CorMedix Inc. (NASDAQ:CRMD) Q2 2018 Earnings Conference Call August 14, 2018 4:30 PM ET
Dan Ferry – Investor Relations-LifeSci Advisors
Khoso Baluch – Chief Executive Officer
Liz Masson – Executive Vice President and Head-Clinical Operations
Paul Chew – Chief Medical Officer
Bob Cook – Chief Financial Officer
Julian Harrison – H. C. Wainwright
Greetings, and welcome to CorMedix Third Quarter 2018 Investor Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.
It is now pleasure to introduce your host Dan Ferry, LifeSci Advisors. Please go ahead.
Thank you. Good afternoon. And welcome to the CorMedix third quarter 2018 investor conference call.
Leading the call today is, Khoso Baluch, Chief Executive Officer of CorMedix. He is joined by Bob Cook, Chief Financial Officer; Liz Masson, Executive Vice President and Head of Clinical Operations; and Paul Chew, Chief Medical Officer.
After the prepared remarks, we will open up the call for Q&A.
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 and 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 for Neutrolin in the U.S. and other product candidates, future financial position, future revenues and projected costs, and potential market acceptance of Neutrolin and other product candidates.
More specifically, forward-looking statements include any statements about our clinical development plans and the timing, costs, results, and interpretations thereof, projections as to the Company’s future capital raising, and spending and cash position, expectations as to the timing and nature of anticipated regulatory actions, possible product licensing or other business development transactions, and any commercial plans and expectations, 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’s filings with the SEC, copies of which are available free of charge at the SEC’s website at www.sec.gov, 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 Mr. Khoso Baluch, Chief Executive Officer of CorMedix. Khoso, please go ahead.
Thank you, Dan. Good afternoon, everyone, and thank you for joining us on our call today where we would like to review our third quarter 2018 financial performance and provide you with an update on our activities.
Today’s call will focus on three areas most critical to driving value for CorMedix. Number one, our Phase 3 LOCK-IT-100 clinical trial for Neutrolin, in particular the progress we have made in closing the study and the upcoming meeting with the FDA. Number two, an update of medics development pipeline and specifically the final report of the animal study in neuroblastoma program with the POETIC Consortium. And number three, quarter three financial updates and our financial strategy for the next few months. This will include our recent competed settlement with our CRO.
Before we get into the details, let me frame this call with a couple of highlights. As you know, our July 25 announcement, the independent Data Safety Monitoring Board reviewed the unblinded data for our Phase 3 LOCK-IT-100 clinical trial interim analysis and recommended the trial be halted for efficacy, as it had met the predefined criteria agreed with the FDA. No safety concerns were identified. It is important to remember that the company and its advisors still remain blinded until the database is locked, to avoid any introduction of bias into the study results. We anticipate this will occur at the end of the year 2018. To this end, we have work systematically to close the study, to protect the study subjects, clean and lock the database and prepare the clinical study report. The team has done an excellent job in our own schedule to complete this task as it was planned. You will hear more details about this aspect from Liz during this call.
We've also stated in the last earnings call that we will seek the FDA agreement for us to file an NDA based on a single clinical trial, specifically LOCK-IT-100. We have submitted the meeting request to the FDA and we look forward to the meeting. It was very important for us in this situation that we focused the company's effort on creating a high quality and comprehensive submission to ensure that the company is presenting robust data and the most persuasive arguments to commercialize Neutrolin in the U.S. expeditiously. The CorMedix team, with our regulatory council, has done an amazing job in preparing the case for Neutrolin. Paul will add further color on this aspect during this call.
Moving to our pipeline. As stated previously, we have slowed most of our activities there in order to conserve cash and focus our limited resource on Neutrolin where approval could change the regulatory requirements for the devices. However, we continued on initial work with the POETIC consortium until the final report on the animal testing regarding taurolidine for neuroblastoma was completed. We just recently received the final report, and are pleased with the results of taurolidine on resistant neuralblastoma tumor cell lines, both in terms of shrinkage of the tumors and survival of the animals. Paul will share more details.
On the finance side our strategy has not changed during this period and will not to be revisited until we have the FDA meeting. The strategy is to minimize dilution to our shareholders until the market recognizes the value of Neutrolin. This has meant that we raised funds necessary to ensure we have the finances to reach this important inflection point.
To that end, we have continued to raise the minimum amount we believe required. As we have stated before, we will consider opportunistic financing earlier to ensure sufficient funds for our planned operations if we believe a transaction would be in our shareholders’ interest.
In addition, we have been in negotiations with our CRO during the past several months and we are pleased that we have now finalized the settlement. The primary focus in this settlement was on how we could get the trial to the FDA as quickly and professionally as possible and the priority on settling on completing the study with the highest level of integrity as quickly as possible. This could only be accomplished by working in a professional manner with our CRO. We are pleased with the outcome of the final settlement regarding both completing the trial and the financial terms. Bob will provide further details during this call.
Now let's get into the details. Let's talk with Liz who will share more with you as to where we are with the LOCK-IT-100 study. Liz?
Thank you, Khoso. I'm delighted to join this call and be able to provide more details on our activities over the last few months as they relate to the LOCK-IT-100 study. We have been focused on ensuring an orderly termination of the study for which we are working closely with our CRO and the investigator sites during this critical time. The effort began on July 26 when we notified the participating sites and Institutional Review Boards, IRBs of the positive interim analysis results in confirmation of the study ending. Shortly thereafter, our team implemented a plan to complete subject dosing and record all trial-related data. We are pleased that all subjects have now been given the last dose of study drug and are completely off the study, having completed their one month safety follow-up visit.
The 69 participating sites have been tiered for closure by our internal team based on a number of factors including enrollment. And once the final data point is entered in the clinical database, the monitoring team will be able to complete the rigorous cleaning of the remaining data site by site. As of this past Friday, 52 of the sites have been closed and the remaining 17 will be closed by November 30.
Once we've completed the cleaning process, and all the appropriate edit checks and data management processes have been run, the database will be locked and transferred to BCI, our independent biostatistical group. This effort has required that my entire team of approximately 30 full time senior CRAs visit all of the sites. Today we have cleaned close to 97% of all of the clinical data. In addition to the data cleaning and monitoring, there is a full reconciliation of investigational product underway. I am confident, as I indicated during last quarter's conference call that these activities that I just outlined are on track to be completed by the end of 2018.
In addition, we are preparing in conjunction with our CRO all the essential documents so that they will be ready for FDA inspection, which is routine for studies. Additionally, the team has implemented robust quality assurance and quality control processes that are well underway. It is essential that all of the processes, procedures, and systems that were used in the study are thoroughly reviewed to ensure the highest integrity of study conduct. It should be noted that completion of all of this work is essential for our new drug applications, but not for the upcoming FDA meeting.
I hope this helps clarify where we are in this important process. And I will now turn the call back over to you Khoso.
Thank you, Liz. Great effort from you and the team. No I’ll ask Paul to cover the two topics of the upcoming FDA meeting and the pipeline. Paul?
Thank you, Khoso. As you know Neutrolin is an investigational product in the U.S. and the ability to terminate LOCK-IT-100 early based on the demonstration of efficacy at the interim analysis moves us closer to realizing the value of Neutrolin as a major advance in the prevention of catheter-related infections, in hemodialysis patients. A significant cause of healthcare acquired infections which can lead to hospitalization and death are less than 25% of infections.
We're continuing to progress the Neutrolin development program to bring this product to market as soon as possible. We believe that Neutrolin can fill a significant unmet medical need.
As Khoso noted in his introductory comments, we believe that the robust results from the LOCK-IT-100 support consideration by FDA is substantial evidence of effectiveness and safety. The FDA previously guided CorMedix to focus on to Phase 3 studies to support the filing of the NDA for Neutrolin. The FDA's guidance allows for the two studies to be undertaken in different patient populations using central venous catheters.
We focused significant effort and time in developing a submission to the FDA to request Neutrolin’s approval pursuant to a newly available program. Just this summer, FDA announced LPAD, Limited Population Pathway, for antibacterial and antifungal drugs. LPAD provides for FDA to streamline clinical development by relying on fewer or smaller clinical trials for a limited population. We’ve carefully crafted our arguments for our proposed approval pathway for Neutrolin limited to hemodialysis patients with central venous catheters based on a single study, namely LOCK-IT-100 using LPAD. This has required us to continue cleaning the database as discussed by Liz and carefully compile information for the safety database.
As we announced in August, the interim analysis was based on the primary endpoints to assess effectiveness. The FDA has clear requirements in terms of what is expected for the evidence required to substantiate not only the efficacy, but also the safety for the new drug product which we believe we've met in LOCK-IT-100. We believe we have a strong case to look forward to our discussions with FDA.
Should the FDA agree with CorMedix’s assertion that LOCK-IT-100 demonstrates substantial evidence of clinical safety and effectiveness as a catheter LOCK Solution for using hemodialysis patients, we expect them to move forward with an NDA for Neutrolin for use in hemodialysis patients to prevent catheter-related bloodstream infections. Now an NDA is an enormous undertaking consisting of 19 sections or volumes and encompassing many different subjects of which clinical and manufacturing are about two, other being chemistry, stability, preclinical and labeling claims and more. It will include many volumes, thousands of pages, which will require significant work and coordination. We will share more specific information and timeline, once we've met with the FDA and read on the course of action. We expect to report the results of the FDA meeting during the first quarter of 2019.
Well, let me move our attention to the pipeline. I also want to remind everyone that Neutrolin is the first step in building taurolidine franchise. Once we have alignment with the FDA on Neutrolin, we expect to restart our efforts with the medical devices pipeline. In the meantime, we've continued to get updates to our animal study for neuroblastoma. CorMedix is pleased to announce that the final report from the research of taurolidine and neuroblastoma conducted by the POETIC consortium continued to demonstrate significant improvements with regard to both shrinkage of the tumors and survival in mice with resistant neuroblastoma tumor cell line.
The initial data was used to support CorMedix's orphan drug application for taurolidine and neuroblastoma, which status has been granted and will afford CorMedix 7.5 years of exclusivity on the pediatric cancer designation from the time of drug approval. The final data has confirmed the interim data reported. The POETIC group and CorMedix planned to present the specific data at a major academic oncology conference in the near future. In addition, planning is underway for a clinical program for neuroblastoma that would be finalized only after we have clarity on Neutrolin pathway with the FDA.
I'll turn back the call now to Khoso.
Thank you, Paul. Clearly a critical time for CorMedix with the FDA meeting. Now let me ask Bob to cover quarter three financial results and the CRO supplements. Bob?
Thank you very much, Khoso. The company will file its report on Form 10-Q for the quarter ended September 30, 2018 before today's close of business. I urge you to read the information contained in that report for a more complete discussion of our financial results.
With respect to our third quarter 2018 financial results, our net loss was approximately $10.2 million or $0.11 a share compared with a net loss of $10 million or $0.17 a share in the third quarter of 2017. Our net loss in the second quarter of 2018 was $8.6 million or $0.10 a share. During 2018’s third quarter, the costs associated with our LOCK-IT-100 clinical study increased significantly compared with the second quarter as we prepared for and conducted the interim analysis and then commenced to wind down the study and close out the sites.
Operating expenses in the third quarter of 2018 increased 20.5% over the second quarter of 2018 to $10.3 million compared with $8.5 million in the previous quarter. R&D expense increased approximately 25.6% to $8.3 million from $6.6 million, due to a 31.6% increase in clinical trial expense, while other R&D declined approximately 6%.
Our expense, specifically related to the clinical study was approximately $7.6 million or 74% of total operating expense during the third quarter of this year. The increase in clinical trial expense was most particularly seen in investigator fees and site cost, which increased $2.1 million quarter-over-quarter, and were driven by the center's needs to complete patient dosing and the one-month safety follow up and record all trial related data as quickly as possible in order to permit timely site closure.
Direct CRO expenses increased $0.3 million, reflecting preparations for the interim analysis followed by data collection and cleaning. Partially offsetting the increases in investigator payments and CRO direct expenses was a $0.7 million decrease in clinical operations, reflecting a lower level of CRA consulting fees and travel.
SG&A expense of $2 million in the third quarter increased less than 1% from the second quarter of 2018. Higher employee and compliance costs were offset by lower legal fees and other categories of expenses.
Cash used in operations in the third quarter of 2018 was approximately $5.1 million, compared what the use of $4.3 million in the second quarter of this year. The increase in cash used in operations was due to a higher net loss for the quarter, mainly offset by a $5.2 million increase in accrued expenses and accounts payable. This increase is related to the LOCK-IT-100 trial reflecting our continued suspension of payments to our CRO, while negotiations continue during the quarter. I will discuss the settlement of our disagreements with the CRO shortly.
With respect to our financial results for the nine months ended September 30, 2018, our net loss was approximately $29 million or $0.35 a share compared with a net loss of $22.7 million or $0.44 per share for the nine months ended September 30, 2017.
Operating expenses during the first nine months of 2018 amounted to $29 million compared with $22.7 million in the first nine months of 2017, an increase of $6.3 million or 27.8%. The increase in operating expenses was due primarily to expenses related to the LOCK-IT-100 study. R&D expense increased by $7.1 million compared with the first nine months of 2017, while SG&A expense declined by $.8 million.
Cash used in operations during the first nine months of 2018 was approximately $16.5 million compared with cash used of $21.3 million in the first nine months of 2017. The reduction in cash used in operations occurred despite a substantially higher net loss in 2018 as a result of a significant build-up of accounts payable due to our CRO and accrued expenses that commenced beginning the second quarter of this year.
Our balance sheet at September 30, 2018 contains a total of approximately $17.5 million combined in accounts payable and accrued expenses, compared with $12.4 million at June 30. This significant change occurred while our negotiations with our CRO regarding the delay in our interim efficacy analysis for the LOCK-IT-100 study continued.
We are very pleased that we have concluded a settlement agreement with our CRO after months of negotiations. While the terms of the agreement are confidential, we received cash credits and other significant consideration in return for agreeing to make cumulative payments to our CRO of approximately $6.2 million through the end of January 2019, plus investigator fees and third-party costs that have not been invoiced through September 30, 2018.
Among other benefits, the settlement agreement results in full satisfaction of the $14.5 million in outstanding accounts payable and accrued expense recorded as of September 30, 2018 in connection with the CRO Master Services Agreement.
With this settlement now behind us, we are moving into a business as usual relationship in which the CRO is continuing to work with us through to the studies completion. To document this relationship, we executed a new work order under the Master Services Agreement specifying certain services the CRO will continue to provide to the company related to the closure of the study. This is very important to us because without their continued cooperation, we will be unable to meet the aggressive timeline we have set to conclude the study and report the trial results.
During the third quarter of 2018, we utilized our aftermarket facility, raising $6.9 million. We raised a further $6.4 million net after commissions through the ATM after September 30, taking advantage of significantly higher stock prices, particularly during the month of October.
We will be filing a new perspective supplement shortly that will allocate a portion of our existing shelf registration to the ATM program as the current amount available under the program has been exhausted. This will allow us to take advantage of favorable movements in the stock should the opportunity arise.
We are also pleased to announce that we have executed the binding term sheet with Elliot Management Corp, our largest shareholder to provide a $7.5 million, three-year secured convertible debt facility. The facility will bear interest at the rate of 10% per annum and will be convertible at our investors’ option into the company's common stock at a price equal to $1.50 share. It will be callable beginning in 18 months.
We anticipate the transaction will be finalized and drawn before year-end. In connection with the financing, we will issue a new five-year warrants to purchase 450,000 shares of common stock with an exercise price of a $1.50 per share and will reduce the exercise price to $0.1 on two existing warrants held by Elliot, one to purchase 500,000 shares at $0.65 expiring may of next year and the other for 750,000 warrants at $0.90 expiring in October of next year.
This transaction was particularly attracted to us as we were able to raise a substantial amount of money at a premium to the current market price and without reliance on stock volume trading – stock trading volume and will get us comfortably past our planned meeting with the FDA. Based on our existing cash in September 30, the additional cash we have realized to-date through our ATM program, the financial impact of the settlement agreements with our CRO and financially we expect to close with Elliot in the next several weeks. We believe we've had the resources to fund the company's operating costs into the second quarter of 2019.
As we discussed during our last quarter's conference call, the extent of our future financing needs will become clearer once we reach agreement with the FDA regarding the final development paths for Neutrolin. We will consider opportunistic financing earlier to ensure sufficient funds for our planned operations in 2019 if we believe such a transaction would be in our shareholders' interests.
With that, I will now hand the call back to Khoso for his closing remarks. Khoso?
Thank you, Bob. What Liz, Paul and Bob covered with you, hopefully provides you some insight into the journey since our last earning call and also reaffirms our focus and priority during these coming months.
I'd like to reemphasize. As Liz indicated, we're on track to lock the database by year end 2018 in preparation for closing the study and issuing the final clinical study report. As Paul indicated, we have focused significant effort and time in carefully preparing CorMedix’s arguments and rationale for defending new prunes NDA pathway with the FDA. In addition, after the database is locked, we will announce the results of the interim efficacy analysis expected in early 2019. As appropriate, we will share more details on CorMedix’s neuroblastoma program as it becomes available.
And finally, we have also turned our attention to the building blocks required to commercialize Neutrolin in the U.S. We are pleased with the recent release from the center of Medicare and Medicaid services, CMS, in early November 2018 or the ESRD perspective payment system, PPS, final rule, which includes the proposed expansion of the transitional drug add-on payment adjustments that we have supported. This should help new innovations such as Neutrolin.
While we make preparations on the most effective way to commercialize Neutrolin in U.S., we remained open to strategic and/or commercial partnership as long as it's in the best interest of our shareholders. After laboring for many years to get Neutrolin over the finish line, CorMedix is very near achieving a critical accomplishment. In my opinion, once approved Neutrolin will become the standard of care for preventing catheter -related bloodstream infections, and taurolidine will have significant other applications against inflammation and infections.
I'm pleased with the leadership team at CorMedix, their breadth of knowledge and expertise has provided CorMedix the required bandwidth to ensure that both strategically and from an execution perspective, we can achieve our ultimate goals. This team coupled with the strategy we embarked on in early 2017, continues to move steady fast forward at an ever growing pace. I look forward to providing you updates both via CorMedix website and via conference call. Thank you for your support of CorMedix.
Now let me hand the call back to Stacey [ph].
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ram Selvaraju with H. C. Wainwright. Please go ahead.
Hi there, this is Julian on for Ram Selvaraju. Thanks for taking my questions. First, just to confirm, you plan on having a pre-NDA meeting with the FDA before the end of the year and you plan on reporting the outcome of that in the first quarter of next year. Did I hear that correctly?
Well, let me be a little more precise. A pre-NDA meeting presupposed with an NDA. And so we're even pre-pre NDA. We want to talk with the FDA about an NDA based on LOCK-IT-100 as a single determine trial.
Okay, got it. And the timing of that, that was correct?
Well, as we said, our hope is that we will get in 4Q.
Okay, got it. And for my last question, I was just curious if you have any early thoughts on label extension for catheter-related bloodstream infections beyond just those secondary to hemodialysis?
Well, as you know, in many presentations we've made, there were so many catheter-related infections related to cancer patients who need chemotherapy, critical care patients, even patients who get all of their nutrition from catheters. So all of that's going to be part of our plan going forward.
Thanks very much.
[Operator Instructions] There don't seem to be any further questions at this time. I would like to turn the floor over to Khoso Baluch. Please go ahead.
Thank you very much, very much appreciate all of you taking the time to join us this evening on this call. I think it's a very exciting time for the company. We’re very eagerly looking forward to our meeting with the FDA and look forward to sharing the feedback with all of you in due calls. So thank you very much. Have a good evening.