CorMedix's CEO Discusses Q4 2013 Results - Earnings Call Transcript
CorMedix Inc. (NASDAQ:CRMD) Q4 2013 Earnings Conference Call April 1, 2014 9:00 AM ET
Executives
Randy Milby – Chief Executive Officer
Steven Lefkowitz – Chief Financial Officer (interim)
Tony Pfaffle – Chief Scientific Officer (acting)
Analysts
Operator
Welcome to the CorMedix 2013 Year-End Results conference call. All lines have been placed on listen-only mode and the floor will be open for your questions following the presentation. Without further ado, it’s my pleasure to turn the floor over to your host, Mr. Randy Milby. Mr. Milby, the floor is yours.
Randy Milby
Good morning and welcome to the CorMedix 2013 Year-End conference call. With me in the room today is Steve Lefkowitz, our interim CFO, and Dr. Tony Pfaffle, our acting Chief Scientific Officer. I will start by providing you with an update on our ongoing operational progress before our interim CFO, Steve addresses our financial affairs.
CorMedix, a catheter care company, is a specialty pharmaceutical company focused on developing and commercializing therapeutic products for the treatment of infectious diseases in both acute and chronic care settings. There is a large market need for Neutrolin because central line-associated bloodstream infections happen when a central line is not put in correctly or kept clean. This allows the line to become a freeway for germs to enter the body and cause serious bloodstream infections. Neutrolin contains taurolidine, an antibacterial, antifungal agent, and heparin, antithrombotic and anticoagulant.
Today, I will update you on four key catalysts of near and longer term growth for CorMedix: first, the launch of Neutrolin in the EU; second, plans for label expansion in the EU beyond the initial dialysis market; third, geographic expansion activities; and fourth, plans for U.S. marketing approval.
So first, successfully launched the product in Germany and the EU. We began to recognize sales in the fourth quarter of 2013. We actually launched a week before Christmas. Our key account managers and independent sales team continued to meet with nephrologists and nephrology nurses. The independent sales reps began selling Neutrolin on February 1, 2014 and these reps are located in major metropolitan areas. The response, which is number of patients being placed on Neutrolin, is encouraging. We are gaining traction in the hemodialysis market space.
Second, expand the product into additional applications. We submitted the package for label expansion into oncology, intensive care units, total parenteral nutrition, and peritoneal dialysis. This package is being evaluated by Tuv Sud, the same regulatory body that approved Neutrolin for hemodialysis, and they have begun reviewing the submission. Generally, this process takes around six months.
Third, expansion of the sales into other foreign countries. We’ve prioritized the countries and regions into high, medium and low-price corridor countries. For example, a high priced corridor country would include selected countries in the Middle East, Benelux, Denmark and Sweden, while low levels would include countries like Spain and France. We previously announced letters of intent from two distributors in the Middle East. These LOIs are being finalized now. We have submitted additional documents for country approval as well within these countries. 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. In addition, we continue to receive inquiries from potential partners from around the world and we’ve made significant progress since our Q3 call. Our recent financing has allowed us to bring on additional resources in the business development area.
Fourth, apply for and receive marketing approval and launch the product in the United States. It is important to remember that Neutrolin is a Class 3 medical device in the EU but considered a drug in the United States. The protocol for the Phase III has been submitted to Cedars Anti-Infective Division. We are awaiting their response to this submission. We believe this will be two Phase III studies. The first for hemodialysis will be around 600 patients, and we will treat until time of first infection. There will be Neutrolin versus heparin as the control. We are proposing a smaller Phase III study for an alternative indication. We can share more with you after the next discussion with the FDA. We were encouraged by the pre-IND meeting to file for fast-track review gain, which is generating antibiotic incentives now, which extends the patent exclusivity for five years. We are having ongoing discussions with potential partners for the Phase III study in the United States but our relatively strong balance sheet gives us a little more flexibility in this regard. However, we would eventually like to partner in the U.S. as we have in other countries.
In summary, we continue to focus on execution, commercialize Neutrolin in Germany and the EU, expand to other countries, submitted the documents for label expansion in the EU and wait for their response, and begin the Phase III study in the United States.
With that, I would like to turn the call over to Steve Lefkowitz to provide some detail on our financial update. Steve?
Steven Lefkowitz
Thank you, Randy. Thanks all again for joining us this morning. I’d like now to review our accomplishments for the year and then review the financial information filed yesterday on Form 10-K.
During 2013, we raised $5.5 million through a series of financings culminating with the $3 million convertible preferred offering in October that was accompanied by a debt for equity swap. As a result, we ended the year with approximately $2.6 million of cash and no debt. In January, we raised an additional $2 million in convertible preferred stock and then in March we raised an additional $7.4 million in a registered direct offering of common stock with warrants. As of today, we have approximately $9 million of cash. For 2013, our cash burn was approximately $3.4 million. While we plan to increase our cash burn as we commercialize Neutrolin in Europe and the rest of the world, and move Neutrolin forward in the United States, we expect that our cash position is sufficient to reach profitability given our plan to partner in the United States.
I’d like now to review our operating results and financial statements. For the year ended 12/31/13, we recorded a loss of $9.1 million. Of this amount, $5.8 million were non-cash charges related to the various financings referenced above as well as non-cash stock-based compensation. As Randy noted, we have commenced commercial operations and booked sales for the first time in the company’s history. Sales were $2,001, cost of goods were $201,605. These costs were primarily one-time expenses related to the launch of the product along with certain costs that are primarily fixed, so as our sales increase we anticipate that our gross margins will turn positive.
Our operating costs were $4.7 million comprised of $1.2 million for research and development and $3.5 million for salary, general and administrative, generating a loss from operations of $4.9 million. In these amounts were $1.2 million of non-cash stock-based compensation as well as a one-time $500,000 milestone payment due upon approval of Neutrolin in Europe. This milestone payment was included in our accrued expenses in year-end and was exchanged for preferred stock as part of the $2 million convertible preferred stock issuance of January 2014.
Our net loss was $9.5 million with virtually all of the $4.6 million of additional expenses being non-cash charges related to complex derivative accounting based on our financial transactions and the characteristics of the preferred stocks and warrants issued. These were comprised of the following components: loss on issuance of convertible notes and warrants $946,000; change in fair value of convertible notes and warrants $364,000; loss on extinguishment of convertible notes $1.5 million; interest expense, including amortization and write-off of deferred financing costs and debt discounts $1.4 million; and non-cash deemed dividend of $384,000. It should be noted that these charges will fluctuate quarter-to-quarter with the change of our stock price, but that eventually they will accrue to our equity accounts. In the first quarter, approximately $2 million related to the convertible preferred stock Series C will be reversed.
As Randy pointed out, we have a great deal to be excited for in 2014. With significant near-term and midterm catalysts expected, we hope that you share our enthusiasm and believe that we will have important new developments this year.
Thanks again for your support, and with that I’d like to open the call to questions.
Question and Answer Session
Operator
Certainly. The floor is now open for questions. [Operator instructions]
The first question comes from Doug Schewegel (ph). Doug, please go ahead.
Doug Schewegel
Yeah, hi. Could you give us a little bit of color with regards to our patent protection with the Prosl patent and potential infringement by other private companies in Europe? I may like to ask a follow-on question with that, too.
Randy Milby
Okay. Obviously we cannot make specific comments in a public forum. We have always stated that we’ll defend our intellectual property and our preference is to negotiate versus litigate. We have very competent attorneys and we’re prepared to do both; however, we’re not seeing them in the hemodialysis space because of the concentration of heparin and 1,000 units (indiscernible).
Doug Schewegel
Do would I then—could I then surmise that if and when we receive label expansion, and if that were to include, let’s say, the oncology area, that would possibly accelerate our position on that?
Randy Milby
That’s a good assumption.
Doug Schewegel
Okay.
Operator
The next question comes from Scott Henry. Scott, please go ahead.
Scott Henry
Thank you and good morning. Just a couple of questions on the European launch. If we think about just Europe, I mean in just broad terms, what kind of timeline do you think you’re looking at to break even in that geography? As well, are there any kind of leading indicators you can give us in terms of how you think the launch is going relative to expectations?
Randy Milby
I’ll start with the launch according to expectations. Actually, it’s going very well. The uptake by adding these independent field flex reps, as I call them, has been—they are located, as I mentioned, in major metropolitan areas. They’ve got key targets and we have the key account managers, so it’s going very well. The uptake is—I’m very encouraged by how it’s working now.
And then Steve, do you want to comment on the financial aspect of EU?
Steven Lefkowitz
Right. As we stated earlier, with the current cash, we believe we’ll be able to get to profitability based on European operations, assuming we partner in the United States. The timing of that depends of course on the ramp and the partnership agreements that Randy mentioned earlier in the call for areas both within and outside of Europe. So the range that we mentioned in the past is that if everything broke according to plan, that we would be able to be at an operating break-even run rate by the end of 2014, but as I mentioned, it’s highly dependent upon the ramp of the sales and the ability to close these partnership agreements and then the uptake from those. But given our current cash position, we certainly have the flexibility to get to where we want to be without having to raise any additional capital.
Scott Henry
Okay, great. Thank you for the color. Thanks guys.
Randy Milby
You’re welcome.
Operator
The next question comes from Gary Duncan (ph). Gary, please go ahead.
Gary Duncan
Yes. I’m just a novice investor with you guys, but wondered when you’re talking about your sales beginning for the first time in the business, what—is there is a big emphasis on creating a sales structure for your product or, I guess, how does that look? How do you actually go out and sell the product?
Randy Milby
Okay, as I mentioned – that’s a good question, actually. So it’s a medical device in the EU. What we have is we have a field sales force through a contract sales organization, Human Pharma (ph) in Germany; however, we’re working with potential partners in other countries, so we have people on the ground. We promote like a drug, and that being said, is they call on the hemodialysis clinics, they call on the physicians, they visit the hospitals. So we’re promoting it—even though it’s a medical device, it’s promoted as a drug. But we’re looking at partnership relationships in other countries with distributors or pharmaceutical companies.
Gary Duncan
And the launch is more probably through Europe and the other countries versus America until we get through some hurdles here. Is that kind of what I’m hearing?
Randy Milby
Well we have—yes, so we have the CE mark in the EU, and that’s why we mentioned we launched it the week before Christmas; however, we have to go through Phase III studies in the United States, and that’s why Dr. Pfaffle has been leading that effort. But that will require a Phase III study before we can launch in the U.S.
Gary Duncan
Okay, and the potential market for that here in America versus the EU?
Randy Milby
The potential market for Neutrolin, we stated it’s $500 million. It’s almost evenly split between the U.S. and EU.
Gary Duncan
Okay. Okay, cool. Thanks.
Randy Milby
You’re welcome.
Operator
The next question comes from Jonathan Stanney (ph). Jonathan, please go ahead.
Jonathan Stanney
My question was already asked. Thank you.
Operator
The next question comes from Dan Trang (ph). Dan, please go ahead.
Dan Trang
Hi, thanks for taking my question and congratulations on your first sales. I was wondering if you could provide some color regarding your marketing efforts in the EU.
Randy Milby
Sure. As I mentioned, we have four key account managers. We’ve worked with—and we have the independent sales reps. We work with key opinion leaders that are set up by region, and we also attend trade shows, at this point in the hemodialysis space. So we’re working with regionalized key opinion leaders, that they serve as—and they have hands-on activity, hands-on use of Neutrolin, so it’s just blocking and tackling into the marketing space with sales reps.
Dan Trang
Okay, and to follow-up on that, what has been the response from those key opinion leaders?
Randy Milby
Well, we’ve been very encouraged by the response, and you’ll see on our website we’re going to be adding some to our scientific advisory board. The number of people—catheter-related bloodstream infections is a serious problem, and you see a number of these key opinion leaders actively involved now because now there’s a solution. And Dr. Pfaffle, who is in the room with me, has been managing this relationship, but the response has been very gratifying and very quick, actually. Once we received the approval, the number of key opinion leaders that stepped up to want to work with us has been very impressive.
Tony Pfaffle
I would agree with Randy, and I think that as an internist and nephrologist who has practiced at the New York Hospital, Cornell Medical Center and a variety of other centers, the academic community has looked at our product as being best-in-class, because the worldwide standard of the dose of heparin is 1,000 units per mL, and our product reflects the worldwide standard heparin content, and the anti-infective component brought by taurolidine is something that raises the standard to a higher level, and nephrologists globally are accepting that story.
Dan Trang
Okay, thank you.
Operator
The next question comes from Scott Landrum (ph). Scott, please go ahead.
Scott Landrum
Yeah Tony, if you could just speak to the fact of that New England Journal of Medicine article that came out and how there’s this unmet need in the size of the market that’s (indiscernible), the money that’s out there that could be saved.
Tony Pfaffle
Yes, Scott. That article which was published in the New England Journal, as you just cited, last week was very heartening because it supports the key underpinnings of our strategy at CorMedix, that the Centers for Disease Control and indeed the Department of Health and Human Services views our mission to reduce infections, prevent infections, reduce bacteria that are resistant, is in concert with Health and Human Services, CDC, and after our meetings with FDA, with FDA’s intentions to bring products like Neutrolin to market and to help the process forward. So 25% of hospital-based infections are due to devices like catheters, and that is a very large percentage of the burden not only for patients who get these infections, as Randy described – the bacteria and fungi travel along this freeway along the catheter into the bloodstream. Our product prevents that from occurring, and we believe that the efforts of the government to prevent infections will help our process in the United States, and we believe that Europe also supports this.
Scott Landrum
Again, just how much money are we talking about could be saved? I mean, a lot of people don’t realize what these costs are. There’s a lot of new investors on this call.
Tony Pfaffle
It’s been estimated around $18 billion can be saved by preventing these infections in the device space.
Scott Landrum
Thanks guys. Good call.
Operator
The next question comes from Doug Schewegel. Doug, please go ahead.
Doug Schewegel
I have two questions, first one directed to Randy. You mentioned at the beginning of the call with regard to the label expansion, it takes approximately six months in the EU. When did the clock start officially ticking on that, Randy?
Randy Milby
That started two months ago.
Doug Schewegel
Okay. And then the next question is directed to Steve – Steve, if you could, could you comment a little bit with regards to internal control over financial reporting and the new addition of Michael George to the board?
Steven Lefkowitz
Sure. On the internal financing, as people may be aware, we’ve made tremendous progress this year. Starting in the beginning of the year, we had very little cash, significant payables liabilities that we were running the company on a very, very tight budget, and we focused our spending primarily on the areas which would add greatest value to the shareholders, and because of that, we had relatively limited internal resources and we had during the year, as I mentioned in reviewing the financial results, some very complex transactions.
As a result, there were some issues related to putting expenses in the right categories, which resulted in what you’re referring to, and our plans with the additional capital we have is to build back the internal resources of the company, and we don’t anticipate having any issues going forward over the course of the coming year.
Doug Schewegel
Okay, and could you give us a little additional insight on Mr. George?
Steven Lefkowitz
Yes, well Mr. George is a very experienced person, as you can see, and he brought very high levels of skill sets to the board that we thought would be a tremendous addition and add significant value to the company. His expertise in the industry, his experience as a CEO, having had direct operating experience as well as running large organizations, experience in Europe, they are all tremendous skill sets that a company like ours that’s building its infrastructure, building its management team has great use for, and we are very excited that he joined the board and we think he’s going to be a tremendous addition and significantly help the company as we go from being a development company to a commercial company.
Doug Schewegel
Great, thank you.
Operator
Again as a reminder, if you do have a question, please press seven. The next question comes from Gary Duncan. Gary, please go ahead.
Gary Duncan
Just a follow-up on that comment about going from development to commercial. Do you see this as being the transition—you have now transitioned into a commercial business versus development, or it’s kind of still one and the same?
Randy Milby
No, absolutely we’ve transitioned to the commercial and that’s why, as Steve mentioned, the accounting and the things that we’re doing today are so much different than a year ago. So the first sale that we had in December of last year and now the ongoing sales, we’re definitely a commercial organization.
Gary Duncan
Okay, good.
Operator
It appears we have no further questions.
Randy Milby
Okay, well thank you everyone for calling in. It’s our pleasure to speak with you, and we look forward to speaking with you again on the first quarter call.
Operator
This does conclude today’s teleconference. We thank you for your participation. You may now disconnect.
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