CorMedix Inc. (CRMD) Q3 2017 Earnings Call Transcript
Published at 2017-11-11 13:48:05
Joshua Drumm - Investor Relations Khoso Baluch - Chief Executive Officer Bob Cook - Chief Financial Officer
Good day, ladies and gentlemen and welcome to the CorMedix Third Quarter 2017 Results. All lines have been place on a listen-only mode. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Joshua Drumm. Sir the floor is yours.
Thanks, Kat. Good afternoon and welcome to the CorMedix third 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 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 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 those 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. Please e-mail any questions you have during and at the conclusion of the call to cormedix@tiberend.com and we will try to answer as many of these 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.
Thank you, Josh. Good afternoon, everyone and thank you for joining us on our call today. Similar to our previous calls, today, we will provide updates on the key areas that are most critical to drive value for CorMedix. Number one, our ongoing Phase 3 clinical trial for Neutrolin, specifically the planned interim analysis; number two, our robust pipeline for taurolidine-based medical devices; number three, an update on our plan for financing the company; and number four, lastly, Bob Cook, our CFO, will provide a full financial update. So, let me begin with the first point. First and foremost, our Phase 3 clinical trial for Neutrolin, this remains our top priority and we have continued our efforts to complete this study as efficiently and quickly as possible. As a reminder, Neutrolin is commercially available in the EU based on EU data supporting the safety and efficacy and we are working tirelessly to meet the regulatory benchmark that were agreed upon with the FDA. As we described on our last quarterly call, 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 catheter-related bloodstream infections or CRBSI events in the study. The first change was the agency had agreed 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. Number two, another important change was CAC will also evaluate cases based on the 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 CAC adjudicated CRBSI events as well as events captured under the per protocol definition of CRBSI can be included in the efficacy analysis. Number three, use of an 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 CRBSI, particularly when subjects present outside of the dialysis center setting. We found that often subjects go to emergency room, or urgent care centers if they suspect they have a CRBSI and these non-participating centers and hospitals do not necessarily adhere to our study protocol resulting in a potential loss of CRBSI events. So another important accommodation by the FDA was that it agreed to have the CAC evaluate suspected CRBSI for cases that have occurred since the study started based on subject medical records and additional documentation further enhancing our ability to capture these potential events for the primary endpoint analysis. Finally, significant changes were made to the study design itself, specifically, the FDA agreed with changing the magnitude of the treatment effect, from a 40% reduction in the rate of CRBSI when comparing Neutrolin and Heparin control arm to a 55% reduction. Based on our previous clinical and observational studies of Neutrolin, which shows significant higher rates of CRBSI reduction, we believe this increased efficacy burden will be achievable. Based on the amended study assumption, which include a reduction in the statistical part from 90% to 80%, the total number of CRBSI events required to complete the study was reduced from 161 events to only 56 events, of which 28 CRBSI are required for conducting the planned interim efficacy analysis. It is interesting to note that the Centers for Disease Control and Prevention reported that the rate of blood stream infections was the highest among patients with central venous catheter compared to other vascular access type. In the National Healthcare Safety network dialysis events surveillance data for 2004, that’s the latest data that’s available which was published in June of 2017, the CDC reported that 63% of the bloodstream infection and 69% of the access related bloodstream infections occurred in the hemodialysis patients with central venous catheter. So, let’s now cover the progress we have made over the last 3 months. First, we have continued to enroll study subjects into the Phase 3 trial. As of this quarter, we have exceeded our original enrollment target of 632 hemodialysis patients. We have enrolled 653 subjects as of yesterday from 68 clinical sites across the United States and Puerto Rico. As discussed previously, we are continuing to enroll additional subjects to facilitate achieving the prerequisite number of CRBSI events in the study. Based on our ongoing efforts, we continue to anticipate completing enrollment in the second quarter 2018. The most significant near-term catalyst for CorMedix will be the planned interim efficacy analysis, which as I mentioned will occur after CAC confirmation of 28 CRBSI events. Therefore, the vast majority of our efforts are currently focused on systematically reviewing the accumulative clinical trial record to identify potential cases with a single positive blood culture and assembling the documentation required for the clinical data packages. The information for these potential cases will be submitted to CAC to determine whether the cases should be considered as a CRBSI that can be included as an event for the analysis of the primary efficacy endpoint. I cannot overstate the logistic challenge that this initiative presents. Our clinical team is collecting and evaluating hospital admission records, nurses reports, progress reports, discharge summary just to name a few for each subject of interest, with each medical record representing anywhere from 10 to 100s of pages of medical information. In certain cases, we may need to get additional records if requested by CAC. That said, we are continuing to process these medical records as efficiently as possible. We are also actively monitoring for current enrolled subjects should they present at a nonparticipating hospital center to more rapidly capture any potential CRBSI events. Our primary goal is to obtain 28 CAC confirmed CRBSI events, which will then enable us to conduct the interim efficacy analysis in this event driven study. Based upon our current estimate of the time needed to identify potential cases, obtain medical records, prepare documentation for the CAC and for CAC to evaluate and determine if the potential case is a CRBSI event, we expect to get to 28 CAC confirmed events near the end of this year. With that, the interim analysis is anticipated to occur early in the first quarter of 2018. The results of the interim analysis will be reviewed by the trial independent Data Safety and Monitoring Board or DSMB. And the interim results will present the first opportunity in the U.S. to evaluate in a controlled study, Neutrolin potential ability to reduce catheter-related bloodstream infections in patients with end-stage renal disease receiving hemodialysis through a central venous catheter. There are a few potential outcomes from the interim efficacy analysis. The most likely outcome is that the statistical analysis of the data which will remain blinded to CorMedix will dictate that we should complete the study as amended and continue enrolling patients until 56 CRBSI events are confirmed by CAC. There is also a possibility that the interim results will reveal that a positive outcome for the study is low. Though we believe this outcome to be unlikely, should this occur, we would stop the Neutrolin trial for futility. Finally, there is a possibility that the interim results show a statistically significant difference in the rate of CRBSI event in the Neutrolin arm compared to the Heparin arm, at which point we may have an opportunity to go through the study earlier than projected based on the expectation that the data would indicate a significant benefit for using Neutrolin to prevent infections. Concluding the study would only occur after the FDA agreed with the DSMB recommendations. Assuming the interim efficacy analysis does not result in an early conclusion, we would expect based on experience, learning and investments made in refining the process to-date that we should finish subject enrollment as projected in the second quarter of 2018 depending on the successful capture of 56 CAC confirmed CRBSI events. We would then expect the top line results for the full study in the second half of 2018. As per the second Phase 3 study, we will have further news for you once we have approached the FDA to finalize the parameters for the required [indiscernible] discussed with the FDA will occur when LOCK-IT-100 study is completed either at the interim analysis or should the study go to its full length once the study is completed. Before moving on to our broader taurolidine pipeline, I also want to highlight the exciting work that is being done with taurolidine as an effective antimicrobial agent against the deadly fungal pathogen Candida auris also known as C. auris. This microbe is causing major infections and deaths across the world, including several cases right here in New York area. There are strains of C. auris isolated from hospitals that are resistant to all known classes of antifungal and the number of infections caused by drug-resistant strains continued to rise. CDC’s website under general information about C. auris states that the spread of C. auris occurs in healthcare setting to contact with contaminated environment surfaces or equipment or from person-to-person. Furthermore, the CDC has reported that patients with central venous catheter among those at the highest risk of infections with C. auris, which can enter the bloodstreams when infected catheter and spread throughout the body causing serious life threatening infection. Dr. Bruce Reidenberg, Adjunct Assistant Professor of Pharmacology at Cornell Medical College and the member of our Scientific Advisory Board recently presented in vitro data at the Gulf Congress of Clinical Microbiology and Infectious Disease. The data highlighted the ability of taurolidine to completely inhibit growth of 20 different clinical isolates of multiple drug-resistant C. auris. These studies were done at the same concentration of taurolidine in our product Neutrolin. Based on this, we believe there is an opportunity for Neutrolin to become an important weapon against C. auris infection. We remain encouraged by these early results, which further highlight the value proposition of taurolidine as a broadly effective non-antibiotic, anti-infective agent. We look forward to determining a plan to work with global regulatory agencies to leverage the potential benefit that Neutrolin may offer patients with central venous catheters. In addition, we are exploring alternative applications, which we will share once we have supporting data. We remain completely dedicated to the successful completion of the Neutrolin registration program and to bring Neutrolin to market in the U.S. Based on this broad-spectrum antimicrobial activity, we believe Neutrolin has the potential to significantly reduce or eliminate costly and potentially deadly catheter-related bloodstream infection. Now, moving on to the next topic, I like to reiterate the exciting work we are doing to expand our taurolidine-based pipeline in the area of antimicrobial medical device and oncology. As highlighted during an R&D Day, we presented the scientific rationale and the data we have generated to-date for our taurolidine incorporated medical devices. We also discuss our ongoing work with top-tier pediatric oncology experts to develop a taurolidine-based therapy for rare pediatric cancer. Due to the limited resources required to advance these programs and the significant market potential they represent upon commercialization, we feel these early-stage opportunities are a strong complement for primary efforts to advance Neutrolin in the U.S. We have continued to make progress on our three medical device programs as well as our neuroblastoma program. For the medical devices, I will remind you that we anticipate pursuing approvals under the 510(k) device pathway. Leveraging data from previously approved devices, this pathway requires far less time and development costs compared to drug approval. As we mentioned previously, we have already identified potential predicate device for each of our product candidate, which are taurolidine incorporate sutures, topical hydrogel and surgical meshes. In parallel, we plan to seek CE Mark for our medical devices to enable commercialization in the European countries and other territories. Currently, we plan to complete proof-of-concept studies for our product candidates in the animal model by year end. With continued positive results and FDA acceptance of our suggested predicated device, we believe filing for 10-K clearance for all three medical device platforms could occur in the second half of 2018. Upon potential FDA clearance, each of our products will enter large markets where we believe they can achieve significant market share. The projected 2018 U.S. market for sutures is $1.7 billion and is approximately $1 billion each for hydrogels and non-woven meshes. Assuming our suggested predicates are accepted by the FDA, we believe it would cost CorMedix going forward approximately $1 million to complete the required studies and submit all three 510(k) packages to the FDA. In addition to our three core medical device programs in August, we announced the CorMedix was the recipient of an NIH grant for $224,000 to develop a fourth medical device product candidate. This grant will facilitate the development of an advanced taurolidine-based hydrogel that is designed to reduce the risk of potential life-threatening infections and promotes healing of severe burn injuries. We applied for this grant based on our request for proposals from the NIH, which speaks to the unmet need for antiseptic products that are able to penetrate the deeper layers of damaged skin and prevents infection. We are very pleased to receive this funding and add another potential valuable product candidate to our pipeline at minimum incremental cost to the company. Activity under this grant is now getting underway. Aligned with this capital efficient development strategy, we intend to commercialize all of our medical devices for appropriate partners. I am pleased to say that CorMedix has applied for and obtained several patents to protect these assets over the last 24 months. Based in part on the data we presented for these products during our R&D Day, several strategic companies have indicated an interest and discussions though preliminary have started. We are very encouraged with this development. In addition to medical devices, we also have been active in our collaboration with a Pediatric Oncology Experimental Therapeutic Investigators Consortium, or in other words called POETIC. In the preclinical development of taurolidine-based therapies for cancers, we are continuing to advance in preclinical studies specifically aimed at establishing in vivo proof-of-concept after which we will determine the appropriate clinical strategy. For more information on our development stage pipeline, the full webcast and slide presentation from our R&D Day is available for replay on the Events page of our website. Before I hand over to Bob to cover the finance section, I want to highlight the new investment facility that we have put in place and announced today. Our strategy at CorMedix given the current market capitalization of the company has been to raise the minimum capital at the best term available to ensure that the company has sufficient cash on hand to complete the interim analysis. After the interim data is reviewed by DSMB and we know our path forward, we will reevaluate our situation and determine both our ongoing cash needs and our financing options. At all times, we will continue in our efforts to maximize value for our shareholders. Based on the strategy, we have raised $3.1 million net using the ATM. In addition, we have executed a $5 million facility with an existing CorMedix investor called Elliott. That would provide the company with sufficient cash through the first quarter of 2018, which we anticipate gets us comfortably through reporting of our interim efficacy data. This new $5 million investment facility was executed in alignment with our previously discussed strategy. Having accomplished this goal, we do not anticipate the need to raise additional capital until the release of the interim analysis. However, should market conditions change and the company has the ability to raise additional capital on favorable terms, the company will evaluate it if it is in the best interest of shareholders. I will now hand the call to our CFO, Bob Cook for an update on our financial results for the quarter and more details on the financial transaction. Bob?
Thank you very much, Khoso. The company will file its 10-Q for the third quarter ended September 30, 2017 momentarily. 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 third quarter 2017 financial results, our net loss was approximately $10 million or $0.17 per share compared with a net loss of $9.1 million or $0.23 per share in the third quarter of 2016. In the second quarter of 2017, we reported a net loss of $5.1 million or $0.10 per share. Our third quarter 2017 net loss was negatively impacted by a $2 million change in the fair value of derivative liability representing the difference between the fair value of the warrants issued in connection with the May financing as of June 30 and their estimated fair value as of August 10, the date on which these warrants were revalued and re-classed into stockholders’ equity, following the receipt of shareholder approval for increasing the company’s authorized shares. Disregarding the impact of the warrant liability on the company’s income statement during the year, the company’s net loss would have been approximately $8 million in the third quarter and $7 million in the second quarter of 2017. Operating expenses in the third quarter 2017 were $8 million compared with $7.1 million in the second quarter 2017, an increase of approximately 13%. This increase was due primarily to $0.9 million or 18% increase in R&D expense, while SG&A expense was essentially flat. Within R&D, the cost of the LOCK-IT-100 clinical trial increased by $1 million while other R&D decreased by $0.1 million. As we discussed on our last conference call, the expense of the LOCK-IT-100 clinical trial is increasing as we continue to enroll more patients. Expense has also been increasing in response to our ongoing efforts to secure medical records for patients who had presented with possible CRBSI at hospitals, clinics and doctor’s offices not associated with our study and as a result of patients staying in the study longer than we had originally planned. During the quarter, we were required to provide more study drug and purchased additional Heparin for use in this study. While SG&A expense was basically unchanged, quarter versus quarter, the general and administrative expense component declined $0.1 million with decreases in employee cost, marketing and legal expenses partially offset by increases in compliance, patents and insurance. Cash used in operations in the third quarter of 2017 was approximately $6.8 million compared with $7.8 million in the second quarter of 2017. Cash used in operations, during the quarter was less than we had earlier estimated though we expect the difference to be made up in the fourth quarter. With respect to our financial results for the 9 months ended September 30, our net loss was approximately $22.7 million or $0.44 a share compared with a net loss of $18.2 million or $0.49 a share for the 9 months ended September 30, 2016. Operating expenses in the first 9 nine months of 2017 were $22.7 million compared with $18.2 million in the 9 months ended September 30, 2016, an increase of $4.6 million or 25.1%. The increase in operating expenses compared with 2016 was substantially due to a $4.3 million or 37% increase in R&D expense and a $0.2 million or 3.6% increase in SG&A expense. Most of the increase in SG&A occurred in the first quarter of this year and has since trended down. R&D expense in the first 9 months of 2017 increased due to the ramp up in LOCK-IT-100 trial and other Neutrolin related expenses. Clinical trial expense in the 9 months ended September 30 was 51.7% higher than the comparable period in 2016, while other R&D including staff expenses declined 31%, the latter due primarily to lower product development and manufacturing expenses. Our cash used in operations in the first 9 months of 2017 was approximately $21.3 million compared with $15.8 million in the 9 months ended September 30, 2016. The increase in cash used in operations resulted primarily from our higher net loss caused primarily by the ongoing Phase 3 study of Neutrolin. As we have previously discussed, we expect our spending on the LOCK-IT-100 trial to increase in the fourth quarter of 2017 and to remain at a high level during the first quarter of 2018. Cash at September 30, 2017 amounted to $12 million. During the month of October, we made use of our ATM program raising $3.1 million in net proceeds at an average sales price of $0.64. Further, we announced moments ago that we have executed a $5 million combined facility with Ellie Funds, an existing investor consisting of $2 million of Series F convertible preferred stock and a $3 million Backstop facility to purchase additional Series F convertible preferred stock at our sole discretion beginning January 15, 2018 through March 31, 2018. To the extent, we sell equity prior to March 31 to other investors the amount of the Backstop will be reduced pro rata. We expect to close this transaction and received the $2 million proceeds over the next several days subject to customary closing conditions. We are very pleased to have concluded this facility with Elliott. This transaction works favorably for the company by providing $2 million to us upfront and by granting us committed access to a further $3 million during the first quarter of next year. Because we are under no obligation to draw any of the Backstop facility, we are free to access more cost efficient capital if it is available. Any third-party financing that we expect will reduce the available amount of the Backstop dollar per dollar. So, the Backstop is basically an insurance policy and sets a minimum financing amount and a maximum cost. We will be pleased to consider investment from accredited investors. We believe in terms of the convertible preferred stock investment are attractive given the fact that we are financing in advance of having our interim data available. Elliott may convert the preferred stock into common stock at its option at an effective rate of $63.75 per share, which represents a 20% premium to yesterday’s closing price of our common stock. The stock will be mandatorily convertible on April 2, 2018 subject to certain equity conditions at the lower of $63.34 at a 10% discount to the notional price at which an equity or equity linked transaction in an amount of $5 million or more is completed by March 31, 2018 or if no such transaction is completed, a 10% discount through the closing price of the stock on March 31. There are no warrants to be issued in connection with the investment. We are issuing warrants to purchase shares of our common stock to Elliott as compensation for the Backstop facility, which will be a minimum of approximately 474,000 shares at a maximum of 943,000 shares depending on the amount of the Backstop that remains available after December 24, 2017. We anticipate that our cash and short-term investments at September 30, 2017 plus the proceeds of our ATM program and the new $5 million investment will fund our requirements in the first quarter of 2018. Based on our current schedule, we believe that we have sufficient cash to operate through the release of the interim data. I will now hand the call back to Khoso for his closing remarks.
Well, thank you, Bob. In conclusion, securing FDA approval of Neutrolin in the U.S. remains our primary focus and we expect to benefit from the changes that have been made to the prior protocol, which are designed to enhance our ability to capture potential CRBSI events and facilitate completion of the ongoing Phase 3 study. As Neutrolin gets closer to potential FDA approval, let me remind you that we will benefit from both the FDA Fast Track providing the potential for priority review of our marketing application and QIDP Designate, which secures up to 10 years of market exclusivity post potential approval. In parallel, we believe there is significant value to be unlocked based on our medical device pipeline and we will continue to advance these programs in the most capital efficient manner possible. We will also look opportunistically at additional development initiatives that leverage the unique properties of taurolidine to improve outcomes for patients. We believe all of these efforts add incremental value for our shareholders. As we continue to work diligently and begin to deliver solid data across our pipeline, we expect that value to be reflected in the market. We look forward to providing the next update. I will now hand it back to Joshua. A - Joshua Drumm: Thanks, Khoso. So I am reviewing the questions from the e-mail. So, the first question is asking about the medical devices, can you describe the status and future timeline for the device programs and which program is the most advanced?
Thank you, Josh. So, on the medical devices, we have all three programs pretty much within weeks are part of each other. All of them are as you know going through the animal models right now and the completion date for them we have at the tail end of this year. So, they are all pretty much at the same timeframe. I think the key emphasis right now is we are preparing ourselves to have a discussion with the FDA on the selected predicates that we have fixed for each of the medical devices and setting up that meeting with the FDA. And once we get that feedback having met the FDA, we will then be able to give a new estimate as to what the future timing will look for the medical devices. At present, our view is that based on the predicates we have selected and based on the work we are doing right now for our medical devices, we believe – these predicates will suffice and if that holds true for our meeting with the FDA, we would expect to do filing the 510(k) filing in the second half of 2018.
Okay. The next question is more about the Phase 3 study asking is your CRO or anyone else helping to review the patient records for packaging for the CAC and is there a way that this process can be expedited?
It’s a good question. So, our CRO in addition to members of our team at CorMedix are all actively collecting the information from the variety of different sites where the information is present. The reviews are taking place. We are continuing to add resources that are required to expedite the review of these documentations and to bring them in front of CAC. So, all of that effort is ongoing and I think over the last few months, we have continued to improve the process and make it efficient and a lot of it is driven by having the CRBSI events, confirmed CRBSI events and we have to get to 28 and so that is the driving factor for us to be able to be ready for the interim analysis.
Okay. And that’s a good segue. I have another question about how long the interim analysis may take once you – how long will it take to complete once 28 events are confirmed?
At present, based on our planning, we are expecting it would take around 2 weeks to prepare the interim analysis and for the DSMB to review the data about a week. So roughly estimate about 3 weeks from the time we have the 28 events to the time that we would be getting a feedback from the DSMB.
Okay. I have another question about the European litigation if you can just give a status update on that and specifically do you in your council see a pathway towards resolution?
Okay. So, there is not a lot of new news on the legal case in Europe, other than that, there is a hearing in two weeks from now on November 22 and 23 at the European patent office in Munich and that pretty much would be the first time we have got any new update for a long time. So at the moment, it’s going to be critical for us to attend that hearing and see what path that may take. Other than that, I don’t really have any other new news.
Okay. I am refreshing. And at this time, I am not seeing any additional questions. So, I can turn it back to the operator.
Alright. Thank you very much.