CorMedix Inc. (CRMD) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to CorMedix First Quarter 2018 Results Conference Call. At this time, all participants are in a listen-only model. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I would now like to turn the conference over to your host, Monique Kosse from LifeSci Advisors. Thank you. You may begin.

Thank you. Good afternoon, and welcome to the CorMedix first quarter 2018 investor conference call. On this call today, Khoso Baluch, Chief Executive Officer of CorMedix will provide an update on the company's clinical programs and other matters. Liz Masson, Executive VP and Head of Clinical Operations will provide an update with respect to the ongoing efforts to complete the LOCK-IT-100 interim analysis. We will then turn the call over to Bob Cook, Chief Financial Officer. After their remarks, we will then turn the call back over to the operator a Q&A session. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. During the call, management 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 potential 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, results, and interpretations 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 product candidates, and expectations as to manufacturing and product component costs. 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 Web site 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, Monique. Good afternoon everyone and thank you for joining us on our call today where we would like to review our first quarter 2018 financial performance and provide you with an update of our activities. As in our previous calls, we will provide updates on key areas that are most critical of driving value for CorMedix, including our ongoing Phase 3 clinical trial for Neutrolin and the planned interim analysis, a brief update on the pipeline development specifically our taurolidine-infused medical devices and neuroblastoma program, status update on Neutrolin sales in Europe and the Middle East, and quarter one 2018 financial update and our plans. So let me begin on the ongoing Phase 3 LOCK-IT-100 clinical trial and the interim analysis for Neutrolin, which is our top priority. We are currently anticipating that the Data Safety Monitoring Board will review our interim analysis and make its recommendation in July 2018, assuming no further delays in obtaining the additional data needed to assess secondary endpoints and serious adverse events to complete the review process are encountered. We are continuing efforts to complete this interim analysis and study as efficiently and as quickly as possible. In order to provide you further color to the task we have at hand, I have asked Liz Masson who is Executive VP and Head of our Clinical Operations to join us this afternoon to provide insight and details on the clinical data review process. Although we have made meaningful progress since our last call, it has taken far longer than anyone had expected. While we continue to work cooperatively with our CRO, we are in negotiations with them regarding further remediation efforts and financial considerations based on the delay in preparation to perform the interim analysis. We plan to provide an update once we have clarity on the outcomes of our negotiations with our CRO, which is one of the largest and most highly regarded CROs in the world and whose business includes running multi-sites clinical trials around the world, including for nearly all of the top 50 pharmaceutical companies. I will now turn the call over to Liz to provide more details on the review process. Liz?

Thank you, Khoso. I’m delighted to join this call and be able to provide more details on what we’ve been doing. Our focus remains to ensure that all the required data for the interim analysis is correct and source-verified for the subjects in the study up to the time we reached the 28 CAC-confirmed CRBSI in early December. While 28 cases sounds like a small number, the volume of data that comprises these cases is significant. Further, the onus is on CorMedix to ensure that the 28 cases we submit are the first 28 cases that occurred as we agreed in the amended protocol permitting an interim analysis with the FDA. To ensure that we have done that, the study team needs to review over two years of data for nearly 700 subjects including an assessment of all secondary efficacy endpoints for catheter removal and loss of patency. Remember, hemodialysis patients are treated at least three times per week generating thousands of treatment records that require review. Further, we need to collect data relating not only to what happens while subjects are undergoing dialysis but also while they are off dialysis and may have sought medical attention at a hospital, emergency center or other acute care settings. The volume of data combined with the complex medical makeup of these subjects presents us with an extraordinary path. Now, some of you may be wondering how we could have not anticipated these issues prior to the transfer of the data to CorMedix in early February for the interim analysis. Let me help frame an answer for you. All studies go through the same process of cleaning the data as the study is in progress and then goes through a specific final cleaning and source verification when there is either an interim analysis or when the study has completed. When you’re using data to perform an interim analysis that is essential to inform decision making by the sponsor and FDA on potential early termination of the trial, the completeness and accuracy of the data cannot be called into question. In the case of LOCK-IT-100, we learned just prior to the scheduled data lock that contrary to previous statements, this was not the case. When CorMedix had its independent statistician perform edit checks and data reviews on a sample of subjects at the time post transfer, unfortunately they found that there were material inconsistencies and missing and incomplete data that needed to be addressed prior to proceeding with the interim analysis. The situation was such that we decided to take over the data monitoring effort and further that a full 100% source verification was required at the time for this study. This is requiring our team of 35 senior CRAs that we engaged when we took oversight monitoring to visit 57 sites and reviewed data for nearly 700 subjects. As of today, we have identified many missing data entries relevant to our endpoint. Our team has reviewed and source-verified approximately 54% of the data and the pace of source verification is accelerating. We are on schedule to complete this work by the end of June 2018. This work does not impact the integrity of the 28 past approved CRBSI cases. We continue to identify new potential CRBSI cases which occurred subsequent to the early December 2017 deadline. These cases are being prepared for submission to CAC on an ongoing basis. I hope this helps you understand the critical tasks we are performing. I will now turn the call back over to Khoso.

Thank you, Liz. Moving on to our pipeline, both the taurolidine-based medical devices and our neuroblastoma program. I want to provide you a brief update, specifically the taurolidine-infused suture, mesh, and hydrogel. First, I’d like to point out that we have spent approximately $275,000 moving these medical device programs forward with just one employee who is not part of the LOCK-IT-100 effort. We completed early preclinical trials during the first quarter of 2018. The study showed faster wound healing in early days for the taurolidine hydrogels, the sutures were structurally intact with up to 7% weight [ph] taurolidine infusion, none of the taurolidine-infused devices used in the studies inhibited wound healing. At a macro level, these results were encouraging but they are preliminary. We would need to move to the next step in the development plan to differentiate the devices from today’s standard of care so we can interest a partner to bring them to market. In light of the feedback we received from the FDA that the 510(k) pathway was not an option at present and that the FDA would therefore regulate CorMedix’s medical devices as a Class 3 medical device which requires a Premarket Approval Application, PMA, for the drug-device combination. CorMedix intends to continue to discuss the regulatory pathway with the FDA if and when the new drug application for Neutrolin is approved. Although there will presumably still be no appropriate predicate device, the no Class 2 [ph] can be proposed at that time based on the risk assessment and a reasonable assurance of safety and effectiveness. To this end we have put most of the medical device development activity on hold pending FDA approval of Neutrolin. We have ceased partnership outreach but we are open to meet with interested parties that express interest. That being said, we believe these devices are a strategic value as a potential asset to partner or for us to develop further on our own. The market for sutures, mesh and hydrogels are established and quite attractive. Total annual worldwide sales for each of these segments are $2 billion to $4 billion and anti-microbial protection addresses a significant unmet need within each product segment. Now moving on to our neuroblastoma program, taurolidine is currently in preclinical development as a combination treatment for neuroblastoma. Taurolidine is the key component in the company’s lead product Neutrolin. As mentioned previously, CorMedix announced on February 26, 2018 that the FDA granted CorMedix’s orphan drug designation to taurolidine for the treatment of neuroblastoma. Orphan drug designation is granted by the FDA to novel drugs or biologics that treat rare diseases or conditions affecting fewer than 200,000 patients in the U.S. The designation provides CorMedix with a potential seven-year period of U.S. market exclusivity upon approval of the drug for commercial distribution, and are eligible for grant funding, clinical trial design assistance, as well as tax credits for research costs, and the waiver of the Prescription Drug User Fee Act called PDUFA filing fees. We continue to be encouraged by the significant preclinical data we have received and will continue to work with poise and potential partners to continue to develop taurolidine in neuroblastoma and other indications. Our goal is to partner with an appropriate cancer-focused company to advance taurolidine into clinical development and ultimately obtain marketing approval. I have been asked several times about our business in Europe and the Middle East and why our Neutrolin sales are insignificant. Let me answer this question. The European, Middle East markets are different from the U.S. market. There are several alternatives for catheter lock solutions on the Europe, Middle East markets, the majority of which are citrate-based with a variety of concentrations and sold at very low prices. The citrate concentrations that are used in this market in our opinion do not have the anti-microbial firepower to significantly prevent CRBSI. There seems to be little to no robust data that is randomized, double blind control trials that show the efficacy and safety of these citrate catheter solutions. In order to penetrate this market, we will need to thrive competitively and have compelling clinical data for Neutrolin. To that end, CorMedix has been making significant strides in reusing its cost of goods. Further progress continues on reducing the cost of goods and when coupled with the data we anticipate on the results of our LOCK-IT-100 study, CorMedix expects to be in a better position to make inroads in this competitive market. In the meantime, we continue identifying potential partners and distributors in these markets. Before I turn the call over to Bob to review the finances, I want to reiterate our commitment to our strategy at CorMedix. We are a development company now with 17 employees and several full-time clinical consultants focused on products for the prevention and treatment of infectious and inflammatory diseases. We have an exciting potential opportunity with our Phase 3 asset in Neutrolin. We believe strongly that we are in the final stages of gathering the necessary information for the completion of the interim analysis and the DSMB review for LOCK-IT-100. Finally, I am pleased to announce that Dr. Paul Chew has joined CorMedix as a consultant advisory CMO. Over his distinguished career, Dr. Chew, a cardiologist by training has had held several executive positions at major pharmaceutical companies including Bristol-Myers Squibb and Sanofi where he served as Senior Vice President, Global Chief Medical Officer and U.S. R&D Head. He was most recently the CMO of Omada Health. He has a solid history of working with the European Medicines Agency and the U.S. Food and Drug Administration, the FDA, including lead sponsor representation at the FDA Advisory Committee and EMA Scientific Advisory Group. He has spent more than 20 years at the Johns Hopkins University and the School of Medicine where he received his undergraduate education and medical training and where he has held various faculty positions. Paul has joined the team and will work closely with Liz and her group to focus immediately on supporting the LOCK-IT-100 interim analysis and study completion. With that, I will now turn the call over to Bob.

Thanks very much, Khoso. The company will file its report on Form 10-Q for the quarter ended March 31, 2018 before today’s close of business. I urge you to read the information contained in the report for a more complete explanation of our financial results and for an analysis of results compared with the comparable period in 2017. With respect to our first quarter 2018 financial results, our net loss was approximately $10.2 million or $0.14 per share compared with a net loss of a $7.6 million or $0.19 per share in the first quarter of 2017. Our net loss in the fourth quarter of 2017 was $10.3 million or $0.15 per share. During 2018’s first quarter, we experienced higher costs related to the ongoing LOCK-IT-100 clinical study compared with previous quarters while other expenses continued to decline or remain flat. Operating expenses in the first quarter of 2018 were roughly unchanged from the fourth quarter of 2017, declining to 10.2 million compared with 10.4 million in the previous period. R&D expense decreased approximately 2% to $8.3 million due to a 77% decrease in manufacturing expense and a 29% decline in other R&D, while clinical trial expense increased by 21%. Our expense related to the clinical study was approximately $7.3 million or 71% of total operating expense during the first quarter of 2018. The increase in clinical trial expense was seen primarily in payments to participating sites which increased 86% from last quarter and from a 36% increase in consulting fees primarily due to additional staff hired to takeover site monitoring from our CROs. The increase in investigator payment reflects higher enrollment and a net increase in study subjects during the quarter. SG&A expense declined 3% to $1.9 million with reductions in virtually all areas except for patent expense and accounting fees. Notable declines during the quarter compared with the previous quarter included reduced employee and legal expenses as well as reductions in business development, business travel and compliance expenses. Cash used in operations in the first quarter of 2018 was approximately $7.1 million compared with $7.3 million in the fourth quarter of 2017. Cash used in operations during the quarter decline modestly primarily in response to higher accrete [ph] expenses related to the clinical trial and higher accounts payable balances reflecting a slowing in payment at the end of the quarter in response to our ongoing negotiations with our CRO regarding certain remediation efforts and financial considerations for the ongoing delay that we had incurred in preparing for the interim efficacy analysis of the LOCK-IT-100 study. During the first quarter, we raised approximately $3.3 million through our At-the-Market program. We replaced our expiring ATM program in March with a new program and went effective on a registration statement in April that permits us to raise up to 14.7 million through the ATM from time-to-time at our sole discretion. We had not utilized the new ATM facility to-date. Cash at March 31, 2018 was approximately $8.2 million. Based on the current status of our negotiations with our CRO, we believe our existing cash and cash equivalents will be able to fund our operations into the third quarter of 2018 and enable us to complete the interim analysis as currently scheduled. In view of those ongoing negotiations, we have decided to delay the finalization of the $3 million backstop facility for which we had received a binding term sheet in March. On May 8, we filed a preliminary proxy statement with the SEC to hold a special meeting of stockholders on June 26, 2018 for the purpose of obtaining approval to effect the reverse split of our common stock in an outstanding warrant and options. The Board is asking that our stockholders approve a range of exchange ratios for the reverse stock split and allow the Board up to a year in which to effect it, because while we hope for a favorable interim analysis and a resulting uptick in our stock price, we cannot predict the stock’s price performance or those market conditions and we can’t guarantee that we will be able to favorably negotiate remediation and financial considerations with our CRO. Subsequent to the implementation of the reverse split, the Board currently has no plan or intention to modify any of the company’s outstanding warrants and options to reduce or protect them from the effects of the reverse split which will impact both the exercise price and the number of warrants and options that are outstanding. As explained in our preliminary proxy statement, the Board also believes that the reverse stock split will enhance our ability to maintain the listing of our common stock on the NYSE American Securities Exchange. If our common stock were delisted from the NYSE American, our only credible alternative would be quotation on an OTC trading market or other over-the-counter marketplace. The reverse split will not affect the current number of authorized share stock. The Board believes it is critically important to have sufficient additional available shares of common stock for issuance from time-to-time in connection with possible future financings or for other corporate uses both to enable our ability to continue our operations in the near term as well as to our long-term success. At the moment, we have only about 26 million shares available for issuance. In our preliminary proxy statement filing, we made mention of our intent to complete a rights offering after receiving stockholder approval to effect the reverse stock split. Because by its nature our rights offering enables all shareholders to participate in the funding of the company’s need on identical terms and by their participation, existing shareholders can maintain their relative ownership of the company’s stock. We believe this is an especially appropriate financing mechanism to pursue after completion of the reverse split without which we will not have the required number of shares to conduct a properly sized offering. Our goal for this financing is to minimize solution and provide existing shareholders with the opportunity to participate in the company’s financing plans. We will be issuing more information as our plans solidify over the coming weeks. With that, I will now hand the call back to Khoso for his closing remarks. Khoso?

Thank you, Bob. The critical task on hand is the LOCK-IT-100 study and most specifically the interim analysis. The team that we have assembled over the last few months is experienced and focused on delivering. Another benefit of the task that the team is doing now with this quality monitoring is that it will allow us to avoid unnecessary delays at the end of the trial whether it is at the interim analysis or upon reaching 56 events. With that, I would now like to open our call for questions. I will hand it back to the operator.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Alexis Woods with LifeSci Capital.

Hi. Thanks for taking my question. I just wanted to know if you could speak to the level of confidence that you have that you’ll hit July 2018 for the interim readout and why you’re more confident now that you’ll be able to meet that timeline as opposed to how confident you’ve been in the past.

Sure. Thanks, Alexis. We have undergone a rigorous planning process with a number of experts and built very strong teams dedicated to the integrity of the data and it’s a process that gets regularly reviewed. So with that and the team that we’ve put in place, I’m very confident in our timeline at this point.

Okay. Thank you. And then I just have one more question related to the taurolidine-infused devices. If you could speak to the next steps for those programs and if it’s going to be preclinical or clinical? And then if it’s going to be preclinical, what you would need to see in order to eventually move it into the clinic?

Thank you, Alexis. I will cover that question. As I indicated in the prepared statements, in light of the feedback we received from the FDA on the 510(k) pathway that we would have to go down the PMA pathway. At the moment what we’re going to do is put the effort on hold. There’s going to be some minor work done just to make sure we have a clear path forward as to what work we will do at the right time to differentiate our products from the standard of care in the marketplace. But we are not going to be doing any more studies right now until we have got Neutrolin approved or the situation changes for us and then we would be ready to invest in that segment.

Okay. Thank you.

[Operator Instructions]. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Khoso Baluch for closing remarks.

Thank you everyone for listening in today. I’d like to thank our employees, our full-time consultants for their hard work and dedication, our Board members for their guidance and our shareholders for their ongoing support. We look forward to providing further information as developments continue to capitalize and to updating you again on our next earnings call. Thank you very much and have a good evening.

Thank you. This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.