- Recent capital raise removes liquidity risk.
- Last week's board of directors additions strengthen management depth.
- Sales commence in EU as of Q4 2013.
- U.S. trial may be Fast-Tracked.
- Neutrolin may be eligible for GAIN Act status.
In my last article found here seekingalpha.com/article/1923361-cormedix-an-interesting-play-in-the-catheter-care-space I laid out the case for CorMedix, a micro-cap issuer in the kidney dialysis space. To review:
CorMedix (NYSEMKT:CRMD) is a NJ based company that was formed to market Neutrolin (also referred to as CRMD003), a drug that is targeted to the kidney dialysis space. Neutrolin is a combination catheter lock solution that is placed into central venous catheters between hemodialysis sessions. The CVC is a physical tubular conduit that serves as a gateway between the patient and the dialysis machine. This conduit is prone to both blockage and contamination which leads to patient infections.
Neutrolin is designed to:
1) Aid in the prevention of Catheter-Related Bloodstream Infections (CRBIs) and
2) Prevent catheter dysfunction (due to blood clotting)
Neutrolin contains a mix of Taurolidine (the antimicrobial and antifungal agent) Citrate and Heparin (anti-clotting agents). Note: since Taurolidine is an antimicrobial (as opposed to an antibiotic), use of the drug should not lead to antibiotic resistance. Many of the competitive solutions utilize antibiotics, which can lead to resistant strains of bacteria and fungi. In addition to use in hemodialysis, Neutrolin is also likely to be used in other settings that employ the use of catheters such as chemotherapy, ICU and parenteral nutrition.
On July 5th 2013 European Mark Approval for Neutrolin was granted. This approval means that the company is able to sell product within the EU. Sales commenced in December 2013. Again, I estimate that the total size of the European market in all applications is approximately $200MM. The U.S. opportunity is likely similar in size.
The purpose of this article is to update readers on the company's progress to date.
Cash Position-- Much has happened in the last few months. In my original article, I pointed out that the major risk to investors was dilution due to the company's exceptionally thin balance sheet. On March 4th, 2014 the company remedied the capital situation when it raised approximately $7.5MM through Roth Capital partners at a price of $2.50 per unit. Details on the financing found here.
This offering should provide sufficient liquidity for the foreseeable future and will likely give the company more flexibility in any potential partnering discussions for its U.S. trial. It will also give the company sufficient resources to properly staff in anticipation of a U.S. trial. Per the conference call transcript the acting CFO stated that "As of today, we have approximately $9 million of cash. For 2013, our cash burn was approximately $3.4 million."
Expansion of BOD -Another potential concern for investors was that CorMedix was trying to do much with few hands. I applaud Mssrs. Milby(NYSE:CEO), Lefkowitz(acting CFO) and Dr. Pfaffle(acting CMO) for their prodigious efforts to date. That said, 3 men can only do so much. This situation was remedied a few days ago with the addition of 3 strong board members. Details on their bios found here.
Based on the new members' backgrounds, it appears CRMD is gearing up for a significant commercial push. My only concern is that CRMD now has 8 members on the board. It seems like a relatively large number for such a small issuer.
Q4 Results--In its Q4 recap call found here. There was not much exciting on the sales front (as expected) since the company had only launched the product in in the EU mid December, 2013. I am anxiously awaiting an update in Q1 to see if CEO Milby has been able to get any traction on the European sales front. During the call he did mention that CRMD was adding additional contracted sales personnel ("flex reps") to supplement the efforts of the existing full time EU sales team.
Partnering Opportunities-- In January, CRMD announced that is had inked two distribution deals in the Middle East. On the call, CEO Milby disclosed that CRMD is currently actively seeking additional distribution agreements. To quote, "We also have discussions underway with global pharmaceutical and medical device companies for promotion of Neutrolin, as well as regional sales and distribution companies. We expect a number of these agreements to be completed in Q2." Obviously success in these endeavors could be a short term valuation driver.
Label Expansion--CEO Milby also confirmed that the regulatory package for label expansion (Neutrolin is currently approved in the dialysis setting) into oncology, intensive care units, total parenteral nutrition, and peritoneal dialysis. is being evaluated by Tuv Sud, the same regulatory body that approved Neutrolin for hemodialysis. He stated that this process normally takes around six months.
U.S. FDA Trial--The most exciting part of the call was the update regarding the company's planned U.S. registrational trial. Per the company, no Phase II will be required. The protocol for the Phase III has been submitted to CDER's Anti-Infective Division. CEO Miby said that CorMedix will likely engage in two Phase III studies-one in hemodialysis (approx. 600 patients)and a smaller Phase III study in an alternative indication.
Here is the exciting part. Milby stated that "We were encouraged by the pre-IND meeting to file for fast-track review and GAIN(the GAIN Act status)., which is generating antibiotic incentives now, which extends the patent exclusivity for five years." This disclosure is a major positive. If, if, if PATH status is granted, CRMD would hold the exclusive rights to a drug with a very long period of exclusivity. Obviously this greatly amplifies the value of the drug to a potential acquirer.
Recent Market Turbulence-- CorMedix shares have been brought down with the rest of the biotech market. After peaking above $3, the shares current trade at sub $2. I believe there are a number of short term catalysts that could move the share price significantly higher but if the broader biotech space remains choppy share price could remain volatile.
Execution Risk--The primary remaining risk here remains execution on the sales front. If CEO Milby does not bring much to the Q1 update call, the shares will likely remain under pressure. If however he surprises to the upside on the sales front and/or the company shows progress in its FDA trial efforts, shares are likely undervalued.
Limited Liquidity and Share Price Volatility--Also, the issue still has no Wall Street sponsorship and very limited institutional support. Hopefully Roth would consider picking up coverage at some point since they did a recent raise for the company. The lack of coverage and institutional ownership will likely mean that the issue continues to experience extreme share price volatility over the short term--especially if the biotech sector remains out of favor.
Remember, this is Still a MicroCap- Of course readers must be reminded that micro-cap investing is always a difficult proposition and entails greater than average risk. Please note that the stock has traded between $.48 and $3.20 over the past 52 weeks. Also, trading volume is a modest 250k shares per day. An investment in CRMD is only suitable for investors willing to accept the inherent risk of a micro-cap issuer and the aforementioned likely share price volatility.
Disclosure: I am long CRMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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