CorMedix Inc. Q2 FY2021 Earnings Call

Greetings and welcome to the CorMedix Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Ferry from LifeSci Advisors. Thank you. Please go ahead.

Good afternoon and welcome to the CorMedix’s second quarter 2021 earnings conference call. Leading the call today is Khoso Baluch, Chief Executive Officer of CorMedix. He is joined by Dr. Phoebe Mounts, Executive Vice President and General Counsel; and Dr. Matt David, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that 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 and marketing approval for DEFENCATH in the U.S. and other product candidates; future financial position; future revenues and projected costs; and potential market acceptance of DEFENCATH, Neutrolin, and other product candidates. More specifically, forward-looking statements include any statements about our clinical development plans and the timing, cost, 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, business development or other 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 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, Dan. Good afternoon, everyone. And thank you for joining us on this call. On today's earnings call, we will discuss the second quarter 2021 financial information and the overall progress CorMedix is making in bringing DEFENCATH to the U.S. market for its first indication as a catheter lock solution for hemodialysis patients through reduced catheter-related bloodstream infections. Joining me on this call are Phoebe and Matt. Let me begin the first item for discussion. During the last earnings call on May 13, we provided an update on the progress that CorMedix has made to date on addressing the deficiencies identified by the FDA at the third-party manufacturing facility. The work has continued and we are reiterating that at present, we are on schedule to be able to resubmit the CorMedix NDA in quarter 4, 2021. Phoebe will provide information on our progress since our last update. We are also balancing our preparation for launching DEFENCATH while limiting our cash burn so that financially we have the resources required to efficiently bring DEFENCATH to patients in the U.S. market when FDA approval is received. Matt will provide you an update on our second quarter 2021 financials and provide insight regarding the strength of CorMedix’s balance sheet. Despite the continued COVID pandemic, CorMedix has continued to function efficiently with a total remote workforce. I will provide an update on the potential impact of COVID-19 on CorMedix. Now let's move to the first topic, which is the regulatory update. Phoebe?

As I have explained previously, we have successfully completed the manual extraction study required by the FDA and the Complete Response Letter (CRL) sent by the FDA to CorMedix. We have demonstrated that the labeled volume of DEFENCATH can be consistently withdrawn from the vials. Also, as we have explained previously, resolution of the deficiencies at the manufacturing facility identified in the post-application action letter sent to the contract manufacturing organization (CMO) has required additional process qualification with subsequent validations for the vial filling process. The process qualification and validation are done by the manufacturing facility, and we are working closely with them and CMC consultants engaged by CorMedix to ensure that we are addressing FDA concerns appropriately. The deficiencies communicated to the CMO by the FDA need to be satisfactorily addressed for approval of the DEFENCATH NDA. The CMC and regulatory teams of CorMedix are working collaboratively with the CMO to ensure the generation of the required data and documentation to resubmit the NDA in the fourth quarter of 2021. As previously described, the FDA has informed CorMedix and the CMO that all corrections to facility deficiencies need to be complete at the time of resubmission of the DEFENCATH NDA. Corrective actions to address the deficiencies of the manufacturing facility will be submitted to the FDA by the CMO. The FDA has also informed us that corrective actions may be verified during an onsite evaluation of the manufacturing facility subsequent to the resubmission of the NDA. As you may know, the FDA announced in May that only mission-critical inspections of foreign facilities would be conducted and the COVID-19 pandemic will continue to impede in-person inspections of foreign facilities in 2021. Congress and industry have questioned the impact of delayed inspections on drug approval decisions that may lead to delays in providing patient access to necessary drugs. While our goal is to submit sufficient data and documentation to convince the FDA that the manufacturing facility is ready to support commercial operation for DEFENCATH without the need for an inspection, we intend for the CMO to be prepared for either an in-person or remote interactive evaluation by the FDA. The FDA can decide that it may be appropriate to conduct a remote interactive evaluation for pre-approval inspections to assess the marketing application. We are not aware of the criteria that the agency uses to determine when a remote interactive inspection is appropriate. As travel restrictions remain due to the pandemic, we hope that this option will be utilized by the agency to avoid delays in assessing DEFENCATH manufacturing, given that the FDA has recognized the potential of DEFENCATH to address the unmet medical need in reducing life-threatening catheter-related bloodstream infections. Thank you, and I will now turn the call over to Matt to cover financial results and cash guidance. Matt?

Thanks, Phoebe. I'm pleased to be here today to provide an overview of our second quarter 2021 financial results as well as an update on CorMedix’s cash position. The company has filed this report on form 10-Q for the second quarter ended June 30, 2021. I urge you to read the information contained in the report for a more complete discussion of our financial results. With respect to our second quarter of 2021 financial results, the company had cash and equivalents of $78.3 million as of June 30, 2021. Our net loss was approximately $4.6 million or $0.12 per share, compared with the loss of $3.8 million or $0.14 per share in the second quarter of 2020. The higher net loss recognized in 2021, compared with 2020, included increased personnel expenses and a lower tax benefit received from the New Jersey NOL program, partially offset by a raw material purchase during the second quarter of 2020. We recorded an increase in SG&A and a decrease in R&D expenses. Operating expenses in the second quarter of 2021 decreased approximately 34% to $5.9 million, compared with $8.9 million in the second quarter of 2020. R&D expense decreased by approximately 56% to $2.5 million, driven primarily by the purchase of raw material during the same period in 2020 for the manufacturing of DEFENCATH prior to its potential marketing approval, which amounted to $3.4 million. SG&A expense increased approximately 4% to $3.4 million, compared with $3.2 million in the second quarter of 2020. This increase was driven primarily by an increase in non-cash charges for stock-based compensation and an increase in personnel expenses as a result of additional hires, partially offset by a decrease in consulting fees. With respect to our first half of 2021 financial results, total operating expenses during the first half of 2021 amounted to $13.1 million, compared with $14.6 million in the first half of 2020, a reduction of 10%. R&D expense declined 37% to $5.2 million, driven primarily by the purchase of raw material during the same period in 2020 for the manufacturing of DEFENCATH prior to its potential marketing approval. SG&A expense increased approximately 24% compared with the first half of 2020 as a result of higher personnel expenses. We recorded net cash used in operations during the first half of 2021 of $9.8 million, compared with net cash used in operations of $8.7 million in the first half of 2020. The difference was primarily driven by lower proceeds from the New Jersey NOL sale, $1.3 million in 2021, versus $5.2 million in 2020, which resulted in a higher net loss in the first half of 2021, as well as lower R&D expenses in the first half of 2021 driven by the raw material purchase made during the same period of the prior year. CorMedix remains in a strong position from a balance sheet perspective. We believe our cash and equivalents of $78.3 million gives the company flexibility to fund its operations through at least 2022, after taking into consideration the costs for resubmission of the DEFENCATH NDA and initial preparations for the commercial launch of DEFENCATH. As outlined by Khoso and Phoebe, we remain optimistic about our continued progress toward the goal of resubmitting the NDA in the fourth quarter of 2021. In addition to our 10-Q, we are filing today a refreshed shelf registration as well as an ATM program. These filings allow us to be prepared for the future, given we are approaching what we hope will be a pivotal year ahead for CorMedix as we seek to launch DEFENCATH into the hemodialysis setting. With that, I would like to pass the floor back to Khoso.

Thank you, Matt. We're gratified that despite the ongoing pandemic, we've not experienced significant disruption to CorMedix. As Phoebe described, there remains uncertainty over the FDA’s ability to conduct foreign inspections of a third-party CMO. Our employees have adapted effectively to a remote working environment, and there has not been a direct impact on our financial resources due to COVID-19. Despite the pandemic, there remains an unmet medical need for a broad-spectrum antibacterial and antifungal catheter lock solution for hemodialysis patients. In fact, a number of patients infected with COVID-19 have experienced the need for dialysis during hospitalization. In a large cohort analysis covering 67 hospitals, conducted by industry researchers and published in the Journal of American Society of Nephrology, at least 20% of COVID-19 patients admitted to the ICU required dialysis during their ICU stay, and 1 in 3 continued to require dialysis upon discharge. CorMedix is dedicated to advancing our goal of bringing DEFENCATH to the U.S. market for the hemodialysis segment, which represents a significant market with a very large unmet medical need. Currently, there is no pharmacological agent approved in the U.S. where patients urgently need an antimicrobial catheter lock solution for the prevention of CRBSI and central venous catheter infections. DEFENCATH would be the first antimicrobial catheter lock solution approved by the FDA in the U.S., where deaths occur in as many as 35% of hemodialysis patients experiencing a CRBSI. To summarize, we continue to focus our efforts on expeditiously resolving the third-party manufacturing deficiencies with a plan to resubmit in quarter 4, 2021. We are carefully balancing our cash burn while preparing for the launch of DEFENCATH once we receive FDA approval for the NDA. Additionally, we are planning to broaden the opportunity for DEFENCATH following its approval in areas such as oncology and TPN, and we continue to aim to maximize the value of our neurology technology in areas that benefit patients. We remain confident that we have the right team and appropriate resources in place to resolve the third-party manufacturing deficiencies that have been identified and bring DEFENCATH to hemodialysis patients in the U.S. We expect to continue providing updates throughout this process. Thank you for your continued support of CorMedix. Let me hand the call back to the operator.

Thank you. The floor is now open for questions. Our first question is coming from Jason Butler of JMP Securities. Please go ahead.

Hi, thanks for taking the questions and congratulations on all the progress in the quarter. One question for Phoebe, could you just confirm that you're still in full agreement with the contract manufacturer? And what needs to be done and how to accomplish the additional process qualification work? And then I have a follow-up.

Yes, I can confirm that.

Okay, great. And then Khoso, you mentioned some capital efficient work that you're doing to prepare for commercialization of DEFENCATH. Can you provide a bit more detail on the type of work you can do over the next few months? And how it’s capital efficient? Thanks.

Sure. So clearly, in my prepared remarks, I talked about the preparation for launch while trying to balance and conserve our cash burn, so that we have enough resources when we are ready to launch DEFENCATH in the U.S. We are really focused on a couple of key initiatives you've heard me discuss in previous conference calls. The payer reimbursement and access strategy is very critical, and we are furthering efforts there. We are continuing to refine our disease state and brand launch plans, and we're beginning to put sales force resourcing plans into place. Additionally, we have engaged directly with the leadership of various organizations to be a professional provider of patient organization. Those are critical elements that we are focusing our efforts on right now.

Great, really helpful. Thanks for taking the questions.

Thank you.

Thank you. Our next question is coming from Joon Lee of Truist Securities. Please go ahead.

I thank you for the questions and for the update. Regarding the process qualification of vials and the vial filling process, and the manual extraction studies, did they require production of new batches of DEFENCATH? And if so, will you need stability data from those new batches before you can submit the NDA or during the NDA process?

Khoso, I think that's for me.

Yes, for you.

Yeah. So, as I've explained, we need to do some, as you said, process qualification. Then you need to validate that by generating additional batches as part of the program for any manufactured batches intended for commercial use, or to put those batches into a stability program to generate stability data demonstrating that the product is stable and continues to meet specifications. We have an abundance of data on the stability of other batches that have been produced, and so we expect to show consistency.

Those new batches that will need stability data for, is that a 12-month stability data?

It's a stability program that goes on for many years.

Got it. And those can be submitted during the NDA review? Or how does that work in terms of whether this is going to be a rate-limiting step for ultimate approval?

No, it's not a rate-limiting step and the FDA accepts updates to stability data.

Thank you.

Thank you. Our next question is coming from Chad Messer of Needham & Company. Please go ahead.

Great, thanks. Good evening, and congratulations on the progress during the quarter. Good to hear that we are on track for resubmission. Just wondering about the potential for an FDA inspection. I know you guys are hoping to avoid one, but want to be prepared for one or at least ensure your third-party manufacturer is prepared if you do get one. Is it possible for you to provide a bit of historical perspective on what kind of issues we may or may not have to deal with during such an inspection?

Thank you, Chad. Phoebe?

Yeah, I'm not sure what you're getting at. There's a wealth of information in the FDA database from warning letters, where the FDA has inspected manufacturing facilities. So it's clear what kinds of issues the agency looks for when it conducts an inspection. So that certainly can provide you with a historical perspective.

Okay. Thank you. I know what I have to work on this evening, then. Maybe just one other question. I know last quarter, we talked about your interest in exploring a pediatric program for DEFENCATH and that you had submitted a clinical protocol. Just wondering if there are any updates on that.

We have submitted the pediatric protocol. We will only have an update once the NDA for DEFENCATH is approved, not prior to that.

All right. Okay, thanks, guys.

Thank you, Chad.

Thank you at this time. I'd like to turn it over to Mr. Ferry for previously submitted questions.

Thank you, operator. Phoebe, this first one is for you. Has the FDA given you any update on whether or not an onsite inspection will be required, as opposed to a review of new records submitted?

Thanks, Dan. I'm sure the FDA will review very carefully the new information that is submitted. Based on that review, they will likely decide whether or not it has questions that would necessitate submission of additional information or whether it needs to conduct a remote interactive evaluation and/or onsite inspections. I think the FDA will likely proceed through that sequence based on the information and its assessment.

Great. Thanks, Phoebe. I have another follow-up here in the same vein. To your knowledge, has the FDA engaged in any remote interactive evaluations? And is this still a possibility?

Yes, I think that's an important question. As I mentioned in my prepared comments, the agency, as a result of the pandemic, may continue to face travel restrictions that impede onsite inspections. I have been careful to speak with industry experts, and the FDA's decision not to withdraw its guidance document on remote interactive inspections leads me to believe that it remains an option for the agency.

Okay, great. I have one for Matt here. Matt, I see you filed a universal shelf in a new ATM program today. Can you explain why now on the timing?

Yeah, sure. Thanks for the question. While we certainly have enough cash runway through 2022, as we described on the call, we believe it is sensible from a corporate finance perspective to plan for the future as we approach what we hope will be a pivotal year ahead for CorMedix.

Excellent, thanks, Matt. Khoso, that is all I have for previously submitted questions. I'd like to turn the floor back over to you for closing remarks.

Thank you, Dan. CorMedix has an experienced team of executives who have successfully taken pharmaceuticals through the various phases of clinical studies, registration, and product launches in the U.S. market. We remain committed to bringing DEFENCATH to the U.S. market, whether on our own or with a strategic or commercial partner, to help patients in need of protection from life-threatening infections. The importance of reducing the incidence of infections and keeping patients out of the hospital is even more apparent during this ongoing coronavirus pandemic. Despite the delay in FDA approval, please keep in mind that the potential for over 10 years of market exclusivity remains, as it will not commence until the NDA for DEFENCATH is approved. Thank you for your time and attention, and have a good evening.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time. Have a wonderful day.