Earnings Call Transcript - CRMD Q3 2023

Operator, Operator

Good afternoon, and welcome to CorMedix Third Quarter 2023 Earnings Conference Call. Today's call is being recorded. Please follow the instructions provided for the conference. At this time, I would like to turn the conference over to Dan Ferry from LifeSci Advisors. Please go ahead.

Daniel Ferry, LifeSci Advisors

Good afternoon, and welcome to the CorMedix third quarter 2023 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; Dr. Phoebe Mounts, EVP and General Counsel; 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 subject to certain risks and uncertainties that 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, manufacturing activities and marketing approval for DefenCath in the U.S. or for other product candidates; future financial position; future revenues and projected costs; and reimbursement and potential market acceptance of DefenCath or other product candidates. More specifically, forward-looking statements include any statements about our clinical development plans and the timing, cost, progress, results, estimates and interpretations thereof; projections as to the company's future capital raising and spending in cash position, including projections regarding the sufficiency of the company's current cash resources to potentially bring the company through to breakeven profitability; expectations as to the timing and nature of anticipated regulatory actions, reimbursement decisions, possible product licensing, business development or other transactions; any commercial plans and expectations, intellectual property protections for our product candidates, 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, including the latest quarterly report on Form 10-Q and the annual report on Form 10-K, copies of 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, 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 Joe Todisco, Chief Executive Officer of CorMedix. Joe, please go ahead.

Joseph Todisco, CEO

Thanks, Dan. Good afternoon, everyone, and thank you for joining us. As we approach tomorrow's target action date for DefenCath, I am very pleased with the progress that the company has made toward pursuing final NDA approval from the FDA, as well as preparations for commercialization. I'm happy to announce that the FDA completed a pre-approval inspection for our finished dosage CDMO site in September, and we are very pleased with the outcome. An Establishment Inspection Report, or EIR, is expected to be issued imminently. I'd like to thank and congratulate all of the CorMedix employees, who have worked diligently with our CDMO and external consultants in preparation for the inspection, as well as thank our CDMO, ROVI Pharma Industrial Services, for their commitment to CorMedix and DefenCath. Phoebe will provide additional clarity around pre-approval inspections and the status of the NDA review process. Certainly, it's frustrating for us to host this call today, a day ahead of our PDUFA date, but this was the last day we could conduct this call under SEC requirements, and we were hopeful that the FDA could potentially take action earlier than our target action date. The FDA has communicated to CorMedix that they are working towards taking action on our application tomorrow, and at present time, the company is not aware of any outstanding review items or deficiencies that would lead to a negative outcome. In that regard, in advance of our target action date, we have intensified our preparations for a commercial launch with a number of key new hires in market access, sales training, pricing and contracting, commercial operations, field medical and drug safety and pharmacovigilance. We are building a significant number of capabilities in-house, as well as relying on external vendors for certain activities that require larger scale. Our inpatient field team will consist of a combination of in-house market access key account managers, as well as external expert advisers with deep relationships at specific high-value target institutions and health systems. In the event we do receive final FDA approval over the coming days, we are targeting a commercial launch before the end of the first quarter of 2024, likely initially focused on the inpatient segment only. Our assumptions around commercial launch and sales ramp may be impacted by external factors, most notably the timing of reimbursement guidance from the Center for Medicare and Medicaid Services, or CMS, around outpatient reimbursement for DefenCath. Over the past two months, we have been engaged in an active back-and-forth discussion with CMS, making our case that DefenCath should be properly reimbursed as an outpatient drug product under Medicare Part B. We have provided the government with significant legal, commercial, and health economic rationale in support of DefenCath obtaining separate payment. The alternative to separate payment under Medicare Part B would be a CMS determination that DefenCath is a renal dialysis service, ineligible for a transitional drug add-on payment or TDAPA. While we maintain our guidance to analysts and investors to consider TDAPA as our base case from a financial modeling standpoint, the company feels strongly that DefenCath does not fall within the current statutory definition of a renal dialysis service and therefore, should properly be separately reimbursed under Medicare Part B. CorMedix is preparing to submit an application to CMS for a unique product J-code on January 1, 2024, for Part B reimbursement, provided our NDA receives FDA approval. The deadline from CMS to submit an application for TDAPA is also on January 1. Absent direct feedback from CMS advising the company to submit an application for TDAPA prior to that January deadline, CorMedix does not intend to submit an application at this time as we do not believe that the product is a renal dialysis service. As TDAPA is a quarterly application process with a full quarter to implement, should CMS deem DefenCath to be a renal dialysis service, our TDAPA application will, therefore, lag any such determination and may impact the timing of outpatient product launch by a quarter. It is also worth noting that a prolonged government shutdown could adversely impact the timing of any guidance from CMS around reimbursement and the submission review of either a J-code or TDAPA application. With respect to a potential inpatient launch in the first quarter of 2024, we contemplate this would be a soft launch as we can only begin the process of seeking P&T formulary approval at various health systems, once the NDA for DefenCath has received final FDA approval. Over the past several months, we have accelerated the process of building relationships with key target health systems, identifying key opinion leaders and engaging external advisers who have existing relationships with those targeted systems. The P&T process varies, looking to get anywhere from three to nine months depending on the health system. We are hopeful to be able to secure some quick early formulary positions. However, the ramp on the inpatient side is expected to be slow over the first three to nine months of launch. At present time, due to the inpatient formulary lag and the expected timing to implement any outpatient reimbursement, we would not expect meaningful revenue contributions until the second half of 2024. Provided we obtain timely NDA approval, we anticipate discussing more granularity around the inpatient launch ramp and the timing of the outpatient launch during our year-end earnings call. I will now turn the call over to Phoebe for a regulatory update and to discuss progress toward potential FDA approval.

Phoebe Mounts, EVP and General Counsel

Thanks, Joe. Good afternoon, everyone. I would like to thank and congratulate everyone on the teams who have worked so hard towards preparation of the CDMO site for a preapproval inspection, as well as in responding to all other requests by the FDA for information on the DefenCath NDA resubmission. In addition to a preapproval inspection of our primary finished dosage manufacturing site, the FDA has also conducted preapproval inspections for DefenCath, as well as suppliers of active pharmaceutical ingredients, contract laboratories involved in testing product specifications and packaging facilities. We are not aware of any outstanding review issues at this time. Over the past several months, we have received multiple requests for information from the FDA, related to the content of DefenCath including draft prescribing information, which is consistent with the normal NDA review process. Most recently, we received a request for updated secondary packaging labels, as well as a request for information related to our post-approval pediatric study commitment. You may recall that CorMedix and the FDA agreed to a post-marketing commitment to conduct a study in pediatric hemodialysis patients, pursuant to the Pediatric Research Equity Act and the Best Pharmaceuticals for Children Act. When this study is completed, it will have the potential to extend six months of marketing exclusivity to the five years of marketing exclusivity for potential approval of DefenCath as a new chemical entity and the additional five years for the designation of DefenCath as a qualified infectious disease product. We view these requests as positive indicators that our NDA review is progressing in line with our expectations. We have also received written notification from the FDA that the proprietary name DefenCath remains conditionally acceptable, pending final approval of the NDA by the FDA. Lastly, we made the decision to proactively inform the FDA and withdraw from our application our original supplier of heparin API. You may recall from our prior communications that during our Type A meeting in April, the FDA had advised us to resubmit the NDA with two suppliers of heparin API, as our initial supplier had an ongoing warning letter unrelated to heparin. The FDA advised during our Type A meeting that should the warning letter remain unresolved as we approach our target action date, we would have the ability to withdraw that source as a supplier from the application. As of late September, the warning letter remained unresolved. And though our supplier has implemented corrective actions, no closeout inspection has yet been scheduled by the FDA. To that extent, we made the decision to withdraw that supplier of heparin API from our NDA application so as not to unnecessarily delay our eligibility for final NDA approval. We will reevaluate resubmitting the heparin supplier following clearance of the warning letter and the potential FDA approval of the DefenCath NDA. We now optimistically anticipate FDA action with tomorrow's target action date. It is worth emphasizing that the PDUFA date is a target action date and not a statutory requirement. The FDA is not required to take action by the action date, and there are recent instances of the FDA taking action on days preceding or following a specific target date. As noted by Joe, the FDA has communicated that the NDA remains under review and the agency is working towards taking action by the PDUFA date. We are unaware of any outstanding information that is required. I would now like to turn the call over to Matt, who will provide a financial update.

Matt David, EVP and CFO

Thanks, Phoebe, and good afternoon, everyone. I am pleased to be here today to provide an overview of our third quarter and year-to-date 2023 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 September 30, 2023. I urge you to read the information contained in the report for a more complete discussion of our financial results. With respect to our third quarter of 2023 financial results, our net loss was approximately $9.7 million or $0.17 per share, compared with a loss of $6.9 million or $0.17 per share in the third quarter of 2022. The higher net loss recognized in 2023, compared with 2022, included an increase in operating expenses driven by prelaunch activities for DefenCath versus the third quarter of 2022. Operating expenses in the third quarter of 2023 increased approximately 50% to $10.5 million, compared with $7 million in the third quarter of 2022. R&D expense increased by approximately 14% to $2.7 million, driven primarily by an increase in costs related to medical affairs activities and an increase in personnel expenses. SG&A expense increased approximately 69% to $7.8 million in the third quarter of 2023, compared with $4.6 million in the third quarter of 2022. This increase was primarily attributable to an increase in costs related to market research studies and prelaunch activities in preparation for the potential marketing approval of DefenCath, as well as an increase in personnel expenses due to additional hires, partially offset by a decrease in legal fees for the period. With respect to our nine-month year-to-date 2023 financial results, total operating expenses during the nine months year-to-date of 2023 amounted to $33.3 million, compared with $22.3 million in the first nine months of 2022, an increase of 49%. R&D expense increased 39% to $10.9 million, driven primarily by an increase in personnel expenses, an increase in costs related to medical affairs activities, and an increase in costs related to the technical and quality operations for the manufacturing of DefenCath prior to its potential marketing approval. SG&A expense increased approximately 55% to $22.4 million compared with the first nine months of 2022, primarily driven by an increase in costs related to market research studies, and prelaunch activities in preparation for the potential marketing approval of DefenCath, an increase in personnel expenses, and an increase in non-cash charges for stock-based compensation. These increases were partially offset by a decrease in legal fees for the period. We recorded net cash used in operations during the nine months year-to-date of 2023 of $27.7 million, compared with net cash used in operations of $18.2 million in the same period in 2022. The increase is primarily driven by an increase in net loss, primarily attributable to an increase in operating expenses as compared to the same period in 2022. With the closing of our announced equity offering earlier in the third quarter, CorMedix is in a strong position from a balance sheet perspective as we prepare the company for a potential commercial launch in the first quarter of 2024. The company has cash and cash equivalents of $86.6 million as of September 30, 2023. We believe our cash, cash equivalents, short-term investments, and other available resources give the company the capability to fund the commercial launch of DefenCath through to anticipated profitability, assuming we are able to obtain timely approval of the DefenCath NDA on our action date and commence the commercial launch in the first quarter of 2024, as well as achieve other internal base case assumptions. I will now turn the call back over to Joe for closing remarks.

Joseph Todisco, CEO

Thanks, Matt. CorMedix is keenly focused on our upcoming target action date and hoping for a positive outcome from the FDA. We are firing on all cylinders, preparing for a potential commercial launch. We have the inventory manufactured and ready to be labeled once we have a final label from the FDA. And we have new batches scheduled from our CDMO. We are actively in communications with CMS, and once the determination is made regarding our reimbursement structure, we will pivot our launch strategy accordingly. As I mentioned earlier, I do expect to be able to provide more granularity around launch assumptions on our next earnings call. I appreciate everyone's continued support in CorMedix. I'm happy to take questions.

Operator, Operator

And your first question comes from Jason Butler from JMP Securities. Your line is open.

Jason Butler, Analyst

Thanks for taking the questions and congrats on all of the progress to date, and obviously, we're excitedly waiting for the decision from the FDA. A couple of questions. You mentioned that you've had some label discussions or negotiations with the FDA. Is the label or the draft label that you're aware of today consistent with your expectations? And do you think it gives you an optimal launch opportunity? And then understanding that a full commercial launch will happen in 1Q, how soon will the product be commercially available? And can you give us any color on, a, the steps that you'll take from now until the full commercial launch and how we should think about capacity, especially from the API supplier during the first parts of the launch?

Joseph Todisco, CEO

Thank you, Jason. The first question regarding the label is straightforward. We had no surprises in our communications from the FDA, and we're satisfied with the feedback on the label. As you mentioned, we are not planning a full commercial launch in the first quarter. There are decision points that could lead us to potentially delay a few weeks regarding reimbursement, as we want to ensure we maximize the value of any reimbursement structure we receive, and we are mindful of managing the average selling price. Currently, we aim to have the product ready for inpatient launch by the end of the first quarter of 2024. We have reserved capacity with our contract development and manufacturing organization for batches early in the year, and we can increase this capacity later in the year as we prepare for our outpatient launch. Additionally, we have already placed purchase orders for active pharmaceutical ingredients, so API capacity should not be an issue for the launch later in the year.

Jason Butler, Analyst

Great. And just one more question on the outpatient reimbursement. Can you share any updates on the conversations with CMS? Have you received any responses from them that suggest you're making headway in securing approval under Medicare Part B?

Joseph Todisco, CEO

It's Part B not Part D. But look, I think it's been a productive back-and-forth discussion. I think we continue to guide that our base case for investors should be TDAPA. We think TDAPA is a perfectly adequate reimbursement structure for end-stage renal disease or renal dialysis services. We just don't think that DefenCath falls within the scope of renal dialysis service. So all I'll say is that we think it's been productive. We think we've provided the government with compelling HEOR and patient market data. And we're hopeful that CMS would make a determination or give us guidance before the end of the year. There's certainly no timing that they're bound by. But they are aware that there's a deadline for a J-code and a TDAPA application on January 1 as we are. And we're hopeful that barring a long-term government shutdown that we could get some direction from them before the end of the year.

Jason Butler, Analyst

Great. Thanks for taking the questions.

Joseph Todisco, CEO

Thanks.

Operator, Operator

And your next question comes from the line of Joon Lee from Truist Securities. Your line is open.

Leszek Sulewski, Analyst

Hi, everyone. This is Les filling in for Joon. I want to congratulate you on the progress and I'm looking forward to tomorrow. Just to clarify, you will be submitting the application for the outpatient side for the J-code by January 1. Is there a chance you could resubmit if it's not approved initially? What does the timeline look like for that? I also have a follow-up question.

Joseph Todisco, CEO

Both. I think what you're asking, though, Les, is if we submit the application and we don't have a determination from CMS on the reimbursement structure, is that what you're asking?

Leszek Sulewski, Analyst

Yes.

Joseph Todisco, CEO

Well, certainly, look, if we submit the application and then subsequently, CMS guides us that they believe TDAPA is the appropriate structure, we'd have to reevaluate what discussions we would have with them about continuing to pursue separate payment, but I likely would not forgo the opportunity to submit the TDAPA application and start that process.

Leszek Sulewski, Analyst

Thank you for that information. You mentioned a potential government shutdown. In the unlikely event that occurs, how might it affect your commercial launch, if at all? Additionally, what is your current status regarding engagement in P&T meetings and what prelaunch activities have you completed so far? Thank you.

Joseph Todisco, CEO

All right. Well, look, as I mentioned in the script, to the extent there was a long-term shutdown that prevented CMS from giving us reimbursement guidance or reviewing either a TDAPA or J-code application, certainly, that could impact the timing of commercial launch. In order for products to get utilization, they need adequate reimbursement, and that needs to be established whether it's for inpatient health systems or outpatient dialysis facilities. In terms of prelaunch activities, we've been quite active, right? We've had a number of discussions with various health systems and the LDOs around how potentially different reimbursement structures could fit into their system, so we're preparing for various ultimate scenarios and getting ready for commercialization. Les, did we lose you? Operator, can we move to the next question, please?

Operator, Operator

Your next question comes from the line of Gregory Renza from RBC Capital Markets. Your line is open.

Gregory Renza, Analyst

Forward to the decision coming up and...

Joseph Todisco, CEO

Hi, Greg, can you start over? We didn't hear the first part of what you're saying?

Gregory Renza, Analyst

Yes. Just adding my congrats on the progress, Joe, and I just mentioned that we're looking forward to tomorrow or the decision coming up. And maybe, Joe, just my question, maybe to build on some of your mention of the potential government shutdown. I just wanted to ask if you're considering certainly on the eve of a potential decision or approval, any other macro factors that are part of your consideration in the strategy to really roll out DefenCath. It's helpful to hear about the government proceedings, but also if it comes to the labor and the hires and even some of the stakeholder engagement, to what extent are you now considering it now that we're sort of at the doorstep of a potential approval here? And then I have a follow-up.

Joseph Todisco, CEO

Thank you, Greg, and I appreciate the congratulations. As I mentioned in my prepared comments, we have been ramping up and accelerating over the past few months. Since we gained visibility of the inspection, you may have noticed that we've been making several hires, creating new roles, and continuing to engage with key stakeholders. If a government shutdown occurs, it would be unfortunate. Historically, the longest shutdown has lasted only a few weeks, so we do not believe it will be catastrophic. We hope it can be minimized and will just be a minor issue if it happens at all. Our primary focus right now is on executing our operations. Assuming a positive outcome from the FDA tomorrow, we are doing everything we need to do to carry out our launch plan.

Gregory Renza, Analyst

Yes, that's great. Very helpful. Maybe just one quick one, just coming back to the clinical value proposition and also the ability for DefenCath to really be the first approved product in this area. Just remind us of that value proposition, really what the landscape looks like when it comes to infection prevention. And I'm just curious how you sort of think about the practice and care standard variability out there and how this could be a solution in the space? Thanks so much and congrats. Looking forward to tomorrow.

Joseph Todisco, CEO

Sure thing. Thanks, Greg. I appreciate it. Certainly, our Phase 3 clinical results demonstrated in our primary endpoint a 71% reduction in the risk associated with CRBSI for hemodialysis patients with CVC. There is nothing currently FDA approved as a drug product for the prevention of CRBSI in this patient population or in any patient population for that matter. So this truly is a first-in-class therapy. As you point out, we are looking to change the paradigm from one where infections are treated after the fact. You have a disease state with an incredibly high incidence rate. We've got upwards of one-third of hemodialysis patients with a catheter will get a CRBSI. Half of those infections happen in the first 90 days that they have a catheter, so they happen fast, they happen frequently. And they're fatal 25% of the time. So I would say that this is absolutely a critical unmet medical need, and we're looking forward to providing this option for prescribers and physicians and health systems for their patients.

Gregory Renza, Analyst

That's great. Thanks again.

Joseph Todisco, CEO

Thank you.

Operator, Operator

And at this time, I would like to turn it back to Dan Ferry from LifeSci Advisors for additional written questions from the audience.

Daniel Ferry, LifeSci Advisors

Thank you, operator. Joe, we have a few here from the audience that were written in here. The first one is, you mentioned that the company is pleased with the outcome of the PAI, pre-approved inspections. Can you elaborate what is meant by that?

Joseph Todisco, CEO

Yes. Thanks, Dan. And I assume that's directed at the pre-approval inspection for our primary CDMO, which we've announced is ROVI. Yes. So typically, when an inspection concludes, it takes about 90 days for an EIR to be issued, and we're still waiting on that EIR. But we're very happy with the way the inspection progressed at the close of the inspection. The inspector verbally communicated that she'd be recommending voluntary action indicated status. And if you're familiar, it means that new approvals can proceed from that facility. Also, I'd say, over the last couple of days, our manufacturing partner, ROVI, recently announced that another sponsor received approval of an application of a registration from the same facility where we intend to make DefenCath. So from a compliance standpoint, that gives us a lot of comfort.

Daniel Ferry, LifeSci Advisors

Okay, great, Joe. Just a few more here. You described during the call a potential launch in Q1 2024. Can you give some color regarding, one, what investors can expect to see some revenue? Two, what metrics CorMedix intends to report related to the launch in the form of maybe hospitals or patients? Can you give us some color here?

Joseph Todisco, CEO

Sure. Thanks, Dan. So right, as we mentioned, we're expecting a soft launch in the early part of the year that we would look to certainly accelerate as we get our outpatient reimbursement solidified, whether it's TDAPA or a separate payment. We would expect to give some directional revenue guidance, hopefully, on our next earnings call, provided we have a reimbursement determination from CMS. But along the way, I think there are going to be catalysts that we can certainly talk about and report, whether it's certain health systems formulary status, potentially agreements with LDOs or MDOs where we could point to directional revenue guidance and value. And all of that could certainly be over the upcoming months.

Daniel Ferry, LifeSci Advisors

Excellent. Thanks, Joe. One final one here. It's a good segue. What do you view as some of the key catalysts going into 2024 for CorMedix?

Joseph Todisco, CEO

Yes. So obviously, I touched on some of them. The first and foremost is approval. We have to lock down NDA approval, hopefully, tomorrow. Beyond that, we're waiting on a decision from CMS around the reimbursement structure for DefenCath. That will guide how we roll out our launch strategy, both inpatient and outpatient. But some of those key catalysts that I just mentioned include potential agreements with LDOs or MDOs, updates around larger health systems P&T and formulary adoption, and potentially, later next year, updating on label expansion for DefenCath into additional indications.

Daniel Ferry, LifeSci Advisors

Excellent. Thank you, Joe. Operator, you may now close the call.

Operator, Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.