Earnings Call Transcript - CRMD Q1 2024

Daniel Ferry, Moderator

Good morning, and welcome to the CorMedix First Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Dan Ferry from LifeSci Advisors. Please go ahead. Good morning, and welcome to the CorMedix First Quarter 2024 Earnings Conference Call. Leading the call today is Joe Todisco, Chief Executive Officer of CorMedix, who 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 forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements encompass expectations, beliefs, goals, and plans regarding the company's prospects and future financial position, rather than historical facts. Actual results may vary significantly from the estimates and projections on which these statements are based due to several important factors, including risks and uncertainties outlined in CorMedix's filings with the SEC, which can be accessed for free at the SEC's website or upon request from CorMedix. CorMedix may not reach the goals or plans mentioned in these forward-looking statements, and investors should not rely excessively on them. CorMedix does not plan to update these forward-looking statements, unless legally required. At this time, I am pleased to turn the call over to Joe Todisco, Chief Executive Officer of CorMedix. Joe, please go ahead.

Joseph Todisco, CEO

Thank you, Dan. Good morning, everyone, and thank you for joining us on this call. Though it has only been 2 months since our full year earnings call back in March, the company has achieved a number of key milestones. Most notably, CMS approval of the DefenCath HCPCS J-code application and subsequent determination that DefenCath is eligible for a transitional drug add-on payment adjustment to the ESRD bundle for outpatient reimbursement with a July 1, 2024, effective date. Most importantly, we have commenced the commercial launch of DefenCath in the inpatient setting, an important milestone for CorMedix and for patients undergoing chronic hemodialysis who are at risk for a catheter-related bloodstream infection. I would like to thank and congratulate the 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. Our field team has been actively engaged in discussions with numerous hospitals and health systems in the inpatient setting, and I'm pleased with the progress we've made in only a few weeks of field deployment. Our initial core focus is targeting approximately 900 hospital facilities where those facilities are responsible for roughly 65% of inpatient dialysis procedures in the U.S. As a frame of reference, this represents only about 12% of U.S. hospitals but accounts for the majority of the potential DefenCath inpatient market opportunity. Our field team has met with more than half of our targeted institutions. And as of today, roughly 50 key accounts representing more than 200 individual hospitals have recommended DefenCath for formulary review in the coming months at their respective institutions. In addition, a few hospitals have already added DefenCath on a non-formulary basis, while P&T formulary review remains pending. As we have communicated previously, the inpatient process to obtain formulary inclusion followed by facility adoption and product orders can span several months. To that extent, we have guided that we do not expect material inpatient sales in the second quarter, and we'll look for inpatient uptake to increase as we move throughout the year. On the outpatient front, we remain on track to commence outpatient commercialization in July. We were pleased that CMS took timely action on our TDAPA application, which ensures that Medicare fee-for-service reimbursement claims submitted by outpatient providers beginning July 1 will be reimbursed by CMS. We are also very happy to announce our first outpatient procurement contract with ARC Dialysis, one of the largest regional dialysis providers in the Southeast U.S. We are currently engaged in commercial discussions with 8 of the top 10 U.S. dialysis providers to help to communicate new procurement contracts over the next few months. From a guidance standpoint, we reiterate our operating expense guidance disclosed previously of $15 million to $18 million per quarter for calendar year 2024. And continue to believe we can achieve breakeven profitability on a run rate basis by the end of 2024, if we achieve our base case assumptions for product utilization. Our base assumptions do include limited adoption by at least 1 of the 2 large dialysis organizations as well as some utilization from midsize and smaller facilities. At present, we are in advanced stages of negotiations with 1 of the 2 large operators for the implementation of DefenCath as well as several midsize and smaller operators, and we are working through their respective operational dynamics as we structure our commercial offering to each of them. There is a significant amount of planning and logistics involved in DefenCath implementation, especially for larger organizations, and we are working with those organizations to understand how we can better support patient adoption within their facilities. As we roll out our launch and continually gauge progress against our base case assumptions, we intend to be prudent with our cash management. With this in mind, we are taking practical steps from a balance sheet management standpoint to provide ourselves with options in the event any additional capital is beneficial or needed down the road, be it to fund M&A and business development, organic growth or additional working capital for accounts receivable and inventory. To that extent, today, we are announcing a Letter of Intent with a large U.S.-based lender for a revolving credit facility of up to $25 million, which allows CorMedix to access certain tranches of debt depending on our run rate of accounts receivable. The credit facility will not require us to draw any minimum amount and will be a helpful instrument for managing our balance sheet and working capital in a non-dilutive manner. We expect to close the revolving credit facility over the next few weeks. Simultaneously with the credit facility Letter of Intent today, filing to renew our expiring shelf registration statement as well as replace the expired ATM facility. My objective is to be able to make cost of capital-based decisions between equity and debt, should any additional capital be required in the future, keeping focus on minimizing shareholder dilution when possible. Matt will discuss the company's cash position in more detail momentarily. In terms of our plans for label expansion, as we communicated previously, we have submitted to FDA a Type C meeting request to discuss a pathway to additional indications. FDA has accepted that meeting request, and we anticipate receiving feedback from the agency on our proposals by end of June. We have also used this Type C meeting request as an opportunity to readdress the pediatric study requirement that is outlined in our approval letter. Based upon feedback from potential study investigators, we do not believe it will be feasible to run the pediatric study in hemodialysis in a manner previously discussed with FDA. FDA has granted us an extension on our final study protocol, and we expect to have feedback on a revamped pediatric study or a potential waiver by the end of June as well. From a label expansion standpoint, we have elected to propose a clinical pathway for total parenteral nutrition or TPN, as a first step before we put forward a proposal for any uses of oncology. Once we have feedback from FDA and alignment on our proposal related to TPN, we can then craft a proposed study for use in oncology. The decision to prioritize TPN for submission and FDA discussion was based upon the expected timing and cost of the clinical program being proposed relative to the expected market size. Though oncology is potentially a larger market opportunity, we've elected to prioritize the potentially faster program first. Assuming acceptable feedback from the agency in June, anticipate submission of an oncology proposal to FDA later this year. Lastly, from a supply chain perspective and our efforts to derisk our reliance on a single finished dose manufacturer, earlier this week, we submitted a supplement to our NDA, adding Siegfried Hameln site as an alternate manufacturer. Pending a successful FDA review of the supplement, we anticipate Siegfried coming online as a manufacturer as early as the end of 2024. CorMedix has now grown to approximately 90 employees, and I'm proud of what we have accomplished over these recent months.

Matt David, CFO

Thanks, Joe, and good morning, everyone. I am pleased to be here today to provide an overview of our first quarter 2024 financial results as well as an update on CorMedix's cash position. The company has followed its quarterly report on Form 10-Q for the quarter ended March 31, 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 first quarter of 2024 financial results, our net loss was approximately $14.5 million or $0.25 per share compared with the loss of $10.6 million or $0.24 per share in the first quarter of 2023. The higher net loss recognized in 2024 compared with 2023 was driven by an increase in SG&A expenses versus the first quarter of 2023, partially offset by the sale of New Jersey NOLs over $1.4 million. Operating expenses in the first quarter of 2024 increased approximately 44% to $15.9 million compared with $11 million in the first quarter of 2023. R&D expense decreased by approximately 75% to $0.8 million, driven by the approval of DefenCath. As a result of the post-FDA approval 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 SG&A expense. SG&A expense increased approximately 98% to $15 million in the first quarter of 2024 compared with $7.6 million in the first quarter of 2023. This increase was primarily attributable to increases in personnel expenses due to the hiring of sales force, medical affairs and marketing personnel. In addition, certain costs related to medical affairs and certain personnel expenses that had been previously recognized in R&D are now recognized in SG&A following the FDA approval of DefenCath. To a lesser extent, the increase was also driven by increases in non-cash charges for stock-based compensation and increases in consulting fees. We recorded net cash used in operations during the first quarter of 2024 of $17.3 million compared with net cash used in operations of $10.4 million in the first quarter of 2023. The increase is primarily driven by an increase in net loss and decreases in accrued expenses and accounts payable. The company has cash and cash equivalents of $58.6 million as of March 31, 2024. As we have discussed previously, we expect our operating expenses, especially SG&A, to remain at increased levels given the growth of the company and the cost driven by the commercial launch of DefenCath. CorMedix anticipates 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 gives the company the ability to fund operations for at least 12 months and to fund the commercial launch of DefenCath through to anticipated profitability, which may occur on a run rate basis by the end of 2024, assuming we were able to achieve our internal base case assumptions for DefenCath demand, uptake, net pricing and reimbursement.

Joseph Todisco, CEO

I will now turn the call back over to Joe for closing remarks. Joe? Thanks, Matt. CorMedix is executing well on our key objectives and is hopeful to provide more substantive updates on sales progress on our next quarterly call in August. I appreciate everyone's continued support of CorMedix, and I'm happy to now take questions.

Daniel Ferry, Moderator

Thank you. Your first question comes from Les Sulewski from Truist Securities.

Leszek Sulewski, Analyst

I have 2 on the outpatient side. And then 1 follow-up on. So can you give us a little bit more color around the economics of the ARC partnership, essentially will all of their dialysis centers convert to full use of the DefenCath on day 1 upon the switch into your outpatient launch. Or is that an option left to the patient? And then second, I guess it's very interesting to hear that you're in discussions with 1 of the 2 leading national outpatient dialysis operators, how can we think about that conversation moving along? Is this a pilot run program that could be put in place? And ultimately, what kind of terms and impact on net pricing could we expect if a deal were to occur?

Joseph Todisco, CEO

Thank you for the question, Les. I’ll address both parts together. We won't be sharing specific terms of any outpatient or inpatient agreements. Our pricing guidance remains steady on the outpatient front, with a healthy gross to net ratio that allows for discounts and volume incentive rebates, though this is less pronounced on the inpatient side. In terms of uptake at facilities, TDAPA currently applies to Medicare fee-for-service patients, making up about 40% to 45% of catheterized dialysis patients at any site. As a result, some facilities may choose to roll out based on payer considerations. We are in active discussions with Medicare Advantage plans regarding additional reimbursement, which is contingent upon seeing increased demand and fee-for-service volumes. A larger operator's rollout may involve a mix of payer-based or patient-focused approaches, particularly targeting high-risk patients, but implementation will take time no matter the customer.

Leszek Sulewski, Analyst

Got it. Appreciate that. And as a follow-up more on the kind of a general corporate strategy. Given the favorable price of CorMedix stock performance and then you're factoring your cash burn, just to give you a little bit of a cushion as you head into closer to profitability or breakeven. Have you considered that an equity raise or any other source of financing, such as a convertible note or warrants?

Joseph Todisco, CEO

Well, thanks, Les. Well, in the script today, we announced the letter of intent for the credit facility, which we do expect to close over the next couple of weeks. Certainly, that facility is based upon or would be contingent upon receivables. We've also announced the ATM facility, which will give us some flexibility to utilize it down the road. What I wouldn't want to do, and I think what you're asking is why I wouldn't do a large potentially dilutive rate today, I just think that would be premature and potentially irresponsible to unnecessarily dilute the stock until we get better visibility on commercial execution in the back part of the year. I feel pretty good about where we are in our discussions today with customers. I think we're still in line with our base case expectations and assumptions to get to that kind of run rate breakeven by the end of the year. Now that doesn't necessarily mean I'm going to allow minimum cash to fall below certain levels. And I think the tools that we've put in place today give us that flexibility as we move through the year to reassess, to look at customer orders as they're coming in, to evaluate our payment terms, our working capital needs and make that determination. So I hope that's sufficient.

Gregory Renza, Analyst

Congrats on the progress this quarter. Just first, on the call, you mentioned BD and M&A. Just wanted to dig into that and see how you're thinking about opportunities and areas of interest that would sit well on your platform. And then secondly, maybe if you could just remind us on the commercial opportunity of TPN in pediatrics, if you could quantify on lumen locks, et cetera.

Joseph Todisco, CEO

Thank you, John. I appreciate your question. From a mergers and acquisitions perspective, we will continue to be opportunistic as we navigate our commercial launch this year and into next year. With our fixed infrastructure costs, it makes sense to distribute those costs across multiple products. I believe there are currently actionable opportunities in the market. However, we are not in the process of negotiating or actively pursuing anything at this time. This is something that could become a larger priority for us as we grow beyond the commercial launch. Regarding your second question, we are currently refreshing our market research on TPN and oncology, and we aim to release our findings in the second half of the year.

Daniel Ferry, Moderator

Thank you, operator. Joe, we have a couple of written questions from the audience here. The first one is, are there other post-market type studies that the company is considering or that may help with uptake in the inpatient or outpatient settings?

Joseph Todisco, CEO

Okay. Thanks, Dan. Actually, that is something that we are actively pursuing right now. I think that when you talk about post-marketing studies, we're looking at real-world evidence studies. We want to be able to demonstrate the efficacy and health economic benefits of DefenCath in a real-world setting. So we are currently in discussions with what I would characterize as value-based care entities to run this type of an evaluation. It's not something that will happen overnight, but I do think it's something that over the course of time will help demonstrate the value of DefenCath and certainly be useful in increasing uptake.

Daniel Ferry, Moderator

All right. Great. Thanks, Joe. Another one here. What are the formularies focused on when it comes to their decision-making? In other words, how does DefenCath fit into those themes?

Joseph Todisco, CEO

Okay. And I'm assuming from formularies that the question is asking about inpatient P&T process. So I guess I'll address that. So I think a typical P&T process in a hospital is going to focus on first clinical efficacy. And then from there, they're going to look at price and the health economic impact of the product. I think with DefenCath, there's a couple of other unique things that might factor into the discussion that are certainly beneficial for us. The first is within these institutions, antibiotic stewardship has become an incredibly important issue for them. They want to minimize the use of antibiotics and, to the extent that you can reduce or prevent any infections, it lessens the need for antibiotics. The second is, as a preventative measure, these hospitals are evaluated based on their infection rates and their readmission rates. I think that DefenCath fits squarely within that need. So I'd say that's likely part of the discussion. I think that works well in DefenCath's favor as we're going through these P&T processes.

Daniel Ferry, Moderator

Okay. Great. Thanks, Joe. Operator, that concludes the written portion of the Q&A session. You may now close the call. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.