recent changes in the LOCK-IT-100 study has put us on a sure path to complete the study within the timelines we have outlined and have increased our confidence that our existing resources will get us to a meaningful inflection point in the study before we are required to embark on further fundraising. In addition, we will have further data on at 510(k) pipeline products. Let me cover the results. The majority of voters have voted in favor of approving the proposal and the increase in out authorized shares have been authorized. Thank you for your support of this increase. I will now hand the call to our CFO Bob Cook for an update on our financial results for the quarter.

Thank you very much Khoso. The Company has just filed its 10-Q for the second quarter ended June 30, 2017. My financial report today largely compares our results for the second quarter of this year versus the first quarter of 2017 and for the first half of 2017 compared with the second half of 2016. So that you will better understand the trends affecting our operations. I urge you to read the information contained in the 10-Q report for a more complete explanation of our financial results and for an analysis of results compared with the comparable periods in 2016. With respect to our second quarter 2017 financial results our net loss was approximately $5.1 million or $0.10 per share compared with a net loss of $7.6 million or $0.19 per share in the first quarter of 2017. Our net loss in the second quarter was positively impacted by a $1.9 million change in the fair value of derivative liability, which is the difference between the fair value of warrants issued in connection with the May financing as of the closing date and there estimated value as of June 30. These warrants were considered derivatives because at the time we did not have sufficient authorized shares to reserve for their possible issuance. Given that we have now received shareholder approval to increase our authorized shares these warrants are equity instruments, and will be mark-to-market and reclassified to stockholders equity. Operating expenses in the second quarter 2017, were $7.1 million compared with $7.6 million in the first quarter of 2017. The decrease in operating expenses compared with the previous quarter was due primarily to a $0.6 million or 22% decrease in G&A expense partially offset by a $0.2 million or 3% increase in R&D expense. The quarter-over-quarter G&A expense decline, resulted from the non-recurrence of certain one time consulting expenses of $0.4 million and reductions in Neutrolin marketing related activities and stock-based compensation during the first quarter. Decreases were also recorded in legal and accounting expenses partially offset by increases in employee costs and insurance. Our cash used in operations in the second quarter 2017 was approximately $7.8 million, compared with $6.8 million in the first quarter 2017. The increase in cash used in operations was necessitated by activity related primarily to our Phase 3 study of Neutrolin and certain planned manufacturing activities. Our operating cash burn was funded primarily via the proceeds of our May financing which provided $12.8 million in cash after expenses. With respect to our first half 2017 financial results, our loss was approximately $12.7 million or $0.27 per share compared with a net loss of $15.6 million or $0.39 per share for the second half of 2016. Net loss in the first half of this year was positively impacted by the $1.9 million change in the fair value of derivative liability, which as I noted earlier is the difference between the fair value of the warrants issued in connection with the May financing at the closing date and the estimated fair value warrants as of June 30. Operating expenses in the first half 2017 were $14.6 million compared with $15.6 million in the second half of 2016, a decrease of $1 million or 6.4%. The decrease of operating expenses compared with the second half of last year was due primarily to a $0.9 million or 8.6% decrease in R&D expense and a $0.1 million decrease in sales and marketing expense. G&A expenses during these periods was virtually unchanged. R&D expense in the first half 2017 decreased despite a ramp-up in the LOCK-IT-100 trial and Neutrolin related expenses as a result of the completion in late 2016 of feasibility studies related to the Company’s taurolidine early stage pharma and medical device platform. Our cash used in operations in the first half of 2017 was approximately $14.5 million compared with $13 million in the second half of 2016. The increase in cash used in operations resulted primarily from our Phase 3, study of Neutrolin and certain planned manufacturing activities. As the above analysis suggests we have maintained control of our G&A expenses, forcing economies where we can. We are examining a variety of measures that we believe can further reduce our G&A spending during the balance of this year and in 2018. As we have previously disclosed, we expect our spending on the LOCK-IT-100 trial to increase in the third and fourth quarters of 2017. But with the implementation of the changes recently agreed with the FDA we are more optimistic that the costs of the trial heading into 2018 will moderate due to our enhanced efforts to capture both prospective and retrospective CRBSI events and/or the possibility of favorable interim data at year-end. If either possibility comes to fruition it may favorably impact the number of patients we will need to enroll into the study allowing a reduction in the clinical trial expense. Despite the significant ongoing costs of the current LOCK-IT-100 clinical trial, we anticipate that our cash and short term investments at June 30 will fund our requirements into the first quarter of 2018. Based on our current situation, we plan to raise as little money as necessary such that the Company has adequate cash on hand as the interim analysis is completed. We will judiciously, make use of the share capital available to us. And in this regard we very much appreciate the support of our shareholders by approving yesterday the increase in our authorized shares. And with those comments I will now hand the call back to Khoso for his closing remarks.

Thank you Bob. In conclusion securing FDA approval of Neutrolin in the U.S. remains our primary focus. We are delighted to bringing Neutrolin to the market to help prevent potential deadly catheter-related bloodstream infections in already vulnerable patient population. We are pleased that the FDA has approved our changes, enhancing our ability to capture CRBSI events and facilitating completion of the ongoing Phase 3 study. As we push Neutrolin closer to seeking FDA approval, let me remind you that we would benefit from both FDA Fast-Track providing the potential for priority review of our marketing application and QIDP designation would secure up to 10 years of marketing exclusivity post potential approval. In parallel we’re developing our medical device pipeline in the most capital efficient manner possible. These devices have the potential to unlock multiple additional markets taking advantage of the unique properties of taurolidine to potentially prevent surgical site inflammation and infection. To propel both of these initiatives forward, we recently restructured our board of directors. Dr. Gary Gelbfish a practicing vascular surgeon and previous Board member rejoined our Board at this critical time with invaluable insight on advancing Neutrolin. We also recently appointed Dr. Mehmood Khan and Steven Lefkowitz to our Board. Dr Khan brings extensive clinical trial management and R&D expertise to CorMedix. And Mr. Lefkowitz is also returning to our Board with many years of corporate finance experience with micro-cap company. Janet Dillione continues to serve on the Board and brings leadership experience as a sitting CEO of a health technology company. Additionally we have appointed Myron Kaplan as Chairman of the Board. This Board composition and collective experience should help CorMedix accomplish the task ahead and get Neutrolin across the finish line. We look forward to providing the next update. With that we can now move on to the Q&A potion of the call. And some of you realized we have changed the format of this section of the call to have a writing questions in order to cover more questions. Therefore please submit any questions you have to cormedix@tiberend.com. Thank you. Josh over to you.

Yes of course. Thank you. So I have a couple of questions here. The first is what is the impact of the FDA changes on the cost of the LOCK-IT-100 study and how many patients do you expect to enroll?

We have it – initially or the latest estimate of costs related to LOCK-IT-100 were approximately $30 million. And at this moment, we have not changed that estimate and that is simply because at this point we just don't know how many events and we may have already in our database given as we said in the presentation that there is an ongoing work occurring with respect to the patients that have already been enrolled in this study and in which we can retrospectively go back and assess the data. So at this point, we really don't know exactly how many more patients may be required and therefore if the cost of the trial are very much dependent on the enrollment figure, the more or fewer patients that we need to enroll will have a definite impact in costs. So I think we're likely to have more insight on where the costs are going with respect to this trial at the next call. But at this point, I think we're not able to really make much more of an estimate with respect to the cost rather than we currently have. Then with respect to patients, I think I may have answered that but just in case. Because we are dependent on events and because we don't know retrospectively how many events we may have already in our database, we're not sure at this point exactly how many more patients we're going to need. So again that is a number that we’ll unfold as we get further into the analysis.

I have a sort of related question what are your plans for starting the LOCK-IT-200?

Okay, I'll take that one on. In light of the experience we've had with the LOCK-IT-100 and our discussions with the FDA. We are really looking at LOCK-IT-200 to see how we are able to do a second study efficiently and with minimum cost. And so it's a complete re-look again at LOCK-IT-200 and we will have more for that later in future quarters as we get that buttoned down.

Okay. Shifting gears do you expect to announce additional European commercial partnerships for Neutrolin this year and when do you expect sales in Europe to become meaningful.

I will take that question. So we expect, we are having ongoing discussions with a variety of different partners in Europe and so we expect to announce more partnerships this year again put it in context Europe sales will always remain a very small portion of the business. It is the U.S. market that has the greatest inflection point and as we go for couple of more quarters we would begin to see growth in European sales but again it will be small. So we have to keep that in context.

Okay. When do you expect to find a commercial partner for the medical device candidates.

As we are right now working through the animal model, we are going to start discussions with potential partners. So that effort is underway in parallel, clearly we will need to complete the animal model before we would be able to conclude any partnerships. So right now, it's going to be a busy time for us in the second half of 2017 working for partnerships and bringing our animal models to completion.

Okay. Do you have any update on the ongoing European litigation?

Not much has moved on the European litigation side from last quarter, the next hearing that we have with the European Patent Office is in November of 2017. And so that could take a variety of different facts, it could basically be a hearing and they would reset a new date for hearing it could be, they ask to get some witnesses. So nothing more I have to share than what we've had from the last quarter, it's still very much wait and see as we get to November off 2017.

Okay, someone is asking how many votes were in favor of the proposal to increase the authorized share count?

In the 8-K that should have been filed by now we reported that we had – in total we had 48,667,000 votes cast out of a potential 59 million. There were 30.3 million votes cast in favor of the proposal, which is I think 62% of the amount of the number of the shares are actually voted and over 50% of the outstanding shares the Company, which was important in order to get it approved.

Okay. Looks like I have two more here. Do you expect to have any further changes to the Board of Directors.

I would take that question. I mean our Board of Directors will continue to evolve as we go forward. Clearly as we move closer to getting Neutrolin approved in the United States we would be looking to strengthen our Board clearly with a couple of skillsets that would be important at that time. So yes, there would be a continuous evolution of the Board.

Okay, so beyond Neutrolin and what do you see as the next largest opportunity in the pipeline and has the market potential been identified for this product?

Well as I covered in the presentation, that the medical devices sutures in particular at the moment based on what we've got seems to be the next biggest opportunity. The reason being is that, there's only one competitor anti-microbial competitor in the market, it's clearly an area where the WHO and CDC says more of these surgeries need to use sutures with anti-microbial and the current one that exists on the market, clearly has some challenges. So assuming our animal model, the work comes out positive, then I think we will be in a strong position to play in a sizable market. As I mentioned in the United States $1.7 billion. So it's a sizable market for us to participate in.

And I missed the part of this question, they were also asking about the length of time to commercialization?

Just, just related to the medical devices you were referring to..

It referred to that specific, part the suture set.

Okay, so just to explain right now we are doing the feasibility work on animal models and the work we're doing in order to keep costs under contained is non-GLP animal models. Assuming we get positive results with his we will then move because we already have the models into GLP model for the animals, which is pretty short. And we would then be moving forward, in assuming our predicates are accepted by the FDA, we would see us then being able to file in the second half of next year. So I would imagine the products available to be on the market in 2019.

And I am just refreshing, but I am not showing any more questions.

I don't know if anyone else wants to send more questions, here the purpose was to be able to use this mechanism to be able to launch as many questions as possible, but if there are no more questions, then I want to thank everyone for attending this quarterly call And forward to providing updates on our exciting Neutrolin lead products here in the U.S. and then the pipeline as we continue to go forward. So thank you very much.

Thank you this does conclude today’s conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.