Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
You should read the following
discussion and analysis together with our audited consolidated financial statements and the accompanying notes contained elsewhere in
this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act, Section 21E of
the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial
condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially
from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed
below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”
Overview
The Company is a biopharmaceutical
company focused on developing and commercializing therapeutic products for life-threatening diseases and conditions.
Our primary focus is commercializing
our lead product, DefenCath® (taurolidine and heparin), in the U.S. The name DefenCath is the U.S. proprietary name approved by the
U.S. Food and Drug Administration (“FDA”). CorMedix launched the product commercially in April 2024 in the inpatient setting
and July 2024 in the outpatient hemodialysis setting.
DefenCath
is an FDA approved antimicrobial CLS (a formulation of taurolidine 13.5 mg/mL, and heparin 1000 USP Units/mL) indicated to reduce the
incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis through a CVC. It is indicated for use in a limited
and specific population of patients. CRBSIs, a clinically confirmed subset of the epidemiological surveillance term, central line associated
bloodstream infection (“CLABSI”), can lead to treatment delays and increased costs to the healthcare system when they occur
due to extended and often repeat hospitalizations, need for IV antibiotic treatment, long-term anticoagulation therapy, removal/replacement
of the CVC, related treatment costs, as well as increased mortality. We believe DefenCath can address a significant unmet medical need.
Following the submission of
a duplicate NTAP application to CMS, CMS issued the IPPS 2024 proposed rule that includes a NTAP per hospital stay for DefenCath. This
NTAP represents reimbursement to inpatient facilities of 75% of the wholesaler acquisition cost (“WAC”) price per 3 mL vial,
and an average utilization of 19.5 vials per hospital stay. The final IPPS rule amended as of October 1, 2024 to reflect the current WAC
of $249.99 per 3ml vial resulting in a potential maximum NTAP of $3,656.10.
On November 15, 2023, we announced
that the FDA approved the NDA for DefenCath to reduce the incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis
through a CVC. DefenCath is the first and only FDA-approved antimicrobial CLS in the U.S. and was shown to reduce the risk of CRBSI by
up to 71% in a Phase 3 clinical study. As a result of the November 2023 FDA approval, CorMedix launched the product commercially in April
2024 in the inpatient setting and July 2024 in the outpatient hemodialysis setting.
DefenCath is listed in the
Orange Book as having NCE exclusivity (5 years) expiring on November 15, 2028, and the GAIN exclusivity extension of the NCE exclusivity
(an additional 5 years) expiring on November 15, 2033. The GAIN exclusivity extension of 5 years is the result of the January 2015 designation
of DefenCath as a QIDP.
On January 25, 2024, CMS determined
that DefenCath should be classified as a renal dialysis service that is subject to the Medicare ESRD PPS. The ESRD PPS provides bundled
payment for renal dialysis services, but also affords a transitional drug add-on payment adjustment, or TDAPA, which provides temporary,
additional payments for certain new drugs and biologicals. We submitted an application for TDAPA on January 26, 2024, and received confirmation
that our application was approved on April 18, 2024 for a July 1, 2024 implementation. We also submitted a HCPCS application for a J-code
to CMS on December 8, 2023, for DefenCath, which is relevant to billing and the TDAPA application. The HCPCS J-code for DefenCath was
published by CMS on April 2, 2024. TDAPA reimbursement is calculated based on 100 percent ASP (or 100 percent of wholesale acquisition
price or manufacturers’ list price, respectively, if such data is unavailable). TDAPA and post-TDAPA add-on payment adjustments
for DefenCath apply for five years (with such add-on payments applying to all ESRD PPS payments for years three through five). CMS confirmed
a July 1, 2024 implementation date for HCPCS and TDAPA.
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We announced on June 6, 2024
that the CMS has determined that DefenCath qualified for pass-through status under the hospital Out-Patient Prospective Payment System
(“OPPS”). Pass-through status provides for separate payment under Medicare Part B for the utilization of DefenCath in the
outpatient ambulatory setting for a period of at least two years, and up to a maximum of three years. While vascular access for hemodialysis
can be initiated in an inpatient setting, ambulatory surgical centers or vascular access centers offer a less-invasive, outpatient-based
alternative for patients. We estimate that up to 100,000 HD-CVC placements occur each year, and pass-through status offers providers
a separate reimbursement mechanism in this setting of care administration of DefenCath.
Subsequent to the launch
of DefenCath in April 2024, we announced U.S.-based multi-year commercial supply agreements consisting of a large and several mid-sized
dialysis organizations. Each provider has customized an implementation plan to provide access to patients based on a variety of clinical
and other factors. We believe the currently contracted customer base represents roughly 60% of the outpatient dialysis centers in the
U.S.
Financial Operations Overview
Revenue
Our ability to continue to generate revenue and become profitable depends
on our ability to continue to successfully commercialize DefenCath and achieve gross profits from DefenCath sales that are greater than
our ongoing operating costs. If we fail to continue to successfully commercialize DefenCath, or any other product lines we advance in
a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial
position, could be adversely affected. Prior to the commercial launch of DefenCath, we have funded our operations primarily through equity
financings.
Cost of Revenues
Cost of revenues include
direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight,
amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits
and insurance.
Research and Development Expense
Research and development,
or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third-party
contract research organizations, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property
license costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock–based compensation
expense, benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings
and pre-clinical studies and clinical trials; and (vii) manufacturing-related costs, including previously expensed pre-NDA approval inventory
amounting to approximately $6,400,000, through November 15, 2023. All R&D is expensed as incurred.
The process of conducting
pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success
for each product line and clinical trial may be affected by a variety of factors, including, among others, the quality of the product
line’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result
of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine
the duration and completion costs of future clinical stages of our product lines or when, or to what extent, we will generate revenues
from the commercialization and sale of any of our future product lines.
Development timelines, probability
of success and development costs vary widely. We are currently focused on the commercialization of DefenCath in the U.S.
Selling and Marketing Expense
Selling and marketing, or
S&M, expense includes the cost of salaries and related costs for personnel in sales and marketing, brand building, advocacy, market
research and consulting costs. Selling and marketing expenses are expensed as incurred.
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General and Administrative Expense
General and administrative,
or G&A, expenses consist principally of salaries and related costs for personnel in executive, finance and administrative functions
including payroll taxes and health insurance, stock-based compensation and travel expenses. Other general and administrative expenses
include facility-related costs, insurance and professional fees for legal, patent review, consulting, and accounting services. General
and administrative expenses are expensed as incurred.
Foreign Currency Exchange Transaction Gain
(Loss)
Foreign currency exchange
transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional currency and is
reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany loans outstanding
between our New Jersey-based company and our subsidiaries will not be repaid and the nature of the funding advanced was of a long-term
investment nature. As such, unrealized foreign exchange movements related to long-term intercompany loans are recorded in other comprehensive
income (loss).
Interest Income
Interest income consists
of interest earned on our cash and cash equivalents and short-term investments.
Interest Expense
Interest expense consists
of interest incurred on financing of expenditures.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following is a tabular
presentation of our consolidated operating results for the years ended December 31, 2024 and 2023 (in thousands) :
2024
2023
% of
Change
Increase
(Decrease)
Revenue
$ 43,472
$ -
-
Cost of revenue
(3,190 )
-
-
Gross profit
40,282
-
-
Operating Expenses:
Research and development
(3,942 )
(13,155 )
(70 )%
Selling and marketing
(28,737 )
(18,115 )
59 %
General and administrative
(29,959 )
(17,688 )
69 %
Total operating expenses
(62,638 )
(48,958 )
28 %
Loss from operations
(22,356 )
(48,958 )
(54 )%
Interest income
2,579
2,682
(4 )%
Foreign exchange transaction loss
(31 )
(29 )
6 %
Interest expense
(37 )
(34 )
6 %
Other income
520
-
-
Total other income
3,031
2,619
16 %
Loss before income taxes
(19,325 )
(46,339 )
(58 )%
Tax benefit
1,395
-
-
Net loss
(17,930 )
(46,339 )
(61 )%
Other comprehensive (loss) income
(3 )
11
(130 )%
Comprehensive loss
$ (17,933 )
$ (46,328 )
(61 )%
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Revenue. Revenue for
the year ended December 31, 2024 was $43.5 million as compared to $0 for the same period in 2023. Revenue consists of sales of DefenCath,
which was approved by the FDA in November 2023 and launched in the U.S in April 2024 (inpatient setting) and July 2024 (outpatient setting)
and reflects the shipment of DefenCath to direct customers and specialty distributors, net of estimates for applicable variable consideration,
which consists primarily of distribution service fees, prompt pay and other discounts, product returns, chargebacks, rebates and volume
incentive rebates.
Cost of Revenue. Cost
of revenue for the year ended December 31, 2024 was $3.2 million as compared to $0 for the same period in 2023. Cost of revenues include
direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight,
amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits
and insurance. Direct costs of product sales during the year ended December 31, 2024 were minimal as DefenCath sold to date represented
validation lot units previously expensed as R&D. This only marginally benefited the total gross margin in 2024 and the majority of
validation batch product has been sold as of December 31, 2024. Indirect costs of approximately $3.0 million for the year ended December
31, 2024, represent the proportion of supply chain and quality personnel, benefits and insurance expenses representing excess capacity
in the production of sellable product. As unit sales increase, a greater proportion of these costs will be capitalized as a component
of inventory and expensed at the point-of-sale.
Research and Development
Expense . R&D expense for the year ended December 31, 2024 was $3.9 million, a decrease of $9.2 million, or 70%, from $13.2 million
for the same period in 2023. The decrease was driven by the approval of DefenCath. As a result of the transition to commercial operations,
costs related to medical affairs and certain other personnel that supported R&D efforts prior to the FDA approval of DefenCath of
approximately $6.9 million began supporting non research and development operations and have been recognized in cost of revenue or general
and administrative expense during the year ended December 31, 2024 Also, in 2023, prior to FDA approval, there were $1.5 million of costs
recognized in R&D related to the manufacturing of DefenCath validation batches. These types of costs are now capitalized in inventory
as DefenCath is a commercialized product.
Selling and Marketing Expense.
S&M expense was $28.7 million for the year ended December 31, 2024, an increase of $10.6 million, or 59%, from $18.1 million for
the same period in 2023. The increase was due primarily to increased marketing efforts and new personnel hired in late 2023 or throughout
2024, inclusive of our sales force and support for the commercial launch of DefenCath during 2024. Subsequent to December 31, 2024, we
severed our internal sales force, future costs associated with the Syneos sales force are expected to be similar to those recognized internally
in 2024.
General and Administrative
Expense . G&A expense for the year ended December 31, 2024 was $30.0 million, an increase of $12.3 million, or 69%, from $17.7
million for the same period in 2023. The increase was driven by the approval of DefenCath. As a result of the transition to commercial
operations, certain medical affairs, other personnel and consulting expenses of approximately $6.0 million previously classified in R&D
are included in G&A expense during the year ended December 31, 2024. Additional G&A personnel were also hired throughout 2024
in anticipation of and to support commercial operations, representing an increases of $2.8 million as well as increases in legal and
compliance of $1.7 million and consulting fees of $0.9 million.
Interest Income . Interest
income for the year ended December 31, 2024 was $2.6 million, a decrease of $0.1 million, or 4%, from $2.7 million for the same period
in 2023, due to lower short-term investments during this period as compared to the same period last year.
Foreign Exchange Transaction
Income (Loss) . Foreign exchange transaction income (losses) for the years ended December 31, 2024 and 2023 were due to the re-measuring
of transactions denominated in a currency other than our functional currency. Balances and changes were immaterial for all periods presented.
Other Income. Other
income relates to a settlement with a previously utilized vendor, occurring during the year ended December 31, 2024.
Interest Expense .
Interest expense pertains to certain liabilities we chose to finance. Balances and changes were immaterial for all periods presented.
Tax Benefit. Tax benefit
for the year ended December 31, 2024 was $1.4 million, due to the sale of our unused NJ State net operating losses for fiscal year 2023,
which were sold in fiscal year 2024, through the NJEDA Program. There was no tax benefit from the sale of unused net operating losses
for fiscal year 2023.
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Other Comprehensive (Loss)
Income . Unrealized foreign exchange movements related to long-term intercompany loans, the translation of the foreign affiliate financial
statements to U.S. dollars and unrealized movements related to short-term investment are recorded in other comprehensive (loss) income.
Other comprehensive income (loss) is considered immaterial for all periods presented.
Quarterly Results of Operations (Unaudited):
The following table is the
summary of the Company’s unaudited quarterly condensed consolidated results of operations for the year ended December 31, 2024
(amounts in thousands, except for per share amounts):
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Revenue
$ 31,210
$ 11,456
$ 806
$ -
Gross profit (loss)
$ 30,034
$ 10,770
$ 296
$ (819 )
Income (loss) from operations
$ 12,936
$ (3,287 )
$ (15,301 )
$ (16,705 )
Net income (loss) per common shares – basic*
$ 0.22
$ (0.05 )
$ (0.25 )
$ (0.25 )
Weighted average common shares outstanding – basic*
61,509
58,825
57,621
57,503
* Diluted earnings per share are not presented in this table
Liquidity and Capital Resources
Sources of Liquidity
As a result of our R&D,
S&M and G&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable on
an annual basis since our inception. We achieved profitability in the fourth quarter of 2024, driven by product sales of DefenCath. During
the year ended December 31, 2024, we received net proceeds of $18.9 million from the issuance of 3,049,878 shares of common stock under
our at-the-market-issuance sales agreement, or ATM program, as compared to $12.9 million net proceeds in 2023 from the issuance of 2,977,637
shares of common stock. Also, in 2023, we received net proceeds of $42.9 million from the issuance of 9,000,093 shares of common stock
and pre-funded warrants to purchase 2,500,625 shares of common stock in connection with a public offering. We may continue to be reliant
on external sources of cash until we are able to generate sufficient operating cash flow to fund operations.
In March 2024, we received
$1.4 million, net of expenses, from the sale of our unused New Jersey net operating losses (“NOL”), that were eligible for
sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer
program (“NJEDA Program”). The NJEDA Program allowed us to sell our available fiscal 2023 NJ state NOL tax benefits in the
amount of approximately $1.5 million.
Net Cash Used in Operating Activities
Net cash used in operating
activities for the year ended December 31, 2024 was $50.6 million as compared to $38.4 million in 2023, an increase in net cash use of
$12.2 million. The increase in cash use is primarily driven by an increase in trade receivables of $51.8 million and inventories of $3.4
million offset by a net increase in the change of accrued expenses and accounts payable of $15.4 million, primarily attributable to the
gross-to-net-deductions accruals and decreased net loss of $28.4 million.
Net Cash Provided by (Used in) Investing
Activities
Net cash provided by investing
activities for the year ended December 31, 2024, was $21.2 million as compared to $17.1 million of net cash used in investing activities
for the same period in 2023. The net cash provided during the year ended December 31, 2024, was mainly driven by maturing short-term
investments used to help fund operations, and lower purchases of short-term investments in 2024.
Net Cash Provided by Financing Activities
Net cash provided by financing
activities for the year ended December 31, 2024, was $26.3 million as compared to $55.9 million for the same period in 2023, a decrease
of $29.6 million. The decrease was mainly attributable to the net proceeds of $42.9 million from a public offering completed during the
year ended December 31, 2023, offset by increases in proceeds from the exercise of stock options of $7.4 million, and increased ATM net
proceeds of $6.0 million during the year ended December 31, 2024.
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Funding Requirements and Liquidity
Our total cash, cash equivalents
and short-term investments as of December 31, 2024, was $51.7 million, excluding restricted cash of $0.1 million, compared with $76.0
million for the year ended December 31, 2023, excluding restricted cash of $0.2 million. As of December 31, 2024, $30.2 million of the
Company’s common stock remains available for potential sale under the ATM program. Additionally, we have $100.0 million of remaining
capacity available under our 2024 Shelf Registration Statement for the issuance of Company securities.
We expect to continue to
fund operations from cash collections from accounts receivable, plus cash, cash equivalents and short-term investments and through capital
raising sources, which may be dilutive to existing stockholders. In May 2024, we implemented an ATM program, which may be utilized to
support our ongoing funding requirements. We may seek to sell additional equity or debt securities through one or more discrete transactions,
or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement
will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness would result in increased fixed obligations
and could contain covenants that would restrict our operations. Raising additional funds through strategic alliance arrangements with
third parties may require significant time to complete and could force us to relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders.
Our actual cash requirements
may vary materially from those now planned due to a number of factors, including any material change in commercial operations pertaining
to DefenCath or the focus and direction of our research and development programs, any acquisition or pursuit of development of new product
candidates, competitive and technical advances, the costs of commercializing any of our product candidates, and costs of filing, prosecuting,
defending and enforcing any patent claims and any other intellectual property rights. Because our business has not generated consistent
and sustained positive operating cash flow, we may need to raise additional capital in order to continue to fund our research and development
activities, as well as to fund operations generally and we can provide no assurances that financing or strategic relationships will be
available on acceptable terms, or at all, if additional funds are needed. If we are unable to raise additional funds when needed, we
may be forced to slow or discontinue our commercial operations pertaining to DefenCath. We may also be required to delay, scale back
or eliminate some or all of our anticipated research and development programs. Each of these alternatives would likely have a material
adverse effect on our business.
We currently estimate that
as of December 31, 2024, we have sufficient cash, cash equivalents and short-term investments to fund operations for at least twelve months
from the issuance of these financial statements.
Contractual Obligations
We entered into a seven-year
operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease agreement,
with a monthly average cost of approximately $17,000, commenced on September 16, 2020.
In December 2024, we entered
into a three-year agreement with Syneos Health Commercial Services, LLC (“Syneos”) where Syneos will provide a dedicated
inpatient field sales force of sales that will exclusively promote DefenCath to hospitals and health systems. We are obligated to an
up-front implementation and a fixed monthly fee. Upon the twelve-month anniversary of the deployment date, expected to be in the
second quarter of 2025, the agreement is cancelable provided 60 days written notice. As of December 31, 2024, the minimum amount
committed under this agreement totals $9.6 million.
In 2008, the Company entered
into a License and Assignment Agreement (the ND License Agreement) with ND Partners, LLP (NDP). Pursuant to the ND License Agreement,
NDP granted the Company exclusive, worldwide licenses for certain antimicrobial catheter lock solutions, processes for treating and inhibiting
infections, a biocidal lock system and a taurolidine delivery apparatus, and the corresponding United States and foreign patents and
applications (the NDP Technology). During the year ended December 31, 2024, net sales milestones in the amount of $2 million were achieved
and are accrued in our consolidated balance sheet. The Company anticipates payment will be due in 2025 in accordance with the agreement
terms at the end of the twelve-month period post attainment.
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Critical Accounting Estimates
We prepare our consolidated
financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates
that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates,
as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences
between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates
on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations
for the future based on available information. We evaluate these estimates on an ongoing basis. We consider an accounting estimate to
be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting
estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates
that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of
Directors. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as
defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.
● Litigation contingencies are assessed and judgments are made
to determine if an unfavorable outcome is considered probable or reasonably possible, and when considered reasonably possible but not
probable, the contingency is disclosed along with an estimate of the possible loss or range of loss. If a liability is possible or probable,
but no reasonable estimation of loss can be made, we will disclose the nature of the contingency and state that such an estimate cannot
be made. Such estimates and judgements are based on information obtained through the discovery process, court filings and follow on filings
by the plaintiffs as well as the stage of litigation. There have been no changes in management’s estimates in 2024.
● We account for product
revenue from the sale of our product, DefenCath, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”)
which entails our estimates and judgments primarily in determining the transaction price and more specifically as it relates to variable
consideration associated with the contracts. Our customers are located in the United States and consist primarily of outpatient service
providers and to a lesser extent specialty wholesale distributors. Variable consideration pertaining to an allowance for product returns
of short-dated or expired product requires estimation as our customers may have differing utilization, storage and distribution methods
and we do not yet have significant historical trends. The Company’s product accrual takes into consideration estimates of product
held by its customers, the distribution channel, the shelf life of the product held by customers, as well as when the product is eligible
for return based on our returns good policy. At December 31, 2024, the Company had $0.7 million in accrued returns allowance. We have
established the estimate for returns based on specific customer circumstances, industry best practices and management experiences. Once
return windows open and we experience actual returns we will further refine our estimate methods.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
N/A.
Item 8. Financial Statements and Supplementary Data
The information required
by this Item 8 is included in Part IV, Item 15, and is incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.