CorMedix Inc. Q2 FY2024 Earnings Call

Good day, and welcome to the CorMedix Inc. Second Quarter 2024 Financial Results Conference Call. Please note, this event is being recorded. I'd now like to turn the conference over to your host today, Daniel Ferry. Please go ahead.

Good morning, and welcome to the CorMedix second quarter 2024 earnings conference call. Leading the call today is Joe Todisco, Chief Executive Officer of CorMedix, and he is joined by Dr. Matt David, Executive Vice President and CFO; Beth Zelnick Kaufman, EVP and Chief Legal Officer; Liz Hurlburt, EVP and Chief Clinical Strategy and Operations Officer; and Erin Mistry, EVP and Chief Commercial 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 statements other than statements of historical fact regarding management's expectations, beliefs, goals and plans about the company's prospects and future financial position. Actual results may differ materially from the estimates and projections on which these statements are based due to a variety of important factors, including the risks and uncertainties described in greater detail in CorMedix's filings with the SEC, which are available free of charge at the SEC's website or upon request from CorMedix. CorMedix may not actually achieve the goals or plans described in these forward-looking statements. Investors should not place undue reliance on these statements. CorMedix does not intend to update these forward-looking statements, except as required by law. At this time, it's now my pleasure to turn the call over to Joe Todisco, Chief Executive Officer of CorMedix. Joe, please go ahead.

Thanks, Dan. Good morning, everyone, and thank you for joining us on this call. As we reach the midpoint in the financial year, I'm incredibly pleased with the progress the company has made related to the launch of DefenCath, and I'm optimistic about the sales trajectory we have seen through only the first few weeks of the outpatient launch. CorMedix commenced the inpatient launch of DefenCath on April 15, and commenced the outpatient launch during the first week of July, just after the close of the second quarter. The commercial launch milestone marks the culmination of the efforts of countless individuals, including CorMedix employees, contractors, and consultants, who worked tirelessly over the last decade to bring this innovative drug product to patients in need. I'm extremely proud of this achievement, and I'm excited about the potential for DefenCath utilization and the resulting impact it can have on patient infection rates. Though the inpatient launch of DefenCath commenced on April 15, as we communicated earlier, the inpatient sales cycle is relatively long. Our initial efforts have focused on engaging customers to champion DefenCath for P&T formulary review at hospitals and health systems. In this regard, we have seen significant progress in terms of meetings scheduled over the upcoming months, and from the handful of meetings that have already occurred, we are pleased with the majority of outcomes. We do expect a lag between P&T formulary approval and facility ordering, and we have many more P&T meetings scheduled between now and the end of this calendar year. In light of this long sales cycle, second quarter sales were expectedly modest, consisting primarily of trade stocking for inpatient facilities. We expect inpatient sales to begin to ramp in the fourth quarter as DefenCath is reviewed and added to formulary and adopted into hospital workflows for patient use. We have seen some inventory begin to flow to those inpatient institutions that have completed formulary reviews, and we are optimistic of increased order flow as more hospitals and systems hopefully approve DefenCath and add it to their respective formularies throughout the year. The outpatient launch of DefenCath officially commenced on July 1, with initial orders placed in June and material product shipments beginning the week of July 8. As we announced earlier this morning, we have recorded unaudited quarter-to-date sales of $5.2 million as of August 13. Our third quarter sales have been exclusively to small and midsized dialysis operators, and we have verified pull-through to the clinic level for more than 95% of those shipments. To that extent, there is very little, if any, trade stocking in these third quarter net sales figures. In terms of onboarding new outpatient dialysis providers, the company believes we are in late stages of negotiations with one of the top dialysis providers in the country for the implementation of DefenCath as well as multiple smaller and midsized providers, and we are optimistic we will be operationalizing new commercial supply agreements shortly. As I stated at the opening of these remarks, we have seen a positive sales trend throughout our first five weeks of outpatient shipments, coming entirely from small and midsized dialysis operators, and we expect that growth trend to continue throughout the year as existing customers expand DefenCath to newly identified patients. In addition, we are hopeful to see the commencement of sales to new accounts before the end of the third quarter. From a market access standpoint, outpatient reimbursement under TDAPA commenced on July 1 and applies to all Medicare fee-for-service patients, which comprise roughly 45% of all ESRD patients in the United States. Medicare Advantage, comprising an additional 45% of ESRD patients, remains an opportunity for growth and expansion for DefenCath reimbursement. We have been engaged with all major Medicare Advantage organizations across the country, and we are happy to report that UnitedHealthcare, the largest MA plan in the country in terms of covered lives, which accounts for roughly 30% of Medicare Advantage enrollment has confirmed that they will provide comparable TDAPA reimbursement for DefenCath beginning on September 1. Humana, which comprises roughly 20% of the Medicare Advantage population, has also confirmed that they will provide TDAPA reimbursement, which may vary depending on provider contracts. As we progress through our first year of launch, the company intends to remain engaged with Medicare Advantage plans to ensure adequate reimbursement to operators. From a long-term perspective, the company believes that ESRD Medicare patients in general will continue to migrate from Medicare fee-for-service into Medicare Advantage plans, and that the value-based care proposition for DefenCath will resonate with MA plans and hopefully result in long-term sustainable separate reimbursement in this patient segment. Shifting gears to our clinical developments, we announced in the second quarter that we received supportive feedback from the FDA related to our proposed clinical pathway for adult Total Parenteral Nutrition or TPN, subject to the agency's review of our final study protocol. I'm happy to announce that this past week, we have submitted our final protocol to the FDA. Subject to the FDA's concurrence, we expect to begin patient enrollment in the first quarter of 2025. We have posted on the company's website an updated corporate presentation that now includes market research information related to TPN. There remains a significant unmet medical need in this patient population, with up to 26% of TPN patients having a catheter-related infection and those patients having increased morbidity and mortality rates. Market research estimates that the addressable market opportunity in TPN is approximately 4.7 million TPN infusions per year. The company's goal is to obtain FDA approval for an expanded use of our taurolidine and heparin catheter lock solution in TPN in the 2027 to 2028 time frame, as we estimate annual peak sales potential in this indication to be in the range of $150 million to $200 million, incrementally beyond hemodialysis. We will provide investors with updates on progress as we move forward. From a clinical budget standpoint, we anticipate the study to cost between $10 million and $12 million, with the majority of expenses occurring in the 2025 and 2026 calendar years. Simultaneously with our adult TPN study, we will also be commencing a few additional clinical initiatives. The first is a study in pediatric hemodialysis. This will be a relatively small study spread over several years as we expect patient enrollment to be a challenge, given an extremely small patient population and the need for very personalized protocols for these ultra-vulnerable patients. This pediatric study is a post-marketing requirement under the Pediatric Research Equity Act by the FDA, and we have submitted to the FDA a final study protocol. Subject to FDA's concurrence, we have plans to begin patient enrollment in early 2025. We expect this study to cost between $4 million and $6 million spread over four to five years. In addition to our adult TPN and pediatric HD studies, we plan to commence two other clinical initiatives in 2025. The first is an expanded access program for high-risk populations, including, but not limited to, pediatric TPN, peritoneal dialysis patients with refractory peritonitis, and neutropenic oncology patients utilizing a central venous catheter. These high-risk patients are those that have exhausted other infection prevention methods and unfortunately, remain at significant risk for comorbidities and mortality. The cost for expanded access is expected to be less than $750,000 a year, primarily in the form of free product and distribution costs, and we expect to generate data that supports further label expansion and complements our adult TPN program. The other clinical initiative, which is perhaps most meaningful from a potential data value standpoint, is a real-world evidence study of DefenCath in adult hemodialysis patients that we will run in cooperation with one of our existing commercial partners. Our hope with this study, which we expect to take approximately 24 months and cost less than $1 million per year, would be to generate real-world evidence around the impact of DefenCath utilization on cost of patient care, infection rates, hospitalizations, mortality, and multiple other metrics such as lost chair time and antibiotic use. Ultimately, we would look to utilize this data in our post-adaptive period to negotiate future sustainable reimbursement for Medicare Advantage plans and other value-based care contracting entities. I'd now like to turn the call over to Matt to discuss the company's second quarter financial results and financial position. Matt?

Thanks, Joe, and good morning, everyone. I'm pleased to be here today to provide an overview of our second quarter 2024 financial results as well as an update on CorMedix's cash position. The company has filed its quarterly report on Form 10-Q for the quarter ended June 30, 2024. 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 2024 financial results, our net revenue for the second quarter of 2024 amounted to $0.8 million. This marks the first time that CorMedix has reported revenue from the U.S. distribution of DefenCath. Our net loss was approximately $14.2 million or $0.25 per share compared with a net loss of $11.3 million or $0.25 per share in the second quarter of 2023. The higher net loss recognized in 2024 compared with 2023 was driven by an increase in SG&A expenses versus the second quarter of 2023 in anticipation of the commercial launch. Operating expenses in the second quarter of 2024 increased approximately 32% to $15.6 million compared with $11.8 million in the second quarter of 2023. R&D expense decreased by approximately 86% to $0.7 million, driven by the approval of DefenCath. As a result of the post-FDA approval of commercial operations, costs related to medical affairs and certain personnel expenses that supported R&D efforts prior to the FDA approval of DefenCath have been recognized in sales and marketing or G&A expense. SG&A expense increased approximately 113% to $14.9 million in the second quarter of 2024 compared with $7 million in the second quarter of 2023. CorMedix is now reporting sales and marketing expense and general and administrative or G&A expense as separate line items. On an apples-to-apples basis, sales and marketing expense increased 127% to $7.4 million in the second quarter of 2024 compared with $3.3 million in the second quarter of 2023. G&A expense increased 103% to $7.6 million in the second quarter of 2024 versus $3.8 million in the second quarter of 2023. The increase in sales and marketing expense was attributable primarily to increased marketing efforts and new personnel, inclusive of our field sales organization and support for the commercial launch of DefenCath as well as certain expenses previously a part or component of the R&D prior to FDA approval. The increase in G&A expense was primarily due to increases in personnel costs in preparation for support activities related to the commercial launch and certain expenses previously accounted for as R&D prior to FDA approval. In addition to other drivers, we saw an increase in legal and compliance costs compared to the prior year. We recorded net cash used in operations during the second quarter of 2024 of $14 million compared with net cash used in operations of $8.6 million in the second quarter of 2023. The increase is primarily driven by an increase in net loss attributable to a net increase in operating expenses. The company has cash and cash equivalents of $45.6 million as of June 30, 2024. As we have discussed previously, we expect our operating expenses, especially sales and marketing and G&A, to remain at the current levels, given the growth of the company and the costs driven by the commercial launch of DefenCath. CorMedix continues to expect 2024 quarterly operating expenses to range from around $15 million to $18 million to support commercial infrastructure and the ongoing launch of DefenCath. We believe our cash, cash equivalents, short-term investments, and projected future operating cash flow give the company the ability to fund operations for at least 12 months, and to fund the commercial launch of DefenCath through to breakeven EBITDA, which may occur on a run rate basis by the end of 2024, assuming we maintain our current growth trajectory of sales from existing key outpatient accounts as well as achieve forecasted shipments to new accounts by the beginning of the fourth quarter.

Thanks, Matt. CorMedix is executing well on our key objectives and is hopeful to provide more substantive updates on sales progress and commercial uptake of DefenCath in our next quarterly call in November. I appreciate everyone's continued support of CorMedix, and I'm happy to open the line for questions.

This morning's first question comes from Gregory Renza with RBC Capital Markets.

Hi Joe, and team. It's Anish on for Greg. Congrats on the progress this quarter and thanks for taking our questions. Just a couple from us. First, just when you think about CLABSI, how do readmission rates for CLABSI compare to CRBSI? And how would you think about gearing your education and marketing strategy for DefenCath accordingly? And second, on the granted pass-through status for DefenCath, how can this be leveraged to facilitate uptake? Thanks so much.

All right. Thanks, Anish. I think what you're asking is the difference between a CLABSI and a CRBSI, if I'm not mistaken, and kind of how that may show differently in the data. So I'm going to let Liz, just from a clinical definition standpoint, kind of chime in on the difference between these two. But I think why that's relevant is from a TPN standpoint, we are designing the study for CLABSI, right, versus CRBSI. And I think the way to somewhat look at it before Liz gives the definition is that, I guess, all CRBSIs are CLABSIs, but not all CLABSIs are CRBSIs, right? CLABSI is a little bit of a broader determination. But go ahead, Liz.

Yes, exactly. So like Joe said, CRBSI is a subset of the larger CLABSI. And CRBSIs need clinical correlations, so signs of sepsis or positive peripheral blood cultures in the absence of an obvious source other than the CVC. CLABSI, which is your more general term, is a primary bloodstream infection in a patient who has had a central line within the 48-hour period before these symptoms develop. So you can think of CLABSI as an umbrella. And then there's a subset of types of infections after that that require different blood cultures or other clinical correlation to confirm them.

Thanks, Liz. And I think, to get to your question on pass-through status, what pass-through status allows is for the providers that install catheters and utilize DefenCath during that catheter installation to bill for the product on a buy-and-bill basis, similar to any other kind of Medicare B product. That's an ASP+. It's a small part of the segment, but I think that it's meaningful, because it is the first time the patient is getting the catheter. We want to protect the line from the start. It's the opportunity to utilize DefenCath from the beginning of each patient. So that's essentially why we see it as meaningful, even though it's a small part of the population.

Great. Thanks, I appreciate all the color.

No problem.

Thank you. And the next question comes from Jason Butler with Citizens JMP.

Hi, thanks for taking the questions and congrats on the progress. First one, just in terms of the run rate for the third quarter, how should we think about the $5.2 million, and growth beyond that? I guess what I'm asking is, do you expect there to be essentially time taken now for those initial centers to work through those initial orders? Or should we see continued orders beyond the $5.2 million? And then, can you give us a sense of how many centers in the outpatient setting you're actually seeing pull-through from? Thanks.

Thanks, Jason. So on the $5.2 million, I think what I'm comfortable saying is that we've seen consistent orders repeatedly over the last four weeks. We're seeing those at the clinic level, right, with repeats and restocking of similar-sized orders. So that gives us the impression that those clinics are pulling that through into the patients, which is why I'm comfortable saying that we don't believe there's much, if any, trade stocking in that third quarter number. So I hate to guide you on what the back part of the quarter is going to look like, but I feel good about what we've seen from those first four weeks of shipments. In terms of how many centers, again, I'd prefer not to give an exact number, it is several hundred that we are currently shipping to.

Okay. Great. I think - could you just walk us through the comments that Matt made about hitting breakeven by the end of '24 again? And what assumptions we would need to consider to get to breakeven by the end of '24? Thanks.

Yes. Look, I think you've got a good sense for what our operating expense is. We've guided at $15 million to $18 million in OpEx. I think we came in at the low point of that for this quarter. Maybe it ticks up a little bit as we get to the back part of the year. I think we've guided you on future clinical costs, which really don't kick in until next year and the year after. Even if you overlay those on top of each other, I think we're designing fairly modestly priced clinical programs that at peak may be $3 million to $4 million in a quarter, probably in late '25 or '26. So the amount of revenue or gross margin needed to cover the OpEx should give you a sense of where we need to be running at. You've seen our first kind of five weeks of shipments. I think it's conceivable that if we do onboard some larger accounts and we see increased volume move in the back part of the year, then breakeven EBITDA is certainly achievable before the end of the year.

Great. Thanks for taking the questions.

Thank you. And the next question comes from Les Sulewski with Truist.

Good morning. Thanks for taking my questions. Can you just talk about the progress on conversations with the dialysis operators, particularly the larger ones? And separately, what percentage of the market has your sales team touched? Are there any reasons you're hearing any sort of hesitation on adoption? Can you speak to those? And then I have two follow-ups?

All right. Thanks, Les. So obviously, we've been pretty candid that we're in discussions with one of the top two, right? Certainly, I know we talked about that on the last call, and that remains the case. I do feel like we're pretty close, and I think what I would comment on timing, which is kind of what I think you're asking is that when you deal with larger organizations with multiple functional areas that need to weigh in on a contract, that process has taken a little longer than I expected. So I'm still optimistic about our ability to move forward, and the signals that I've received have been very positive. On one of the other LDOs, I do think they're taking a wait-and-see approach, and we'll be reengaging later in the year. In terms of percent of the market touched, a lot of the decision-making, whether it's an SBO, MDO, or LDL that comes from the top down, so I'd say we're touching all of the top 20 accounts that represent 99% of dialysis. We're touching them all. The field team right now is focused on probably smaller to mid-sized accounts and pull-through as well as the inpatient formulary process, and that’s where we want them deployed. Regarding hesitation on adoption, I'd say that some are waiting to see what others are doing. There are smaller operators that may be less familiar with the TDAPA process or reimbursement, and we're trying to educate them on that to make it more familiar. It is still a relatively new reimbursement platform, and we're dealing with some education efforts.

That's helpful. On the $5.2 million. Can you speak to perhaps the weekly progression of that? And do you have an indication what percentage of that was utilization?

Look, because we're shipping to a lot of these customers direct to clinic, which is why we're getting such good data on where it's going, I'd say we're not getting inventory on hand statements per se. But we are seeing repeat orders from similar clinics, so it gives us confidence that it's being utilized in patients. I'm sorry, what was the first part of the question, Les?

The weekly progression?

Weekly progressions have been somewhat consistent. I'd say it's been fairly consistent. I think there was an initial patient suite where patient identification started moving. So, I'm hopeful that we'll see, as we move through the end of this quarter and into next quarter, another patient suite emerge where they look to convert additional patients.

It sounds like it's a good proxy for how the rest of the quarter will line up.

Yes. I hate to guide you that way, Les. Obviously, I said I don't have a crystal ball. I think Greg or Jason made the same point. I feel good with the revenue run rate that we're seeing. That's how I'd describe it.

That's fair. Thanks, Joe. And great detailed color on the pipeline. It's very helpful. Maybe a follow-up to that. It appears there are some costs involved. How do you intend to fund these studies? Not much in terms of cost, but just maybe talk about the funding there. And then just quickly expect the timeline on the TPN enrollment. And like, could we expect interim top-line data prior to '27, '28? Thank you.

Yes. So, I'll let Liz get into the timelines in a second. But I think you're asking about financing, Les. I want to clarify a couple of things. I continue to believe we don't need to do any large dilutive financing at this time. We've got a revenue run rate that I feel pretty good about. Just even five weeks into starting shipments, it's offsetting a large amount of operating expenses. I walked through with Jason the clinical budgets for the four programs, which are relatively modest. Even if you overlay them on top of each other at peak, I believe that with cash on hand and operating cash flow, we have the ability to fund these studies without any type of large financing. That said, we have the ATM facility in place, which gives us the ability to raise small amounts of money at the market price. We used a little bit of it last quarter when the stock price increased on some higher volume days. We could continue to utilize the ATM to supplement our cash flow from operations, but that's currently how I'm thinking about the trajectory of the business and funding additional growth.

Sure. Yes. Thanks, Les. The study is a Phase 3 study that has 12 months of intervention in it. We're looking forward to kicking it off as soon as we get feedback from the FDA or clear that 30-day statutory hold. We have a lot of enthusiasm from TPN doctors as this remains a very critical unmet need in this space. I don't want to overpromise for enrollment, but I feel positive that we'll have up to 25 sites in the U.S. that are actively engaged and interested in participating. We don't have a planned interim analysis in terms of a readout, but I certainly expect that we'll see something before '28.

Great. Thank you.

Yes.

Thank you. And the next question comes from John Juco with Needham & Company.

Hi, good morning. This is John on for Serge today. Congrats on the initial launch report and thanks for taking our questions. And first, can you just touch on the process for DefenCath trial and adoption across the inpatient and outpatient segments? And are there any notable differences between those two processes? And then second, regarding the TDAPA reimbursement process that's in place, is this seamless and easily operating at this time? And is this something that most operators are familiar with?

Yes. I'll take the second question first, then I'll pass the first question over to Liz. In terms of TDAPA, it is a relatively new reimbursement mechanism in the last couple of years. A lot of operators are familiar with it, but some still find it new and require some education. All systems are in place for the government to process these claims. The issue is whether or not a dialysis operator has ever processed TDAPA reimbursement before and needs assistance in understanding how to go about doing that. Now, Liz, go ahead in terms of inpatient versus outpatient processes.

Sure. Yes. So they definitely are different processes, right? Within an institution or a hospital setting, you've got a ton of varying factors here, right, system size, operations infrastructure, capacity to adapt internal demand for the product, which is what the field team is very focused on. They're looking at safety data, engaging with us, and then you've got to get to P&T. After you get to P&T, if the product is approved, there is a process in terms of pulling it through, to build it out in your EMR, builds out your charge descriptions and master build, getting the pharmacy up to speed with dispensing and stocking. It can be really efficient in some institutions, and it can take many months depending on the bureaucracy you're dealing with in an institution. On the outpatient side, it is driven by the physicians, but there is an onerous and rigorous operational rollout for the clinics to do. These are often understaffed, and working hard, and you must do policies, procedures, protocols, order sets to roll this out nationwide in a clinic or even a small center. A lot of work goes into it. I would say from an expectation standpoint, inpatient will take longer to adopt and pull through. The outpatient side, we're hoping for much faster adoption, and that's what the field team is focused on, educating our clients and customers.

Thanks, Liz. Great. Thanks for the color.

Thanks, John.

Thank you, operator. Joe, we have a few written questions from the audience. How is the contract going with the previously announced top-tier midsized dialysis provider? Can you provide us any colour on this contract's contribution to sales? And can you disclose who it is?

Okay. Thanks, Dan. I'll start by saying I couldn't be happier with the relationship or what we're seeing from a kind of patient and product uptake standpoint. We don't intend to provide any kind of customer-specific sales breakdown at this time. But I will say, as the largest of our customers in terms of clinics, they are also currently the largest in terms of DefenCath utilization. They are a big driver behind our initial uptake, but we do certainly have material sales to other small to midsize customers as well. On the publicity front, I would say that they're a privately held organization that has asked us for the time being to not utilize their name in publications and focus on implementation and execution. So, we're respecting the request of our currently largest customer and are focused on building the business. As I mentioned, we do have a couple of other small dialysis organizations that are under contract that we didn't separately announce for similar reasons. We're happy with those relationships as well.

Okay. Great. Another question here. You commented today about Medicare Advantage being a sizable and growing group of Medicare patients. Can you explain how this is different from traditional Medicare for DefenCath? Also, how is reimbursement handled today if a dialysis provider uses DefenCath in a Medicare Advantage patient? And a follow-up here, what did you mean that United expects to provide comparable TDAPA reimbursement? And will they always provide that?

Okay. Thanks, Dan. I'm going to try to break this down into pieces. Medicare Advantage in relation to traditional Medicare is essentially the privatization of Medicare, where managed care providers like United and Humana assume risk for all costs associated with a Medicare patient in exchange for premiums and a fixed amount from the government. The MA plan controls drug formulary and manages treatment similar to private commercial insurance. They're on the hook for all the costs and the risk. Historically, whether or not the MA plan paid at TDAPA would depend on the agreement in place between the provider and that MA plan and whether new innovations were covered under that agreement. We're happy that United has communicated a willingness to pay TDAPA for DefenCath beginning September 1, which we think is incredibly meaningful. In terms of how those payments may track or change over time, that’s why we want to run this real-world evidence study and our biggest opportunity from a reimbursement standpoint since MA plans bear the brunt of the downstream costs associated with getting a CRBSI. If you think about it, a CRBSI can cost upwards of $60,000 a year, and when you add other downstream costs, it can exceed $100,000. We've seen an opportunity here to generate real-world data during the TDAPA period and hope to utilize it to negotiate longer-term, more sustainable reimbursement with MA plans. We expect the majority of ESRD patients to shift into these MA plans over the next five years.

Great. Thanks, Joe. Operator, this concludes the question-and-answer session. You may now close the call.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.