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 Annual Report on Form 10-K, particularly under the heading “Risk Factors.” Overview CorMedix Inc. and our wholly owned subsidiaries (collectively, with our wholly owned subsidiaries, referred to herein as “we,” “us,” “our” or the “Company”) is a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of life-threatening diseases and conditions. Our primary focus is on the commercialization of our lead product, DefenCath, in the U.S. The name DefenCath is the U.S. proprietary name that was approved by the FDA. DefenCath is an antimicrobial catheter lock solution (“CLS”) (a formulation of taurolidine 13.5 mg/mL, and heparin 1000 USP Units/mL) indicated to reduce the incidence of catheter-related bloodstream infections (“CRBSI”) in adult patients with kidney failure receiving chronic hemodialysis through a central venous catheter (“CVC”). It is indicated for use in a limited and specific population of patients. CRBSIs can lead to treatment delays and increased costs to the healthcare system when they occur due to 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. 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 indicated for use in a limited and specific population of patients. 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, we are currently preparing for the commercial launch of DefenCath. 36 DefenCath is listed in the Orange Book as having NCE exclusivity (5 years) expiring on November 15, 2028, and the Generating Antibiotic Incentives Now or 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 Qualified Infectious Disease Product (“QIDP”). We announced on April 26, 2023 that following the submission of a duplicate New Technology Add-On Payment (“NTAP”) application in the fourth quarter of 2022 to CMS, CMS has subsequently issued the Inpatient Prospective Payment System (“IPPS”) 2024 proposed rule that includes a NTAP of up to $17,111 per hospital stay for DefenCath. This NTAP represents reimbursement to inpatient facilities of 75% of the anticipated wholesaler acquisition cost price of $1,170 per 3 mL vial, and an average utilization of 19.5 vials per hospital stay. The final IPPS rule was published in early August 2023 and confirmed this payment amount in that final rule. This NTAP was conditioned upon the DefenCath NDA obtaining final FDA approval prior to July 1, 2024. As the NTAP was calculated by CMS based upon an anticipated WAC price of $1,170, and following FDA approval of the DefenCath NDA, an actual WAC of $249.99 per 3ml vial was established, we anticipate that CMS will revise the amount of the NTAP payment to reflect the actual WAC price in the next IPPS rulemaking, effective October 1, 2024. Upon the listing in the compendia of the actual WAC price of $249.99 per 3ml vial, the Company notified CMS of the new lower WAC pricing and recommended that CMS make an off-cycle adjustment to the NTAP to reflect the current lower WAC pricing amount. CMS subsequently communicated to the Company that they do not intend to update the NTAP reimbursement amount until the next review cycle in October 2024. On January 25, 2024, CMS determined that DefenCath should be classified as a renal dialysis service that is subject to the Medicare end-stage renal disease prospective payment system ( “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 CMS has confirmed receipt. 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. CMS has confirmed the coding application is under review. TDAPA reimbursement is calculated based on 100 percent ASP (or 100 percent of wholesale acquisition price or else manufacturers’ list price, respectively, if such data is unavailable). If CMS grants TDAPA and post-TDAPA add-on payment adjustments for DefenCath, collective payments would be for five years (with such add-on payments applying to all ESRD PPS payments for years three through five). CMS confirmed to the Company that, assuming a favorable review, CMS is working towards a July 1, 2024 implementation date for TDAPA. We may pursue additional indications for DefenCath use as a CLS in populations with unmet medical needs that may also represent potentially significant market opportunities. While we are continuing to assess these areas, potential future indications may include use as a CLS to reduce CRBSIs in total parenteral nutrition patients using a central venous catheter and in certain oncology patients using a central venous catheter. In 2024, the company anticipates discussing with the FDA potential pathways for expanded indications. We currently have one FDA approved source for each of our two key APIs for DefenCath, taurolidine and heparin sodium, respectively. With regards to taurolidine, we have a DMF filed with the FDA. There is a master commercial supply agreement between a third-party manufacturer and us in place from August 2018. We are currently in the process of identifying and qualifying an alternate third-party manufacturer for taurolidine under our existing DMF. With respect to heparin sodium API, we have identified an alternate third party supplier and intend to qualify such supplier under the DefenCath NDA over the next twelve months. We received FDA approval of DefenCath with finished dosage production from our European based CMO Rovi Pharma Industrial Services. We believe this CMO has adequate capacity to produce the volumes needed to meet near term projected demand for the commercial launch of DefenCath. We previously announced commercial arrangements with additional finished dosage CMOs, Alcami Corporation and Siegfried Hameln, that provide for the manufacture of commercial sterile parenteral drug products. The Company anticipates the submission to the FDA of a supplement adding Siegfreid Hameln as an alternate manufacturing site in the second fiscal quarter of 2024. The Company will also discontinue its relationship with Alcami as a potential alternate manufacturing site for DefenCath. We announced on May 1, 2023 that the USPTO allowed our patent application directed to a locking solution composition for treating and reducing infection and flow reduction in central venous catheters. This application was granted on August 29, 2023 as U.S. Patent No. 11,738,120. Our newly granted U.S. Patent reflects the unique and proprietary formulation of our product, DefenCath, for which we received FDA approval on November 15, 2023. This patent supplements the coverage of our existing licensed U.S. Patent No. 7,696,182, and has the potential to provide an additional layer of patent protection for DefenCath through 2042. As part of the DefenCath approval letter, the FDA communicated the existence of a required pediatric assessment under the Pediatric Research Equity Act, or PREA. PREA requires sponsors to conduct pediatric studies for, among other things, 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. FDA deferred submission of the pediatric study for DefenCath because the product is ready for approval for use in adults and the pediatric study has not been completed. We are obligated to conduct the study communicated in the approval letter: an open-label, two-arm (DefenCath vs. standard of care) study to assess safety and time to CRBSI in subjects from birth to less than 18 years of age with kidney failure receiving hemodialysis via a central venous catheter. Because this is a required post-marketing study, we must make annual reports to the FDA. Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which, if granted, provides an additional six months of exclusivity that attaches to the end of existing marketing exclusivity and patent periods for DefenCath. Depending on the timing of final report submission, DefenCath could potentially receive a total marketing exclusivity period of 10.5 years. However, there are factors that could affect whether this exclusivity is received or the duration of exclusivity, and DefenCath may or may not ultimately be eligible for the additional 0.5 years of exclusivity associated with this pediatric study. 37 Neutrolin was previously sold in the EU and other territories where we received CE-Mark approval for the commercial distribution of Neutrolin as a CLS. The Company has elected to discontinue sales of Neutrolin for lack of commercial viability. The winding down of our operations in the EU is nearly complete and Neutrolin sales in both the EU and the Middle East have been discontinued since 2022. In addition to DefenCath, we have sponsored a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare 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. Financial Operations Overview Revenue We have not generated substantial revenue since our inception. Through December 31, 2023, we have funded our operations primarily through debt and equity financings. 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; (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) manufacturing-related costs, including previously expensed pre-NDA approval inventory amounting to approximately $6,400,000. 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 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 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 future product candidates. Development timelines, probability of success and development costs vary widely. We are currently focused on the commercialization of DefenCath in the U.S. 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. 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). 38 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 financing of expenditures. Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following is a tabular presentation of our consolidated operating results for the years ended December 31, 2023 and 2022 (in thousands) : 2023 2022 % of Change Increase (Decrease) Revenue $ - $ 65 (100 )% Cost of sales - (4 ) (100 )% Gross profit - 61 (100 )% Operating Expenses: Research and development (13,155 ) (10,680 ) 23 % Selling, general and administrative (35,803 ) (20,006 ) 79 % Total operating expenses (48,958 ) (30,686 ) 60 % Loss from operations (48,958 ) (30,625 ) 60 % Interest income 2,682 326 723 % Foreign exchange transaction (loss) income (29 ) 37 (178 )% Interest expense (34 ) (26 ) 29 % Total other income 2,619 337 678 % Loss before income taxes (46,339 ) (30,288 ) 53 % Tax benefit - 586 (100 )% Net loss (46,339 ) (29,702 ) 56 % Other comprehensive gain (loss) 11 (4 ) (359 )% Comprehensive loss $ (46,328 ) $ (29,706 ) 56 % Revenue. Revenue for the year ended December 31, 2023 was $0 as compared to $65,000 for the same period in 2022, attributable to the winding down of our operations in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East. Cost of Sales. Cost of sales for the year ended December 31, 2023 was $0 as compared to $4,000 for the same period in 2022, attributable to the winding down of our operations in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East. Research and Development Expense . R&D expense for the year ended December 31, 2023 was $13,155,000, an increase of $2,475,000 from $10,680,000 for the same period in 2022. The increase was driven by an increase in personnel expenses of $1,177,000 as a result of higher R&D headcount in 2023 as compared to 2022, net increases in costs related to medical affairs activities of $941,000, and an increase in costs related to the technical and quality operations for the manufacturing of DefenCath prior to its marketing approval in November 2023 of $311,000. 39 Selling, General and Administrative Expense . SG&A expense for the year ended December 31, 2023 was $35,803,000, an increase of $15,797,000 from $20,006,000 for the same period in 2022. The increase was primarily attributable to an increase in costs related to market research studies and pre-launch activities for DefenCath of $12,248,000, and an increase in personnel expenses of $3,693,000 as a result of additional SG&A hires in 2023 in preparation for the marketing launch of DefenCath. These increases were partially offset, among others of lesser significance, a decrease in legal fees of $1,120,000. Interest Income . Interest income for the year ended December 31, 2023 was $2,682,000, an increase of $2,356,000 from $326,000 for the same period in 2022. The increase was attributable to higher interest-bearing balances and higher interest rates this year as compared to the same period last year. Foreign Exchange Transaction Income (Loss) . Foreign exchange transaction income (losses) for the years ended December 31, 2023 and 2022 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, 2023 was $34,000 as compared to $26,000 for the same period in 2022. The increase of $8,000 was due primarily to higher interest rates on expenses that were financed this year as compared to the same period last year. Tax Benefit. Tax benefits for the year ended December 31, 2022 of $586,000, was an income tax benefit due to the sale of our unused NOL for the state fiscal year 2021, which was sold in fiscal year 2022, through the NJEDA Program. There was no tax benefit from the sale of unused net operating losses for fiscal year 2023. 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 a gain of $11,000 and a loss $(4,000) for the years ended December 31, 2023 and 2022, respectively. Liquidity and Capital Resources Sources of Liquidity As a result of our 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, 2023, we received net proceeds of $42,878,000 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. In addition, during the year ended December 31, 2023, we received net proceeds of $12,949,000 from the issuance of 2,977,637 shares of common stock under our at-the-market-issuance sales agreement, or ATM program, as compared to $17,770,000 net proceeds for the same period in 2022 from the issuance of 4,704,259 shares of common stock. We may need to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, potential strategic transactions or out-licensing of our products until profitability is achieved, if ever. Net Cash Used in Operating Activities Net cash used in operating activities for the year ended December 31, 2023 was $38,409,000 as compared to $24,357,000 in 2022, an increase in net cash use of $14,052,000. The increase is primarily driven by an increase in net loss of $16,637,000, attributable to a net increase in operating expenses of $18,272,000, primarily due to increased pre-launch commercial activities for DefenCath. Net Cash Used in Investing Activities Cash used in investing activities for the year ended December 31, 2023 was $17,062,000 as compared to $3,709,000 of cash provided in the same period in 2022. The net cash used during the year ended December 31, 2023, was mainly driven by the higher amount invested in short-term investments as compared to the same period in 2022. 40 Net Cash Provided by Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was $55,917,000 as compared to $17,898,000 for the same period in 2022, an increase of $38,019,000, primarily attributable to net proceeds we received from the sale of our common stock and pre-funded warrants in the public offering during 2023. Additionally, during the year ended December 31, 2023, we generated net proceeds of $12,949,000 from the sale of our common stock in our ATM program, as compared to $17,770,000 in the same period last year. Funding Requirements and Liquidity Our total cash and cash equivalents and short-term investments as of December 31, 2023 and 2022, excluding restricted cash of $181,000 and $226,000, respectively, was $76,031,000 and $58,792,000, respectively. During the year ended December 31, 2023, we realized net proceeds of $42,878,000 of net proceeds from the public offering and exercise of the underwriters’ option and an aggregate of $12,949,000 of net proceeds from the issuance of 2,977,637 shares of common stock under our ATM program. As of December 31, 2023, we have $104,400,000 available under our shelf registration statement filed in August 2021 for the issuance of equity, debt or equity-linked securities. Because our business has not generated positive operating cash flow and if we do not raise significant revenue, 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. Our continued operations are focused on the commercial launch of DefenCath 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. 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 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 change in the timing of the commercial launch of 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. We expect to generate product sales for DefenCath in the U.S. 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, pursue business development activities, and incur additional legal costs to defend our intellectual property. We currently estimate that as of December 31, 2023, we have sufficient cash, cash equivalents and short-term investments to fund operations for at least twelve months from the issuance of this Annual Report on Form 10-K, and will enable us to fund the launch of DefenCath through to anticipated profitability. These estimates are based upon the assumption of commercial launch in the second quarter of 2024, and other base case assumptions for market penetration, average selling price, R&D expense and commercial infrastructure cost. Additional financing may be needed to build out our commercial infrastructure and to continue our operations. If we are unable to raise additional funds when needed, we may be forced to slow or discontinue 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. 41 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. 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. 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. Our significant accounting policies are more fully described in Note 3 to our financial statements included with this report. 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.