CorMedix Inc. 10-K

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 report, particularly under the heading “Risk Factors.” Overview CorMedix Inc., together with our wholly owned subsidiaries, (collectively referred to herein as “we,” “us,” “our” and the “Company”), is a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of infectious and inflammatory diseases. In May 2020, we formed a wholly-owned Spanish subsidiary, CorMedix Spain, S.L.U. Our primary focus is on the development of our lead product candidate, DefenCath™, for potential commercialization in the United States, or U.S., and other key markets as a catheter lock solution, or CLS. We have in-licensed the worldwide rights to develop and commercialize DefenCath and Neutrolin®. The name DefenCath is the U.S. proprietary name conditionally approved by the U.S. Food and Drug Administration, or FDA, while the name Neutrolin® is currently used in the European Union, or EU, and other territories where we received CE-Mark approval for the commercial distribution of Neutrolin as a CLS regulated as a medical device. DefenCath/Neutrolin is a novel anti-infective solution (a formulation of taurolidine 1.35% and heparin 1000 u/ml) intended for the reduction and prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as hemodialysis, total parenteral nutrition, and oncology. Infection and thrombosis represent key complications among hemodialysis, total parenteral nutrition and cancer patients with central venous catheters. These complications can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations, need for intravenous, or IV, antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the central venous catheter, related treatment costs and increased mortality. We believe DefenCath addresses a significant unmet medical need and a potential large market opportunity. In January 2015, the FDA designated DefenCath as a Qualified Infectious Disease Product, or QIDP, for prevention of catheter-related blood stream infections in patients with end stage renal disease receiving hemodialysis through a central venous catheter. Catheter-related blood stream infections and clotting can be life-threatening. The QIDP designation provides five years of market exclusivity in addition to the five years granted for a New Chemical Entity upon approval of a New Drug Application, or NDA. In addition, in January 2015, the FDA granted Fast Track designation to DefenCath Catheter Lock Solution, a designation intended to facilitate development and expedite review of drugs that treat serious and life-threatening conditions so that the approved drug can reach the market expeditiously. The Fast Track designation of DefenCath provides us with the opportunity to meet with the FDA on a more frequent basis during the development process, and also ensures eligibility to request priority review of the marketing application. In December 2015, we launched our Phase 3 Prospective, Multicenter, Double-blind, Randomized, Active Control Study to Demonstrate Safety & Effectiveness of DefenCath/Neutrolin in Preventing Catheter-related Bloodstream Infection in Subjects on Hemodialysis for End Stage Renal Disease, or LOCK-IT-100, in patients with hemodialysis catheters in the U.S. The clinical trial was designed to demonstrate the safety and effectiveness of DefenCath compared to the standard of care CLS, Heparin, in preventing CRBSIs. The primary endpoint for the trial assessed the incidence of CRBSI and time to CRBSI for each study subject. Secondary endpoints were catheter patency, which was defined as required use of tPA, or removal of catheter due to dysfunction, and removal of catheter for any reason. As previously agreed with the FDA, an interim efficacy analysis was performed when the first 28 potential CRBSI cases were identified in our LOCK-IT-100 study that occurred through early December 2017. Based on these first 28 cases, there was a highly statistically significant 72% reduction in CRBSI by DefenCath relative to the active control of heparin (p=0.0034). Because the pre-specified level of statistical significance was reached for the primary endpoint and efficacy had been demonstrated with no safety concerns, the LOCK-IT-100 study was terminated early. The study continued enrolling and treating subjects until study termination, and the final analysis was based on a total of 795 subjects. In a total of 41 cases, there was a 71% reduction in CRBSI by DefenCath relative to heparin, which was highly statistically significant (p=0.0006), with a good safety profile. 47 The FDA granted our request for a rolling submission and review of the NDA which is designed to expedite the approval process for products being developed to address an unmet medical need. Although the FDA usually requires two pivotal clinical trials to provide substantial evidence of safety and effectiveness for approval of an NDA, the FDA will in some cases accept one adequate and well-controlled trial, where it is a large multicenter trial with a broad range of subjects and study sites that has demonstrated a clinically meaningful and statistically very persuasive effect on a disease with potentially serious outcome. In March 2020, we began the modular submission process for the NDA for DefenCath for the prevention of CRBSI in hemodialysis patients, and in August 2020, the FDA accepted for filing the DefenCath NDA. The FDA also granted our request for priority review, which provides for a six-month review period instead of the standard ten-month review period. As we announced in March 2021, the FDA has informed us that it will not approve the NDA for DefenCath in its present form. The FDA noted concerns at the third-party manufacturing facility after a review of records requested by the FDA and provided by the manufacturing facility. We are working with the manufacturing facility to develop plans for resolution of the deficiencies. Additionally, the FDA is requiring a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn from the vials despite an existing in-process control to demonstrate fill volume within specifications. We expect to be able to complete this requirement expeditiously. Satisfactory resolution of these issues is required for approval of the DefenCath NDA by a pre-approval inspection and/or adequate manufacturing facility responses addressing these concerns. If an inspection is required, we may encounter delays in obtaining FDA approval because the FDA is currently facing a backlog due to the pandemic and is actively working to define an approach for scheduling outstanding inspections once safe travel may resume. We will request a meeting with the FDA, which we estimate will occur in mid-April, to obtain agreement with the FDA on the proposed resolutions of the deficiencies. The FDA did not request additional clinical data and did not identify any deficiencies related to the data submitted on the efficacy or safety of DefenCath from LOCK-IT-100. In draft labeling discussed with the FDA, the FDA added that the initial approval will be for the limited population of patients with kidney failure receiving chronic hemodialysis through a central venous catheter. This is consistent with our request for approval pursuant to the Limited Population Pathway for Antibacterial and Antifungal Drugs, or LPAD. LPAD, passed as part of the 21st Century Cures Act, is a new program intended to expedite the development and approval of certain antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs. LPAD provides for a streamlined clinical development program involving smaller, shorter, or fewer clinical trials and is intended to encourage the development of safe and effective products that address unmet medical needs of patients with serious bacterial and fungal infections. We believe that LPAD will provide additional flexibility for the FDA to approve DefenCath to prevent CRBSIs in the limited population of patients with kidney failure receiving hemodialysis through a central venous catheter. We intend to pursue additional indications for DefenCath use as a CLS in populations with an unmet medical need that also represent a significant market opportunity. For example, we intend to pursue marketing authorization in the U.S. for use as a CLS to reduce CRBSIs in oncology and total parenteral nutrition patients using a central venous catheter. In addition to DefenCath, we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in children. We are also evaluating opportunities for the possible expansion of taurolidine as a platform compound for use in certain medical devices. Patent applications have been filed in several indications, including wound closure, surgical meshes, and wound management. Based on initial feasibility work, we are advancing pre-clinical studies for taurolidine-infused surgical meshes, suture materials and hydrogels. We will seek to establish development/commercial partnerships as these programs advance. We were granted a deferral by the FDA under the Pediatric Research Equity Act, or PREA, that requires sponsors to conduct pediatric studies for NDAs for a new active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral acknowledges that a pediatric assessment is required but permits the applicant to submit the pediatric assessment after the submission of an NDA. We have made a commitment to conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients. Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which if granted would provide an additional six months of marketing exclusivity. DefenCath would then have the potential to receive a total marketing exclusivity period of 10.5 years, including exclusivity pursuant to NCE and QIDP. 48 The FDA regards taurolidine as a new chemical entity and therefore an unapproved new drug. Consequently, there is no appropriate predicate medical device currently marketed in the U.S. on which a 510(k) approval process could be based. As a result, we will be required to submit a premarket approval application, or PMA, for marketing authorization for any medical device indications that we may pursue. In the event that an NDA for DefenCath is approved by the FDA, the regulatory pathway for these medical device product candidates may be revisited with the FDA. Although there may be no appropriate predicate, de novo Class II designation can be proposed, based on a risk assessment and a reasonable assurance of safety and effectiveness. In the European Union, or EU, Neutrolin is regulated as a Class 3 medical device. In July 2013, we received CE Mark approval for Neutrolin. In December 2013, we commercially launched Neutrolin in Germany for the prevention of CRBSI, and maintenance of catheter patency in hemodialysis patients using a tunneled, cuffed central venous catheter for vascular access. To date, Neutrolin is registered and may be sold in certain European Union and Middle Eastern countries for such treatment. In September 2014, the TUV-SUD and The Medicines Evaluation Board of the Netherlands, or MEB, granted a label expansion for Neutrolin to include use in oncology patients receiving chemotherapy, intravenous, or IV, hydration and IV medications via CVC for the EU. In December 2014, we received approval from the Hessian District President in Germany to expand the label for these same expanded indications. The expansion also adds patients receiving medication and IV fluids via CVC in intensive or critical care units (cardiac care unit, surgical care unit, neonatal critical care unit, and urgent care centers). An indication for use in total parenteral nutrition was also approved. In September 2019, our registration with the Saudi Arabia Food and Drug Administration, or the SFDA, expired. As a result, we cannot sell Neutrolin in Saudi Arabia. We intend to complete the documentation required to renew our registration with the SFDA, however, we cannot predict how long the renewal process will take. There is no assurance that the registration will be renewed by the SFDA. The novel coronavirus has been declared a pandemic and has spread to multiple global regions. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of our offices, clinical trial sites, key vendors and partners. Our program timelines may be negatively affected by COVID-19, which could materially and adversely affect its business, financial conditions and results of operations. Since our inception, our operations have been primarily limited to conducting clinical trials and establishing manufacturing for our product candidates, licensing product candidates, business and financial planning, research and development, seeking regulatory approval for our products, initial commercialization activities for DefenCath in the U.S. and Neutrolin in the EU and other foreign markets, and maintaining and improving our patent portfolio. We have funded our operations primarily through debt and equity financings. We have generated significant losses to date, and we expect to use substantial amounts of cash for our operations as we prepare our pre-launch commercial activities for DefenCath for the U.S. market and commercialize Neutrolin in the EU and other foreign markets, pursue business development activities, and incur additional legal costs to defend our intellectual property. As of December 31, 2020, we had an accumulated deficit of approximately $217.4 million. We are unable to predict the extent of any future losses or when we will become profitable, if ever. Financial Operations Overview Revenue We have not generated substantial revenue since our inception. Through December 31, 2020, we have funded our operations primarily through debt and equity financings. 49 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 the advancement of our product candidates through pre-clinical studies and clinical trials; (vii) facilities and other allocated expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii) costs related to the manufacturing of the product that could potentially be available to support the commercial launch prior to marketing approval. All R&D is expensed as incurred. Conducting a significant amount of development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials. 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 candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate’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 current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We are currently focused on securing the marketing approval for DefenCath in the U.S. as well as on continuing sales in foreign markets where Neutrolin is approved. In December 2015, we signed an agreement with a clinical research organization, or CRO, to help us conduct our LOCK-IT-100 Phase 3 clinical trial in hemodialysis patients with central venous catheters to demonstrate the efficacy and safety of DefenCath in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease. Our LOCK-IT-100 study was completed and all costs related to the agreement with the CRO has been paid. We are pursuing additional opportunities to generate value from taurolidine, an active component of DefenCath. Based on initial feasibility work, we have completed an initial round of pre-clinical studies for taurolidine-infused surgical meshes, suture materials, and hydrogels, which require a PMA regulatory pathway for approval. We are also involved in a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in children. Selling, General and Administrative Expense Selling, general and administrative, or SG&A, expense includes costs related to commercial personnel, medical education professionals, marketing and advertising, salaries and other related costs, including stock-based compensation expense, for persons serving in our executive, sales, finance and accounting functions. Other SG&A expense includes facility-related costs not included in R&D expense, promotional expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services. 50 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 company based in New Jersey and our subsidiary based in Germany are not expected to be repaid in the foreseeable future and the nature of the funding advanced is 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 equivalents and short-term investments. Interest Expense Interest expense consists of interest incurred on our convertible debt, amortization of debt discount and on financing of expenditures. Results of Operations Comparison of the Years Ended December 31, 2020 and 2019 The following is a tabular presentation of our consolidated operating results for the years ended December 31, 2020 and 2019 (in thousands) : 2020 2019 % of Change Increase (Decrease) Revenue $ 239 $ 283 (16 )% Cost of sales (205 ) (373 ) (45 )% Gross profit (loss) 34 (90 ) (138 )% Operating Expenses: Research and development (13,377 ) (11,053 ) 21 % Selling, general and administrative (13,878 ) (9,865 ) 41 % Total operating expenses (27,255 ) (20,918 ) 30 % Loss from operations (27,221 ) (21,008 ) 30 % Interest income 116 322 (64 )% Foreign exchange transaction loss (59 ) (21 ) 180 % Interest expense, including amortization of debt discount (33 ) (787 ) (96 )% Total other income (expense) 24 (486 ) (105 )% Loss before income taxes (27,197 ) (21,494 ) 27 % Tax benefit 5,169 5,061 2 % Net loss (22,028 ) (16,433 ) 34 % Other comprehensive income (loss) 5 1 547 % Comprehensive loss $ (22,023 ) $ (16,432 ) 34 % Revenue. Revenue for the year ended December 31, 2020 was $239,000 as compared to $283,000 for the same period in 2019, a decrease of $44,000. The decrease was attributable to decreased sales in the Middle East of $146,000, partially offset by higher sales in the European Union of $102,000. The sales decrease in the Middle East was mainly due to the expiration of our registration with the Saudi Arabia Food and Drug Administration. We intend to renew the registration in order for us to resume selling in Saudi Arabia, however, we cannot predict how long the renewal process will take. 51 Cost of Sales. Cost of sales for the year ended December 31, 2020 was $205,000 as compared to $373,000 for the same period in 2019, a decrease of $168,000. The decrease is attributable to a decrease in cost of materials of $106,000, mainly due to lower sales in the Middle East, a decrease in the cost related to replacement of products shipped under warranty of $40,000, and a decrease in the write-off of expired raw materials of $32,000, offset by an increase in inventory reserve of $17,000. Research and Development Expense . R&D expense for the year ended December 31, 2020 was $13,377,000, an increase of $2,324,000 from $11,053,000 for the same period in 2019. The increase was primarily attributable to an increase in costs related to the purchase of raw materials and manufacturing of DefenCath prior to its potential marketing approval that could potentially support the commercial launch of $3,345,000, an increase in personnel expenses of $1,391,000, primarily due to additional hires, offset by a reduction in clinical trial expenses of $2,299,000, attributable to the closing of our LOCK-IT-100 clinical trial and a decrease in consulting fees of $271,000. Selling, General and Administrative Expense . SG&A expense for the year ended December 31, 2020 was $13,878,000, an increase of $4,013,000 from $9,865,000 for the same period in 2019. The increase was primarily attributable to increases in personnel expenses of $1,422,000, primarily due to additional hires during the year ended December 31, 2020 and increases in costs related to marketing research studies in preparation for the potential marketing approval of DefenCath of $1,216,000. Additionally, there were also increases in insurance expenses of $395,000 driven by higher directors and officers insurance premium consistent with increases across our industry, in board fees of $274,000 as a result of a change in compensation which has eliminated issuance of restricted stock units as compensation, in dues and subscription and office expenses of $195,000, in recruitment fees of $184,000 in search for additional personnel, in consulting fees of $149,000, and in investor relations and business development activities of $87,000. Interest Income . Interest income for the year ended December 31, 2020 was $116,000, a decrease of $207,000 from $323,000 for the same period in 2019. The decrease was attributable to lower average interest-bearing cash balances and short-term investments during the year ending December 31, 2020 as compared to the same period in 2019. Foreign Exchange Transaction Gain (Loss) . Foreign exchange transaction losses for the year ended December 31, 2020 and 2019 were due to the re-measuring of transactions denominated in a currency other than our functional currency. Interest Expense . Interest expense for the year ended December 31, 2020 was $33,000 as compared to $787,000 for the same period in 2019. The decrease of $754,000 was due primarily to the amortization of debt discount and non-cash interest expense recognized in connection with the senior secured convertible note which is no longer outstanding. Tax Benefit. Tax benefit for the years ended December 31, 2020 of $5,169,000 and December 31, 2019 of $5,061,000, represents income tax benefits due to the sale of our unused NOL for state fiscal year 2020 and 2019, respectively, through the NJEDA Technology Business Tax Certificate Transfer program. Other Comprehensive Income (Loss) . Unrealized foreign exchange movements related to long-term loans and 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 income (loss) which resulted in gains of $6,000 and $1,000 for the years ended December 31, 2020 and 2019, respectively. Liquidity and Capital Resources Sources of Liquidity As a result of our cost of sales, R&D and SG&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable since our inception. During the year ended December 31, 2020, we received net proceeds of $18,433,000 from the issuance of 2,687,646 shares of common stock under our ATM program and $412,000 from the exercise of warrants. Additionally, in July 2020, we completed an underwritten public offering of our common stock, which yielded net proceeds of approximately $21,255,000. The public offering was made pursuant to an underwriting agreement with the underwriters thereto, relating to the issuance and sale of an aggregate of 5,111,110 shares of common stock, including 666,666 shares of common stock pursuant to the full exercise of the Underwriters’ option to purchase additional shares, at a public offering price of $4.50 per share. We will continue to be reliant on external sources of cash for the foreseeable future until we are able to generate revenue. 52 In April 2020, we received approximately $5,169,000, net of expenses, from the sale of most of our remaining unused New Jersey net operating losses (“NOL”) 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 approximately $5,529,000 of our total $6,018,000 in available NOL tax benefits for the state fiscal year 2019. As previously announced, the NJEDA has approved our application to participate in the NJEDA Program for the state fiscal year 2020. The approval will allow us to sell approximately $1.3 million of the total $1.3 million in available tax benefits to an unrelated, profitable New Jersey corporation in return for approximately $1.3 million in cash. Closing is subject to NJEDA’s typical closing conditions, which are in process of completion. During January and February 2021, we raised approximately $41,478,000 through the use of our ATM program. We currently have no available balance under our ATM program and we have $50.0 million available under our current shelf registration for the issuance of equity, debt or equity-linked securities. Net Cash Used in Operating Activities Net cash used in operating activities for the year ended December 31, 2020 was $21,968,000 as compared to $15,052,000 in 2019, an increase in net cash use of $6,916,000. The increase was mainly attributable to the increase in net loss of $5,595,000, primarily driven by an increase in operating expenses, due to the research and development expense related to the costs related to the manufacturing of DefenCath prior to its potential marketing approval and selling, general and administrative expense related to marketing research studies in preparation for the potential marketing approval of DefenCath. In addition, the increase was also due to an increase in prepaid expenses and other current assets for the year ended December 31, 2020 of $992,000, primarily due to a deposit on the equipment, compared to a $67,000 increase for the same period in 2019. There was also a decrease in accrued expenses of $1,883,000 for the year ended December 31, 2020, as compared to a decrease of $363,000 for the same period in 2019, and an increase in accounts payable of $103,000 for the year ended December 31, 2020, as compared to a decrease of $1,564,000 for the same period in 2019. Net Cash (Used in) Provided by Investing Activities Cash provided by investing activities for the year ended December 31, 2020 was $7,426,000 as compared to $12,020,000 of cash used in the same period in 2019. The increase in cash provided during the year ended December 31, 2020 as compared to the year ended December 31, 2019 was due to the maturity of short-term investments and a decline in purchases of short-term investments in 2020. Net Cash Provided by Financing Activities Net cash provided by financing activities for the year ended December 31, 2020 was $40,100,000 as compared to $25,804,000 for the same period in 2019. During the year ended December 31, 2020, we generated net proceeds of $21,255,000 from the public offering of our common stock, $18,433,000 from the sale of our common stock in our at-the-market, or ATM program, and $412,000 from the exercise of warrants. In comparison to the same period in 2019, the net proceeds we generated in the amount of $15,235,000 was from the sale of our common stock in our ATM program, gross proceeds of $8,674,000 and $123,000 from the exercise of warrants and stock options, respectively, and gross proceeds from an exchange agreement of $2,000,000, respectively. Funding Requirements and Liquidity Our total cash and cash equivalents and short-term investments as of December 31, 2020 and 2019, excluding restricted cash of $0.2 million in each fiscal year was $46.3 million and $28.3 million, respectively. During the year ended December 31, 2020, we realized net proceeds of $21.3 million from the public offering of 5,111,110 shares of our common stock and we sold 2,687,646 shares of common stock under our ATM program at the weighted average price of $7.13 per share and realized net proceeds of approximately $18.4 million. At December 31, 2020, we had approximately $17.8 million available under our current ATM program and $75.0 million available under our current shelf registration for the issuance of equity, debt or equity-linked securities. On February 5, 2021, we allocated to our ATM program an additional $25.0 million of the remaining $75.0 million available under our shelf registration statement. Giving effect to the additional $25.0 million, plus the $17.8 million available at December 31, 2020, we had a total of $42.8 million available under the ATM program. During January and February 2021, we sold an aggregate of 3,737,862 shares of our common stock under the ATM program and realized net proceeds of approximately $41.5 million. As of the filing of this Annual Report on Form 10-K, we have no available balance under our ATM program and we have $50.0 million available under our current shelf registration for the issuance of equity, debt or equity-linked securities. Because our business has not generated positive operating cash flow, we will need to raise additional capital in order to continue to fund our research and development activities, as well as to fund operations generally. Our continued operations are focused primarily in activities leading to the pre-launch and commercialization for DefenCath and will depend on our ability to raise sufficient funds through various potential sources, such as equity, debt financings, and/or strategic relationships and potential strategic transactions. We can provide no assurances that financing or strategic relationships will be available on acceptable terms, or at all. 53 We expect to continue to fund operations from cash on hand and through capital raising sources as previously described, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. We expect to continue to utilize our ATM program, if conditions allow, to support our ongoing funding requirements. Additionally, 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, any change in 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. Sales of Neutrolin outside the U.S. are not expected to generate significant product revenues for the foreseeable future, and we expect to grow product sales for DefenCath in the U.S., should we receive FDA approval. In the absence of significant revenue, we are likely to continue generating operating cash flow deficits. We will continue to use cash as we increase other activities leading to the commercialization of DefenCath upon approval, pursue business development activities, and incur additional legal costs to defend our intellectual property. We currently estimate that as of December 31, 2020 we have sufficient cash on hand to fund operations at least into the second half of 2022, after taking into consideration the net proceeds received from the ATM program after December 31, 2020 and including the costs for the initial preparations for the commercial launch of DefenCath, when the NDA is approved by FDA. Additional financing may be required to build out our commercial infrastructure and to continue our operations should we decide to market and sell Defencath in the U.S. on our own. If we are unable to raise additional funds when needed, we may be forced to slow or discontinue our preparations for the commercial launch of DefenCath. We may also be required to delay, scale back or eliminate some or all of our research and development programs. Each of these alternatives would likely have a material adverse effect on our business. 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. Our sublease on our previous premises at 400 Connell Drive, Berkeley Heights, New Jersey 07922 terminated on November 30, 2020. Payments Due in Period Total Within 1 Year Years 2-3 Years 4-5 More Than 5 Years Leases $ 1,393,000 $ 198,000 $ 402,000 $ 413,000 $ 380,000 Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. 54 While our significant accounting policies are more fully described in Note 3 to our financial statements included with this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements. Stock-Based Compensation We account for stock options according to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 718, “Compensation — Stock Compensation” (“ASC 718”). Share-based compensation cost is measured at grant date, based on the estimated fair value of the award using a Black-Scholes option pricing model for options with service or performance-based conditions. Stock-based compensation cost is recognized as expense, over the requisite service period on a straight-line basis. Valuations incorporate several variables, including expected term, expected volatility, expected dividend yield and a risk-free interest rate. We estimate the expected term of the options granted based on anticipated exercises in future periods. The expected stock price volatility for the Company’s stock options is calculated based on the historical volatility of the Company’s common stock. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards which is 5 years for employees and 10 years for non-employees. Revenue Recognition We adopted the new revenue recognition, ASC 606, “ Revenue from Contracts with Customers” , as of January 1, 2018 using the modified retrospective method. ASC 606 prescribes a five-step model for recognizing revenue which includes (i) identifying contracts with customers; (ii) identifying performance obligations; (iii) determining the transaction price; (iv) allocating the transaction price; and (v) recognizing revenue. Our product Neutrolin received its CE Mark in Europe in July 2013 and shipment of product to the dialysis centers began in December 2013. We recognize net sales upon shipment of product to the dialysis centers and upon meeting the five-step model prescribed by ASC 606 outlined above. Inventory Valuation We engage third parties to manufacture and package inventory held for sale and warehouse such goods until packaged for final distribution and sale. Inventories are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on sales activity, both projected and historical, as well as product shelf-life. In evaluating the recoverability of our inventories, we consider the probability that revenue will be obtained from the future sale of the related inventory and, if required, will write down inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of product sales in our consolidated statements of operations. We analyze our inventory levels to identify inventory that may expire prior to sale, inventory that has a cost basis in excess of its estimated realizable value, or inventory in excess of expected sales requirements. Although the manufacturing of our products is subject to strict quality controls, certain batches or units of product may no longer meet quality specifications or may expire, which would require adjustments to our inventory values. In the future, reduced demand, quality issues or excess supply beyond those anticipated by management may result in an adjustment to inventory levels, which would be recorded as an increase to cost of product sales. The determination of whether or not inventory costs will be realizable requires estimates by our management. A critical input in this determination is future expected inventory requirements based on our internal sales forecasts which we then compare to the expiry dates of inventory on hand. To the extent that inventory is expected to expire prior to being sold, we will write down the value of inventory. If actual results differ from those estimates, additional inventory write-offs may be required. 55 Short-Term Investments We determine the appropriate classification of marketable securities at the time of purchase and reevaluate such designation as of each balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value. Fair values of our investments are determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our marketable securities are highly liquid and consist of U.S. government agency securities, high-grade corporate obligations and commercial paper with maturities of more than 90 days but less than 12 months. Changes in fair value that are considered temporary are reported net of tax in other comprehensive income (loss). Realized gains and losses, amortization of premiums and discounts and interest and dividends earned are included in income (expense) on the consolidated statements of operations and comprehensive income (loss). The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Investments with maturities beyond one year, if any, are classified as short-term based on management’s intent to fund current operations with these securities or to make them available for current operations. For declines, if any, in the fair value of equity securities that are considered other-than-temporary, impairment losses are charged to other (income) expense, net. We consider available evidence in evaluating potential impairments of our investments, including the duration and extent to which fair value is less than cost and, for equity securities, our ability and intent to hold the investments. Fair Value Measurements We categorize our financial instruments into a three-level fair value hierarchy that prioritize the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on our consolidated balance sheets are categorized as follows: ● Level 1 inputs—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. ● Level 2 inputs— Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs). ● Level 3 inputs—Unobservable inputs for the asset or liability, which are supported by little or no market activity and are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. Recent Authoritative Pronouncements: In December 2019, the FASB issued new guidance which removes certain exceptions to the general principles of the accounting for income taxes and also improves consistent application of and simplification of other areas when accounting for income taxes. The guidance is effective for us beginning in the first quarter of fiscal year 2021. Early adoption is permitted. We are assessing the impact of adopting this guidance on our consolidated financial statements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data See the financial statements included at the end of this report beginning on page F-1. 56 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.