Blueprint
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, DC
20549
_________________
FORM 10-K
☒
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
fiscal year ended: December 31,
2017
OR
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
transition period from _________________ to
______________________
Commission
file number: 001-34673
CORMEDIX INC.
(Exact
name of Registrant as Specified in Its Charter)
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Delaware
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20-5894890
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(State or Other
Jurisdiction ofIncorporation or Organization)
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(I.R.S.
EmployerIdentification No.)
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400
Connell Drive, Suite 5000, Berkeley Heights, NJ
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07922
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (908) 517-9500
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name of
each exchange on which registered
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Common
Stock, $0.001 Par Value
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NYSE
American LLC
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Securities
registered pursuant to Section 12(g) of the Act: none
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files).
Yes
☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer ☐
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Accelerated
filer ☐
|
|
|
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|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
Emerging growth company ☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any news or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes
☐ No ☒
The
aggregate market value of the registrant’s voting common
equity held by non-affiliates of the registrant, based upon the
closing price of the registrant’s common stock on the last
business day of the registrant’s most recently completed
second fiscal quarter was approximately $25.3 million. Solely for
the purpose of this calculation, shares held by directors and
executive officers of the registrant have been
excluded.
The
number of outstanding shares of the registrant’s common stock
was 81,483,339 as of March 14, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Certain
information to be included in the registrant’s definitive
Proxy Statement for its 2018 Annual Meeting of Stockholders are
incorporated herein by reference, as indicated in Part
III.
CORMEDIX INC.
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PART I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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16
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Item 1B.
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Unresolved Staff Comments
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33
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Item 2.
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Properties
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33
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Item 3.
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Legal Proceedings
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33
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Item 4.
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Mine Safety Disclosures
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35
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Part II
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Item 5.
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Market for the Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
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35
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Item 6.
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Selected Consolidated Financial Data
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36
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Item 7.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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36
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Item 7A.
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Quantitative and Qualitative Disclosures About Market
Risk
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47
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Item 8.
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Financial Statements and Supplementary Data
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47
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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47
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Item 9A.
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Controls and Procedures
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47
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Item 9B.
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Other Information
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48
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PART III
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Item 10.
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Directors and Executive Officers and Corporate
Governance.
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48
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Item 11.
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Executive Compensation.
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49
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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49
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Item 13.
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Certain Relationships and Related Transactions and Director
Independence.
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49
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Item 14.
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Principal Accountant Fees and Services.
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49
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Part IV
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Item 15.
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Exhibits and Financial Statement Schedules
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49
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Neutrolin®
is our registered trademark. All other trade names, trademarks and
service marks appearing in this report are the property of their
respective owners. We have assumed that the reader understands that
all such terms are source-indicating. Accordingly, such terms, when
first mentioned in this report, appear with the trade name,
trademark or service mark notice and then throughout the remainder
of this report without trade name, trademark or service mark
notices for convenience only and should not be construed as being
used in a descriptive or generic sense.
PART
I
Forward-Looking Statements
This
report contains “forward-looking statements” that
involve risks and uncertainties, as well as assumptions that, if
they never materialize or prove incorrect, could cause our results
to differ materially from those expressed or implied by such
forward-looking statements. The statements contained in this report
that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Forward-looking statements are
often identified by the use of words such as, but not limited to,
“anticipate,” “believe,” “can,”
“continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “will,” “plan,”
“project,” “seek,” “should,”
“target,” “will,” “would,” and
similar expressions or variations intended to identify
forward-looking statements. These statements are based on the
beliefs and assumptions of our management based on information
currently available to management. Such forward-looking statements
are subject to risks, uncertainties and other important factors
that could cause actual results and the timing of certain events to
differ materially from future results expressed or implied by such
forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to, those
identified below in the section titled “Item 1A. Risk
Factors.” Furthermore, such forward-looking statements speak
only as of the date of this report. Except as required by law, we
undertake no obligation to update any forward-looking statements to
reflect events or circumstances after the date of such
statements.
Overview
We are
a biopharmaceutical company focused on developing and
commercializing therapeutic products for the prevention and
treatment of infectious and inflammatory diseases.
Our
primary focus is on the development of our lead product candidate,
Neutrolin®, for potential commercialization in the United
States, or U.S. and other key markets. We have in-licensed the
worldwide rights to develop and commercialize Neutrolin. Neutrolin
is a novel anti-infective solution (a formulation of taurolidine,
citrate and heparin 1000 u/ml) for the reduction and prevention of
catheter-related infections and thrombosis in patients requiring
central venous catheters in clinical settings such as dialysis,
critical/intensive care, and oncology. Infection and thrombosis
represent key complications among dialysis, critical care/intensive
care 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 IV antibiotic treatment, long-term anticoagulation therapy,
removal/replacement of the central venous catheter, related
treatment costs and increased mortality. We believe Neutrolin
addresses a significant unmet medical need and a potential large
market opportunity.
Neutrolin – United States
The
U.S. Food and Drug Administration, or FDA, has designated Neutrolin
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. In addition, in January 2015, the FDA granted Fast
Track designation to Neutrolin Catheter Lock Solution, pursuant to
the Food and Drug Administration Safety Innovation Act, or FDASIA,
highlighting the large unmet need to prevent infections in the U.S.
healthcare system. The Fast Track designation of Neutrolin 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 late
2013, we met with the FDA to determine the pathway for U.S.
marketing approval of Neutrolin. Based on those discussions, we
determined to conduct two pivotal trials to demonstrate safety and
effectiveness of Neutrolin to secure marketing approval in the U.S.
We initiated a Phase 3 clinical trial in hemodialysis patients with
a central venous catheter in December 2015 and are currently
planning to initiate a Phase 3 trial in another indication in order
to expand the indications in which Neutrolin may be
used.
We launched the
Phase 3 clinical trial in hemodialysis catheters in the U.S. in
December 2015. The clinical trial, named Catheter Lock Solution
Investigational Trial, or LOCK-IT-100, is a prospective,
multicenter, randomized, double-blind, active control trial which
aims to demonstrate the efficacy and safety of Neutrolin in
preventing catheter-related bloodstream infections, or CRBSI, in
subjects receiving hemodialysis therapy as treatment for end stage
renal disease. The primary endpoint
for the trial is time to CRBSI. The trial will evaluate whether
Neutrolin is superior to the active control heparin by documenting
the incidence of CRBSI and the time until the occurrence
of CRBSI. Key secondary endpoints are catheter patency, which is
defined as required use of tissue plasminogen activating factor
(tPA), or removal of catheter for any reason. We now project
to complete patient enrollment in mid-year 2018, and anticipate
that we will accumulate the requisite number of CRBSI events around
the end of 2018.
We established the Clinical Adjudication Committee, or CAC, to
critically and independently assess CRBSI. As announced recently,
the CAC reviewed potential cases of CRBSI in our LOCK-IT-100 study
that occurred through early December 2017, and identified 28 such
cases. As previously agreed with the FDA, an interim efficacy
analysis will be performed when the first 28 CRBSIs case have been
identified. The primary endpoint for the study is the reduction of
CRBSI by Neutrolin in comparison to a heparin catheter lock
solution.
Neutrolin – International
In July
2013, we received CE Mark approval for Neutrolin. In
December 2013, we commercially launched Neutrolin in Germany
for the prevention of catheter-related bloodstream infections
(“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
granted a label expansion for Neutrolin for these same expanded
indications for the European Union (“EU”). In December
2014, we received approval from the Hessian District President in
Germany to expand the label to include use in oncology patients
receiving chemotherapy, IV hydration and IV medications via central
venous catheters. The expansion also adds patients receiving
medication and IV fluids via central venous catheters 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.
Additional Development Possibilities
We are
evaluating opportunities for the
possible expansion for taurolidine as a platform compound. Patent
applications have been filed in wound closure, surgical meshes,
wound management, and osteoarthritis, including
visco-supplementation. We have had dialogue with the FDA on
the regulatory pathway for these indications. The FDA has recently
informed us that it regards taurolidine as a new chemical entity
and therefore an unapproved drug. Consequently, there is no
appropriate predicate device currently marketed in the U.S. on
which a 510k approval process could be based. As a result, we will
be required to submit a premarket approval application for
marketing authorization for these indications. In the event that
the New Drug Application for Neutrolin is approved by the FDA, the
regulatory pathway can be revisited with the FDA. Although
there will presumably still 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. We believe
taurolidine can also provide benefits not currently available in
marketed antimicrobial medical devices, including devices for burn
victims and use in less sterile environments.
We are
also involved in a pre-clinical research collaboration for the use
of taurolidine in combination with certain anti-cancer drugs as a
possible treatment for rare orphan pediatric tumors. In February
2018, the FDA granted us orphan drug designation to taurolidine for
the treatment of neuroblastoma.
Neutrolin
Market Opportunity
Central
venous catheters and peripherally inserted central catheters
("Central Catheters") are an important and frequently used method
for accessing the vasculature in hemodialysis (a form of dialysis
where the patient’s blood is circulated through a dialysis
filter), administering chemotherapy and basic fluids (total
parenteral nutrition) in cancer patients and for cancer
chemotherapy, long term antibiotic therapy, total parenteral
nutrition (complete or partial dietary support via intravenous
nutrients) and critical care/intensive care patients.
According
to the 2015 United States Renal Disease System, there were 660,000
patients on hemodialysis. Hemodialysis National Kidney
Foundation has reported that patients requiring Central Catheters
represent over 63 million catheter/dialysis treatment days per
year. In the United States, 5.7 million intensive care patients are
admitted annually according to the Society of Critical Care
Medicine, which is estimated to represent 28.5 million catheter
days associated with Central Catheter use in the ICU alone.
As of 2014, there were over 14.5 million patients in the United
States living with cancer, with an estimated 7.7 million having had
long-term Central Catheters. When stages of disease and types of
chemotherapy regime are considered, the number of catheter days per
year in cancer patients reaches 90 million.
One of
the major and common complications for all patients requiring
central venous catheters is catheter related blood stream
infections, or CRBSIs, and the clinical complications associated
with them. There are an estimated 250,000 CRBSIs each year.
The U.S. Centers for Disease Control and Prevention stated in
the Journal of American Medicine that the total annual cost in the
United States of treating all CRBI episodes and their complications
amounts to approximately $6 billion.
Biofilm
build up is the pathogenesis of both infections and thrombotic
complications in central venous catheters. Prevention of CRBIs and
inflammatory complications requires both decontamination of the
internal surface of the catheter to prevent the systemic
dissemination of organisms contained within the biofilm as well as
an anticoagulant to retain patency. Biofilm forms when bacteria
adhere to surfaces in aqueous environments and begin to excrete a
slimy, glue-like substance that can anchor them to various types of
materials, including intravenous catheters. The presence of biofilm
has many adverse effects, including the ability to release bacteria
into the blood stream. The current standard of catheter care is to
instill a heparin lock solution at a concentration of 1,000 u/mL
into each catheter lumen immediately following treatment, in order
to prevent clotting between dialysis treatments. However, a heparin
lock solution provides no protection from the risk of
infection.
Currently, there
are no pharmacologic agents approved in the U.S. for the prevention
of CRBIs in central venous catheters. As noted above, we received
the CE Mark approval for Neutrolin from the Medical Evaluation
Board, or MEB, at the EU in July 2013. We believe there is a
significant need for prevention of CRBIs in the hemodialysis
patient population as well as for other patient populations
utilizing central venous catheters and peripherally inserted
central catheters, such as oncology/chemotherapy, total parenteral
nutrition and intensive care unit patients.
Neutrolin is a
broad-spectrum antimicrobial/antifungal and anticoagulant
combination that is active against common microbes including
antibiotic-resistant strains and in addition may prevent biofilm
formation. We believe that using Neutrolin as an anti-infective
solution will significantly reduce the incidence of
catheter-related blood stream infections, thus reducing the need
for local and systemic antibiotics while prolonging catheter
life.
Initially, we
expect to sell Neutrolin in the U.S. directly to hospitals and also
to key dialysis center operators. We anticipate that Medicare
reimbursement could be available for Neutrolin in other catheter
indications in intensive care, oncology and total parenteral
nutrition through relevant hospital inpatient diagnosis-related
groups (DRGs) or outpatient ambulatory payment classifications
(APCs), the End-Stage Renal Disease Prospective Payment System
(ESRD PPS) base payment, or under the Durable Medical Equipment,
Prosthetics, Orthotics, and Supplies (DMEPOS) Fee Schedule,
depending on the setting of care. We also plan to seek separate
reimbursement as a drug, where available under Medicare, through
mechanisms such as pass-through status under the Hospital
Outpatient Prospective Payment System, the transitional drug add-on
payment adjustment under the ESRD PPS, or reimbursement as a drug
used with a DME infusion pump. We cannot fully anticipate changes
in reimbursement requirements and mechanisms in the coming years,
however, and we cannot be certain that Neutrolin will be granted
separate reimbursement under any of these mechanisms.
Furthermore, we
anticipate that the U.S. Centers for Medicare & Medicaid
Services (CMS), and private payers will increasingly demand that
manufacturers demonstrate the cost effectiveness of their product
as part of the reimbursement review and approval process. With this
in mind, we have incorporated health economic evaluations into our
ongoing clinical studies to support this review in the context of
the prospective use of Neutrolin in dialysis, the ICU and oncology
settings. Our studies might not be sufficient to support
coverage or reimbursement at levels that allow providers to use
Neutrolin.
Competitive Landscape
The
drug and medical device industries are highly competitive and
subject to rapid and significant technological change.
Neutrolin’s current and future competitors include large as
well as specialty pharmaceutical and biotechnology companies. Many
of our competitors have substantially greater financial, technical
and human resources than we do and significantly more experience in
the development and commercialization of drugs and medical devices.
Further, the development of new treatment methods could render
Neutrolin non-competitive or obsolete.
We
believe that the key competitive factors that will affect the
development and commercial success of Neutrolin are efficacy and
safety, as well as pricing and reimbursement.
Drug:
To the
best of our knowledge, the following product candidates have been
recognized for the prevention and treatment of catheter-related
blood stream infections in the U.S. or elsewhere.
●
TauroLock,
manufactured by Tauro-Implant (Winsen, Germany). TauroLock has
received a CE Mark and is distributed in 25 countries. It has
anti-microbial and anti-coagulant activity and contains a
combination of citrate 4% with (cyclo)-taurolidine and heparin or
urokinase TauroLock has four formulations: TauroLock,
Tauro_lock Heparin 100, TauroLock Heparin 500 and TauroLock
Urokinase 2500IU.
●
Zuragen, being
developed by Ash Access Technology (Lafayette,IN). It has
antimicrobial and anticoagulant activity and contains methylene
blue, parabens and 7% citrate.
●
B-Lock, being
developed by Great Lakes Pharmaceuticals Inc. (Cleveland,
OH). It has anti-microbial, anti-coagulant and anti-fungal
activity and contains trimethoprim, EDTA and ethanol combinations.
Initiated study in 2012 in Poland and Hungary to support CE Mark in
European Union.
●
DuraLock-C,
manufactured by Medical Components, Inc. (Harleysville,PA).
DuraLock-C received a CE Mark and is distributed in a number of
European Union countries. It has anti-microbial and
anti-thrombosis activity and contains trisodium citrate in 46.7%,
30% and 4% concentrations.
●
IntraLock,
manufactured by Fresenius Medical Care AG & Co. (Bad Homburg,
Germany). IntraLock received a CE Mark and is distributed in a
number of European Union countries. It is an anticoagulant solution
to prevent thrombus formation in catheters. IntraLock contains
citrate (4%) for anticoagulation and a small amount of polyhexanide
for preservation.
●
TauroSept,
manufactured by Geistlich Pharma (Wolhusen, Switzerland). TauroSept
received Class 3 CE Mark and is distributed in a number of European
Union countries. TauroSept contains 2% taurolidine solution, 5%
polyvinylpyrrolidone and traces of HCl and NaOH to adjust pH. It
contains no anticoagulant substances.
Medical Devices:
●
Tego®
Needlefree Connector, manufactured by ICU Medical Inc. (California,
USA) Tego Needlefree Connector received 510(k) clearance from the
FDA. The Tego connector creates a mechanical and microbiology
closed system when attached to the hub of the catheter and works
with all hemodialysis CVC related applications.
●
Curos®
(Luer-lock caps twist on, stay on) disinfecting port protectors
designed specifically for Tego Needlefree Connectors, manufactured
by Ivera Medical Corporation. Curos received 510 (k) clearance from
the FDA. Curos for Tego Needlefree Connectors contains 70%
isopropyl alcohol-saturated, sponge-like foam that disinfects ports
in three minutes and keeps ports clean for seven days.
●
ClearGuard®
HD End Caps for Hemodialysis Catheters, manufactured by Pursuit
Vascular, Inc. ClearGuard HD End Caps received 510 (k) clearance
from the FDA. The ClearGuard HD End Cap consists of 1) a
copolyester polymer plug, which has a rod extending from the tier
region that is coated with the antimicrobial agent chlorhexidine
acetate (CHA) and 2) a nylon lock ring with threads that are also
coated with CHA.
●
BioFlo DuraMax
Dialysis Catheter with Endexo Technology, manufactured by
AngioDynamics. The product received 510(k) clearance by the FDA.
The BioFlo DuraMax chronic dialysis catheter features Endexo
Technology, a catheter material more resistant to thrombus
accumulation. Endexo technology is permanent, non-eluting polymer
“blended” into the polyurethane from which the catheter
is made.
Some
device companies have launched antibiotic or antimicrobial-coated
catheters as short-term prevention of catheter infection. We
believe these are not effective for hemodialysis catheters due to
the long term use and high blood flow associated with
hemodialysis.
Manufacturing
All of
our manufacturing processes currently are, and we expect them to
continue to be, outsourced to third parties. We rely on third-party
manufacturers to produce sufficient quantities of drug product for
use both commercially and in clinical trials. We intend to continue
this practice in the future.
In
April 2015, we entered into a Preliminary Services Agreement with
[RC]2 Pharma Connect LLC
(“RC2”), pursuant to which RC2 coordinates certain
manufacturing services related to taurolidine, which is a key
ingredient in Neutrolin. Specifically, RC2 undertook a critical
parameters evaluation for our manufacturing needs and to coordinate
the cGMP processes set forth in the agreement that we believe are
necessary for the submission of our planned new drug application
for Neutrolin to the FDA, as well as any foreign regulatory
applications. The total cost for RC2’s services under the
preliminary services agreement was approximately $1.7 million and
the agreement was completed during the first quarter of 2017. The
active pharmaceutical ingredient, or API, produced under this
agreement has been manufactured for future commercial sales in the
EU and Middle East and used for the U.S. Phase 3 clinical
trial.
We are
also working with RC2 under several service agreements for an
aggregate amount of $8.9 million for the manufacture of clinical
supplies to support our ongoing and planned Phase 3 clinical
trials. During the years ended December 31, 2017 and 2016, we
recognized research and development expense of approximately $2.5
and $2.4 million, respectively, related to these agreements. We may
terminate these agreements upon 30 days’ written notice and
are only obligated for project costs and reasonable project shut
down costs provided through the date of
termination.
We are
confident that there exists a sufficient number of potential
alternate sources for the drug substances required to produce our
products, as well as third-party manufacturers, that we will be
able to find alternate suppliers and third-party manufacturers in
the event that our relationship with any supplier or third-party
manufacturer deteriorates.
United States Government Regulation
The
research, development, testing, manufacture, labeling, promotion,
advertising, distribution, and marketing, among other things, of
our products are extensively regulated by governmental authorities
in the United States and other countries. Our products may be
classified by the FDA as a drug or a medical device depending upon
the indications for use or claims. Because certain of our product
candidates are considered as medical devices and others are
considered as drugs for regulatory purposes, we intend to submit
applications to regulatory agencies for approval or clearance of
both medical devices and pharmaceutical product
candidates.
In the
United States, the FDA regulates drugs and medical devices under
the Federal Food, Drug, and Cosmetic Act and the agency’s
implementing regulations. If we fail to comply with the applicable
United States requirements at any time during the product
development process, clinical testing, and the approval process or
after approval, we may become subject to administrative or judicial
sanctions. These sanctions could include the FDA’s refusal to
approve pending applications, license suspension or revocation,
withdrawal of an approval, warning letters, adverse publicity,
product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, civil penalties or
criminal prosecution, among other actions. Any agency enforcement
action could have a material adverse effect on us.
Drug Approval Process
The
research, development, and approval process in the United States
and elsewhere is intensive and rigorous and generally takes many
years to complete. The typical process required by the FDA before a
therapeutic drug may be marketed in the United States
includes:
●
Pre-clinical
laboratory and animal tests performed under the FDA’s Good
Laboratory Practices, or GLP, regulations;
●
submission to the
FDA of an investigational new drug application, or IND, which must
become effective before human clinical trials may
commence;
●
human clinical
studies to evaluate the drug’s safety and effectiveness for
its intended uses;
●
FDA review of
whether the facility in which the drug is manufactured, processed,
packaged, or held meets standards designed to assure the
product’s continued quality and FDA review of clinical trial
sites to determine whether the clinical trials were conducted in
accordance with Good Clinical Practices, or GCPs; and
●
submission of a new
drug application, or NDA, to the FDA, and approval of the
application by the FDA to allow sales of the drug.
During
pre-clinical testing, studies are performed with respect to the
chemical and physical properties of candidate formulations. These
studies are subject to GLP requirements. Biological testing is
typically done in animal models to demonstrate the activity of the
compound against the targeted disease or condition and to assess
the apparent effects of the new product candidate on various organ
systems, as well as its relative therapeutic effectiveness and
safety. An IND application must be submitted to the FDA and become
effective before studies in humans may commence.
Clinical trial
programs in humans generally follow a three-phase process.
Typically, Phase 1 studies are conducted in small numbers of
healthy volunteers or, on occasion, in patients afflicted with the
target disease. Phase 1 studies are conducted to determine the
metabolic and pharmacological action of the product candidate in
humans and the side effects associated with increasing doses, and,
if possible, to gain early evidence of effectiveness. In Phase 2,
studies are generally conducted in larger groups of patients having
the target disease or condition in order to validate clinical
endpoints, and to obtain preliminary data on the effectiveness of
the product candidate and optimal dosing. This phase also helps
determine further the safety profile of the product candidate. In
Phase 3, large-scale clinical trials are generally conducted in
patients having the target disease or condition to provide
sufficient data for the statistical proof of effectiveness and
safety of the product candidate as required by United States and
foreign regulatory agencies. Typically two Phase 3 trials are
required for marketing approval.
In the
case of products for certain serious or life-threatening diseases,
the initial human testing may be done in patients with the disease
rather than in healthy volunteers. Because these patients are
already afflicted with the target disease or condition, it is
possible that such studies will also provide results traditionally
obtained in Phase 2 studies. These studies are often referred to as
“Phase 1/2” studies. However, even if patients
participate in initial human testing and a Phase 1/2 study is
carried out, the sponsor is still responsible for obtaining all the
data usually obtained in both Phase 1 and Phase 2
studies.
Before
proceeding with a study, sponsors may seek a written agreement
known as a Special Protocol Assessment, or SPA, from the FDA
regarding the design, size, and conduct of a clinical trial. Among
other things, SPAs can cover clinical studies for pivotal trials
whose data will form the primary basis to establish a
product’s efficacy. SPAs help establish up-front agreement
with the FDA about the adequacy of a clinical trial design to
support a regulatory approval, but the agreement is not binding on
the FDA if new circumstances arise. An
SPA may only be modified with the agreement of the FDA and the
trial sponsor or if the director of the FDA reviewing division
determines that a substantial scientific issue essential to
determining the safety or efficacy of the drug was identified after
the testing began. There is no guarantee that a study
will ultimately be adequate to support an approval even if the
study is subject to an SPA.
Additionally,
some clinical trials are overseen by an independent group of
qualified experts organized by the clinical trial sponsor, known as
a data safety monitoring board or committee. This group regularly
reviews accumulated data and advises the study sponsor regarding
the continuing safety of trial subjects, and the continuing
validity and scientific merit of the clinical trial. The data
safety monitoring board receives special access to unblinded data
during the clinical trial and may advise the sponsor to halt the
clinical trial if it determined there is an unacceptable safety
risk for subjects or on other grounds, such as no demonstration of
efficacy.
The
manufacture of investigational drugs for the conduct of human
clinical trials is subject to current Good Manufacturing Practice,
or cGMP, requirements. Investigational drugs and active
pharmaceutical ingredients imported into the United States are also
subject to regulation by the FDA relating to their labeling and
distribution. Further, the export of investigational drug products
outside of the United States is subject to regulatory requirements
of the receiving country as well as U.S. export requirements under
the Federal Food, Drug, and Cosmetic Act, or FDCA.
IND
sponsors are required to submit a number of reports to the FDA
during the course of a development program. For instance, sponsors
are required to make annual reports to the FDA concerning the
progress of their clinical trial programs as well as more frequent
reports for certain serious adverse events. Sponsors must submit a protocol for each clinical trial,
and any subsequent protocol amendments to the FDA. Investigators
must also provide certain information to the clinical trial
sponsors to allow the sponsors to make certain financial
disclosures to the FDA. Information about certain clinical
trials, including a description of the study and study results,
must be submitted within specific timeframes to the National
Institutes of Health, or NIH, for public dissemination on their
clinicaltrials.gov website. Moreover, under the 21st Century Cures
Act, manufacturers or distributors of investigational drugs for the
diagnosis, monitoring, or treatment of one or more serious diseases
or conditions must have a publicly available policy concerning
expanded access to investigational drugs.
United
States law requires that studies conducted to support approval for
product marketing be “adequate and well controlled.” In
general, this means that either a placebo or a product already
approved for the treatment of the disease or condition under study
must be used as a reference control. The recently passed 21st
Century Cures Act, however, provides for FDA acceptance of new
kinds of data such as such as patient experience data, real world
evidence, and, for appropriate indications sought through
supplemental marketing applications, data summaries. Studies must
also be conducted in compliance with good clinical practice
requirements, and informed consent must be obtained from all study
subjects.
In
addition, under the Pediatric Research Equity Act, or PREA, an NDA
or supplement to an NDA for a new active ingredient, indication,
dosage form, dosage regimen, or route of administration must
contain data that are adequate to assess the safety and
effectiveness of the drug for the claimed indications in all
relevant pediatric subpopulations, and to support dosing and
administration for each pediatric subpopulation for which the
product is safe and effective. The FDA may, on its own initiative
or at the request of the applicant, grant deferrals for submission
of some or all pediatric data until after approval of the product
for use in adults, or full or partial waivers from the pediatric
data requirements.
The
FDA also may require submission of a risk evaluation and mitigation
strategy, or REMS, to ensure that the benefits of the drug outweigh
the risks of the drug. The REMS plan could include medication
guides, physician communication plans, and elements to assure safe
use, such as restricted distribution methods, patient registries,
or other risk minimization tools. An assessment of the REMS must
also be conducted at set intervals. Following product approval, a
REMS may also be required by the FDA if new safety information is
discovered and the FDA determines that a REMS is necessary to
ensure that the benefits of the drug outweigh the risks of the
drug.
The
clinical trial process for a new compound can take ten years or
more to complete. The FDA may prevent clinical trials from
beginning or may place clinical trials on hold at any point in this
process if, among other reasons, it concludes that study subjects
are being exposed to an unacceptable health risk. Trials may also
be prevented from beginning or may be terminated by institutional
review boards, or IRBs, who must review and approve all research
involving human subjects and amendments thereto. The IRB must continue to oversee the clinical
trial while it is being conducted. This includes the IRBs receiving
information concerning unanticipated problems involving risk to
subjects. Side effects or adverse events that are reported
during clinical trials can delay, impede, or prevent marketing
authorization. Similarly, adverse events that are reported after
marketing authorization can result in additional limitations being
placed on a product’s use and, potentially, withdrawal of the
product from the market.
Following the
completion of a clinical trial, the data are analyzed by the
sponsoring company to determine whether the trial successfully
demonstrated safety and effectiveness and whether a product
approval application may be submitted. In the United States, if the
product is regulated as a new drug, an NDA must be submitted and
approved before commercial marketing may begin. The NDA must
include a substantial amount of data and other information
concerning the safety and effectiveness of the compound from
laboratory, animal, and human clinical testing, as well as data and
information on manufacturing, product quality and stability, and
proposed product labeling.
Each
domestic and foreign manufacturing establishment, including any
contract manufacturers that we may decide to use, must be listed in
the NDA and must be registered with the FDA. The application
generally will not be approved until the FDA conducts a
manufacturing inspection, approves the applicable manufacturing
process for the drug product, and determines that the facility is
in compliance with current cGMP requirements. Moreover, FDA will
also typically inspect one or more clinical trial sites to confirm
that the applicable clinical trials were conducted in accordance
with GCPs.
Under
the Prescription Drug User Fee Act, as amended, the FDA receives
fees for reviewing an NDA, as well as annual fees for commercial
manufacturing establishments and for approved products. These fees
can be significant. Fee waivers or reductions are available in
certain circumstances. One basis for a waiver of the application
user fee is if the applicant employs fewer than 500 employees,
including employees of affiliates, the applicant does not have an
approved marketing application for a product that has been
introduced or delivered for introduction into interstate commerce,
and the applicant, including its affiliates, is submitting its
first marketing application. Product candidates that are designated
as orphan drugs, which are further described below, are also not
subject to application user fees unless the application includes an
indication other than the orphan indication. Under certain
circumstances, orphan products may also be exempt from product and
establishment fees.
Each
NDA submitted for FDA approval is usually reviewed for
administrative completeness and reviewability. Following this
review, the FDA may request additional information rather than
accept an NDA for filing. In this event, the application must be
resubmitted with the additional information. The resubmitted
application is also subject to review before the FDA accepts it for
filing.
Once
accepted for filing, the FDA’s review of an application may
involve review and recommendations by an independent FDA advisory
committee. The FDA must refer
applications for drugs that contain active ingredients, including
any ester or salt of the active ingredients that have not
previously been approved by the FDA to an advisory committee or
provide in an action letter a summary for not referring it to an
advisory committee. The FDA may also refer drugs to advisory
committees when it is determined that an advisory committee’s
expertise would be beneficial to the regulatory decision-making
process, including the evaluation of novel products and the use of
new technology. An advisory committee is typically a panel that
includes clinicians and other experts, which review, evaluate, and
make a recommendation as to whether the application should be
approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such
recommendations carefully when making
decisions.
After
evaluating the NDA and all related information, including the
advisory committee recommendation, if any, and inspection reports
regarding the manufacturing facilities and clinical trial sites,
the FDA may issue an approval letter, or, in some cases, a Complete
Response Letter, or CRL. If a CRL is issued, the applicant may
either resubmit the NDA, addressing all of the deficiencies
identified in the letter; withdraw the application; or request an
opportunity for a hearing. A CRL indicates that the review cycle of
the application is complete and the application is not ready for
approval and describes all of the specific deficiencies that the
FDA identified in the NDA. A CRL generally contains a statement of
specific conditions that must be met in order to secure final
approval of the NDA, and may require additional clinical or
pre-clinical testing in order for the FDA to reconsider the
application. The deficiencies identified may be minor, for example,
requiring labeling changes; or major, for example, requiring
additional clinical trials. Even with submission of this additional
information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval. If and when
those conditions have been met to the FDA’s satisfaction, the
FDA may issue an approval letter. An approval letter authorizes
commercial marketing of the drug with specific prescribing
information for specific indications.
Even if
the FDA approves a product, it may limit the approved therapeutic
uses for the product as described in the product labeling, require
that warning statements be included in the product labeling,
require that additional studies be conducted following approval as
a condition of the approval, impose restrictions and conditions on
product distribution, prescribing, or dispensing in the form of a
REMS or otherwise limit the scope of any approval.
Special FDA Expedited Review and Approval Programs
The
FDA has various programs, including Fast Track designation,
priority review and breakthrough designation, that are intended to
expedite or simplify the process for the development and FDA review
of certain drug products that are intended for the treatment of
serious or life threatening diseases or conditions, and demonstrate
the potential to address unmet medical needs or present a
significant improvement over existing therapy. The purpose of these
programs is to provide important new drugs to patients earlier than
under standard FDA review procedures.
To
be eligible for a Fast Track designation, the FDA must determine,
based on the request of a sponsor, that a product is intended to
treat a serious or life threatening disease or condition and
demonstrates the potential to address an unmet medical need. The
FDA will determine that a product will fill an unmet medical need
if the product will provide a therapy where none exists or provide
a therapy that may be potentially superior to existing therapy
based on efficacy, safety, or public health factors. If Fast Track
designation is obtained, drug sponsors may be eligible for more
frequent development meetings and correspondence with the FDA. In
addition, the FDA may initiate review of sections of an NDA before
the application is complete. This “rolling review” is
available if the applicant provides and the FDA approves a schedule
for the remaining information. A Fast Track product is also
eligible to apply for accelerated approval and priority
review.
The
FDA may give a priority review designation to drugs that are
intended to treat serious conditions and, if approved, would
provide significant improvements in the safety or effectiveness of
the treatment, diagnosis, or prevention of serious conditions. A
priority review means that the goal for the FDA is to review an
application within six months, rather than the standard review of
ten months under current PDUFA guidelines, of the 60-day filing
date for new molecular entities.
Moreover,
under the provisions of the Food and Drug Administration Safety and
Innovation Act, or FDASIA, enacted in 2012, a sponsor can request
designation of a product candidate as a “breakthrough
therapy.” A breakthrough therapy is defined as a drug that is
intended, alone or in combination with one or more other drugs, to
treat a serious or life-threatening disease or condition, and
preliminary clinical evidence indicates that the drug may
demonstrate substantial improvement over existing therapies on one
or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. Drugs
designated as breakthrough therapies are eligible for the Fast
Track designation features as described above, intensive guidance
on an efficient drug development program beginning as early as
Phase 1 trials, and a commitment from the FDA to involve
senior managers and experienced review staff in a proactive
collaborative, cross-disciplinary review.
Even
if a product qualifies for one or more of these programs, the FDA
may later decide that the product no longer meets the conditions
for qualification or decide that the time period for FDA review or
approval will not be shortened.
A
final new program to expedite the development of drug products is
the limited population pathway for antibacterial and antifungal
drugs, which was passed as part of the recent enacted 21st Century
Cures Act. Under this program, a sponsor can request drug approval
under this new pathway for an antibacterial or antifungal drug if
the drug is intended to treat a serious or life-threatening
infection in a limited population of patients with unmet needs.
Under this program, the FDA’s determination of safety and
effectiveness would reflect the risk-benefit profile of the drug in
the intended limited population, taking into account the severity,
rarity, or prevalence of the infection and the availability of
alternative treatments in the limited population. The drug may be
approved for the limited population notwithstanding a lack of
evidence to fully establish a favorable benefit-risk profile in a
broader population. Under this program, the FDA must provide prompt
advice to sponsors seeking approval under this pathway to enable
them to plan a development program. If approved under this pathway,
certain post-marketing requirements would apply, such as required
labeling and advertising statements and pre-distribution submission
of promotional materials to FDA. If after approval for a limited
population, a product receives a broader approval, the FDA may
remove such post-marketing restrictions. While a drug may only be
approved for a limited population under this program, the 21st
Century Cures Act states that it is not intended to restrict the
prescribing of antimicrobial drugs or other products by healthcare
professionals.
Exclusivity
For
approved drug products, market exclusivity provisions under the
FDCA provide periods of regulatory exclusivity, which gives the
holder of an approved NDA limited protection from new competition
in the marketplace for the innovation represented by its approved
drug.
Section 505
of the FDCA describes three types of marketing applications that
may be submitted to the FDA to request marketing authorization for
a new drug. A Section 505(b)(1) NDA is an application that
contains full reports of investigations of safety and efficacy. A
Section 505(b)(2) NDA is an application in which the
applicant, in part, relies on investigations that were not
conducted by or for the applicant and for which the applicant has
not obtained a right of reference or use from the person by or for
whom the investigations were conducted. Section 505(j)
establishes an abbreviated approval process for a generic version
of approved drug products through the submission of an Abbreviated
New Drug Application, or ANDA. An ANDA provides for marketing of a
generic drug product that has the same active ingredients, dosage
form, strength, route of administration, labeling, performance
characteristics, and intended use, among other things, to a
previously approved product. Limited changes must be pre-approved
by the FDA via a suitability petition.
Five
years of exclusivity are available to New Chemical Entities, or
NCEs. A NCE is a drug that contains no active moiety that has been
approved by the FDA in any other NDA. An active moiety is the
molecule or ion, excluding those appended portions of the molecule,
that cause the drug to be an ester, salt, including a salt with
hydrogen or coordination bonds, or other noncovalent derivatives,
such as a complex, chelate, or clathrate, of the molecule,
responsible for the therapeutic activity of the drug substance.
During the exclusivity period, the FDA may not accept for review
and make an ANDA or a 505(b)(2) NDA approval effective for an
application submitted by another company that contains the
previously approved active moiety. An ANDA or 505(b)(2)
application, however, may be submitted one year before NCE
exclusivity expires if the applicant submits a certification
stating that the patents listed by the NCE sponsor in FDA’s
list of Approved Drug Products with Therapeutic Equivalence
Evaluations, or Orange Book, are invalid or will not be infringed
by the manufacture, use, or sale of the drug product for which
approval is sought. Five-year exclusivity will also not delay the
submission or approval of a full NDA; however, an applicant
submitting a full NDA would be required to conduct or obtain a
right of reference to all of the pre-clinical studies and adequate
and well-controlled clinical trials necessary to demonstrate safety
and efficacy.
Pediatric
exclusivity is another type of non-patent marketing exclusivity in
the United States and, if granted, provides for the
attachment of an additional six months of marketing protection to
the term of any existing regulatory exclusivity, including the
non-patent exclusivity period described above. This six-month
exclusivity may be granted if an NDA sponsor submits pediatric data
that fairly respond to a written request from the FDA for such
data. The data do not need to show the product to be effective in
the pediatric population studied; rather, if the clinical trial is
deemed to fairly respond to the FDA’s request, the additional
protection is granted. If reports of requested pediatric studies
are submitted to and accepted by the FDA within the required time
frames, whatever statutory or regulatory periods of exclusivity or
Orange Book listed patent protection cover the drug are extended by
six months. Moreover, pediatric exclusivity attaches to all
formulations, dosage forms, and indications for products with
existing marketing exclusivity or patent life that contain the same
active moiety as that which was studied.
The
Orphan Drug Act also provides incentives for the development of
drugs intended to treat rare diseases or conditions, which
generally are diseases or conditions affecting fewer than 200,000
individuals annually in the United States, or affecting more than
200,000 in the United States and for which there is no reasonable
expectation that the cost of developing and making the drug
available in the United States will be recovered from sales in the
United States. Additionally, sponsors must present a plausible
hypothesis for clinical superiority to obtain orphan designation if
there is a drug already approved by the FDA that is intended for
the same indication and that is considered by the FDA to be the
same drug as the already approved drug. This hypothesis must be
demonstrated to obtain orphan drug exclusivity. If granted, prior
to product approval, Orphan Drug Designation entitles a party to
financial incentives such as opportunities for grant funding
towards clinical study costs, tax advantages, and user-fee waivers.
In addition, if a product receives FDA approval for the indication
for which it has orphan designation, the product is generally
entitled to orphan drug exclusivity, which means the FDA may not
approve any other application to market the same drug for the same
indication for a period of seven years, except in limited
circumstances, such as a showing of clinical superiority over the
product with orphan exclusivity.
For
certain infectious disease products, the above discussed
exclusivity periods may be further extended under the FDA’s
qualified infectious disease product program. A qualified
infections disease product, or QIDP, is an antibacterial or
antifungal drug for human use intended to treat serious or
life-threatening infections, including those caused by an
antibacterial or antifungal resistant pathogen, including novel or
emerging infectious pathogens; or qualifying pathogens designated
by the FDA that has the potential to pose a serious threat to
public health. If the FDA approves an NDA for a drug designated as
a QIDP, the NCE exclusivity period is extended to ten years and the
FDA may not accept applications for nine years. Moreover, if a
product is designated as a QIDP and an orphan product, the orphan
product exclusivity period is extended to twelve years. These
extensions are in addition to any extension that an application may
be entitled to under the pediatric exclusivity provisions. To
receive a QIDP designation, the sponsor must request that the FDA
designate the product as such prior to the submission of an NDA.
This designation may not be withdrawn except if the FDA finds that
the request for designation contained an untrue statement of
material fact. QIDPs are also eligible for fast track status and
priority review.
Post Approval Requirements
Significant legal
and regulatory requirements also apply after FDA approval to market
under an NDA. These include, among other things, requirements
related to adverse event and other reporting, product tracking and
tracing, suspect and illegitimate product investigations and
notifications, product advertising and promotion and ongoing
adherence to cGMPs, as well as the need to submit appropriate new
or supplemental applications and obtain FDA approval for certain
changes to the approved product, product labeling, or manufacturing
process. The FDA also enforces the requirements of the Prescription
Drug Marketing Act which, among other things, imposes various
requirements in connection with the distribution of product samples
to physicians. The FDA enforces these requirements through, among
other ways, periodic announced and unannounced facility
inspections.
The
FDA also strictly regulates marketing, labeling, advertising, and
promotion of products that are placed on the market. A company can
make only those claims relating to safety and efficacy that are
approved by the FDA. Physicians, in their independent professional
medical judgment, may prescribe legally available products for
unapproved indications that are not described in the
product’s labeling and that differ from those tested and
approved by the FDA. Pharmaceutical companies, however, are allowed
to promote their drug products only for the approved indications
and in accordance with the provisions of the approved label. The
FDA and other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that is
found to have improperly promoted off-label uses may be subject to
significant liability, including, but not limited to, criminal and
civil penalties under the FDCA and the civil False Claims Act, or
FCA, exclusion from participation in federal healthcare programs,
mandatory compliance programs under corporate integrity agreements,
debarment, and refusal of government contracts.
The
regulatory framework applicable to the production, distribution,
marketing, and/or sale, of our products may change significantly
from the current descriptions provided herein in the time that it
may take for any of our products to reach a point at which a NDA is
approved. Moreover, individual states may have laws and regulations
that we must comply with, such as laws and regulations concerning
licensing, promotion, sampling, distribution, and
reporting.
Overall
research, development, and approval times depend on a number of
factors, including the period of review at the FDA, the number of
questions posed by the FDA during review, how long it takes to
respond to the FDA’s questions, the severity or
life-threatening nature of the disease in question, the
availability of alternative treatments, the availability of
clinical investigators and eligible patients, the rate of
enrollment of patients in clinical trials, and the risks and
benefits demonstrated in the clinical trials.
Fraud and Abuse, Data Privacy and Security, and Transparency Laws
and Regulations
Our
business activities, including but not limited to research, sales,
promotion, distribution, medical education, and other activities
following product approval, if any, will be subject to regulation
by numerous federal and state regulatory and law enforcement
authorities in the United States in addition to the FDA, including
potentially the Department of Justice, the Department of Health and
Human Services and its various divisions, including the Centers for
Medicare & Medicaid Services, or CMS, and the Health
Resources and Services Administration, the Department of Veterans
Affairs, the Department of Defense, and state and local
governments. Our business activities must comply with numerous
healthcare laws, including but not limited to, anti-kickback and
false claims laws and regulations as well as data privacy and
security laws and regulations, which are described
below.
The
federal Anti-Kickback Statute prohibits, among other things, any
person or entity, from knowingly and willfully offering, paying,
soliciting, or receiving any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or in return for
purchasing, leasing, ordering, or arranging for or recommending the
purchase, lease, furnishing, or order of any item or service
reimbursable under Medicare, Medicaid, or other federal healthcare
programs, in whole or in part. The term “remuneration”
has been interpreted broadly to include anything of value. The
Anti-Kickback Statute has been interpreted to apply to arrangements
between pharmaceutical manufacturers on one hand and prescribers,
purchasers, formulary managers, and beneficiaries on the other.
There are certain statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution. The exceptions
and safe harbors are drawn narrowly, and practices that involve
remuneration that may be alleged to be intended to induce
prescribing, purchases, reimbursement, or recommendations may be
subject to scrutiny if they do not qualify for an exception or safe
harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not
make the conduct per se illegal under the Anti-Kickback Statute.
Instead, the legality of the arrangement will be evaluated on a
case-by-case basis based on a cumulative review of all of its facts
and circumstances. Several courts have interpreted the
statute’s intent requirement to mean that if any one purpose
of an arrangement involving remuneration is to induce referrals of
federal healthcare covered business, the statute has been violated.
The Patient Protection and Affordable Care Act, or ACA, of 2010, as
amended, modified the intent requirement under the Anti-Kickback
Statute, such that a person or entity no longer needs to have
actual knowledge of the statute or specific intent to violate it in
order to have committed a violation. In addition, the ACA also
provided that a violation of the federal Anti-Kickback Statute is
grounds for the government or a whistleblower to assert that a
claim for payment of items or services resulting from such
violation constitutes a false or fraudulent claim for purposes of
the False Claims Act, or FCA.
The
federal FCA prohibits, among other things, any person or entity
from knowingly presenting, or causing to be presented, a false or
fraudulent claim for payment to, or approval by, the federal
government, knowingly making, using, or causing to be made or used
a false record or statement material to a false or fraudulent claim
to the federal government, or avoiding, decreasing, or concealing
an obligation to pay money to the federal government. The FCA
authorizes imposition of treble damages and a civil penalty for
each false claim submitted. A claim includes “any request or
demand” for money or property presented to the U.S.
government, including an invoice. Accordingly, FCA penalties for
high claim volume products like pharmaceuticals have frequently
aggregated into millions of dollars. The FCA has been used to
assert liability on the basis of kickbacks and other improper
referrals, improperly reported government pricing metrics such as
Best Price or Average Manufacturer Price, improper use of Medicare
provider or supplier numbers when detailing a provider of services,
improper promotion of off-label uses not expressly approved by the
FDA in a drug’s label, and allegations as to
misrepresentations with respect to product quality or services
rendered. Several pharmaceutical and other healthcare companies
have further been sued under these laws for allegedly providing
free product to customers with the expectation that the customers
would bill federal programs for the product. Intent to deceive is
not required to establish liability under the FCA. Liability may be
predicated on reckless disregard for the truth. FCA actions may be
brought by the government or may be brought by private individuals
on behalf of the government, called “qui tam” actions.
If the government decides to intervene in a qui tam action and
prevails in the lawsuit, the individual will share in the proceeds
from any fines or settlement funds. If the government declines to
intervene, the individual may pursue the case alone. Since 2004,
these FCA lawsuits against pharmaceutical companies have increased
significantly in volume and breadth, leading to substantial civil
and criminal settlements regarding certain sales practices and
promoting off label drug uses. Further, liability may be predicated
on non-compliance with federal laws and regulations under the
theory of implied certification. However, the Supreme Court imposed
a materiality standard for liability under this theory – the
non-compliance must be material to the government’s payment
decision. FCA liability may also be imposed for Medicare or
Medicaid overpayments, for example, overpayments caused by
understated rebate amounts that are not refunded within
60 days of discovering the overpayment, even if the
overpayment was not caused by a false or fraudulent
act.
The
government may further prosecute conduct constituting a false claim
under the criminal False Claims Act. The criminal False Claims Act
prohibits the making or presenting of a claim to the government
knowing such claim to be false, fictitious, or fraudulent and,
unlike the civil False Claims Act, requires proof of intent to
submit a false claim.
The
civil monetary penalties statute is another potential statute under
which biopharmaceutical companies may be subject to enforcement.
Among other things, the civil monetary penalties statute imposes
fines against any person who is determined to have presented, or
caused to be presented, claims to a federal healthcare program that
the person knows, or should know, is for an item or service that
was not provided as claimed or is false or fraudulent. In 2016, the
Department of Justice doubled the amount of these penalties, which
are specified in the civil FCA.
Many
states have also adopted laws similar to each of the above federal
laws, which may be broader in scope. Certain states also require
implementation of commercial compliance programs and compliance
with the pharmaceutical industry’s voluntary compliance
guidelines and the applicable compliance guidance promulgated by
the federal government, or otherwise restrict payments or the
provision of other items of value that may be made to healthcare
providers and other potential referral sources; impose restrictions
on marketing practices; or require drug manufacturers to track and
report information related to payments, gifts, and other items of
value to physicians and other healthcare providers. These laws may
affect our future sales, marketing, and other promotional
activities by imposing administrative and compliance
burdens.
If our
operations are found to be in violation of any of the laws or
regulations described above or any other laws that apply to us, we
may be subject to penalties or other enforcement actions, including
criminal and significant civil monetary penalties, damages, fines,
disgorgement, imprisonment, exclusion from participation in
government healthcare programs, corporate integrity agreements,
debarment from receiving government contracts or refusal of new
orders under existing contracts, reputational harm, diminished
profits and future earnings, and the curtailment or restructuring
of our operations, any of which could adversely affect our ability
to operate our business and our results of operations. Enforcement
actions can be brought by federal or state governments, or as qui
tam actions brought by individual whistleblowers in the name of the
government under the civil False Claims Act if the violations are
alleged to have caused the government to pay a false or fraudulent
claim.
To the
extent that any of our products are sold in a foreign country, we
may be subject to similar foreign laws and regulations, which may
include, for instance, applicable post-marketing requirements,
including safety surveillance, anti-fraud and abuse laws, and
implementation of corporate compliance programs and reporting of
payments or transfers of value to healthcare
professionals.
Medical Device Approval Process
In
addition to our lead product candidate Neutrolin, which is subject
to regulation by the FDA as a drug, we are developing other
products that may be regulated as medical devices in the United
States. The FDA regulates the design, development, clinical
testing, manufacture, labeling, distribution, import and export,
sale and promotion of medical devices. Unless an exemption applies
or a product is a Class I device, all medical devices must receive
either 510(k) clearance or an approved pre-market application, or
PMA, from the FDA before they may be commercially distributed in
the U.S. In addition, certain modifications made to marketed
devices also may require 510(k) clearance or approval of a PMA
supplement.
To
obtain a 510(k) clearance for a device, a pre-market notification
to the FDA must be submitted demonstrating that the device is
substantially equivalent to a legally marketed predicate device.
The FDA attempts to respond to a 510(k) pre-market notification
within 90 days of submission, but as a practical matter,
pre-market clearance can take significantly longer, potentially up
to one year or more. The PMA process is much more demanding and
uncertain than the 510(k) pre-market notification process and must
be supported by extensive clinical, technical and other
information, including at least one adequate and well-controlled
clinical investigation. The FDA has 180 days to review an
accepted PMA, although the review generally occurs over a
significantly longer period of time, and can take up to several
years.
The FDA
has recently informed us that it regards taurolidine as a new
chemical entity and therefore an unapproved drug. Consequently,
there is no appropriate predicate device currently marketed in the
U.S. on which a 510k approval process could be based. As a result,
we will be required to submit a premarket approval application for
marketing authorization for these indications. In the event that
the New Drug Application for Neutrolin is approved by the FDA, the
regulatory pathway can be revisited with the FDA. Although
there will presumably still 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.
After a
device is placed on the market, numerous regulatory requirements
apply, including:
●
Quality System
Regulations, or QSRs, which require manufacturers to have a quality
system for the design, manufacture, packaging, labeling, storage,
installation, and servicing of finished medical
devices;
●
labeling
regulations, which govern product labels and labeling, prohibit the
promotion of products for unapproved, or off-label, uses and impose
other restrictions on labeling and promotional
activities;
●
medical device
listing and establishment registration;
●
post-approval
restrictions or conditions, including post-approval study
commitments;
●
post-market
surveillance requirements;
●
medical device
reporting, or MDR, regulations, which require that manufacturers
evaluate and investigate potential adverse events and malfunctions,
and report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury
if it were to recur;
●
regulations
requiring the reporting of any device corrections or removals if
the correction or removal was initiated to reduce a risk to health
posed by the device or remedy a violation of the FDCA which may
present a risk to health; and
●
the FDA’s
recall authority, whereby it can ask, or under certain conditions
order, device manufacturers to recall from the market a product
that is a risk to health.
Our
manufacturing facilities, as well as those of certain of our
suppliers, are subject to periodic and for-cause inspections by the
FDA and other governmental authorities to verify compliance with
the QSR and other regulatory requirements.
Reimbursement and Pricing Controls
In many
of the markets where we or our collaborative partners have targeted
or will target Neutrolin for sale, laws control the prices charged
to certain purchasers of pharmaceutical products and the prices
paid by drug reimbursement programs through varying price control
mechanisms. Public and private health care payors control costs and
influence drug pricing through a variety of mechanisms, including
through negotiating rebates with the manufacturers, limiting the
reimbursement rate paid to providers, and using tiered formularies,
co-payment structures that incentivize beneficiaries to request
lower cost alternatives, and other mechanisms that provide
preferential access to certain drugs over others within a
therapeutic class. Federal and commercial payors use competition
for health plan coverage and market share as leverage to obtain
rebates on products they reimburse, which impacts the
manufacturer’s net realization on the sale of the products.
These rebates may be paid on drugs sold at a mandatory discount.
Additionally, federal and commercial health plans may choose to
reimburse dialysis providers for dialysis services and drugs used
in the provision of those services through a single bundled payment
rate, which tends to make cost a more important factor for
providers when making drug purchase decisions than it would
otherwise be if the providers were reimbursed for drugs on a
stand-alone basis. Payors also set other criteria to govern the
uses of a drug that will be deemed medically appropriate and
therefore reimbursed or otherwise covered. In particular, many
public and private health care payors limit reimbursement and
coverage to the uses of a drug that are either approved by the FDA
or that are supported by other appropriate evidence (for example,
published medical literature) and appear in a recognized drug
compendium. Drug compendia are publications that summarize the
available medical evidence for particular drug products and
identify which uses of a drug are supported or not supported by the
available evidence, whether or not such uses have been approved by
the FDA.
Foreign
Regulatory Requirements
We and
our collaborative partners may be subject to widely varying foreign
regulations, which may be quite different from those of the FDA,
governing clinical trials, manufacture, product registration and
approval, and pharmaceutical sales. Whether or not FDA approval has
been obtained, we or our collaboration partners must obtain a
separate approval for a product by the comparable regulatory
authorities of foreign countries prior to the commencement of
product marketing in those countries. In certain countries,
regulatory authorities also establish pricing and reimbursement
criteria. The approval process varies from country to country, and
the time may be longer or shorter than that required for FDA
approval. In addition, under current United States law, there are
restrictions on the export of products not approved by the FDA,
depending on the country involved and the status of the product in
that country.
International sales
of medical devices manufactured in the U.S. that are not approved
by the FDA for use in the U.S., or are banned or deviate from
lawful performance standards, are subject to FDA export
requirements. Exported devices are subject to the regulatory
requirements of each country to which the device is exported. Some
countries do not have medical device regulations, but in most
foreign countries, medical devices are regulated. Frequently,
regulatory approval may first be obtained in a foreign country
prior to application in the U.S. to take advantage of differing
regulatory requirements. Most countries outside of the U.S. require
that product approvals be recertified on a regular basis, generally
every five years. The recertification process requires that we
evaluate any device changes and any new regulations or standards
relevant to the device and conduct appropriate testing to document
continued compliance. Where recertification applications are
required, they must be approved in order to continue selling our
products in those countries.
In the
European Union, in order for our product candidates to be marketed
and sold, we are required to comply with the Medical Devices
Directive and obtain CE Mark certification. The CE Mark
certification encompasses an extensive review of our quality
management system which is inspected by a notified body’s
auditor as part of a Stage 1 and 2 International Organization for
Standardization, or ISO, 13485:2003 audit, in accordance with
worldwide recognized ISO standards and applicable European Medical
Devices Directives for quality management systems for medical
device manufacturers. Once the quality management system and design
dossier has been successfully audited by a notified body and
reviewed and approved by a competent authority, a CE certificate
for the medical device will be issued. We are also required to
comply with other foreign regulations such as the requirement that
we obtain Ministry of Health, Labor and Welfare approval before we
can launch new products in Japan. The time required to obtain these
foreign approvals to market our products may vary from U.S.
approvals, and requirements for these approvals may differ from
those required by the FDA.
Medical
device laws and regulations are in effect in many of the countries
in which we may do business outside the United States. These laws
and regulations range from comprehensive device approval
requirements for our medical device product to requests for product
data or certifications. The number and scope of these requirements
can be complex and could increase. We may not be able to obtain or
maintain regulatory approvals in such countries and we may be
required to incur significant costs in obtaining or maintaining our
foreign regulatory approvals. In addition, the export of certain of
our products which have not yet been cleared for domestic
commercial distribution may be subject to FDA export restrictions.
Any failure to obtain product approvals in a timely fashion or to
comply with state or foreign medical device laws and regulations
may have a serious adverse effect on our business, financial
condition or results of operations.
Intellectual Property
On
January 30, 2008, we entered into a License and Assignment
Agreement, or the NDP License Agreement, with ND Partners, LLC, or
NDP. Pursuant to the NDP License Agreement, NDP granted us
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”). We acquired such licenses and
patents through our assignment and assumption of NDP’s rights
under certain separate license agreements by and between NDP and
Dr. Hans-Dietrich Polaschegg, Dr. Klaus Sodemann, and Dr. Johannes
Reinmueller. NDP also granted us exclusive licenses, with the right
to grant sublicenses, to use and display certain trademarks in
connection with the NDP Technology. As consideration in part for
the rights to the NDP Technology, we paid NDP an initial licensing
fee of $325,000 and granted NDP an equity interest in our company
consisting of 365,534 shares of common stock as of December 31,
2010. In addition, we are required to make payments to NDP upon the
achievement of certain regulatory and sales-based milestones.
Certain of the milestone payments are to be made in the form of
shares of common stock currently held in escrow for NDP, and other
milestone payments are to be paid in cash. The maximum aggregate
number of shares issuable upon achievement of milestones and the
number of shares held in escrow is 145,543 shares of common stock.
The maximum aggregate amount of cash payments upon achievement of
milestones is $3,000,000 with $2,500,000 remaining at December 31,
2017. Events that trigger milestone payments include but are not
limited to the reaching of various stages of regulatory approval
processes and certain worldwide net sales amounts.
On
April 11, 2013, we entered into an amendment to the NDP License
Agreement. Under Article 6 of the NDP License Agreement, we were
obligated to make a milestone payment of $500,000 to NDP upon the
first issuance of a CE Mark for a licensed product, which payment
was payable to NDP within 30 days after such issuance. Pursuant to
the terms of the amendment, we and NDP agreed to delay such
milestone payment to a time, to be chosen by us, anytime within
twelve months after the achievement of such issuance. As
consideration for the amendment, we issued NDP a warrant to
purchase 125,000 shares of our common stock at an exercise price of
$1.50 per share. The warrant is exercisable immediately upon
issuance and has a term of five years. The warrant contains a
cashless exercise feature and standard adjustment features in the
event of a stock split, stock dividend, recapitalization or similar
events.
During
the year ended December 31, 2013, a milestone payment of $500,000
was earned by NDP upon the first issuance of the CE Mark for
Neutrolin, which was converted in January 2014 into 50,000 Series
C-3 non-voting preferred stock and 250,000 warrants at an exercise
price of $1.50 per share. During the year ended December 31, 2014,
a certain milestone was achieved resulting in the release of 36,386
shares held in escrow. The number of shares held in escrow as of
December 31, 2017 is 109,157 shares of common stock. There were no
milestones achieved in 2016 or 2017.
The NDP
License Agreement will expire on a country-by-country basis upon
the earlier of (i) the expiration of the last patent claim under
the NDP License Agreement in a given country, or (ii) the payment
of all milestone payments and release of all shares of our common
stock held in escrow under the NDP License Agreement. Upon the
expiration of the NDP License Agreement in each country, we will
have an irrevocable, perpetual, fully paid-up, royalty-free
exclusive license to the NDP Technology in such country. The NDP
License Agreement also may be terminated by NDP if we materially
breach or default under the NDP License Agreement and that breach
is not cured within 60 days following the delivery of written
notice to us, or by us on a country-by-country basis upon 60 days
prior written notice. If the NDP License Agreement is terminated by
either party, our rights to the NDP Technology will revert back to
NDP.
We
believe that the patents and patent applications we have licensed
pursuant to the NDP License Agreement cover effective solutions to
the various problems discussed previously when using taurolidine in
clinical applications, and specifically in hemodialysis
applications. We intend to file additional patent applications to
cover any additional related subject matter we develop. We
currently have nine non-provisional patent applications, nine
international (PCT) patent applications and five provisional patent
applications pending which cover additional applications using
taurolidine in, among others, sutures, hydrogels, meshes,
transdermal and biofilm products.
Employees
As of
March 10, 2018, we had fourteen full time employees, including our
customer service representative and office manager in Germany. We
also engage various consultants and contractors for project
management and research and development, manufacturing and
regulatory development, marketing, financing, sales and marketing
and administrative activities.
Corporate Information
We were
organized as a Delaware corporation on July 28, 2006 under the name
“Picton Holding Company, Inc.” and we changed our
corporate name to “CorMedix Inc.” on January 18, 2007.
Our principal executive offices are located at 400 Connell Drive,
Suite 5000, Berkeley Heights, New Jersey 07922. Our telephone
number is (908) 517-9500.
We
maintain a website at www.cormedix.com; however, the information
on, or that can be accessed through, our website is not part of
this report. This report and all of our filings under the
Exchange Act, including copies of annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and
any amendments to those reports, are available free of charge
through our website on the date we file those materials with, or
furnish them to, the Securities and Exchange Commission (the
"SEC"). Such filings are also available to the public on the
internet at the SEC's website at www.sec.gov. The public may also read
and copy any document that we file at the SEC's Public Reference
Room located at 100 F Street, NE, Washington, DC 20549 on official
business days during the hours of 10 a.m. to 3 p.m. For
further information on the Public Reference Room, the public
is instructed to call the SEC at 1-800-SEC-0300.
Risks Related to Our Financial Position and Need for Additional
Capital
We have a history of operating losses, expect to incur additional
operating losses in the future and may never be
profitable.
Our
prospects must be considered in light of the uncertainties, risks,
expenses, and difficulties frequently encountered by companies in
the early stages of operation. We incurred net losses of
approximately $33.0 million and $24.6 million for the years ended
December 31, 2017 and 2016, respectively. As of December 31, 2017,
we had an accumulated deficit of approximately $152.2 million. We
expect to incur substantial additional operating expenses over the
next several years as our research, development, pre-clinical
testing, clinical trial and commercialization activities increase
as we develop and commercialize Neutrolin. As a result, we expect
to experience negative cash flow as we fund our operating losses
and capital expenditures. The amount of future losses and when, if
ever, we will achieve profitability are uncertain. Neutrolin was
launched in December 2013 and is currently available for
distribution in certain European Union and Middle East countries.
We have not generated any significant commercial revenue and do not
expect to generate substantial revenues from Neutrolin until it is
approved by the FDA and launched in the U.S. market, and might
never generate significant revenues from the sale of Neutrolin or
any other products. Our ability to generate revenue and achieve
profitability will depend on, among other things, the following:
successfully marketing Neutrolin in Germany and other countries in
which it is approved for sale; obtaining necessary regulatory
approvals for Neutrolin from the other applicable European and
Middle East agencies, other foreign agencies and the FDA and
international regulatory agencies for any other products;
establishing manufacturing, sales, and marketing arrangements,
either alone or with third parties; and raising sufficient funds to
finance our activities. We might not succeed at any of these
undertakings. If we are unsuccessful at some or all of these
undertakings, our business, prospects, and results of operations
may be materially adversely affected.
We have received a going concern opinion from our registered public
accounting firm.
Our
operations are subject to a number of factors that can affect our
operating results and financial condition. Such factors include,
but are not limited to: the results of clinical testing and trial
activities of our product candidates; the ability to obtain
regulatory approval to market our products; ability to manufacture
successfully; competition from products manufactured and sold or
being developed by other companies; the price of, and demand for,
our products; our ability to negotiate favorable licensing or other
manufacturing and marketing agreements for our products; and our
ability to raise capital to support our operations.
To
date, our commercial operations have not generated sufficient
revenues to enable profitability. As of December 31, 2017 we had an
accumulated deficit of $152.2 million, and incurred net losses from
operations of $33.0 million for the year then ended. Based on the
current development plans for Neutrolin in both the U.S. and
foreign markets (including the ongoing hemodialysis Phase 3
clinical trial in the U.S.) and our other operating requirements,
management believes that the existing cash at December 31, 2017
plus funding raised through March 9, 2018 and a proposed new
$3 million backstop facility, for which a binding term sheet was
recently signed by us and Elliott Management Corporation, will be
sufficient to fund operations into the third quarter of 2018. If a
definitive agreement can be negotiated and executed, the proposed
backstop facility would be available for drawing between April 16,
2018 and July 31, 2018. These factors raise
substantial doubt regarding our ability to continue as a going
concern. We will need additional funding to complete the ongoing
hemodialysis clinical trial in the U.S. which commenced in December
2015 and to continue the Neutrolin development program through to
NDA filing and marketing approval.
As a
result of the above matters, our independent auditors have
indicated in their report on our December 31, 2017 financial
statements that there is substantial doubt about our ability to
continue as a going concern. A “going concern” opinion
indicates that the financial statements have been prepared assuming
we will continue as a going concern and do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets, or the amounts and
classification of liabilities that may result if we do not continue
as a going concern. Therefore, you should not rely on our
consolidated balance sheet as an indication of the amount of
proceeds that would be available to satisfy claims of our
creditors, and potentially be available for distribution to our
stockholders, in the event of liquidation.
Our
continued operations will ultimately depend on our ability to raise
additional capital through various potential sources, such as
equity and/or debt financings, strategic relationships, or
out-licensing of our products in order to complete our ongoing and
planned Phase 3 clinical trials and until we achieve profitability,
if ever. We can provide no assurances that such financing or
strategic relationships will be available on acceptable terms, or
at all. Without this funding, we could be required to delay, scale
back or eliminate some or all of our research and development
programs which would likely have a material adverse effect on our
business.
We will need to finance our future cash needs through public or
private equity offerings, debt financings or corporate
collaboration and licensing arrangements. Any additional funds that
we obtain may not be on terms favorable to us or our stockholders
and may require us to relinquish valuable
rights.
We
have launched Neutrolin in certain European Union and Middle East
countries, but to date have no other approved product on the market
and have not generated significant product revenue from Neutrolin
to date. Unless and until we receive applicable regulatory approval
for Neutrolin in the U.S., we cannot sell Neutrolin in the U.S.
Therefore, for the foreseeable future, we will have to fund all of
our operations and capital expenditures from Neutrolin sales in
Europe and other foreign markets, if approved, cash on hand,
additional financings, licensing fees and
grants.
We believe that our cash resources as of December
31, 2017 plus funding raised through March 9, 2018
and a
proposed new $3 million backstop facility, for which a binding term
sheet was recently signed by us and Elliott Management Corporation,
will be sufficient to fund operations into the third quarter of
2018. If a definitive agreement can be negotiated and executed, the
proposed backstop facility would be available for drawing between
April 16, 2018 and July 31, 2018. We will need additional funding thereafter to
complete our ongoing and anticipated Phase 3 clinical trials
in the U.S., and to continue the Neutrolin development program
through to NDA filing and approval. If we are unable to raise
additional funds when needed, we may not be able to complete our
ongoing Phase 3 clinical trial, to complete the Neutrolin
development program through to NDA filing and marketing approval or
commercialize Neutrolin and we could be required to delay, scale
back or eliminate some or all of our research and development
programs. We can provide no assurances that any financing or
strategic relationships will be available to us on acceptable
terms, or at all. We expect to incur increases in our cash used in
operations as we continue to conduct our ongoing Phase 3 clinical
trial and prepare for additional Phase 3 clinical trials, seek FDA
approval of Neutrolin in the U.S., commercialize Neutrolin in
Europe and other markets, pursue development of our medical devices
and other business development activities, and incur additional
legal costs to defend our intellectual property.
To
raise needed capital, we may sell additional equity or debt
securities, obtain a bank credit facility, or enter into a
corporate collaboration or licensing arrangement. The sale of
additional equity or debt securities, if convertible, could result
in dilution to our stockholders. The incurrence of indebtedness
would result in fixed obligations and could also result in
covenants that would restrict our operations. Raising additional
funds through collaboration or licensing arrangements with third
parties may require 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.
Until
the date that none of the shares of common stock or warrants that
we issued to Elliott Associates, L.P. and Elliott International,
L.P in November 2017 as part of the backstop financing are
outstanding, we are prohibited from issuing or selling any
securities convertible into common stock on terms more favorable
than the backstop financing terms and with a conversion, exchange
or exercise price that is based upon and/or varies with the trading
prices of or quotations for the shares of our common stock or that
is subject to being reset at some future date or upon the
occurrence of specified or contingent events directly or indirectly
related to our business (other than pursuant to a customary
“weighted average” anti-dilution provision) or the
market for our common stock or enter into any agreement to sell
securities at a future determined price (other than standard and
customary “preemptive” or “participation”
rights and other than pursuant to an at-the-market offering through
a registered broker-dealer). This restriction could make raising
capital through the sale of equity securities very difficult and
could have a material adverse impact on our business, financial
condition and prospects.
Risks Related to the Development and Commercialization of Our
Product Candidates
If we are unable to successfully complete our Phase 3 LOCK-IT-100
clinical trial, or if such clinical trial takes longer to complete
than we project, our ability to execute our current business
strategy will be adversely affected.
Whether or not and how quickly we complete the
Phase 3 LOCK-IT-100 clinical trial is dependent in part upon the
rate of enrollment of patients, the rate we collect, clean, lock
and analyze the clinical trial database, and the frequency with
which CRBSI events occur. Patient enrollment is a function of many
factors, including the size of the patient population, the
proximity of patients to clinical sites, the eligibility criteria
for the study, the existence of competitive clinical trials, and
whether existing or new products are approved for the indication we
are studying. In addition, the LOCK-IT-100 clinical trial is
designed to continue until a pre-determined number of events have
occurred in the patients enrolled. Event-driven trials such as
LOCK-IT-100 are subject to delays and other risks stemming from
patient withdrawal and from lower than expected event rates.
A lower event rate will require that
we enroll more patients than initially anticipated, which would
require us to incur additional costs and extend the anticipated time for
completion of the trial
in order to achieve the desired number
of events. If we experience delays in patient enrollment in our
clinical trial, or if we experience other issues related to the
number of events or other trial results, we may incur additional
costs and delays in the trial, and may not be able to complete the
clinical trial in a cost-effective or timely manner, which would
have an adverse effect on our development program for Neutrolin as
a treatment for catheter related bloodstream
infections.
Our only product Neutrolin is only approved in Europe and is still
in development in the U. S.
Neutrolin
currently and for at least the near future is our only current
product as well as product candidate. Neutrolin has received CE
Mark approval in Europe, and we launched it in Germany in December
2013. We also are pursuing development of Neutrolin in the U.S. Our
product commercialization and development efforts may not lead to
commercially viable products for any of several reasons. For
example, our product candidates may fail to be proven safe and
effective in clinical trials, or we may have inadequate financial
or other resources to pursue development efforts for our product
candidates. Even if approved, our products may not be accepted in
the marketplace. Neutrolin will require significant additional
development, clinical trials, regulatory clearances and/or
investment by us or our collaborators as we continue its
commercialization, as will any of our other products. Specifically,
we plan to expand marketing of Neutrolin in other foreign countries
and to develop Neutrolin for sale in the U.S., which will take time
and capital.
In
April 2017, we entered into a commercial collaboration with
Hemotech SAS covering France and certain overseas territories. We
have entered into agreements with a Saudi Arabian company to market
and sell Neutrolin in Saudi Arabia, and with a South Korean company
to market, sell and distribute Neutrolin in South Korea upon
receipt of regulatory approval in that country. We also have a
commercial presence in Germany and the United Arab Emirates.
Consequently, we will be dependent on these companies and
individuals for the success of sales in those countries and any
other countries in which we receive regulatory approval and in
which we contract with third parties for the marketing, sale and/or
distribution of Neutrolin. If these companies or individuals do not
perform for whatever reason, our business, prospects and results of
operations will be materially adversely affected. Finding a
suitable replacement organization or individual for these or any
other companies or individuals with whom we might contract could be
difficult, which would further harm our business, prospects and
results of operations.
Successful development and commercialization of our products is
uncertain.
Our
development and commercialization of current and future product
candidates is subject to the risks of failure and delay inherent in
the development of new pharmaceutical products, including but not
limited to the following:
●
inability
to produce positive data in pre-clinical and clinical
trials;
●
delays
in product development, pre-clinical and clinical testing, or
manufacturing;
●
unplanned
expenditures in product development, clinical testing, or
manufacturing;
●
failure
to receive regulatory approvals;
●
emergence
of superior or equivalent products;
●
inability
to manufacture our product candidates on a commercial scale on our
own, or in collaboration with third parties; and
●
failure
to achieve market acceptance.
Because
of these risks, our development efforts may not result in any
commercially viable products. If a significant portion of these
development efforts are not successfully completed, required
regulatory approvals are not obtained or any approved products are
not commercialized successfully, our business, financial condition,
and results of operations will be materially harmed.
Clinical trials required for our product candidates are expensive
and time-consuming, and their outcome is uncertain.
In
order to obtain FDA or foreign approval to market a new drug or
device product, we must demonstrate proof of safety and
effectiveness in humans. Foreign regulations and requirements are
similar to those of the FDA. To meet FDA requirements, we must
conduct “adequate and well-controlled” clinical trials.
Conducting clinical trials is a lengthy, time-consuming, and
expensive process. The length of time may vary substantially
according to the type, complexity, novelty, and intended use of the
product candidate, and often can be several years or more per
trial. Delays associated with products for which we are directly
conducting clinical trials may cause us to incur additional
operating expenses. The commencement and rate of completion of
clinical trials may be delayed by many factors, including, for
example:
●
inability
to manufacture sufficient quantities of qualified materials under
the FDA’s cGMP requirements for use in clinical
trials;
●
slower
than expected rates of patient recruitment;
●
failure
to recruit a sufficient number of patients;
●
modification
of clinical trial protocols;
●
changes
in regulatory requirements for clinical trials;
●
lack
of effectiveness during clinical trials;
●
emergence
of unforeseen safety issues;
●
delays,
suspension, or termination of clinical trials due to the
institutional review board responsible for overseeing the study at
a particular study site; and
●
government
or regulatory delays or “clinical holds” requiring
suspension or termination of the trials.
The
results from early pre-clinical and clinical trials are not
necessarily predictive of results to be obtained in later clinical
trials. Accordingly, even if we obtain positive results from early
pre-clinical or clinical trials, we may not achieve the same
success in later clinical trials.
Our
clinical trials may be conducted in patients with serious or
life-threatening diseases for whom conventional treatments have
been unsuccessful or for whom no conventional treatment exists, and
in some cases, our product is expected to be used in combination
with approved therapies that themselves have significant adverse
event profiles. During the course of treatment, these patients
could suffer adverse medical events or die for reasons that may or
may not be related to our products. We cannot ensure that safety
issues will not arise with respect to our products in clinical
development.
Clinical
trials may not demonstrate statistically significant safety and
effectiveness to obtain the requisite regulatory approvals for
product candidates. The failure of clinical trials to demonstrate
safety and effectiveness for the desired indications could harm the
development of our product candidates. Such a failure could cause
us to abandon a product candidate and could delay development of
other product candidates. Any delay in, or termination of, our
clinical trials would delay the filing of any NDA or any Premarket
Approval Application, or PMA, with the FDA and, ultimately, our
ability to commercialize our product candidates and generate
product revenues. Any change in, or termination of, our clinical
trials could materially harm our business, financial condition, and
results of operations.
If we fail to comply with international regulatory
requirements we could be subject to regulatory delays,
fines or other penalties.
Regulatory
requirements in foreign countries for international sales of
medical devices often vary from country to country. The occurrence
and related impact of the following factors would harm our
business:
●
delays
in receipt of, or failure to receive, foreign regulatory approvals
or clearances;
●
the
loss of previously obtained approvals or clearances;
or
●
the
failure to comply with existing or future regulatory
requirements.
The
CE Mark is a mandatory conformity mark for products to be sold in
the European Economic Area. Currently, 28 countries in Europe
require products to bear CE Marking. To market in Europe,
a product must first obtain the certifications necessary to
affix the CE Mark. The CE Mark is an international symbol of
adherence to the Medical Device Directives and the
manufacturer’s declaration that the product complies with
essential requirements. Compliance with these requirements is
ascertained within a certified Quality Management System (QMS)
pursuant to ISO 13485. In order to obtain and to maintain a CE
Mark, a product must be in compliance with the applicable
quality assurance provisions of the aforementioned ISO and obtain
certification of its quality assurance systems by a recognized
European Union notified body. We received CE Mark approval for
Neutrolin on July 5, 2013. However, certain individual countries
within the European Union require further approval by their
national regulatory agencies. Failure to receive or
maintain these other requisite approvals could prohibit us
from marketing and selling Neutrolin in the entire
European Economic Area or elsewhere.
We do not have, and may never obtain, the regulatory approvals we
need to market our product candidates outside of the European
Union.
While
we have received the CE Mark approval for Neutrolin in Europe,
certain individual countries within the European Union require
further approval by their national regulatory
agencies. Failure to receive or maintain these other
requisite approvals could prohibit us from marketing and
selling Neutrolin in the entire European Economic Area. In
addition, we will need regulatory approval to market and sell
Neutrolin in foreign countries outside of Europe. We have received
regulatory approval in Saudi Arabia, Kuwait and
Bahrain.
In the United States, we have no current
application for, and have not received the regulatory approvals
required for, the commercial sale of any of our products. We have
not submitted an NDA, PMA or 510(K) to the FDA for any product. We
have received approval from the FDA to proceed with our ongoing
Phase 3 clinical trial for Neutrolin in hemodialysis catheters as
the first of our required two Phase 3 studies. The design of our
required second Phase 3 clinical trial has not been determined.
Financing will be required to complete our current Phase 3 trial
and to begin and execute our anticipated second Phase 3 trial.
However, we might not obtain any financing and may never start the
second Phase 3 trial.
The FDA
recently informed us that it regards taurolidine as a new chemical
entity and therefore an unapproved drug. Consequently, there is no
appropriate predicate device currently marketed in the U.S. on
which a 510k approval process could be based. As a result, we will
be required to submit a premarket approval application for
marketing authorization for these indications. In the event that
the New Drug Application for Neutrolin is approved by the FDA, the
regulatory pathway can be revisited with the FDA. Although
there will presumably still 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.
It
is possible that Neutrolin will not receive any further approval or
that any of our other product candidates will be approved for
marketing. Failure to obtain regulatory approvals, or delays in
obtaining regulatory approvals, would adversely affect the
successful commercialization of Neutrolin or any other drugs or
products that we or our partners develop, impose additional costs
on us or our collaborators, diminish any competitive advantages
that we or our partners may attain, and/or adversely affect our
cash flow.
Even if approved, our products will be subject to extensive
post-approval regulation.
Once
a product is approved, numerous post-approval requirements apply in
the United States and abroad. Depending on the circumstances,
failure to meet these post-approval requirements can result in
criminal prosecution, fines, injunctions, recall or seizure of
products, total or partial suspension of production, denial or
withdrawal of pre-marketing product approvals, or refusal to allow
us to enter into supply contracts, including government contracts.
In addition, even if we comply with FDA, foreign and other
requirements, new information regarding the safety or effectiveness
of a product could lead the FDA or a foreign regulatory body to
modify or withdraw product approval.
The successful commercialization of Neutrolin will depend on
obtaining coverage and reimbursement for use of Neutrolin from
third-party payors.
Sales
of pharmaceutical products largely depend on the reimbursement of
patients’ medical expenses by government health care programs
and/or private health insurers, both in the U.S. and abroad.
Further, significant uncertainty exists as to the reimbursement
status of newly approved health care products. We initially
expect to sell Neutrolin directly to hospitals and key dialysis
center operators, but also plan to expand its usage into intensive
care, oncology and total parenteral nutrition patients needing
catheters, including Medicare patients. All of these potential
customers are healthcare providers who depend upon reimbursement by
government and commercial insurance payors for dialysis and other
treatments. Reimbursement is strictly governed by these insurance
payors. We believe that Neutrolin would be eligible for coverage
under various reimbursement programs, including hospital inpatient
diagnosis-related groups (DRGs), outpatient ambulatory payment
classification (APCs) and the End-Stage Renal Disease Prospective
Payment System (ESRD PPS) or under the Durable Medical Equipment,
Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule,
depending on the treatment setting. However, coverage by any of
these reimbursement programs is not assured, and even if coverage
is granted it could later be revoked or modified under future
regulations. Further, the U.S. Centers for Medicare & Medicaid
Services (CMS), which administers Medicare and works with states to
administer Medicaid, has adopted and will continue to adopt and/or
amend rules governing reimbursement for specific treatments,
including those we intend to address such as dialysis and ESRD PPS.
We anticipate that CMS and private insurers will increasingly
demand that manufacturers demonstrate the cost effectiveness of
their products as part of the reimbursement review and approval
process. Rising healthcare costs have also lead many European and
other foreign countries to adopt healthcare reform proposals and
medical cost containment measures. Any measures affecting the
reimbursement programs of these governmental and private insurance
payors, including any uncertainty in the medical community
regarding their nature and effect on reimbursement programs, could
have an adverse effect on purchasing decisions regarding Neutrolin,
as well as limit the prices we may charge for Neutrolin.
The failure to obtain or maintain
reimbursement coverage for Neutrolin or any other products could
materially harm our operations.
In
anticipation that the CMS and private payers will demand that we
demonstrate the cost effectiveness of Neutrolin as part of the
reimbursement review and approval process, we have incorporated
health economic evaluations into our ongoing clinical studies to
support this review in the context of the prospective use of
Neutrolin in dialysis, the ICU and oncology settings.
However, our studies might not be sufficient to support coverage or
reimbursement at levels that allow providers to use
Neutrolin.
Physicians and patients may not accept and use our
products.
Even
with the CE Mark approval of Neutrolin, and even if we receive FDA
or other foreign regulatory approval for Neutrolin or other product
candidates, physicians and patients may not accept and use our
products. Acceptance and use of our products will depend upon a
number of factors including the following:
●
perceptions
by members of the health care community, including physicians,
about the safety and effectiveness of our drug or device
product;
●
cost-effectiveness
of our product relative to competing products;
●
availability
of reimbursement for our product from government or other
healthcare payors; and
●
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
Because
we expect sales of Neutrolin to generate substantially all of our
product revenues for the foreseeable future, the failure of
Neutrolin to find market acceptance would harm our business and
would require us to seek additional
financing.
Risks Related to Our Business and Industry
Competition and technological change may make our product
candidates and technologies less attractive or
obsolete.
We
compete with established pharmaceutical and medical device
companies that are pursuing other forms of prevention or treatment
for the same indications we are pursuing and that have greater
financial and other resources. Other companies may succeed in
developing products earlier than we do, obtaining FDA or any other
regulatory agency approval for products more rapidly, or developing
products that are more effective than our product candidates.
Research and development by others may render our technology or
product candidates obsolete or noncompetitive, or result in
processes, treatments or cures superior to any therapy we develop.
We face competition from companies that internally develop
competing technology or acquire competing technology from
universities and other research institutions. As these companies
develop their technologies, they may develop competitive positions
that may prevent, make futile, or limit our product
commercialization efforts, which would result in a decrease in the
revenue we would be able to derive from the sale of any
products.
There
can be no assurance that Neutrolin or any other product candidate
will be accepted by the marketplace as readily as these or other
competing treatments. Furthermore, if our competitors’
products are approved before ours, it could be more difficult for
us to obtain approval from the FDA or any other regulatory agency.
Even if our products are successfully developed and approved for
use by all governing regulatory bodies, there can be no assurance
that physicians and patients will accept any of our products as a
treatment of choice.
Furthermore,
the pharmaceutical and medical device industry is diverse, complex,
and rapidly changing. By its nature, the business risks associated
with the industry are numerous and significant. The effects of
competition, intellectual property disputes, market acceptance, and
FDA or other regulatory agency regulations preclude us from
forecasting revenues or income with certainty or even
confidence.
We face the risk of product liability claims and the amount of
insurance coverage we hold now or in the future may not be adequate
to cover all liabilities we might incur.
Our
business exposes us to the risk of product liability claims that
are inherent in the development of drugs. If the use of one or more
of our or our collaborators’ drugs or devices harms people,
we may be subject to costly and damaging product liability claims
brought against us by clinical trial participants, consumers,
health care providers, pharmaceutical companies or others selling
our products.
We
currently carry product liability insurance that covers our
clinical trials. We cannot predict all of the possible harms or
side effects that may result and, therefore, the amount of
insurance coverage we hold may not be adequate to cover all
liabilities we might incur. Our insurance covers bodily injury and
property damage arising from our clinical trials, subject to
industry-standard terms, conditions and exclusions. This coverage
includes the sale of commercial products. We have expanded our
insurance coverage to include the sale of commercial products due
to the receipt of the CE Mark approval, but we may be unable to
maintain such coverage or obtain commercially reasonable product
liability insurance for any other products approved for
marketing.
If
we are unable to obtain insurance at an acceptable cost or
otherwise protect against potential product liability claims, we
may be exposed to significant liabilities, which may materially and
adversely affect our business and financial position. If we are
sued for any injury allegedly caused by our or our
collaborators’ products and do not have sufficient insurance
coverage, our liability could exceed our total assets and our
ability to pay the liability. A successful product liability claim
or series of claims brought against us would decrease our cash and
could cause the value of our capital stock to
decrease.
We may be exposed to liability claims associated with the use of
hazardous materials and chemicals.
Our
research, development and manufacturing activities and/or those of
our third-party contractors may involve the controlled use of
hazardous materials and chemicals. Although we believe that our
safety procedures for using, storing, handling and disposing of
these materials comply with federal, state and local, as well as
foreign, laws and regulations, we cannot completely eliminate the
risk of accidental injury or contamination from these materials. In
the event of such an accident, we could be held liable for any
resulting damages and any liability could materially adversely
affect our business, financial condition and results of operations.
In addition, the federal, state and local, as well as foreign, laws
and regulations governing the use, manufacture, storage, handling
and disposal of hazardous or radioactive materials and waste
products may require us to incur substantial compliance costs that
could materially adversely affect our business, financial condition
and results of operations.
Healthcare policy changes, including reimbursement policies for
drugs and medical devices, may have an adverse effect on our
business, financial condition and results of
operations.
Market
acceptance and sales of Neutrolin or any other product candidates
that we develop will depend on reimbursement policies and may be
affected by health care reform measures in the United States and
abroad. Government authorities and other third-party payors, such
as private health insurers and health maintenance organizations,
decide which drugs they will pay for and establish reimbursement
levels. We cannot be sure that reimbursement will be available for
Neutrolin or any other product candidates that we develop. Also, we
cannot be sure that the amount of reimbursement available, if any,
will not reduce the demand for, or the price of, our products. If
reimbursement is not available or is available only at limited
levels, we may not be able to successfully commercialize Neutrolin
or any other product candidates that we develop.
In
the United States, there have been a number of legislative and
regulatory proposals to change the health care system in ways that
could affect our ability to sell our products profitably. The
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010, or
collectively, the Healthcare Reform Act, substantially changes the
way healthcare is financed by both governmental and private
insurers, and significantly impacts the pharmaceutical industry.
The Healthcare Reform Act contains a number of provisions,
including those governing enrollment in federal healthcare
programs, reimbursement changes and fraud and abuse, which will
impact existing government healthcare programs and will result in
the development of new programs, including Medicare payment for
performance initiatives and improvements to the physician quality
reporting system and feedback program. We anticipate that if we
obtain approval for our products, some of our revenue may be
derived from U.S. government healthcare programs, including
Medicare.
Some of
the provisions of the Healthcare Reform Act have yet to be
implemented, and there have been judicial and Congressional
challenges to certain aspects of the Healthcare Reform Act. Since
January 2017, President Trump has signed two Executive Orders and
other directives designed to delay, circumvent or loosen the
implementation of certain provisions requirements mandated by the
Healthcare Reform Act or otherwise circumvent some of the
requirements for health insurance mandated by the Healthcare Reform
Act. Concurrently, Congress has considered legislation that would
repeal or repeal and replace all or part of the Healthcare Reform
Act. While Congress has not passed repeal legislation, the Tax Cuts
and Jobs Act of 2017 includes a provision repealing, effective
January 1, 2019, the tax-based shared responsibility payment
imposed by the Healthcare Reform Act on certain individuals who
fail to maintain qualifying health coverage for all or part of a
year that is commonly referred to as the “individual
mandate.” Additionally, on January 23, 2018, President
Trump signed a continuing resolution on appropriations for fiscal
year 2018 that delayed the implementation of certain Healthcare
Reform Act-mandated fees, including the so-called
“Cadillac” tax on certain high cost employer-sponsored
insurance plans. Congress may consider other legislation to repeal
or replace elements of the Healthcare Reform Act.
In
addition to the Healthcare Reform Act, we expect that there will
continue to be proposals by legislators at both the federal and
state levels, regulators and third-party payors to keep healthcare
costs down while expanding individual healthcare benefits. Certain
of these changes could impose limitations on the prices we will be
able to charge for any products that are approved or the amounts of
reimbursement available for these products from governmental
agencies or other third-party payors or may increase the tax
requirements for life sciences companies such as ours. While it is
too early to predict what effect the Healthcare Reform Act or any
future legislation or regulation will have on us, such laws could
have an adverse effect on our business, financial condition and
results of operations.
Health
administration authorities in countries other than the United
States may not provide reimbursement for Neutrolin or any of our
other product candidates at rates sufficient for us to achieve
profitability, or at all. Like the United States, these countries
could adopt health care reform proposals and could materially alter
their government-sponsored health care programs by reducing
reimbursement rates.
Any
reduction in reimbursement rates under Medicare or private insurers
or foreign health care programs could negatively affect the pricing
of our products. If we are not able to charge a sufficient amount
for our products, then our margins and our profitability will be
adversely affected.
If we lose key management or scientific personnel, cannot recruit
qualified employees, directors, officers, or other personnel or
experience increases in compensation costs, our business may
materially suffer.
We
are highly dependent on the principal members of our management and
scientific staff, specifically, Khoso Baluch, a director and our
Chief Executive Officer, Robert Cook, our Chief Financial Officer,
and John Armstrong, our Executive Vice President for Technical
Operations. Our future success will depend in part on our ability
to identify, hire, and retain current and additional personnel. We
experience intense competition for qualified personnel and may be
unable to attract and retain the personnel necessary for the
development of our business. Moreover, our work force is located in
the New York metropolitan area, where competition for personnel
with the scientific and technical skills that we seek is extremely
high and is likely to remain high. Because of this competition, our
compensation costs may increase significantly. In addition, we have
only limited ability to prevent former employees from competing
with us.
If we are unable to hire additional qualified personnel, our
ability to grow our business may be harmed.
Over
time, we expect to hire additional qualified personnel with
expertise in clinical testing, clinical research and testing,
government regulation, formulation and manufacturing, and sales and
marketing. We compete for qualified individuals with numerous
pharmaceutical companies, universities and other research
institutions. Competition for such individuals is intense, and we
cannot be certain that our search for such personnel will be
successful. Attracting and retaining such qualified personnel will
be critical to our success.
We may not successfully manage our growth.
Our
success will depend upon the expansion of our operations to
commercialize Neutrolin and the effective management of any growth,
which could place a significant strain on our management and our
administrative, operational and financial resources. To manage this
growth, we may need to expand our facilities, augment our
operational, financial and management systems and hire and train
additional qualified personnel. If we are unable to manage our
growth effectively, our business may be materially
harmed.
Risks Related to Our Intellectual Property
If we materially breach or default under any of our license
agreements, the licensor party to such agreement will have the
right to terminate the license agreement, which termination may
materially harm our business.
Our
commercial success will depend in part on the maintenance of our
license agreements. Each of our license agreements provides the
licensor with a right to terminate the license agreement for our
material breach or default under the agreement, including the
failure to make any required milestone or other payments. Should
the licensor under any of our license agreements exercise such a
termination right, we would lose our right to the intellectual
property under the respective license agreement, which loss may
materially harm our business.
If we and our licensors do not obtain protection for and
successfully defend our respective intellectual property rights,
our competitors may be able to take advantage of our research and
development efforts to develop competing
products.
Our
commercial success will depend in part on obtaining further patent
protection for our products and other technologies and successfully
defending any patents that we currently have or will obtain against
third-party challenges. The patents which we currently believe are
most material to our business are as follows:
●
U.S.
Patent No. 8,541,393 (expiring in November 2024) (the “Prosl
Patent”) - use of Neutrolin for preventing infection and
maintenance of catheter patency in hemodialysis
catheters;
●
U.S.
Patent No. 6,166,007 (expiring May 2019) (the “Sodemann
Patent”) - a method of inhibiting or preventing infection and
blood coagulation at a medical prosthetic device; and
●
European
Patent EP 1 814 562 B1 (expiring October 12, 2025) (the
“Prosl European Patent”) - a low heparin catheter lock
solution for maintaining and preventing infection in a hemodialysis
catheter.
We
are currently seeking further patent protection for our compounds
and methods of treating diseases. However, the patent process is
subject to numerous risks and uncertainties, and there can be no
assurance that we will be successful in protecting our products by
obtaining and defending patents. These risks and uncertainties
include the following:
●
patents
that may be issued or licensed may be challenged, invalidated, or
circumvented, or otherwise may not provide any competitive
advantage;
●
our
competitors, many of which have substantially greater resources
than we have and many of which have made significant investments in
competing technologies, may seek, or may already have obtained,
patents that will limit, interfere with, or eliminate our ability
to make, use, and sell our potential products either in the United
States or in international markets;
●
there
may be significant pressure on the United States government and
other international governmental bodies to limit the scope of
patent protection both inside and outside the United States for
treatments that prove successful as a matter of public policy
regarding worldwide health concerns; and
●
countries
other than the United States may have less restrictive patent laws
than those upheld by United States courts, allowing foreign
competitors the ability to exploit these laws to create, develop,
and market competing products.
In
addition, the United States Patent and Trademark Office, or PTO,
and patent offices in other jurisdictions have often required that
patent applications concerning pharmaceutical and/or
biotechnology-related inventions be limited or narrowed
substantially to cover only the specific innovations exemplified in
the patent application, thereby limiting the scope of protection
against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents may be substantially
narrower than anticipated.
The above mentioned patents and patent
applications are exclusively licensed to us. To support our patent
strategy, we have engaged in a review of patentability and certain
freedom to operate issues, including performing certain searches.
However, patentability and certain freedom to operate issues are
inherently complex, and we cannot provide assurances that a
relevant patent office and/or relevant court will agree with our
conclusions regarding patentability issues or with our conclusions
regarding freedom to operate issues, which can involve subtle
issues of claim interpretation and/or claim liability. Furthermore,
we may not be aware of all patents, published applications or
published literature that may affect our business either by
blocking our ability to commercialize our product candidates,
preventing the patentability of our product candidates to us or our
licensors, or covering the same or similar technologies that may
invalidate our patents, limit the scope of our future patent claims
or adversely affect our ability to market our product
candidates. Additionally, it is also possible that prior art
of which we are aware, but which we do not believe affects the
validity or enforceability of a claim, may, nonetheless, ultimately
be found by a court of law or an administration panel to affect the
validity or enforceability of a claim. If a third party were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such loss of patent
protection could have a material adverse impact on our
business.
In
addition to patents, we also rely on trade secrets and proprietary
know-how. Although we take measures to protect this information by
entering into confidentiality and inventions agreements with our
employees, and some but not all of our scientific advisors,
consultants, and collaborators, we cannot provide any assurances
that these agreements will not be breached, that we will be able to
protect ourselves from the harmful effects of disclosure or dispute
ownership if they are breached, or that our trade secrets will not
otherwise become known or be independently discovered by
competitors. If any of these events occurs, or we otherwise lose
protection for our trade secrets or proprietary know-how, the value
of our intellectual property may be greatly
reduced.
Ongoing and future intellectual property disputes could require us
to spend time and money to address such disputes and could limit
our intellectual property rights.
The
biotechnology and pharmaceutical industries have been characterized
by extensive litigation regarding patents and other intellectual
property rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may initiate or
become subject to infringement claims or litigation arising out of
patents and pending applications of our competitors, or we may
become subject to proceedings initiated by our competitors or other
third parties or the PTO or applicable foreign bodies to reexamine
the patentability of our licensed or owned patents. In addition,
litigation may be necessary to enforce our issued patents, to
protect our trade secrets and know-how, or to determine the
enforceability, scope, and validity of the proprietary rights of
others.
We
initiated court proceedings in Germany for patent infringement and
unfair use of our proprietary information related to Neutrolin (as
described below). We also have had opposition proceedings brought
against the European Patent and the German utility model patent
which are the basis of our infringement proceedings (as described
below). The defense and prosecution of these ongoing and any future
intellectual property suits, PTO or foreign proceedings, and
related legal and administrative proceedings are costly and
time-consuming to pursue, and their outcome is uncertain. An
adverse determination in litigation or PTO or foreign proceedings
to which we may become a party could subject us to significant
liabilities, including damages, require us to obtain licenses from
third parties, restrict or prevent us from selling our products in
certain markets, or invalidate or render unenforceable our licensed
or owned patents. Although patent and intellectual property
disputes might be settled through licensing or similar
arrangements, the costs associated with such arrangements may be
substantial and could include our paying large fixed payments and
ongoing royalties. Furthermore, the necessary licenses may not be
available on satisfactory terms or at all.
On
September 9, 2014, we filed in the District Court of Mannheim,
Germany a patent infringement action against TauroPharm GmbH and
Tauro-Implant GmbH as well as their respective CEOs (the
“Defendants”) claiming infringement of our European
Patent EP 1 814 562 B1, which was granted by the EPO on January 8,
2014 (the “Prosl European Patent”). The Prosl European
Patent covers a low dose heparin catheter lock solution for
maintaining patency and preventing infection in a hemodialysis
catheter. In this action, we claim that the Defendants
infringe on the Prosl European Patent by manufacturing and
distributing catheter locking solutions to the extent they are
covered by the claims of the Prosl European Patent. We
believe that our patent is sound, and are seeking injunctive relief
and raising claims for information, rendering of accounts, calling
back, destruction and damages. Separately, TauroPharm has filed an
opposition with the EPO against the Prosl European Patent alleging
that it lacks novelty and inventive step. We cannot
predict what other defenses the Defendants may raise, or the
ultimate outcome of either of these related matters.
In the
same complaint against the same Defendants, we also alleged an
infringement (requesting the same remedies) of NDP’s utility
model DE 20 2005 022 124 U1 (the “Utility Model”),
which we believe is fundamentally identical to the Prosl European
Patent in its main aspects and claims. The Court separated the two
proceedings and the Prosl European Patent and the Utility Model
claims are now being tried separately. TauroPharm has
filed a cancellation action against the Utility Model before the
German Patent and Trademark Office (the “German PTO”)
based on the similar arguments as those in the opposition against
the Prosl European Patent.
On
March 27, 2015, the District Court held a hearing to evaluate
whether the Utility Model has been infringed by TauroPharm in
connection with the manufacture, sale and distribution of its
TauroLock-HEP100TM and TauroLock-HEP500TM products. A hearing
before the same court was held on January 30, 2015 on the separate,
but related, question of infringement of the Prosl European Patent
by TauroPharm.
The
Court issued its decisions on May 8, 2015 staying both
proceedings. In its decisions, the Court found that the
commercialization by TauroPharm in Germany of its TauroLock
catheter lock solutions Hep100 and Hep500 infringes both the
Prosl European Patent and the Utility Model and further that there
is no prior use right that would allow TauroPharm to continue to
make, use or sell its product in Germany. However, the Court
declined to issue an injunction in favor of us that would preclude
the continued commercialization by TauroPharm based upon its
finding that there is a sufficient likelihood that the EPO, in the
case of the Prosl European Patent, or the German PTO, in the case
of the Utility Model, may find that such patent or utility model is
invalid. Specifically, the Court noted the
possible publication of certain instructions for product use
that may be deemed to constitute prior art. As such, the District
Court determined that it will defer any consideration of the
request by us for injunctive and other relief until such time as
the EPO or the German PTO has ruled on the underlying validity of
the Prosl European Patent and the Utility Model.
The
opposition proceeding against the Prosl European Patent before the
EPO is ongoing. In its preliminary consideration of the matter, the
EPO (and the German PTO) regarded the patent as not inventive or
novel due to publication of prior art. Oral proceedings
before the Opposition Division at the EPO were held on November 25,
2015, at which the three judge patent examiner panel considered
arguments related to the validity of the Prosl European Patent. The
hearing was adjourned due to the fact that the panel was of the
view that Claus Herdeis, one of the managing directors of
TauroPharm, has to be heard as a witness in a further hearing in
order to close some gaps in the documentation presented by
TauroPharm as regards the publication of prior art.
The
German PTO held a hearing in the validity proceedings relating to
the Utility Model on June 29, 2016, at which the panel affirmed its
preliminary finding that the Utility Model was invalid based upon
prior publication of a reference to the benefits that may be
associated with adding heparin to a taurolidine based solution. The
decision is subject to appeal and has only a declaratory effect, as
the Utility Model had expired in November 2015. Furthermore, it has
no bearing on the ongoing consideration of the validity and
possible infringement of the Prosl Patent by the EPO. We filed an
appeal against the ruling on September 7, 2016.
In
October 2016, TauroPharm submitted a further writ to the EPO
requesting a date for the hearing and bringing forward further
arguments, in particular in view of the June 2016 decision of the
German PTO on the invalidity of the utility model, which we have
appealed. On November 22, 2017, the
EPO in Munich, Germany held a further oral hearing in this matter.
At the hearing, the panel held that the Prosl European Patent would
be invalidated because it did not meet the requirements of novelty
based on a technical aspect of the European intellectual property
law. We disagree with this decision and plan to appeal. Our appeal
will be based, in part, on the written opinion to be issued by the
Opposition Division, which is expected by the first quarter 2018.
We continue to believe that the Prosl European Patent is indeed
novel and that its validity should be maintained. There can be no
assurance that we will prevail in this matter with either the
German PTO or the EPO. In addition, the ongoing Unfair Competition
litigation against TauroPharm is not affected and will
continue.
On
January 16, 2015, we filed a complaint against TauroPharm GmbH and
its managing directors in the District Court of Cologne, Germany.
In the complaint, we allege violation of the German Unfair
Competition Act by TauroPharm for the unauthorized use of its
proprietary information obtained in confidence by TauroPharm. We
allege that TauroPharm is improperly and unfairly using its
proprietary information relating to the composition and manufacture
of Neutrolin, in the manufacture and sale of TauroPharm’s
products TauroLockTM, TauroLock-HEP100 and TauroLock-HEP500. We
seek a cease and desist order against TauroPharm from continuing to
manufacture and sell any product containing taurolidine (the active
pharmaceutical ingredient (“API”) of Neutrolin) and
citric acid in addition to possible other components, damages for
any sales in the past and the removal of all such products from the
market. An initial hearing in the District Court of Cologne,
Germany was held on November 19, 2015 to consider our claims. The
judge made no decision on the merits of our complaint. On January
14, 2016, the court issued an interim decision in the form of a
court order outlining several issues of concern that relate
primarily to court's interest in clarifying the facts and reviewing
any and all available documentation, in particular with regard to
the question which specific know-how was provided to TauroPharm by
whom and when. We have prepared the requested reply and produced
the respective documentation. TauroPharm has also filed another
writ within the same deadline and both parties have filed further
writs at the end of April setting out their respective
argumentation in more detail. A further oral hearing in this matter
was held on November 15, 2016. In this hearing, the court heard
arguments from us and TauroPharm concerning the allegations of
unfair competition. The court made no rulings from the bench, and
indicated that it is prepared to further examine the underlying
facts of our allegations. On March 7, 2017, the court issued
another interim decision in the form of a court order outlining
again several issues relating to the argumentation of both sides in
the proceedings. In particular the court requested us to further
specify our requests and to further substantiate in even more
detail which know know-how was provided by Biolink to TauroPharm by
whom and when. The court also raised the question whether the
know-how provided at the time to TauroPharm could still be
considered to be secret know-how or may have become public in the
meantime. The court granted both sides the opportunity to reply to
this court order and provide additional facts and evidence until
May 15, 2017. Both parties have submitted further writs in this
matter and the court had scheduled a further hearing for May 8,
2018. After having been rescheduled several times, the hearing is
now scheduled to take place on November 20, 2018. We intend to
continue to pursue this matter, and to provide additional
supplemental documentary and other evidence as may be necessary to
support its claims.
If we infringe the rights of third parties we could be prevented
from selling products and forced to pay damages and defend against
litigation.
If
our products, methods, processes and other technologies infringe
the proprietary rights of other parties, we could incur substantial
costs and we may have to do one or more of the
following:
●
obtain
licenses, which may not be available on commercially reasonable
terms, if at all;
●
abandon
an infringing product candidate;
●
redesign
our products or processes to avoid infringement;
●
stop
using the subject matter claimed in the patents held by
others;
●
defend
litigation or administrative proceedings, which may be costly
whether we win or lose, and which could result in a substantial
diversion of our financial and management resources.
Risks Related to Dependence on Third Parties
If we are not able to develop and maintain collaborative marketing
relationships with licensees or partners, or create an effective
sales, marketing, and distribution capability, we may be unable to
market our products or market them successfully.
Our
business strategy for Neutrolin relies on collaborating with larger
firms with experience in marketing and selling medical devices and
pharmaceutical products; for other products we may also rely on
such marketing collaborations or out-licensing of our product
candidates. Specifically, for Neutrolin, we have a distributor
agreement with each of a Saudi Arabian, an Emirati, and a South
Korean company for sales and marketing (upon receipt of approval to
market in South Korea). In April 2017, we announced a commercial
collaboration with Hemotech SAS covering France and certain
overseas territories. Assuming we receive applicable regulatory
approval for other markets, we plan to enter into distribution
agreements with one or more third parties for the sale of Neutrolin
in various European, Middle East and other markets. However, there
can be no assurance that we will be able to successfully maintain
those relationships or establish and maintain additional marketing,
sales, or distribution relationships, nor can there be assurance
that such relationships will be successful, or that we will be
successful in gaining market acceptance for our products. To the
extent that we enter into any marketing, sales, or distribution
arrangements with third parties, our product revenues will be lower
than if we marketed and sold our products directly, and any
revenues we receive will depend upon the efforts of such
third-parties.
If
we are unable to establish and maintain such third-party sales and
marketing relationships, or choose not to do so, we will have to
establish our own in-house capabilities. We currently have no
sales, marketing, or distribution infrastructure. To market any of
our products directly, we would need to develop a marketing, sales,
and distribution force that has both technical expertise and the
ability to support a distribution capability. The establishment of
a marketing, sales, and distribution capability would take time and
significantly increase our costs, possibly requiring substantial
additional capital. In addition, there is intense competition for
proficient sales and marketing personnel, and we may not be able to
attract individuals who have the qualifications necessary to
market, sell, and distribute our products. There can be no
assurance that we will be able to establish internal marketing,
sales, or distribution capabilities. If we are unable to, or choose
not to establish these capabilities, or if the capabilities we
establish are not sufficient to meet our needs, we will be required
to establish collaborative marketing, sales, or distribution
relationships with third parties, which we might not be able to do
on acceptable terms or at all.
We currently have no internal marketing and sales organization and
currently rely and intend to continue to rely on third parties to
market and sell Neutrolin. If we are unable to enter into or
maintain agreements with third parties to market and sell Neutrolin
or any other product after approval or are unable to establish our
own marketing and sales capabilities, we may not be able to
generate significant or any product revenues.
We do
not have an internal sales organization. To date we have relied,
and intend to continue to rely, on third parties for the marketing,
sales and distribution of Neutrolin and any other product we might
develop. However, we may not be able to maintain current and future
arrangements or enter into new arrangements with third parties to
sell Neutrolin or any other product on favorable terms or at all.
In that event, we would have to develop our own marketing and sales
force. The establishment and development of our own sales force
would be expensive and time consuming and could delay any product
launch, and we cannot be certain that we would be able to
successfully develop this capability. In addition, the use of third
parties to commercialize our approved products reduces the revenues
that we would receive if we commercialized these products
ourselves.
We have
entered into agreements with independent companies to market
Neutrolin in Saudi Arabia, the United Arab Emirates and France,
and, upon regulatory approval, South Korea. We may seek a sales
partner in the U.S. if Neutrolin receives FDA approval.
Consequently, we will be dependent on these firms and individuals
for the success of sales in these and any other countries in which
approval is granted. If these firms or individuals do not perform
for whatever reason, our business, prospects and results of
operations may be materially adversely affected. Finding a new or
replacement organization for sales and marketing could be
difficult, which would further harm our business, prospects and
results of operations.
If we or our collaborators are unable to manufacture our products
in sufficient quantities or are unable to obtain regulatory
approvals for a manufacturing facility, we may be unable to meet
demand for our products and we may lose potential
revenues.
Completion
of our clinical trials and commercialization of Neutrolin and any
other product candidate require access to, or development of,
facilities to manufacture a sufficient supply of our product
candidates. All of our manufacturing processes currently are, and
we expect them to continue to be, outsourced to third parties.
Specifically, we will rely on one or more manufacturers to supply
us and/or our distribution partners with commercial quantities of
Neutrolin. If, for any reason, we become unable to rely on our
current sources for the manufacture of Neutrolin or any other
product candidates or for active pharmaceutical ingredient, or API,
either for clinical trials or for commercial quantities, then we
would need to identify and contract with additional or replacement
third-party manufacturers to manufacture compounds for
pre-clinical, clinical, and commercial purposes. We may not be
successful in identifying such additional or replacement
third-party manufacturers, or in negotiating acceptable terms with
any that we do identify. Such third-party manufacturers must
receive FDA or applicable foreign approval before they can produce
clinical material or commercial product, and any that are
identified may not receive such approval or may fail to maintain
such approval. In addition, we may be in competition with other
companies for access to these manufacturers’ facilities and
may be subject to delays in manufacturing if the manufacturers give
other clients higher priority than they give to us. If we are
unable to secure and maintain third-party manufacturing capacity,
the development and sales of our products and our financial
performance may be materially affected.
Before
we could begin to commercially manufacture Neutrolin or any other
product candidate on our own, we must obtain regulatory approval of
the manufacturing facility and process. The manufacture of drugs
for clinical and commercial purposes must comply with cGMP and
applicable non-U.S. regulatory requirements. The cGMP requirements
govern quality control and documentation policies and procedures.
Complying with cGMP and non-U.S. regulatory requirements would
require that we expend time, money, and effort in production,
recordkeeping, and quality control to assure that the product meets
applicable specifications and other requirements. We would also
have to pass a pre-approval inspection prior to FDA or non-U.S.
regulatory agency approval. Failure to pass a pre-approval
inspection may significantly delay regulatory approval of our
products. If we fail to comply with these requirements, we would be
subject to possible regulatory action and may be limited in the
jurisdictions in which we are permitted to sell our products. As a
result, our business, financial condition, and results of
operations could be materially adversely
affected.
Corporate
and academic collaborators may take actions that delay, prevent, or
undermine the success of our products.
Our
operating and financial strategy for the development, clinical
testing, manufacture, and commercialization of our product
candidates is heavily dependent on our entering into collaborations
with corporations, academic institutions, licensors, licensees, and
other parties. Our current strategy assumes that we will
successfully establish and maintain these collaborations or similar
relationships. However, there can be no assurance that we will be
successful establishing or maintaining such collaborations. Some of
our existing collaborations, such as our licensing agreements, are,
and future collaborations may be, terminable at the sole discretion
of the collaborator in certain circumstances. Replacement
collaborators might not be available on attractive terms, or at
all.
In
addition, the activities of any collaborator will not be within our
control and may not be within our power to influence. There can be
no assurance that any collaborator will perform its obligations to
our satisfaction or at all, that we will derive any revenue or
profits from such collaborations, or that any collaborator will not
compete with us. If any collaboration is not pursued, we may
require substantially greater capital to undertake on our own the
development and marketing of our product candidates and may not be
able to develop and market such products successfully, if at all.
In addition, a lack of development and marketing collaborations may
lead to significant delays in introducing product candidates into
certain markets and/or reduced sales of products in such
markets.
Data provided by collaborators and others upon which we rely that
has not been independently verified could turn out to be false,
misleading, or incomplete.
We
rely on third-party vendors, scientists, and collaborators to
provide us with significant data and other information related to
our projects, clinical trials, and business. If such third parties
provide inaccurate, misleading, or incomplete data, our business,
prospects, and results of operations could be materially adversely
affected.
Risks Related to our Common Stock
Prior to fiscal 2015, we had identified a material weakness in our
internal control over financial reporting, and our current internal
control over financial reporting and our disclosure controls and
procedures may not prevent all possible errors that could
occur.
In the
several years prior to fiscal 2015, we had identified a material
weakness in our internal control over financial reporting that was
related to our limited finance staff and the resulting ineffective
management review over financial reporting, coupled with
increasingly complex accounting treatments associated with our
financing activities and European expansion. While we remediated
this material weakness in 2015, we cannot be certain that material
weaknesses will not arise again.
A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control
system’s objectives will be satisfied. Internal control over
financial reporting and disclosure controls and procedures are
designed to give a reasonable assurance that they are effective to
achieve their objectives. We cannot provide absolute assurance that
all of our possible future control issues will be detected. These
inherent limitations include the possibility that judgments in our
decision making can be faulty, and that isolated breakdowns can
occur because of simple human error or mistake. The design of our
system of controls is based in part upon assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed absolutely in achieving our stated goals under
all potential future or unforeseeable conditions. Because of the
inherent limitations in a cost-effective control system,
misstatements due to error could occur and not be detected. This
and any future failures could cause investors to lose confidence in
our reported financial information, which could have a negative
impact on our financial condition and stock price.
Our common stock price has fluctuated considerably and is likely to
remain volatile, in part due to the limited market for our common
stock and you could lose all or a part of your
investment.
During
the period from the completion of our initial public offering, or
IPO, on March 30, 2010 through February 28, 2018, the high and low
sales prices for our common stock were $10.40 and $0.15,
respectively. There is a limited public market for our common stock
and we cannot provide assurances that an active trading market will
develop or continue. As a result of low trading volume in our
common stock, the purchase or sale of a relatively small number of
shares could result in significant share price
fluctuations.
Additionally, the market price of our common stock
may continue to fluctuate significantly in response to a number of
factors, some of which are beyond our control, including the
following:
●
market
acceptance of Neutrolin in those markets in which it is approved
for sale;
●
our
need for additional capital;
●
the
receipt of or failure to obtain additional regulatory approvals for
Neutrolin, including FDA approval in the U.S.;
●
results
of clinical trials of our product candidates, including our ongoing
and planned Phase 3 trials for Neutrolin in the U.S., or those of
our competitors;
●
our
entry into or the loss of a significant collaboration;
●
regulatory
or legal developments in the United States and other countries,
including changes in the healthcare payment systems;
●
changes
in financial estimates or investment recommendations by securities
analysts relating to our common stock;
●
announcements
by our competitors of significant developments, strategic
partnerships, joint ventures or capital commitments;
●
changes
in key personnel;
●
variations
in our financial results or those of companies that are perceived
to be similar to us;
●
market
conditions in the pharmaceutical and medical device sectors and
issuance of new or changed securities analysts’ reports or
recommendations;
●
general
economic, industry and market conditions;
●
developments
or disputes concerning patents or other proprietary
rights;
●
future
sales or anticipated sales of our securities by us or our
stockholders; and
●
any
other factors described in this “Risk Factors”
section.
In
addition, the stock markets in general, and the stock of
pharmaceutical and medical device companies in particular, have
experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of
these companies. Broad market and industry factors may negatively
affect the market price of our common stock, regardless of our
actual operating performance.
For
these reasons and others, an investment in our securities is risky
and invest only if you can withstand a significant loss and wide
fluctuations in the value of your investment.
A significant number of additional shares of our common stock may
be issued at a later date, and their sale could depress the market
price of our common stock.
As
of December 31, 2017, we had outstanding the following securities
that are convertible into or exercisable for shares of our common
stock:
●
warrants
for 227,273 shares of common stock issued in July 2013 with an
exercise price of $1.50 that expire on July 30, 2018;
●
warrants
for 500,000 shares of common stock issued in May 2013 with an
exercise price of $0.65 per share that expire on May 30,
2019;
●
warrants
for 125,000 shares issued to ND Partners in April 2013 in
connection with the amendment to the license and assignment
agreement with an exercise price of $1.50 per share that expire on
April 11, 2018;
●
options
to purchase an aggregate of 120,000 shares of our common stock
issued to our officers, directors, employees and non-employee
consultants under our Amended and Restated 2006 Stock Incentive
Plan, or the 2006 Stock Plan, with a weighted average exercise
price of $1.44 per share;
●
options
to purchase an aggregate of 4,842,795 shares of our common stock
issued to our officers, directors and non-employee consultants
under our 2013 Stock Plan, with a weighted average exercise price
of $2.05 per share;
●
a
warrant to purchase 400,000 shares of our common stock issued on
February 19, 2013 with an exercise price of $1.50 that expire on
February 19, 2018;
●
warrants
for 750,000 shares of common stock with an exercise price of $0.90
that expire on October 22, 2019;
●
warrants
for 725,000 shares of common stock with an exercise price of $0.90
that expire on January 8, 2020;
●
Series C-2
Preferred Stock convertible into 1,500,000 shares of
common;
●
Series C-3
Preferred Stock convertible into 1,040,000 shares of common
stock;
●
Series D Preferred
Stock convertible into 1,479,240 shares of common
stock;
●
Series E Preferred
Stock convertible into 1,959,759 shares of common
stock;
●
Series F Preferred
Stock convertible into 3,157,562 shares of common stock, subject to
adjustment;
●
warrants for
682,500 shares of common stock issued in March 2014 with an
exercise price of $2.50 per shares that expire on September 10,
2019;
●
warrants for
200,000 shares of common stock with an exercise price of $7.00 that
expire on March 3, 2020;
●
warrants for 83,400
shares of common stock with an exercise price of $7.00 that expire
on March 25, 2020;
●
Series A warrants
for 4,078,226 shares of common stock with an exercise price of
$0.75 that expire on September 10, 2018;
●
Series B warrants
for 13,964,476 shares of common stock with an exercise price of
$1.05 that expire on August 10, 2022;
●
underwriter
warrants for 1,117,158 shares of common stock with an exercise
price of $0.9375 that expire on August 10, 2022;
●
warrants for
564,858 shares of common stock with an exercise price of $0.001
that expire on November 16, 2020; and
●
restricted stock
units for 66,414 shares of common stock with an average grant date
fair value of $2.08 per share.
The
possibility of the issuance of these shares, as well as the actual
sale of such shares, could substantially reduce the market price
for our common stock and impede our ability to obtain future
financing.
We will need additional financing to fund our activities in the
future, which likely will dilute our stockholders.
To date, our commercial operations
have not generated sufficient revenues to enable profitability. As
of December 31, 2017, we had an accumulated deficit of $152.2
million, and incurred net losses from operations of $33.0 million
for the year then ended. Based on the current development plans for
Neutrolin in both the U.S. and foreign markets (including the
ongoing hemodialysis Phase 3 clinical trial in the U.S.) and our
other operating requirements, management believes that the existing
cash at December 31, 2017 plus funding raised through March 9,
2018 and a proposed new
$3 million backstop facility, for which a binding term sheet was
recently signed by us and Elliott Management Corporation, will be
sufficient to fund operations into the third quarter of 2018. If a
definitive agreement can be negotiated and executed, the proposed
backstop facility would be available for drawing between April 16,
2018 and July 31, 2018. Further, we will
need additional funding to complete the hemodialysis clinical trial
in the U.S. which commenced in December 2015 and to continue the
Neutrolin development program through the NDA filing and marketing
approval. We anticipate that we will
incur operating losses for the foreseeable future. Additionally, we
will require substantial funds in the future to support our
operations. We expect to seek equity or debt financings in the
future to fund our operations. The issuance of additional equity
securities, or convertible debt or other derivative securities,
likely will dilute some if not all of our then existing
stockholders, depending on the financing
terms.
Future sales and issuances of our equity securities or rights to
purchase our equity securities, including pursuant to equity
incentive plans, would result in additional dilution of the
percentage ownership of our stockholders and could cause our stock
price to fall.
To
the extent we raise additional capital by issuing equity
securities, our stockholders may experience substantial dilution.
We may, as we have in the past, sell common stock, convertible
securities or other equity securities in one or more transactions
at prices and in a manner we determine from time to time. If we
sell common stock, convertible securities or other equity
securities in more than one transaction, investors may be further
diluted by subsequent sales. Such sales may also result in material
dilution to our existing stockholders, and new investors could gain
rights superior to existing stockholders.
Pursuant
to our 2013 Stock Plan, our Board of Directors is authorized to
award up to a total of 11,000,000 shares of common stock or options
to purchase shares of common stock to our officers, directors,
employees and non-employee consultants. As of December 31, 2017,
options to purchase 120,000 shares of common stock issued under our
2006 Stock Plan at a weighted average exercise price of $1.44 per
share, and options to purchase 4,842,495 shares of common stock
issued under our 2013 Stock Plan at a weighted average exercise
price of $2.05 per share were outstanding. In addition, at December
31, 2017, there were outstanding warrants to purchase an aggregate
of 23,417,891 shares of our common stock at prices ranging from
$0.001 to $7.00, and shares of our outstanding Series C-2, C-3, D,
E and F preferred stock convertible into an aggregate of 9,136,560
shares of our common stock. Stockholders will experience dilution
in the event that additional shares of common stock are issued
under our 2006 Stock Plan or 2013 Stock Plan, or options issued
under our 2006 Stock Plan or 2013 Stock Plan are exercised, or any
warrants are exercised for, or preferred stock shares are converted
to, common stock.
Provisions in our corporate charter documents and under Delaware
law could make an acquisition of us, which may be beneficial to our
stockholders, more difficult.
Provisions
in our Amended and Restated Certificate of Incorporation, as
amended, and our Amended and Restated Bylaws, as well as provisions
of the General Corporation Law of the State of Delaware, or DGCL,
may discourage, delay or prevent a merger, acquisition or other
change in control of our company, even if such a change in control
would be beneficial to our stockholders. These provisions include
the following:
●
authorizing
the issuance of “blank check” preferred stock, the
terms of which may be established and shares of which may be issued
without stockholder approval;
●
prohibiting
our stockholders from fixing the number of our directors;
and
●
establishing
advance notice requirements for stockholder proposals that can be
acted on at stockholder meetings and nominations to our Board of
Directors.
These
provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making
it more difficult for stockholders to replace members of our board
of directors, which is responsible for appointing the members of
our management. In addition, we are subject to Section 203 of the
DGCL, which generally prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with an
interested stockholder for a period of three years following the
date on which the stockholder became an interested stockholder,
unless such transactions are approved by the board of directors.
This provision could have the effect of discouraging, delaying or
preventing someone from acquiring us or merging with us, whether or
not it is desired by, or beneficial to, our stockholders. Any
provision of our Amended and Restated Certificate of Incorporation,
as amended, or Amended and Restated Bylaws or Delaware law that has
the effect of delaying or deterring a change in control could limit
the opportunity for our stockholders to receive a premium for their
shares of our common stock and could also affect the price that
some investors are willing to pay for our common
stock.
If we fail to comply with the continued listing standards of the
NYSE American, it may result in a delisting of our common stock
from the exchange.
Our
common stock is currently listed for trading on the NYSE American,
and the continued listing of our common stock on the NYSE American
is subject to our compliance with a number of listing standards.
These listing standards include the requirement for avoiding
sustained losses and maintaining a minimum level of
stockholders’ equity. In 2012 and 2014, we
received notices from the NYSE American that we did not meet
continued listing standards of the NYSE American as set forth in
Part 10 of the Company Guide. Specifically, we were not
in compliance with Section 1003(a)(i) and Section 1003(a)(ii) of
the Company Guide because we reported stockholders’ equity of
less than the required amounts. As a result, we became
subject to the procedures and requirements of Section 1009 of the
Company Guide and were subject to possible delisting. In March
2015, we regained compliance with the NYSE American listing
requirements due to our market capitalization, pursuant to Section
1003(a) of the Company Guide. However, there can be no assurance
that we will continue to meet the continued listing standards of
the NYSE American.
If our common stock were no longer listed on the
NYSE American, investors might only be able to trade on one of the
over-the-counter markets, including the OTC Bulletin Board
®
or in the Pink Sheets
®
(a quotation medium operated by Pink
Sheets LLC). This would impair the liquidity of our common stock
not only in the number of shares that could be bought and sold at a
given price, which might be depressed by the relative illiquidity,
but also through delays in the timing of transactions and reduction
in media coverage.
Because the average daily trading volume of our common stock has
been low historically, the ability to sell our shares in the
secondary trading market may be limited.
Because the average daily trading volume of our
common stock on the NYSE American has been low historically, the
liquidity of our common stock may be impaired. As a result, prices
for shares of our common stock may be lower than might otherwise
prevail if the average daily trading volume of our common stock was
higher. The average daily trading volume of our common stock may be
low relative to the stocks of other exchange-listed companies,
which could limit investors’ ability to sell shares in the
secondary trading market.
Penny stock regulations may impose certain restrictions on
marketability of our securities.
The
SEC has adopted regulations which generally define a “penny
stock” to be any equity security that has a market price of
less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. A security listed on a
national securities exchange is exempt from the definition of a
penny stock. Our common stock is listed on the NYSE American and so
is not considered a penny stock. However, if we fail to maintain
our common stock’s listing on the NYSE American, our common
stock would be considered a penny stock. In that event, our common
stock would be subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse).
For transactions covered by such rules, the broker-dealer must make
a special suitability determination for the purchase of such
securities and have received the purchaser’s written consent
to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the transaction, of a risk
disclosure document mandated by the SEC relating to the penny stock
market. The broker-dealer must also disclose the commission payable
to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is
the sole market maker, the broker-dealer must disclose this fact
and the broker-dealer’s presumed control over the market.
Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information
on the limited market in penny stocks. Broker-dealers must wait two
business days after providing buyers with disclosure materials
regarding a security before effecting a transaction in such
security. Consequently, the “penny stock” rules
restrict the ability of broker-dealers to sell our securities and
affect the ability of investors to sell our securities in the
secondary market and the price at which such purchasers can sell
any such securities, thereby affecting the liquidity of the market
for our common stock.
Stockholders
should be aware that, according to the SEC, the market for penny
stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include:
●
control
of the market for the security by one or more broker-dealers that
are often related to the promoter or issuer;
●
manipulation
of prices through prearranged matching of purchases and sales and
false and misleading press releases;
●
“boiler
room” practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales
persons;
●
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
●
the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with
consequent investor losses.
We do not intend to pay dividends on our common stock so any
returns on our common stock will be limited to the value of our
common stock.
We
have never declared dividends on our common stock, and currently do
not plan to declare dividends on shares of our common stock in the
foreseeable future. Pursuant to the terms of our Series D, E and F
Non-Voting Convertible Preferred Stock, we may not declare or pay
any dividends or make any distributions on any of our shares or
other equity securities as long as any of those preferred shares
remain outstanding. We currently expect to retain future earnings,
if any, for use in the operation and expansion of our business. The
payment of cash dividends in the future, if any, will be at the
discretion of our board of directors and will depend upon such
factors as earnings levels, capital requirements, our overall
financial condition and any other factors deemed relevant by our
board of directors. Any return to holders of our common stock will
be limited to the value of their common stock.
Item
1B.
Unresolved
Staff Comments
None.
Our
principal executive offices are located in approximately 6,960
square feet of office space in Berkeley Heights, New Jersey. We
sublease this office pursuant to a sublease agreement dated
September 2017 which runs from September 15, 2017 to June 29, 2020.
This sublease is rent-free to the Company.
Effective October
1, 2017, the Company terminated its sublease for the 4,700 square
feet of office space in Bedminster, New Jersey with no further
lease obligation for the remainder of the sublease. Rent was $5,000
per month plus occupancy costs such as utilities, maintenance and
taxes.
Our
subsidiary leases its offices in Fulda, Germany has a three-month
lease agreement which commenced in June 2017, renewable every three
months for a base monthly payment of €400.
We
believe that our existing facilities are adequate to meet our
current needs, and that suitable additional alternative spaces will
be available in the future on commercially reasonable
terms.
Item
3.
Legal
Proceedings
On
September 9, 2014, we filed in the District Court of Mannheim,
Germany a patent infringement action against TauroPharm GmbH and
Tauro-Implant GmbH as well as their respective CEOs (the
“Defendants”) claiming infringement of our European
Patent EP 1 814 562 B1, which was granted by the EPO on January 8,
2014 (the “Prosl European Patent”). The Prosl European
Patent covers a low dose heparin catheter lock solution for
maintaining patency and preventing infection in a hemodialysis
catheter. In this action, we claim that the Defendants infringe on
the Prosl European Patent by manufacturing and distributing
catheter locking solutions to the extent they are covered by the
claims of the Prosl European Patent. We believe that our patent is
sound, and are seeking injunctive relief and raising claims for
information, rendering of accounts, calling back, destruction and
damages. Separately, TauroPharm has filed an opposition with the
EPO against the Prosl European Patent alleging that it lacks
novelty and inventive step. We cannot predict what other defenses
the Defendants may raise, or the ultimate outcome of either of
these related matters.
In
the same complaint against the same Defendants, we also alleged an
infringement (requesting the same remedies) of NDP’s utility
model DE 20 2005 022 124 U1 (the “Utility Model”),
which we believe is fundamentally identical to the Prosl European
Patent in its main aspects and claims. The Court separated the two
proceedings and the Prosl European Patent and the Utility Model
claims are now being tried separately. TauroPharm has filed a
cancellation action against the Utility Model before the German
Patent and Trademark Office (the “German PTO”) based on
the similar arguments as those in the opposition against the Prosl
European Patent.
On
March 27, 2015, the District Court held a hearing to evaluate
whether the Utility Model has been infringed by TauroPharm in
connection with the manufacture, sale and distribution of its
TauroLock-HEP100TM and TauroLock-HEP500TM products. A hearing
before the same court was held on January 30, 2015 on the separate,
but related, question of infringement of the Prosl European Patent
by TauroPharm.
The
Court issued its decisions on May 8, 2015, staying both
proceedings. In its decisions, the Court found that the
commercialization by TauroPharm in Germany of its TauroLock
catheter lock solutions Hep100 and Hep500 infringes both the Prosl
European Patent and the Utility Model and further that there is no
prior use right that would allow TauroPharm to continue to make,
use or sell its product in Germany. However, the Court declined to
issue an injunction in favor of us that would preclude the
continued commercialization by TauroPharm based upon its finding
that there is a sufficient likelihood that the EPO, in the case of
the Prosl European Patent, or the German PTO, in the case of the
Utility Model, may find that such patent or utility model is
invalid. Specifically, the Court noted the possible publication of
certain instructions for product use that may be deemed to
constitute prior art. As such, the District Court determined that
it will defer any consideration of the request by us for injunctive
and other relief until such time as the EPO or the German PTO made
a final decision on the underlying validity of the Prosl European
Patent and the Utility Model.
The
opposition proceeding against the Prosl European Patent before the
EPO is ongoing. In its preliminary consideration of the matter, the
EPO (and the German PTO) regarded the patent as not inventive or
novel due to publication of prior art. Oral proceedings before the
Opposition Division at the EPO were held on November 25, 2015, at
which the three judge patent examiner panel considered arguments
related to the validity of the Prosl European Patent. The hearing
was adjourned due to the fact that the panel was of the view that
Claus Herdeis, one of the managing directors of TauroPharm, has to
be heard as a witness in a further hearing in order to close some
gaps in the documentation presented by TauroPharm as regards the
publication of prior art.
The
German PTO held a hearing in the validity proceedings relating to
the Utility Model on June 29, 2016, at which the panel affirmed its
preliminary finding that the Utility Model was invalid based upon
prior publication of a reference to the benefits that may be
associated with adding heparin to a taurolidine based solution. The
decision has only a declaratory effect, as the Utility Model had
expired in November 2015. Furthermore, it has no bearing on the
ongoing consideration by the EPO of the validity and possible
infringement of the Prosl European Patent. We filed an appeal
against the ruling on September 7, 2016.
In
October 2016, TauroPharm submitted a further writ to the EPO
requesting a date for the hearing and bringing forward further
arguments, in particular in view of the June 2016 decision of the
German PTO on the invalidity of the utility model, which we have
appealed. On November 22, 2017, the EPO in Munich, Germany held a
further oral hearing in this matter. At the hearing, the panel held
that the Prosl European Patent would be invalidated because it did
not meet the requirements of novelty based on a technical aspect of
the European intellectual property law. We disagree with this
decision and plan to appeal. Our appeal will be based, in part, on
the written opinion to be issued by the Opposition Division, which
is expected by the first quarter 2018. We continue to believe that
the Prosl European Patent is indeed novel and that its validity
should be maintained. There can be no assurance that we will
prevail in this matter with either the German PTO or the EPO. In
addition, the ongoing Unfair Competition litigation against
TauroPharm is not affected and will continue.
On
January 16, 2015, we filed a complaint against TauroPharm GmbH and
its managing directors in the District Court of Cologne, Germany.
In the complaint, we allege violation of the German Unfair
Competition Act by TauroPharm for the unauthorized use of its
proprietary information obtained in confidence by TauroPharm. We
allege that TauroPharm is improperly and unfairly using its
proprietary information relating to the composition and manufacture
of Neutrolin, in the manufacture and sale of TauroPharm’s
products TauroLockTM, TauroLock-HEP100 and TauroLock-HEP500. We
seek a cease and desist order against TauroPharm from continuing to
manufacture and sell any product containing taurolidine (the active
pharmaceutical ingredient (“API”) of Neutrolin) and
citric acid in addition to possible other components, damages for
any sales in the past and the removal of all such products from the
market. An initial hearing in the District Court of Cologne,
Germany was held on November 19, 2015 to consider our claims. The
judge made no decision on the merits of our complaint. On January
14, 2016, the court issued an interim decision in the form of a
court order outlining several issues of concern that relate
primarily to court's interest in clarifying the facts and reviewing
any and all available documentation, in particular with regard to
the question which specific know-how was provided to TauroPharm by
whom and when. We have prepared the requested reply and produced
the respective documentation. TauroPharm has also filed another
writ within the same deadline and both parties have filed further
writs at the end of April setting out their respective
argumentation in more detail. A further oral hearing in this matter
was held on November 15, 2016. In this hearing, the court heard
arguments from CorMedix and TauroPharm concerning the allegations
of unfair competition. The court made no rulings from the bench,
and indicated that it is prepared to further examine the underlying
facts of our allegations. On March 7, 2017, the court issued
another interim decision in the form of a court order outlining
again several issues relating to the argumentation of both sides in
the proceedings. In particular the court requested us to further
specify our requests and to further substantiate in even more
detail which know know-how was provided by Biolink to TauroPharm by
whom and when. The court also raised the question whether the
know-how provided at the time to TauroPharm could still be
considered to be secret know-how or may have become public in the
meantime. The court granted both sides the opportunity to reply to
this court order and provide additional facts and evidence until
May 15, 2017. Both parties have submitted further writs in this
matter and the court had scheduled a further hearing for May 8,
2018. After having been rescheduled several times, the hearing is
now scheduled to take place on November 20, 2018. The Company
intends to continue to pursue this matter, and to provide
additional supplemental documentary and other evidence as may be
necessary to support its claims.
Item
4.
Mine
Safety Disclosures
Not
applicable.
PART II
Item
5.
Market
for the Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Market for Common Equity
Our
common stock trades on the NYSE MKT under the symbol
“CRMD.” The following table sets forth the high and low
sales prices for our common stock for the periods indicated as
reported by NYSE MKT:
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$2.48
|
$1.44
|
$2.88
|
$1.15
|
|
Second
Quarter
|
$1.64
|
$0.36
|
$4.54
|
$1.83
|
|
Third
Quarter
|
$0.54
|
$0.32
|
$3.12
|
$1.35
|
|
Fourth
Quarter
|
$0.77
|
$0.45
|
$3.26
|
$1.46
|
Based
upon information furnished by our transfer agent, at March 15,
2018, we had approximately 61 holders of record of our common
stock.
Dividend Policy
We have
never declared dividends on our equity securities, and currently do
not plan to declare dividends on shares of our common stock in the
foreseeable future. We expect to retain our future earnings, if
any, for use in the operation and expansion of our business.
Further, pursuant to the terms of our
Series D and Series E Non-Voting Convertible Preferred Stock, we
may not declare or pay any dividends or make any distributions on
any of our shares or other equity securities as long as any of
those preferred shares remain outstanding. Subject to the
foregoing, the payment of cash dividends in the future, if any,
will be at the discretion of our Board of Directors and will depend
upon such factors as earnings levels, capital requirements, our
overall financial condition and any other factors deemed relevant
by our Board of Directors.
Equity Compensation Plan Information
The
following table provides information as of December 31, 2017 about
our common stock that may be issued upon the exercise of options,
warrants and rights under all of our existing equity compensation
plans (including individual arrangements):
|
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights(a)
|
Weighted-average
exercise price of outstanding options, warrants and
rights(b)
|
Number
ofsecurities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a)
(c)
|
|
Equity compensation
plans approved by security holders (1)
|
4,962,795
|
$2.04
|
5,253,336
|
|
Equity compensation
plans not approved by security holders (2)
|
125,000
|
1.50
|
--
|
|
Total
|
5,087,795
|
$2.02
|
5,253,336
|
(1)
Our Amended and
Restated 2006 Stock Incentive Plan was approved by our stockholders
on February 19, 2010. Our 2013 Stock Incentive Plan was approved by
our stockholders on July 30, 2013.
(2)
Consists
of 125,000 shares of common stock issuable pursuant to a warrant
issued to ND Partners in April 2013 as consideration for the
amendment of the ND Partners License Agreement.
Item
6.
Selected
Consolidated Financial Data
Not
applicable.
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 financial statements and the
accompanying notes. 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
We are
a biopharmaceutical company focused on developing and
commercializing therapeutic products for the prevention and
treatment of infectious and inflammatory diseases.
Our
primary focus is to develop our lead product candidate,
Neutrolin®, for potential
commercialization in the U.S. and other key markets. We have
in-licensed the worldwide rights to develop and commercialize
Neutrolin, which is a novel anti-infective solution (a formulation
of taurolidine, citrate and heparin 1000 u/ml) under development in
the U.S. for the reduction and prevention of catheter-related
infections and thrombosis in patients requiring central venous
catheters in clinical settings such as dialysis, critical/intensive
care, and oncology. Infection and thrombosis represent key
complications among critical care/ intensive care 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, the need for IV
antibiotic treatment, long-term anticoagulation therapy,
removal/replacement of the central venous catheter, related
treatment costs and increased mortality. We believe Neutrolin has
the potential to address a significant unmet medical need and
represents a significant market opportunity.
In July
2013, we received CE Mark approval for Neutrolin. In
December 2013, we commercially launched Neutrolin in Germany
for the prevention of catheter-related bloodstream infections 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 April 2017, we entered into a commercial
collaboration with Hemotech SAS covering France and French overseas
territories.
We
initiated a Phase 3 clinical trial in hemodialysis patients with a
central venous catheter (“LOCK-IT-100”) in December
2015 Two pivotal trials to demonstrate the safety and effectiveness
of Neutrolin are required by the U.S. Food and Drug Administration
(“FDA”) to secure marketing approval in the United
States.
In
April 2017, a safety review by an independent Data Safety
Monitoring Board, or DSMB was completed. The DSMB unanimously
concluded that it is safe to continue the LOCK-IT-100 clinical
trial as designed based on its evaluation of data from the first
279 patients randomized into the trial.
On
August 2, 2017, we announced that the FDA had agreed to key changes
to the LOCK-IT-100 clinical trial. We believe that the changes
endorsed by the FDA will facilitate our ability to complete patient
enrollment of our the ongoing Phase 3 clinical trial in
hemodialysis patients with central venous catheters, as previously
announced, in mid-year 2018, and to complete the trial once we have
accumulated the requisite number of CRBSI events. We sought
guidance from the FDA to address, in part, the apparent overall
lower rate of catheter-related blood stream infection (CRBSI)
events from patients in the study, as announced in April 2017.
Changes to the study included 1) the utilization of a Clinical
Adjudication Committee (CAC) to assess suspected CRBSIs; 2) the use
of the CAC to critically and independently assess suspected CRBSIs
in a blinded fashion based on a single positive blood culture and
supporting documentation, rather than two positive blood cultures
as required per protocol; 3) the ability to capture cases occurring
outside of dialysis centers to facilitate more complete capture of
CRBSI events in the study, particularly when patients present with
CRBSI events outside of the dialysis center setting e.g. emergency
rooms or urgent care centers; and 4) a revision of the design of
the study to detect a treatment effect of 55% or greater when
comparing the Neutrolin and heparin control arms. The FDA agreed
that cases adjudicated by the CAC to be CRBSI events and the per
protocol definition of CRBSI events will be included in the primary
analysis of the primary efficacy endpoint of the LOCK-IT-100 study.
The amended study assumptions including a reduction in statistical
power have resulted in a reduction in the total number of CRBSI
events required from 161 events to 56 events to complete the
study.
We
believe that these changes will allow the identification of more
infections, enabling a single interim analysis, which is
anticipated to occur in the second quarter of 2018. Should
the interim analysis show sufficient efficacy it may be possible to
conclude the study earlier than projected.
We are sponsoring a pre-clinical research
collaboration for the use of taurolidine as a possible combination
treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug
designation to taurolidine for the treatment of
neuroblastoma.
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
wound closure, surgical meshes, wound management, and
osteoarthritis, including visco-supplementation. 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.
In August 2017, the Company secured a research grant from the
National Institutes of Health (NIH) to expand the Company’s
antimicrobial hydrogel medical device program. In addition to
our ongoing development of taurolidine-incorporated hydrogels to
reduce infections in common burns, this funding will finance the
development of an advanced hydrogel formulation that is designed to
reduce the risk of potentially life-threatening infection and
promote healing of more severe burn injuries, for which there is
significant need.
The FDA
recently informed us that it regards taurolidine as a new chemical
entity and therefore an unapproved drug. Consequently, there is no
appropriate predicate device currently marketed in the U.S. on
which a 510k approval process could be based. As a result, we will
be required to submit a premarket approval application for
marketing authorization for these indications. In the event that
the New Drug Application for Neutrolin is approved by the FDA, the
regulatory pathway can be revisited with the FDA. Although
there will presumably still 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.
Since
our inception, we have not generated sufficient revenue from
product sales to be profitable. Our operations to date
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 Neutrolin in the European Union
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 continue to conduct our
ongoing Phase 3 clinical trial in hemodialysis patients with
catheters, plan a second Phase 3 clinical trial for Neutrolin,
commercialize Neutrolin in the European Union and other foreign
markets, pursue business development activities, incur additional
legal costs to defend our intellectual property, and seek FDA
approval of Neutrolin in the U.S. As of December 31,
2017, we had an accumulated deficit of approximately $152.2
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, 2017, 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 the advancement of our product candidates through pre-clinical
studies and clinical trials; and (vii) facilities and other
allocated expenses, which include direct and allocated expenses for
rent, facility maintenance, as well as laboratory and other
supplies. 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. We expect to incur higher R&D
expenses for the foreseeable future in order to complete
development of Neutrolin in the U.S., especially the ongoing
LOCK-IT-100 clinical trial and an anticipated second Phase 3
trial.
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 clinical development in the
U.S. and optimization of sales in foreign markets where Neutrolin
is approved. In December 2015, we contracted with PPD Development,
L.P. to help us conduct our multicenter, double-blind, randomized,
active control Phase 3 clinical trial in hemodialysis patients with
central venous catheters to demonstrate the efficacy and safety of
Neutrolin in preventing catheter-related bloodstream infections and
blood clotting in subjects receiving hemodialysis therapy as
treatment for end stage renal disease. In May 2017, we modified the
contract to cover the costs associated with an extension of the
estimated study timeline, incorporate several protocol amendments
and take on several new tasks related to the enrollment sites.
Given several recent changes to the study agreed with the FDA, we
signed a second contract modification with PPD for another $6.3
million, to cover the continuation of trial enrollment which is
anticipated to continue into the second quarter of 2018, increased
length of time in which patients are enrolled and additional
activities related to the collection of retrospective data outside
the treatment centers. At December 31, 2017, the total cost of the
contract had increased to $32.7 million from its original amount of
$19.2 million, of which approximately $14.4 million has been
expended through December 31, 2017.
We are
pursuing additional opportunities to generate value based on
taurolidine, an active component of Neutrolin. Based on initial
feasibility work, we are advancing pre-clinical studies for
taurolidine-infused surgical meshes, suture materials, and
hydrogels, which will 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.
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.
Change in Fair Value of Derivative Liabilities
In
November 2017, we entered into a
backstop agreement with an existing long-term institutional
investor to purchase additional Series F convertible preferred
Stock at $1,000 per share, at our sole discretion, beginning
January 15, 2018 through March 31, 2018. As consideration for the
backstop agreement, we issued 564,858 warrants, exercisable for
three years, to purchase shares of our common stock at a per share
exercise price of $0.001. These warrants were initially
classified as derivative liability as we had a conditional
obligation to settle these warrants by issuing a variable number of
shares with variations of the obligation based on inputs other than
the fair value of our shares (i.e. the amount subject to the
backstop agreement). In November 2017, we initially recorded a
derivative liability of $270,592 and a corresponding reduction to
additional paid in capital based on the initial Black Scholes
valuation. In December 2017, the number of warrants issued was
determined and, as a result, the derivative liability was
reclassified to equity. Prior to the reclassification to equity, an
expense of $56,487 for the change in fair value of derivative
liability was recorded on our consolidated statement of operations
and comprehensive income (loss) during the fourth quarter of
2018.
As
previously disclosed, at the time we issued the warrants in our May
2017 public offering, we did not have a sufficient number of
authorized shares of common stock to cover the shares issuable upon
exercise of the warrants and therefore recorded and classified the
fair value of the warrants as a derivative liability at the
issuance date and marked-to-market at each balance sheet date. The
change in the fair value of derivative liability is the difference
between the fair value of the warrants recorded on issuance date
and the fair value of warrants at the balance sheet date, with any
decrease or increase in the estimated fair value being recorded in
other income (expense). On August 9, 2017, we amended our
certificate of incorporation to increase our authorized shares and
we, as of that date, have sufficient authorized shares to cover
shares issuable upon the conversion of the warrants. The fair value
of these warrants was re-measured on August 10, 2017, the date the
warrants became exercisable, with any increase or decrease in value
recorded as a loss or gain in the income statement and the fair
value of the warrants at August 10, 2017 was reclassified from
liability to equity.
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 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 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, 2017 and
2016
The
following is a tabular presentation of our consolidated operating
results for the years ended December 31 (in thousands):
|
|
|
|
% of
Change
Increase
(Decrease)
|
|
Revenue
|
$329
|
$224
|
47%
|
|
Cost of
sales
|
(115)
|
(367)
|
(69)%
|
|
Gross profit
(loss)
|
214
|
(143)
|
(250)%
|
|
Operating
Expenses:
|
|
|
|
|
Research and
development
|
(24,486)
|
(15,735)
|
56%
|
|
Selling, general
and administrative
|
(8,652)
|
(8,883)
|
(3)%
|
|
Total operating
expenses
|
(33,138)
|
(24,618)
|
35%
|
|
Loss from
operations
|
(32,924)
|
(24,761)
|
33%
|
|
Interest
income
|
111
|
127
|
(13)%
|
|
Foreign exchange
transaction loss
|
(14)
|
(8)
|
75%
|
|
Change in fair
value of derivative liabilities
|
(177)
|
-
|
-
|
|
Interest
expense
|
(6)
|
(1)
|
329%
|
|
Total other income
(expense)
|
(86)
|
118
|
(173)%
|
|
Net
loss
|
(33,010)
|
(24,643)
|
34%
|
|
Other comprehensive
income gain (loss)
|
17
|
19
|
(11)%
|
|
Comprehensive
loss
|
$(32,993)
|
$(24,624)
|
34%
|
Revenue. Revenue for the year ended December 31, 2017 was
$329,000 as compared to $224,000 for the same period in 2016, an
increase of $105,000. The increase occurred due to higher
sales of Neutrolin in the European Union of $110,000, particularly
in France under the distribution agreement with
Hemotech.
Cost of Sales. Cost of sales for the
year ended December 31, 2017 was $115,000 as compared to $367,000
for the same period in 2016, a decrease of $252,000. The decrease
reflected a $327,000 reduction in inventory reserve during the year
ended December 31, 2017 as compared to an increase of $130,000 in
the inventory reserve for the same period in 2016. The reduction of
inventory reserve in 2017 was mainly due to higher sales in 2017 as
compared to 2016, and longer shelf life of the products
manufactured. The decrease was partially offset by a $148,000
increased cost of materials related to higher sales during the year
ended December 31, 2017 and an increase in ongoing stability
studies cost of $81,000.
Research and Development Expense.
R&D expense for the year ended December 31, 2017 was
$24,486,000, an increase of $8,751,000 from $15,735,000 for the
same period in 2016. The increase was primarily attributable to a
$10,255,000 increase in expenses related to the ongoing LOCK-IT-100
clinical trial in the U.S. and increase in personnel expenses of
$1,572,000, mainly due to the hiring of our chief medical officer
and new staff supporting the LOCK-IT-100 trial, including several
consultants who were converted to employee status; partially offset
by reduced cost of new studies in 2016 related to wound closure, surgical meshes, wound management,
and osteoarthritis, including visco-supplementation of
$1,985,000; a decrease in costs related to manufacturing process
development activities of $908,000; a decrease in non-cash
stock-based compensation of $97,000; and a decrease in consulting
fees of $95,000.
Selling, General and Administrative
Expense. SG&A expense for the year ended December 31,
2017 was $8,652,000, a decrease of $231,000 from $8,883,000 for the
same period in 2016. The decrease was primarily attributable to
reductions in consulting fees of $701,000, mainly due to the
termination of our interim chief financial officer’s
consulting contract in 2017 and a reduction in legal fees of
$520,000 attributable to the ongoing intellectual property
litigation and the dismissed securities litigation. These
decreases, among others of lesser significance, were partially
offset by an increase in higher personnel expenses of $571,000, due
to the hiring of new employees, including our chief financial
officer; and an increase in non-cash charge for stock-based
compensation expense of $421,000.
Interest Income. Interest income for
the year ended December 31, 2017 was $111,000, a decrease of
$16,000 from $127,000 for the same period in 2016. The decrease was
attributable to lower average interest-bearing cash balances and
short-term investments during 2017 as compared to the same period
in 2016.
Foreign Exchange Transaction Gain
(Loss). Foreign exchange transaction losses for the years
ended December 31, 2017 and 2016 of $14,000 and $8,000,
respectively, were due to the foreign exchange rate fluctuations
for the payment of invoices paid in foreign currency.
Change in Fair Value of Derivative
Liabilities. The change in the value of derivative
liabilities for the year ended December 31, 2017 of $177,000
represents the $121,000 net change in the fair value of the
warrants issued at issuance date (May 3, 2017 public offering) of
$3,733,000 and the estimated fair value of the warrants of
$3,854,000 at August 10, 2017, the date that the warrants were
reclassified from liability to equity; and the $56,000 increase in
fair value of the warrants issued related to the backstop agreement
at November 16, 2017 issuance date of $271,000 and the estimated
fair value of the warrants of $327,000 at December 24, 2017, the
date that the number of warrants to be issued was determined and
were reclassified from liability to equity.
Interest Expense. Interest expense for
the year ended December 31, 2017 was $6,000 as compared to $1,000
for the same period in 2016, an increase of $5,000 due to fees
incurred for financing of expenditures in 2017.
Other Comprehensive Income (Loss).
Unrealized foreign exchange movements related to long-term
intercompany 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 resulting in a $17,000 and $19,000 gains in
2017 and 2016, 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, we have not been
profitable and have generated operating losses since we began
operations. During the year ended December 31, 2017, we received
net proceeds of $12,798,000 from the May 2017 public offering
resulting from the issuance of an aggregate of 18,619,301 and
29,046,110 shares of common stock and warrants, respectively;
$5,543,000 from the issuance of 8,925,504 shares of common stock
under our at-the-market-issuance sales agreement; $1,877,000 from
the issuance of 2,000 shares of our Series F convertible preferred
stock; $300,000 from the sale of 624,246 shares of common stock to
our directors and executive officers and to certain of our
employees; and $6,800 from the exercise of 10,000 stock
options.
Net Cash Used in Operating Activities
Net
cash used in operating activities for the year ended December 31,
2017 was $28,587,000 as compared to $22,265,000 in 2016, an
increase in net cash use of $6,322,000. The increase was primarily
attributable to an increase in net loss of $8,365,000 driven by
increased research and development expenses. The net loss of
$33,010,000 for the year ended December 31, 2017 was higher than
cash used in operating activities by $4,423,000. The difference is
primarily attributable to non-cash stock-based compensation of
$1,659,000, change in fair value of derivative liabilities of
$177,000, increases in accrued expenses and accounts payable of
$2,023,000 and $158,000, respectively, and a decrease in prepaid
expenses related to the LOCK-IT-100 trial of $869,000; offset by a
decrease in inventory reserve of $327,000, and increases in
inventory and trade receivables of $100,000 and $48,000,
respectively.
Net Cash Provided by Investing Activities
Cash
provided by investing activities for the year ended December 31,
2017 was $11,962,000 compared to $11,420,000 for the same period in
2016, attributable to the proceeds on the sale of short-term
investments of $25,188,000, partially offset by the purchase of
short-term investments of $13,074,000 and purchase of equipment of
$152,000. In comparison to the same period in 2016, net cash
provided by investing activities was attributable to the proceeds
from the sale of short-term investments used to fund operations of
$11,478,000.
Net Cash Provided by Financing Activities
Net
cash provided by financing activities for the year ended December
31, 2017 was $20,525,000 as compared to $7,092,000 for the same
period in 2016. During 2017, we generated net proceeds of
$12,798,000 from the May 2017 public offering of our common stock
and warrants; $5,543,000 from the sale of our common stock in our
at-the-market program; $1,877,000 from the sale of our Series F
non-voting preferred stock, $300,000 from the sale of our common
stock from our directors, executive officers and certain employees;
and $7,000 from the exercise of stock options. In comparison to the
same period in 2016, we generated $6,229,000 from the sale of our
common stock in our at-the-market program, and $863,000 from the
exercise of stock options.
Funding Requirements and Liquidity
Our
total cash on hand and short-term investments as of December 31,
2017 was $12.0 million, excluding restricted cash of $0.2 million,
compared with $20.2 million at December 31, 2016. In addition, at
December 31, 2017 we have approximately $17.9 million available
under our current at-the-market program. At
December 31, 2017, we also had approximately $26.0 million
available under our current shelf registration for the issuance of
equity, debt or equity-linked securities unrelated to the current
ATM program which program will expire on April 16, 2018. On
March 9, 2018, we entered into a new agreement with B. Riley FBR,
Inc. for the sale of up to $14.1 million of our common stock,
subject to the effectiveness of the registration statement for such
offering, which we filed on March 9, 2018. The new ATM program
is expected to become effective upon the expiration of the current
ATM Program; in no event will the two ATM programs run
concurrently. We may utilize our ATM program, if conditions
allow, to support our ongoing Phase 3 clinical trial for Neutrolin
in hemodialysis catheters in the U.S.
Because
our business has not currently 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, even after accounting for the sale of our
common stock under our current and new ATM programs. Our continued
operations and specifically the completion of our ongoing
LOCK-IT-100 clinical trial for Neutrolin in the U.S., which was
initiated in December 2015, will depend on our ability to raise
sufficient additional funds through various potential sources, such
as equity, debt financings, and/or strategic relationships. A
second Phase 3 clinical trial is currently required for approval,
for which funds in addition to the ongoing hemodialysis Phase 3
clinical trial will be required. We can provide no assurances that
financing or strategic relationships will be available on
acceptable terms, or at all, that may enable us to complete our
Phase 3 clinical trial program.
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 continue to utilize our current
at-the-market 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 in connection with a debt financing 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 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.
While
we expect to grow product sales, we do not anticipate that we will
generate significant product revenues in the foreseeable future. In
the absence of such revenue, we are likely to continue generating
operating cash flow deficits. We expect to incur increases in our
cash used in operations as we continue our ongoing and planned
Phase 3 clinical trials, pursue business development activities,
incur additional legal costs to defend our intellectual property
and seek FDA approval of Neutrolin in the U.S.
Based on our cash resources at December 31, 2017,
the net proceeds we received from the sale of our common stock
under our ATM program through March 9, 2018, and the
expected timing and cost of the ongoing LOCK-IT-100 clinical trial
in the U.S., we believe that our existing cash and short-term
investments will fund our operations into the third quarter
of 2018, after taking into consideration the proposed new $3
million backstop facility, for which a binding term sheet was
recently signed by us and Elliott Management Corporation. If a
definitive agreement can be negotiated and executed, the proposed
backstop facility would be available for drawing between April 16,
2018 and July 31, 2018. If we are unable
to raise additional funds when needed, we may be forced to slow or
discontinue our ongoing LOCK-IT-100 clinical trial, and will be
unable to commence the planned second Phase 3 clinical trial. We
could 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. These factors raise substantial doubt regarding our
ability to continue as a going concern.
Contractual Obligations
In
September 2017, we entered into a sublease agreement for
approximately 6,960 square feet of office space in Berkeley
Heights, New Jersey, which sublease runs from September 15, 2017 to
June 29, 2020. This sublease is rent-free.
Effective October
1, 2017, we terminated our sublease for the 4,700 square feet of
office space in Bedminster, New Jersey with no further lease
obligation for the remainder of the sublease. Rent was $5,000 per
month plus occupancy costs such as utilities, maintenance and
taxes.
As of
December 31, 2017, we have no remaining lease
obligation.
Critical Accounting Estimates
Our
management’s discussion and analysis of our financial
condition and results of operations is based on our financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. The
preparation of these 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.
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 and a Monte Carlo option pricing model for options with
market vesting conditions. Stock-based compensation cost is
recognized as expense, over the employee’s requisite service
period on a straight-line basis.
We
account for stock options granted to non-employees on a fair value
basis using the Black-Scholes option pricing model in accordance
with ASC 718 and ASC No. 505-50, “Equity-Based Payments to
Non-Employees” (“ASC 505”). The non-cash
charge to operations for non-employee options with time based
vesting provisions is based on the fair value of the options
remeasured each reporting period and amortized to expense over the
related vesting period. The non-cash charge to operations for
non-employee options with performance based vesting provisions is
recorded when the achievement of the performance condition is
probable and remeasured each reporting period until the performance
condition is achieved.
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. In 2016, the expected
stock price volatility for our stock options was calculated based
on the historical volatility since the initial public offering of
our common stock in March 2010, weighted between the period pre and
post CE Mark approval in the European Union. Beginning January 1,
2017, the expected stock price volatility for the Company’s
stock options is calculated based on the historical volatility
since the initial public offering of the Company’s common
stock in March 2010. 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
recognize revenue in accordance with SEC SAB No. 101,
“Revenue Recognition in Financial Statements”
(“SAB 101”), as amended by SAB No. 104,
“Revenue Recognition” (“SAB 104”) and FASB
ASC 605, “Revenue Recognition” (“ASC
605”). Our product
Neutrolin received its CE Mark in Europe in July 2013 and shipment
of product to the dialysis centers began in December 2013. In
accordance with SAB 101 and SAB 104, we recognize revenue from
product sales when the following four revenue recognition criteria
are met: persuasive evidence of an arrangement exists, delivery has
occurred, the selling price is fixed or determinable, and
collectability is reasonably assured. We recognize revenue upon
shipment of product to the dialysis centers because the four
revenue recognition criteria are met at that time. For an upfront
payment related to an exclusive distribution agreement, we record
it as deferred revenue and recognize revenue on a straight-line
basis over the contractual term of the agreement
In
October 2015, we shipped product with less than 75% of its
remaining shelf life to a customer and issued a guarantee that any
product shipped with less than 75% of its shelf life remaining
would be replaced by us if the customer was not able to sell the
product before it expired. As a result of this warranty, we may
have an additional performance obligation (i.e. accept returned
product and deliver new product to the customer) if the customer is
unable to sell the short-dated product. Due to limited sales
experience with the customer, we were unable to estimate the amount
of the warranty obligation that may be incurred as a result of this
shipment. Therefore, we deferred the revenue and related cost of
sales associated with the original shipment of this product. Since
we will be unable to resell the expired product if returned by the
customer, the deferred revenue and related cost of sales is
presented net as “Deferred revenue” on the consolidated
balance sheet.
During
the year ended December 31, 2014, we entered into a distribution
agreement with Wonik Corporation, a South Korean company, to
market, sell and distribute Neutrolin for hemodialysis and
oncolytic patients upon receipt of regulatory approval in Korea.
Upon execution of the agreement, Wonik paid to us a non-refundable
$50,000 payment and will pay an additional $50,000 upon receipt of
the product registration necessary to sell Neutrolin in the
Republic of Korea. Revenue associated with the non-refundable
up-front payment under this arrangement is deferred and recognized
as revenue on a straight-line basis over the contractual term of
our agreement.
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.
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 condensed 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 condensed 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.
Derivative Liabilities:
We do not use derivative instruments to hedge
exposures to cash flow, market or foreign currency risks; however,
we have certain financial instruments that qualify as derivatives
and are classified as liabilities on the balance sheet. We evaluate
all our financial instruments to determine if those instruments or
any potential embedded components of those instruments qualify as
derivatives that need to be separately accounted for in accordance
with FASB ASC 815, “Derivatives and
Hedging”. Derivatives satisfying certain
criteria are recorded at fair value at issuance and
marked-to-market at each balance sheet date with the change in the
fair value recorded as income or expense. In addition, upon
the occurrence of an event that requires the derivative liability
to be reclassified to equity, the derivative liability is revalued
to fair value at that date and any change in value since the last
re-measurement date is recorded as income or
expense.
We account for stock warrants as either equity
instruments or derivative liabilities depending on the specific
terms of the warrant agreement. Stock warrants are
classified as derivative liabilities if they can be cash settled or
if there are insufficient authorized and unissued shares available
to settle the contract after considering all other commitments that
may require the issuance of stock during the maximum period the
warrant could remain outstanding. Liability classified
warrants are adjusted to their estimated fair values at each
reporting period, with any decrease or increase in the estimated
fair value being recorded in other income (expense).
Recent Authoritative Pronouncements:
In May 2014, the FASB issued new guidance related
to how an entity should recognize revenue. The guidance specifies
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods and services. In addition, the guidance
expands the required disclosures related to revenue and cash flows
from contracts with customers. In April 2016 and May 2016, the FASB
issued updates in order to provide improvements and clarifications
to the revenue recognition guidance. We will adopt the
new revenue recognition standard as of January 1, 2018 using the
modified retrospective method, which requires the cumulative effect
of adoption, if any, to be recognized as an adjustment to opening
retained earnings in the period of adoption. The majority of our
revenue relates to the sale of finished products to various
customers, and the adoption will not have any impact on revenue
recognized from these transactions. We analyzed the impact on
certain less significant transactions where we have deferred
revenue for certain product sales as a result of the ability of the
customer to return the product under certain conditions. As a
result of our analysis, we will accelerate the remaining deferred
revenue under these agreements as a cumulative effect adjustment to
opening retained earnings as of January 1, 2018 and at that time
will assess the need to adjust the reserve for returns and
allowances.
In
January 2016, the FASB issued a new standard that modifies certain
aspects of the recognition, measurement, presentation, and
disclosure of financial instruments. The accounting standard update
is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2017, and early adoption is
permitted. We will adopt this guidance on January 1, 2018 and is
not expected to have an impact on our consolidated financial
statements.
In
February 2016, the FASB issued new guidance related to how an
entity should lease assets and lease liabilities. The guidance
specifies that an entity who is a lessee under lease agreements
should recognize lease assets and lease liabilities for those
leases classified as operating leases under previous FASB
guidance. Accounting for leases by lessors is largely
unchanged under the new guidance. The guidance is effective for us
beginning in the first quarter of 2019. Early adoption is
permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. We
are evaluating the impact of adopting this guidance on our
consolidated financial statements.
In
June 2016, the FASB issued new guidance which replaces the incurred
loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform
credit loss estimates. The guidance is effective for us beginning
in the first quarter of fiscal year 2020. Early adoption is
permitted beginning in the first quarter of fiscal year 2019. We
are evaluating the impact of adopting this guidance on our
consolidated financial statements.
In
August 2016, the FASB issued new guidance which clarifies how
certain cash receipts and cash payments are presented and
classified in the statement of cash flows in order to reduce
diversity in practice. The guidance is effective for us beginning
in the first quarter of fiscal year 2018. Early adoption is
permitted. We will adopt this guidance on January 1, 2018 and it is
not expected to have an impact on our consolidated financial
statements.
In
November 2016, the FASB issued new guidance which clarifies how
restricted cash is presented and classified in the statement of
cash flows. The guidance is effective for us beginning in the first
quarter of fiscal year 2018. Early adoption is permitted. We will
adopt this guidance on January 1, 2018 and it is not expected to
have a significant impact on our consolidated financial
statements.
In
January 2017, the FASB issued new guidance which clarifies the
definition of a business in a business combination. The guidance is
effective for us beginning in the first quarter of fiscal year
2018. Early adoption is permitted. We will adopt this guidance on
January 1, 2018 and it is not expected to have an impact on our
consolidated financial statements.
In
May 2017, the FASB issued new guidance which clarifies the
application of stock based accounting guidance when a change is
made to the terms or conditions of a share-based payment award. The
guidance is effective for us beginning in the first quarter of
fiscal year 2018. Early adoption is permitted. We will adopt this
guidance on January 1, 2018 and it is not expected to have an
impact on our consolidated financial statements.
In
July 2017, the FASB issued new guidance which changes the
classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features and
recharacterizes the indefinite deferral of certain provisions
within the guidance for distinguishing liabilities from equity. The
guidance is effective for us beginning in the first quarter of
fiscal year 2019. Early adoption is permitted. We are evaluating
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.
Item
9.
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item
9A.
Controls
and Procedures
As of
the end of the period covered by this Annual Report on Form 10-K,
we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures
(as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (the
“Exchange Act”). Based on the foregoing evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the SEC, and that such information is
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosures.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
during our fourth quarter ended December 31, 2017, or in other
factors that could significantly affect these controls, that
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Management’s
Annual Report on Internal Controls Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of
the effectiveness of internal control over financial reporting. As
defined by the Securities and Exchange Commission, internal control
over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial
officers and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
consolidated financial statements in accordance with U.S. generally
accepted accounting principles.
Our
internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of the consolidated financial statements in accordance
with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In
connection with the preparation of our annual consolidated
financial statements, management, including, our Chief Executive
Officer and Chief Financial Officer, have undertaken an assessment
of the effectiveness of our internal control over financial
reporting as of December 31, 2016, based on the criterial
established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management’s assessment included an
evaluation of the design of our internal control over financial
reporting and testing of the operational effectiveness of those
controls.
Based
on this evaluation, management has concluded that our internal
control over financial reporting was effective as of
December 31, 2017.
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding the
effectiveness of our internal control over financial reporting
because we are a smaller reporting company.
Item
9B.
Other
Information
In an effort to
preserve our current cash and to further align the interests of our
executive officers with those of our stockholders, on March 15,
2018, our executive officers agreed to modify their cash bonuses
for 2017 by subjecting those bonuses to forfeiture unless
additional performance criteria are achieved, and subject to the
officer’s continued employment through the date such
performance criteria are to be achieved. Pursuant to their
respective employment agreements, Khoso Baluch, Robert Cook and
John Armstrong are each eligible for an annual bonus, which may
equal up to 80%, 30% and 35%, respectively, of his base salary. For
2017, the annual non-equity incentive bonus for our executive
officers was based on the achievement of company objectives in 2017
related to clinical studies, raising capital, technical operations,
budgetary and expense matters, and regulatory matters, all of which
goals were established in February 2017. For 2017, Mr. Baluch, Mr.
Cook and Mr. Armstrong were entitled to cash bonuses in an
aggregate amount of $306,601. As a result of the modifications, in
the event that we complete our interim efficacy analysis review by
the Data and Safety Monitoring Board on or before June 30, 2018,
Mr. Baluch, Mr. Cook and Mr. Armstrong would each receive a cash
bonus equal to 110% of their unmodified 2017 bonuses. Further, in
the event that the second milestone is met, then Mr. Baluch, Mr.
Cook and Mr. Armstrong would each receive a cash bonus of either
130%, 140% or 150% of their unmodified 2017 bonuses, depending on
the amount of those savings. If the first milestone is not achieved
then no bonuses will be awarded for 2017 at all, even if the second
milestone is achieved. Any bonuses that are awarded are to be paid
promptly after September 30, 2018. We will report the awarding of
any of these bonuses if and when they are achieved. The modified
agreements will be filed as exhibits to our Quarterly Report on
Form 10-Q for the quarter ending March 31, 2018. At the time of
filing, we will request confidential treatment for certain portions
of the agreements.
PART III
Item 10.
Directors,
Executive Officers, and Corporate Governance
We have
adopted a written Code of Conduct and Ethics that applies to our
directors, executive officers and all employees. We intend to
disclose any amendments to, or waivers from, our code of ethics and
business conduct that are required to be publicly disclosed
pursuant to rules of the SEC by filing such amendment or waiver
with the SEC. This code of ethics and business conduct can be found
in the “Investors - Corporate Governance” section of
our website, www.cormedix.com.
The
other information required by this Item concerning our directors
and executive officers is incorporated by reference to the section
captioned “Proposal No. 1—Election of
Directors” and “Corporate Governance” to be
contained in our proxy statement related to the 2018 Annual Meeting
of Stockholders (the “Proxy Statement”), which
information will be filed with the SEC within 120 days of the end
of our fiscal year pursuant to General Instruction G(3) of Form
10-K. The information required by this Item concerning compliance
with Section 16(a) of the Exchange Act by our directors, executive
officers and persons who own more than 10% of our outstanding
common stock is incorporated by reference from the section
captioned “Section 16(a) Beneficial Ownership Reporting
Compliance” to be contained in the Proxy
Statement.
Item 11.
Executive Compensation
The
information required by this Item concerning directors and
executive compensation is incorporated by reference from the
section captioned “Director Compensation,”
“Executive Compensation – Summary Compensation
Table” “Executive Compensation – Compensation
Discussion and Analysis,” “Executive Compensation
– Grants of Plan Based Awards,” “Executive
Compensation – Option Exercises and Stock Vested,”
“Executive Compensation – Outstanding Equity Awards at
Fiscal Year End 2017” “Executive Compensation –
Compensation Committee Interlocks and Insider Participation,”
and “Executive Compensation – Compensation Committee
Report” to be contained in the Proxy Statement.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
information regarding our equity compensation plans required by
this Item is found in Item 5 of this report. The other information
required by this Item is incorporated by reference to the
information under the section captioned “Security Ownership
of Certain Beneficial Owners and Management” to be contained
in the Proxy Statement.
Item 13.
Certain
Relationships and Related Transactions and Director
Independence
The
information required by this Item is incorporated by reference to
the information under the section captioned “Certain
Relationships and Related Transactions” and “Proposal
No. 1—Election of Directors” to be contained in
the Proxy Statement.
Item 14.
Principal
Accountant Fees and Services
The
information required by this Item is incorporated by reference to
the information under the section captioned “Auditor and
Audit Committee Matters” to be contained in the Proxy
Statement.
PART IV
Item
15.
Exhibits
and Financial Statement Schedules
(a)
List of documents
filed as part of this report:
The
financial statements of the Company and the related reports of the
Company’s independent registered public accounting firms
thereon have been filed under Item 8 hereof.
2.
Financial Statement
Schedules:
None.
The
following is a list of exhibits filed as part of this Form
10-K:
|
Exhibit
Number
|
|
Description
of Document
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
At-the-Market
Issuance Sales Agreement, dated April 8, 2015, between CorMedix
Inc. and MLV.
|
|
S-3
|
|
4/09/2015
|
|
1.2
|
|
|
|
|
|
Amendment
No. 1, dated December 8, 2017, to At-the-Market Issuance Sales
Agreement, dated April 8, 2015, between CorMedix Inc. and B. Riley
FBR, Inc.
|
|
8-K
|
|
12/08/2017
|
|
1.1
|
|
|
|
|
|
Underwriting
Agreement, dated April 28, 2017 by and among CorMedix Inc. and H.C.
Wainwright & Co., LLC.
|
|
8-K
|
|
5/03/2017
|
|
1.1
|
|
|
|
|
|
At
Market Issuance Sales Agreement, dated March 9, 2018, between
CorMedix Inc. and B. Riley FBR, Inc.
|
|
S-3
|
|
3/09/2018
|
|
1.1
|
|
|
|
|
|
Form of Amended and
Restated Certificate of Incorporation.
|
|
S-1/A
|
|
3/01/2010
|
|
3.3
|
|
|
|
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated February 24, 2010.
|
|
S-1/A
|
|
3/19/2010
|
|
3.5
|
|
|
|
|
|
Form of Amended and
Restated Bylaws as amended April 19, 2016.
|
|
10-Q
|
|
5/10/2016
|
|
3.1
|
|
|
|
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated December 3, 2012.
|
|
10-K
|
|
3/27/2013
|
|
3.3
|
|
|
|
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated August 9, 2017.
|
|
8-K
|
|
8/10/2017
|
|
3.1
|
|
|
|
|
|
Certificate of
Designation of Series A Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on
February 18, 2013, as corrected on February 19, 2013.
|
|
8-K
|
|
2/19/2013
|
|
3.3
|
|
|
|
|
|
Certificate of
Designation of Series B Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on July
26, 2013.
|
|
8-K
|
|
7/26/2013
|
|
3.4
|
|
|
|
|
|
Certificate of
Designation of Series C-1 Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on
October 21, 2013.
|
|
8-K
|
|
10/23/2013
|
|
3.5
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series C-2 Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.15
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series C-3 Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.16
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series D Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.17
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series E Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.18
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series F Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on December 11, 2017.
|
|
8-K
|
|
12/11/2017
|
|
3.1
|
|
|
|
|
|
Specimen of Common
Stock Certificate.
|
|
S-1/A
|
|
3/19/2010
|
|
4.1
|
|
|
|
|
|
Form of Warrant
issued on February 19, 2013.
|
|
8-K
|
|
2/19/2013
|
|
4.13
|
|
|
|
|
|
Form of Warrant
issued to ND Partners on April 11, 2013.
|
|
10-Q
|
|
5/15/2013
|
|
4.18
|
|
|
|
|
|
Form of Warrant
issued on July 30, 2013.
|
|
8-K
|
|
7/26/2013
|
|
4.21
|
|
|
|
|
|
Form of Warrant
issued on October 22, 2013.
|
|
8-K
|
|
10/18/2013
|
|
4.22
|
|
|
|
|
|
Form of Warrant
issued on January 8, 2014.
|
|
8-K
|
|
1/09/2014
|
|
4.23
|
|
|
|
|
|
Form of Warrant
issued on March 10, 2014
|
|
8-K
|
|
03/05/2014
|
|
4.24
|
|
|
|
Exhibit
Number
|
|
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
Warrant issued
March 3, 2015.
|
|
8-K
|
|
03/04/2015
|
|
4.1
|
|
|
|
|
|
Amended and
Restated Warrant originally issued March 24, 2010.
|
|
8-K
|
|
03/04/2015
|
|
4.3
|
|
|
|
|
|
Amended and
Restated Warrant originally issued May 30, 2013.
|
|
8-K
|
|
03/04/2015
|
|
4.2
|
|
|
|
|
|
Registration Rights
Agreement, dated March 3, 2015, by and between CorMedix Inc. and
Manchester Securities Corp.
|
|
8-K
|
|
03/04/2015
|
|
4.5
|
|
|
|
|
|
Form
of Series A Warrant to Purchase Common Stock of CorMedix Inc.
issued on May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.1
|
|
|
|
|
|
Form
of Series B Warrant to Purchase Common Stock of CorMedix Inc.
issued on May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.2
|
|
|
|
|
|
Form
of Underwriter’s Warrant to Purchase Common Stock of CorMedix
Inc., issued May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.3
|
|
|
|
|
|
Form
of Warrant issued on November 16, 2017.
|
|
8-K
|
|
11/13/2017
|
|
4.15
|
|
|
|
|
|
License and
Assignment Agreement, dated as of January 30, 2008, between the
Company and ND Partners LLC.
|
|
S-1/A
|
|
12/31/2009
|
|
10.5
|
|
|
|
|
|
Escrow Agreement,
dated as of January 30, 2008, among the Company, ND Partners LLC
and the Secretary of the Company, as Escrow
Agent.
|
|
S-1
|
|
11/25/2009
|
|
10.6
|
|
|
|
|
|
Consulting
Agreement, dated as of January 30, 2008, between the Company and
Frank Prosl.
|
|
S-1
|
|
11/25/2009
|
|
10.12
|
|
|
|
|
|
Amended and
Restated 2006 Stock Incentive Plan.
|
|
S-1/A
|
|
3/01/2010
|
|
10.8
|
|
|
|
|
|
Form of
Indemnification Agreement between the Company and each of its
directors and executive officers.
|
|
S-1/A
|
|
3/01/2010
|
|
10.17
|
|
|
|
|
|
Agreement for Work
on Pharmaceutical Advertising dated January 10, 2013 by and between
MKM Co-Pharma GmbH and CorMedix Inc.
|
|
8-K
|
|
1/16/2013
|
|
10.22
|
|
|
|
|
|
2013 Stock
Incentive Plan
|
|
10-K
|
|
3/27/2013
|
|
10.27
|
|
|
|
|
|
Form of Securities
Purchase Agreement, dated January 7, 2014, between CorMedix Inc.
and the investors named therein.
|
|
8-K
|
|
1/09/2014
|
|
10.36
|
|
|
|
|
|
Preliminary
Services Agreement dated April 8, 2015, between CorMedix Inc. and
[RC]2 Pharma Connect LLC.
|
|
10-Q
|
|
8/06/2015
|
|
10.1
|
|
|
|
|
|
Release of Claims
and Severance Modification, dated July 17, 2015, between Randy
Milby and CorMedix Inc.
|
|
10-K
|
|
3/15/2016
|
|
10.16
|
|
|
|
|
|
Employment
Agreement, dated as of September 27, 2016 and effective as of
October 3, 2016, between CorMedix, Inc. and Khoso
Baluch
|
|
8-K
|
|
10/03/2016
|
|
10.1
|
|
|
|
|
|
Employment
Agreement, effective February 1, 2017, between CorMedix Inc. and
Robert Cook.
|
|
10-K
|
|
3/16/2017
|
|
10.12
|
|
|
|
|
|
Employment
Agreement, effective February 1, 2017, between CorMedix Inc. and
Judith Abrams.
|
|
10-K
|
|
3/16/2017
|
|
10.13
|
|
|
|
|
|
Employment
Agreement, effective March 1, 2017, between CorMedix Inc. and John
Armstrong.
|
|
10-K
|
|
3/16/2017
|
|
10.14
|
|
|
|
|
|
Form
of Securities Purchase Agreement, dated November 17, 2017, between
CorMedix Inc. and the investors signatory thereto.
|
|
8-K
|
|
11/13/2017
|
|
10.1
|
|
|
|
|
|
Backstop Agreement,
dated November 9, 2017, between CorMedix Inc. and the investor
named therein.
|
|
8-K
|
|
11/13/2017
|
|
10.2
|
|
|
|
|
|
Form of
Registration Rights Agreement, dated November 9, 2017, by and
between CorMedix Inc. and the investor named therein.
|
|
8-K
|
|
11/13/2017
|
|
10.3
|
|
|
|
|
|
Amendment
No. 1, dated as of December 11, 2017, to Registration Rights
Agreement, dated November 9, 2017, by and between CorMedix Inc. and
the investor named therein.
|
|
8-K
|
|
12/11/2017
|
|
10.1
|
|
|
|
Exhibit
Number
|
|
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit Number
|
|
Filed Herewith
|
|
|
|
List of
Subsidiaries
|
|
10-K
|
|
3/27/2013
|
|
21.1
|
|
|
|
|
|
Consent of
Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
101
|
|
The following
materials from CorMedix Inc. Form 10-K for the year ended December
31, 2017, formatted in Extensible Business Reporting Language
(XBRL): (i) Balance Sheets at December 31, 2017 and 2016, (ii)
Statements of Operations for the years ended December 31, 2017 and
2016, (iii) Statements of Changes in Stockholders’ Equity for
the years ended December 31, 2017 and 2016, (iv) Statements of Cash
Flows for the years ended December 31, 2017 and 2016 and (v) Notes
to the Financial Statements.**
|
|
|
|
|
|
|
|
X
|
_____________
|
*
|
Confidential
treatment has been granted for portions of this document. The
omitted portions of this document have been filed separately with
the SEC.
|
|
**
|
Pursuant
to Rule 406T of Regulation S-T, the Interactive Data Files in
Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise are not subject to liability under those
sections.
|
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
CORMEDIX
INC.
|
|
|
|
|
|
|
|
March 19,
2018
|
By:
|
/s/
Khoso
Baluch
|
|
|
|
|
Khoso
Baluch
|
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
March 19,
2018
|
By:
|
/s/
Robert
Cook
|
|
|
|
|
Robert
Cook
|
|
|
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates
indicated:
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Khoso Baluch
|
|
Chief Executive
Officer and Director
|
|
March 19,
2018
|
|
Khoso
Baluch
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Robert Cook
|
|
Chief Financial
Officer
|
|
March 19,
2018
|
|
Robert
Cook
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Myron Kaplan
|
|
Chairman of the
Board and Director
|
|
March 19,
2018
|
|
Myron
Kaplan
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Janet Dillione
|
|
Director
|
|
March 19,
2018
|
|
Janet
Dillione
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Gary Gelbfish
|
|
Director
|
|
March 19,
2018
|
|
Gary
Gelbfish
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Mehmood Khan
|
|
Director
|
|
March 19,
2018
|
|
Mehmood
Khan
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Steven Lefkowitz
|
|
Director
|
|
March 19,
2018
|
|
Steven
Lefkowitz
|
|
|
|
|
CORMEDIX
INC. AND SUBSIDIARY
FINANCIAL
STATEMENTS
Financial
Statements Index
|
Report of
Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Balance Sheets December 31, 2017 and 2016
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
Years
Ended December 31, 2017 and 2016
|
F-4
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
Years
Ended December 31, 2017 and 2016
|
F-5
|
|
|
|
|
Consolidated
Statements of Cash Flows Years Ended
December 31, 2017 and 2016
|
F-6
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and
Stockholders
of CorMedix, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of CorMedix,
Inc. and Subsidiary (the “Company”) as of December 31,
2017 and 2016, and the related consolidated statements of
operations and comprehensive loss, stockholders’ equity, and
cash flows for each of the years in the two-year period ended
December 31, 2017, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017, and
2016, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2017, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Emphasis of Matter – Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has an accumulated
deficit of $152.2 million as of December 31, 2017, has recurring
losses and negative cash flows from operations. These conditions,
among others raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. If the
Company is unable to obtain financing, there could be a material
adverse effect on the Company.
|
/s/ Friedman LLP
|
|
|
|
|
We have
served as the Company’s auditor since 2014.
|
|
East
Hanover, New Jersey
|
|
March
19, 2018
|
|
CORMEDIX INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December
31, 2017 and 2016
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$10,379,729
|
$8,064,490
|
|
Restricted
cash
|
171,553
|
171,553
|
|
Short-term
investments
|
1,604,198
|
12,100,920
|
|
Trade
receivables
|
64,148
|
12,014
|
|
Inventories,
net
|
594,194
|
166,733
|
|
Prepaid research
and development expenses
|
86,652
|
943,924
|
|
Other prepaid
expenses and current assets
|
367,177
|
372,057
|
|
Total current
assets
|
13,267,651
|
21,831,691
|
|
Property and
equipment, net
|
186,282
|
69,695
|
|
Other
assets
|
-
|
5,000
|
|
TOTAL
ASSETS
|
$13,453,933
|
$21,906,386
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$1,808,311
|
$1,645,298
|
|
Accrued
expenses
|
4,363,867
|
2,342,352
|
|
Deferred
revenue
|
88,404
|
104,210
|
|
Total current liabilities
|
6,260,582
|
4,091,860
|
|
TOTAL
LIABILITIES
|
6,260,582
|
4,091,860
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note 6)
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
Preferred stock -
$0.001 par value: 2,000,000 shares authorized; 419,585 and 450,085
shares issued and outstanding at December 31, 2017 and 2016,
respectively
|
420
|
450
|
|
Common stock -
$0.001 par value: 160,000,000 and 80,000,000 shares authorized at
December 31, 2017 and 2016, respectively; 71,413,790 and 40,432,339
shares issued and outstanding at December 31, 2017 and 2016,
respectively
|
71,414
|
40,433
|
|
Accumulated other
comprehensive gain
|
98,433
|
81,186
|
|
Additional paid-in
capital
|
159,197,950
|
136,857,409
|
|
Accumulated
deficit
|
(152,174,866)
|
(119,164,952)
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
7,193,351
|
17,814,526
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$13,453,933
|
$21,906,386
|
The
accompanying notes are integral part of these consolidated
financial statements.
CORMEDIX INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
Years
Ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Net
sales
|
$329,327
|
$224,105
|
|
Cost
of sales
|
(114,964)
|
(366,673)
|
|
Gross profit
(loss)
|
214,363
|
(142,568)
|
|
Operating
Expenses
|
|
|
|
Research and
development
|
(24,486,122)
|
(15,735,300)
|
|
Selling, general
and administrative
|
(8,652,351)
|
(8,883,050)
|
|
Total operating
expenses
|
(33,138,473)
|
(24,618,350)
|
|
Loss
From Operations
|
(32,924,110)
|
(24,760,918)
|
|
Other
Income (Expense)
|
|
|
|
Interest
income
|
110,714
|
126,774
|
|
Foreign exchange
transaction loss
|
(13,758)
|
(8,172)
|
|
Change in fair
value of derivative liabilities
|
(177,141)
|
-
|
|
Interest
expense
|
(5,619)
|
(1,311)
|
|
Total income
(expense)
|
(85,804)
|
117,291
|
|
Net
Loss
|
(33,009,914)
|
(24,643,627)
|
|
Other
Comprehensive Income Gain (Loss)
|
|
|
|
Unrealized gain
from investments
|
13,103
|
11,027
|
|
Foreign currency
translation gain
|
4,144
|
8,029
|
|
Total other
comprehensive income
|
17,247
|
19,056
|
|
Comprehensive
Loss
|
$(32,992,667)
|
$(24,624,571)
|
|
Net
Loss Per Common Share – Basic and Diluted
|
$(0.60)
|
$(0.65)
|
|
Weighted
Average Common Shares Outstanding – Basic and
Diluted
|
55,141,133
|
37,967,373
|
The
accompanying notes are integral part of these consolidated
financial statements.
CORMEDIX
INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
Years
Ended December 31, 2017 and 2016
|
|
|
Non-Voting
Preferred Stock – Series C-2, C-3, Series D, Series E and
Series F
|
Accumulated
Other Comprehen-sive Gain (Loss)
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2015
|
35,963,348
|
$35,964
|
450,085
|
$450
|
$62,130
|
$128,304,539
|
$(94,391,595)
|
$34,011,488
|
|
Cumulative
effect of change in accounting principle (Note
7)
|
-
|
-
|
-
|
-
|
-
|
129,730
|
(129,730)
|
-
|
|
Stock issued in connection with
sale of common stock, net
|
3,360,037
|
3,360
|
-
|
-
|
-
|
6,225,991
|
-
|
6,229,351
|
|
Stock issued in connection with
warrants cashless exercised
|
21,454
|
21
|
-
|
-
|
-
|
(21)
|
-
|
-
|
|
Stock issued in connection with
stock options exercised
|
1,087,500
|
1,088
|
-
|
-
|
-
|
862,013
|
-
|
863,101
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
1,335,157
|
-
|
1,335,157
|
|
Other comprehensive
gain
|
-
|
-
|
-
|
-
|
19,056
|
-
|
-
|
19,056
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(24,643,627)
|
(24,643,627)
|
|
Balance at
December 31, 2016
|
40,432,339
|
40,433
|
450,085
|
450
|
81,186
|
136,857,409
|
(119,164,952)
|
17,814,526
|
|
Stock issued
in connection with ATM sale of common stock,
net
|
8,925,504
|
8,925
|
-
|
-
|
-
|
5,534,131
|
-
|
5,543,056
|
|
Stock issued in connection with
public offering, net
|
18,619,301
|
18,619
|
-
|
-
|
-
|
12,779,706
|
-
|
12,798,325
|
|
Stock issued in connection with
sale of common stock
|
624,246
|
624
|
|
|
|
299,016
|
|
299,640
|
|
Conversion of Series C-3
non-voting preferred stock to common stock
|
325,000
|
325
|
(32,500)
|
(32)
|
-
|
(293)
|
-
|
-
|
|
Stock issued in connection with
warrants cashless exercised
|
970
|
1
|
-
|
-
|
-
|
(1)
|
-
|
-
|
|
Stock issued in connection with
stock options exercised
|
10,000
|
10
|
-
|
-
|
-
|
6,790
|
-
|
6,800
|
|
Issuance of Series F non-voting
preferred stock, net
|
-
|
-
|
2,000
|
2
|
-
|
1,877,174
|
-
|
1,877,176
|
|
Stock issued for payment of
deferred fees
|
4,869
|
5
|
-
|
-
|
-
|
10,213
|
-
|
10,218
|
|
Conversion of Series A warrants
to common stock
|
2,471,561
|
2,472
|
-
|
-
|
-
|
(2,472)
|
-
|
-
|
|
Reclassification of derivative
liability to equity
|
-
|
-
|
-
|
-
|
-
|
3,910,682
|
-
|
3,910,682
|
|
Warrants issued in connection
with public offering
|
-
|
-
|
-
|
-
|
-
|
(3,733,542)
|
-
|
(3,733,542)
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
1,659,137
|
-
|
1,659,137
|
|
Other comprehensive
gain
|
-
|
-
|
-
|
-
|
17,247
|
-
|
-
|
17,247
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(33,009,914)
|
(33,009,914)
|
|
Balance at
December 31, 2017
|
71,413,790
|
$71,414
|
419,585
|
$420
|
$98,433
|
$159,197,950
|
$(152,174,866)
|
$7,193,351
|
The
accompanying notes are integral part of these consolidated
financial statements.
CORMEDIX INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2017 and 2016
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$(33,009,914)
|
$(24,643,627)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
1,659,137
|
1,335,157
|
|
Inventory
reserve
|
(327,000)
|
130,000
|
|
Change in fair
value of derivative liabilities
|
177,141
|
-
|
|
Depreciation
|
36,886
|
25,596
|
|
Changes in
operating assets and liabilities:
|
|
|
|
(Increase) decrease
in trade receivables
|
(47,599)
|
307,774
|
|
(Increase) decrease
in inventory
|
(100,461)
|
79,836
|
|
(Increase) decrease
in prepaid expenses and other current assets
|
869,431
|
(505,492)
|
|
Increase (decrease)
in accounts payable
|
157,525
|
(63,586)
|
|
Increase in accrued
expenses
|
2,022,984
|
1,121,863
|
|
Decrease in
deferred revenue
|
(25,310)
|
(52,916)
|
|
Net cash used in
operating activities
|
(28,587,180)
|
(22,265,395)
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchase of
short-term investments
|
(13,074,169)
|
-
|
|
Sale of short-term
investments
|
23,583,995
|
11,478,493
|
|
Purchase of
equipment
|
(151,988)
|
(58,723)
|
|
Net cash provided
by investing activities
|
10,357,838
|
11,419,770
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds from sale
of common stock from at-the-market program, net
|
5,543,056
|
6,229,351
|
|
Proceeds from the
public offering of common stock and warrants, net
|
12,798,325
|
-
|
|
Proceeds from sale
of Series F non-voting preferred stock, net
|
1,877,176
|
-
|
|
Proceeds from sale
of common stock
|
299,640
|
-
|
|
Proceeds from
exercise of stock options
|
6,800
|
863,101
|
|
Net cash provided
by financing activities
|
20,524,997
|
7,092,452
|
|
Foreign exchange
effects on cash
|
19,584
|
245
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
2,315,239
|
(3,752,928)
|
|
CASH
AND CASH EQUIVALENTS – BEGINNING OF YEAR
|
8,064,490
|
11,817,418
|
|
CASH
AND CASH EQUIVALENTS – END OF YEAR
|
$10,379,729
|
$8,064,490
|
|
|
|
|
|
Cash paid for
interest
|
$5,619
|
$1,197
|
|
|
|
|
|
Supplemental
Disclosure of Non Cash Financing Activities:
|
|
|
|
Unrealized gain
(loss) from investments
|
$13,103
|
$11,027
|
|
Conversion of
preferred stock to common stock
|
$325
|
$-
|
|
Reclassification of
derivative liabilities to equity
|
$3,910,682
|
$-
|
|
Issuance of common
stock for payment of deferred fees
|
$10,218
|
$-
|
The
accompanying notes are integral part of these consolidated
financial statements.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization, Business and Basis of
Presentation:
Organization and Business:
CorMedix Inc.
(“CorMedix” or the “Company”) was
incorporated in the State of Delaware on July 28, 2006. The Company
is a biopharmaceutical company focused on developing and
commercializing therapeutic products for the prevention and
treatment of infectious and inflammatory diseases. In 2013, the
Company formed a wholly-owned subsidiary, CorMedix Europe
GmbH.
The
Company’s primary focus is to develop its lead product
candidate, Neutrolin®, for potential
commercialization in the United States (“U.S.”) and
other key markets. The Company has in-licensed the worldwide rights
to develop and commercialize Neutrolin, which is a novel
anti-infective solution (a formulation of taurolidine, citrate and
heparin 1000 u/ml) under development for the reduction and
prevention of catheter-related infections and thrombosis in
patients requiring central venous catheters in clinical settings
such as dialysis, critical/intensive care, and
oncology.
The
Company launched its first Phase 3 clinical trial in hemodialysis
patients with catheters in the U.S. in December 2015. The clinical
trial, named Catheter Lock Solution Investigational Trial or
LOCK-IT-100, is a prospective, multicenter, randomized,
double-blind, active control trial which aims to demonstrate the
efficacy and safety of Neutrolin in preventing catheter-related
bloodstream infections, or CRBSI, in subjects receiving
hemodialysis therapy as treatment for end stage renal disease (see
Note 6 – Commitments and Contingencies). Two pivotal clinical
trials to demonstrate safety and effectiveness of Neutrolin are
required by the U.S. Food and Drug Administration
(“FDA”) to secure marketing approval in the U.S. The
design of the second Phase 3 clinical trial required for NDA
submission has not been determined and is subject to funding
requirements.
The
Company received CE Mark approval for Neutrolin in 2013 and
commercially launched Neutrolin in Germany for the prevention of
catheter-related bloodstream infections and maintenance of catheter
patency in hemodialysis patients using a tunneled, cuffed central
venous catheter for vascular access. Neutrolin is registered and is
being sold in certain European Union and Middle Eastern
countries.
In
September 2014, the TUV-SUD and The Medicines Evaluation Board of
the Netherlands granted labeling for expanded indications for
Neutrolin in the European Union (“EU”). In December
2014, the Company received approval from the Hessian District
President in Germany to expand the label to include use in oncology
patients receiving chemotherapy through intravenous
(“IV”) administration, hydration and IV medications via
central venous catheters. The expansion also adds patients
receiving medication and IV fluids via central venous catheters 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, or IV, nutrition was also
approved.
The
completion of the Company’s ongoing LOCK-IT-100 clinical
trial and the execution of the planned second Phase 3 clinical
trial are dependent on the Company’s ability to raise
sufficient additional funds through various potential sources, such
as equity, debt financings, and/or strategic relationships. The
Company can provide no assurances that financing or strategic
relationships will be available on acceptable terms, or at all, to
complete its clinical development program for
Neutrolin.
Note 2 — Liquidity, Going Concern and
Uncertainties:
The
financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate
continuation of the Company as a going concern. To date, the
Company’s commercial operations have not generated sufficient
revenues to enable profitability. As of December 31, 2017, the
Company had an accumulated deficit of $152.2 million, and incurred
losses from operations of $33.0 million and $24.6 million for the
years ended December 31, 2017 and 2016, respectively. Based on the
Company’s current development plans for Neutrolin in both the
U.S. and foreign markets (including the ongoing hemodialysis Phase
3 clinical trial in the U.S.) and its other operating requirements,
the Company’s existing cash and cash equivalents at December
31, 2017 are expected to fund its operations into the third quarter
of 2018, after taking into consideration the net proceeds received
through March 9, 2018 from the August 2016 At-the-Market Issuance
Sales Agreement, as amended on
December 8, 2017, (the “ATM program”) with B.
Riley FBR, Inc. ("B. Riley") (see Note 7 –
Stockholders’ Equity and Note 9 – Subsequent
Events) and a proposed new
$3 million backstop facility, for which a binding term sheet was
recently signed by the Company and Elliott Management Corporation.
If a definitive agreement can be negotiated and executed, the
proposed backstop facility would be available for drawing between
April 16, 2018 and July 31, 2018, (see Note 9 – Subsequent
Events). These factors
raise substantial doubt regarding the Company’s ability to
continue as a going concern.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s continued operations will depend on its ability to
raise additional capital through various potential sources, such as
equity and/or debt financings, strategic relationships, or
out-licensing of its products in order to complete its ongoing and
planned Phase 3 clinical trials and until it achieves
profitability, if ever. Management is actively pursuing financing
plans but can provide no assurances that such financing or
strategic relationships will be available on acceptable terms, or
at all. Without this funding, the Company could be required to
delay, scale back or eliminate some or all of its research and
development programs which would likely have a material adverse
effect on the Company.
At
December 31, 2017, approximately $17.9 million remained available
for sale under the ATM Program, pursuant to which the Company may
be able to issue and sell up to an aggregate of $60 million of
shares of its common stock from time to time, subject to B.
Riley’s acceptance (See Note 7 – Stockholders’
Equity). This ATM Program will expire on April 16, 2018. On March
9, 2018, the Company entered into a new agreement with B. Riley for
the sale of up to $14.1 million of the Company’s common
stock, subject to the effectiveness of the registration statement
for such offering, which the Company filed on March 9,
2018.
The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
The
Company’s operations are subject to a number of factors that
can affect its operating results and financial condition. Such
factors include, but are not limited to: the results of clinical
testing and trial activities of the Company’s product
candidates; the ability to obtain regulatory approval to market the
Company’s products; ability to manufacture successfully;
competition from products manufactured and sold or being developed
by other companies; the price of, and demand for, Company products;
the Company’s ability to negotiate favorable licensing or
other manufacturing and marketing agreements for its products; and
the Company’s ability to raise capital to support its
operations.
Note 3 — Summary of Significant Accounting
Policies:
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Basis of Consolidation
The
consolidated financial statements include the accounts of the
Company and CorMedix Europe GmbH, a wholly owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Financial Instruments
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and
short-term investments. The Company maintains its cash and cash
equivalents in bank deposit and other interest bearing accounts,
the balances of which, at times, may exceed federally insured
limits.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
appropriate classification of marketable securities is determined
at the time of purchase and reevaluated as of each balance sheet
date. Investments in marketable debt and equity securities
classified as available-for-sale are reported at fair value. Fair
value is 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. 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). For declines in the fair value of equity
securities that are considered other-than-temporary, impairment
losses are charged to other (income) expense, net. The Company
considers available evidence in evaluating potential impairments of
its investments, including the duration and extent to which fair
value is less than cost. There were no deemed permanent impairments
at December 31, 2017 or 2016.
The
Company’s marketable securities are highly liquid and consist
of U.S. government agency securities, high-grade corporate
obligations and commercial paper with original maturities of more
than 90 days. As of December 31, 2017 and 2016, all of the
Company’s investments had contractual maturities which were
less than one year. The following table summarizes the amortized
cost, unrealized gains and losses and the fair value at December
31, 2017 and 2016:
|
December 31, 2017:
|
|
|
|
|
|
Money
Market Funds included in Cash Equivalents
|
$6,032,034
|
$-
|
$-
|
$6,032,034
|
|
Corporate
Securities
|
905,625
|
(112)
|
3
|
905,516
|
|
Commercial
Paper
|
698,682
|
-
|
-
|
698,682
|
|
Subtotal
|
1,604,307
|
(112)
|
3
|
1,604,198
|
|
Total
December 31, 2017
|
$7,636,341
|
$(112)
|
$3
|
$7,636,232
|
|
December
31, 2016:
|
|
|
|
|
|
Money
Market Funds included in Cash Equivalents
|
$95,949
|
$-
|
$-
|
$95,949
|
|
Corporate
Securities
|
10,619,583
|
(13,212)
|
-
|
10,606,371
|
|
Commercial
Paper
|
1,494,549
|
-
|
-
|
1,494,549
|
|
Subtotal
|
12,114,132
|
(13,212)
|
-
|
12,100,920
|
|
Total
December 31, 2016
|
$12,210,081
|
$(13,212)
|
$-
|
$12,196,869
|
Fair Value Measurements
The
Company’s financial instruments recorded in the consolidated
balance sheets include cash and cash equivalents, accounts
receivable, investment securities, accounts payable and accrued
expenses. The carrying value of certain financial
instruments, primarily cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate
their estimated fair values based upon the short-term nature of
their maturity dates.
The
Company categorizes its financial instruments into a three-level
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value, which is set out below. 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.
●
Level 1
inputs—Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
●
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.
The
following table provides the carrying value and fair value of the
Company’s financial assets measured at fair value as of
December 31, 2017 and 2016:
|
December 31, 2017:
|
|
|
|
|
|
Money
Market Funds
|
$6,032,034
|
$6,032,034
|
$-
|
$-
|
|
Available
for sale securities:
|
|
|
|
|
|
Corporate
Securities
|
905,516
|
-
|
905,516
|
-
|
|
Commercial
Paper
|
698,682
|
-
|
698,682
|
-
|
|
Subtotal
|
1,604,198
|
-
|
1,604,198
|
-
|
|
Total
December 31, 2017
|
$7,636,232
|
$6,032,034
|
$1,604,198
|
$-
|
|
December
31, 2016:
|
|
|
|
|
|
Money
Market Funds
|
$95,949
|
$95,949
|
$-
|
$-
|
|
Available
for sale securities:
|
|
|
|
|
|
Corporate
Securities
|
10,606,371
|
-
|
10,606,371
|
-
|
|
Commercial
Paper
|
1,494,549
|
-
|
1,494,549
|
-
|
|
Subtotal
|
12,100,920
|
-
|
12,100,920
|
-
|
|
Total
December 31, 2016
|
$12,196,869
|
$95,949
|
$12,100,920
|
$-
|
Foreign Currency Translation and Transactions
The
consolidated financial statements are presented in U.S. Dollars
(USD), the reporting currency of the Company. For the financial
statements of the Company’s foreign subsidiary, whose
functional currency is the EURO, foreign currency asset and
liability amounts, if any, are translated into USD at end-of-period
exchange rates. Foreign currency income and expenses are translated
at average exchange rates in effect during the year. Translation
gains and losses are included in other comprehensive loss. The
Company had foreign currency translation gains of $4,144 and $8,029
in 2017 and 2016, respectively.
Foreign
currency exchange transaction gain (loss) is the result of
re-measuring transactions denominated in a currency other than the
functional currency of the entity recording the
transaction.
Segment and Geographic Information
The
Company reported revenues of $329,327 and $224,105 for the years
ended December 31, 2017 and 2016, respectively. Of the
Company’s 2017 and 2016 revenues, $320,504 and $215,282,
respectively, were attributable to its European and Mideast
operations, which are based in Germany. Total assets at December
31, 2017 and 2016 were $13,453,933 and $21,906,386, respectively,
of which $12,597,231 and $21,595,572 were located in the United
States at December 31, 2017 and 2016, respectively, with the
remainder in Germany.
Restricted Cash
As of
December 31, 2017 and 2016, the Company’s restricted cash is
in connection with the patent and utility model infringement
proceedings against TauroPharm (see Note 6). The Company was
required by the District Court Mannheim to provide a security
deposit of approximately $132,000 to cover legal fees in the event
TauroPharm is entitled to reimbursement of these costs. The
Company furthermore had to provide a deposit in the amount of
$40,000 in connection with the unfair competition proceedings in
Cologne.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prepaid Research and Development and Other Prepaid
Expenses
Prepaid
expenses consist of payments made in advance to vendors relating to
service contracts for clinical trial development, manufacturing,
pre-clinical development and insurance policies. These advanced
payments are amortized to expense either as services are performed
or over the relevant service period using the straight-line
method.
Inventories, net
Inventories are
valued at the lower of cost or net realizable value on a first in,
first out basis. Inventories consist of raw materials (including
labeling and packaging), work-in-process, and finished goods, if
any, for the Neutrolin product. Inventories consist of the
following:
|
|
|
|
|
|
|
|
Raw
materials
|
$141,233
|
$79,900
|
|
Work in
process
|
526,067
|
463,897
|
|
Finished
goods
|
29,894
|
52,936
|
|
Inventory
reserve
|
(103,000)
|
(430,000)
|
|
Total
|
$594,194
|
$166,733
|
Property and Equipment
Property and
equipment consist primarily of furnishings, fixtures, leasehold
improvements, office equipment and computer equipment all of which
are recorded at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the
straight-line method over the remaining lease term or the life of
the asset, whichever is shorter. Property and equipment,
as of December 31, 2017 and 2016 were $186,282 and $69,695,
respectively, net of accumulated depreciation of $154,836 and
$117,949, respectively. Depreciation and amortization of property
and equipment is included in selling, general and administrative
expenses.
|
Description
|
|
Estimated
Useful Life
|
|
Office
equipment and furniture
|
|
5
years
|
|
Leasehold
improvements
|
|
5
years
|
|
Computer
equipment
|
|
5
years
|
|
Computer
software
|
|
3
years
|
Accrued Expenses
Accrued
expenses consist of the following at December 31:
|
|
|
|
|
Professional and
consulting fees
|
$485,089
|
$335,198
|
|
Accrued payroll and
payroll taxes
|
755,221
|
737,607
|
|
Clinical trial and
manufacturing development
|
2,884,924
|
875,500
|
|
Product
development
|
80,001
|
374,839
|
|
Market
research
|
116,466
|
-
|
|
Other
|
42,166
|
19,208
|
|
Total
|
$4,363,867
|
$2,342,352
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue
is recognized from product sales when the following four revenue
recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred, the selling price is fixed or
determinable, and collectability is reasonably assured. The Company
recognizes revenue once the four revenue recognition criteria are
met in accordance with the terms of its various distribution
agreements.
Deferred Revenue
In
October 2015, the Company shipped product with less than 75% of its
remaining shelf life to a customer and issued a guarantee that the
specific product shipped would be replaced by the Company if the
customer was not able to sell the product before it expired. Due to
limited sales experience with the customer, the Company was unable
to estimate the amount of the warranty obligation that may be
incurred as a result of this shipment. Therefore, the Company has
deferred the revenue and related cost of sales associated with the
shipment of this product. During the years ended December 31, 2017
and 2016, the Company recognized deferred revenue of $130,000 and
$63,000, respectively, and related cost of sales of $83,000 and
$63,000, respectively. Deferred revenue related to these sales at
December 31, 2017 and 2016 amounted to approximately $68,000 and
$75,000, respectively.
In August 2014, the Company entered into an
exclusive distribution agreement (the “Wonik
Agreement”) with Wonik Corporation, a South Korean company,
to market, sell and distribute Neutrolin for hemodialysis and
oncolytic patients upon receipt of regulatory approval in Korea.
Upon execution, Wonik paid the Company a non-refundable $50,000
payment and will pay an additional $50,000 upon receipt of
the product registration necessary to sell Neutrolin in the
Republic of Korea (the
“Territory”). The term of the Wonik Agreement commenced
on August 8, 2014 and will continue for three years after the first
commercial sale of Neutrolin in the Territory. The non-refundable
up-front payment has been recorded as deferred revenue and will be
recognized as revenue on a straight-line basis over the contractual
term of the Agreement. Deferred revenue related to this agreement
at December 31, 2017 and 2016 amounted to approximately $20,000 and
$29,000, respectively.
Loss Per Common Share
Basic
loss per common share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares
outstanding during the period. Diluted loss per common share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Since the Company has
only incurred losses, basic and diluted loss per share are the same
as potentially dilutive shares have been excluded from the
calculation of diluted net loss per share as their effect would be
anti-dilutive.
The
shares outstanding at the end of the respective periods presented
below were excluded from the calculation of diluted net loss per
shares due to their anti-dilutive effect:
|
|
|
|
|
|
|
|
Series C non-voting
preferred stock
|
2,540,000
|
2,865,000
|
|
Series D non-voting
preferred stock
|
1,479,240
|
1,479,240
|
|
Series E non-voting
preferred stock
|
1,959,759
|
1,959,759
|
|
Series F non-voting
preferred stock
|
3,157,561
|
-
|
|
Shares underlying
outstanding warrants
|
23,417,891
|
4,006,468
|
|
Shares underlying
outstanding stock options
|
4,962,795
|
4,609,755
|
|
Total Potentially
Dilutive Shares
|
37,517,246
|
14,920,222
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
The
Company accounts for stock options granted to employees, officers
and directors according to 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 and a Monte Carlo option pricing model for options with
market vesting conditions. Stock-based compensation cost is
recognized as expense over the employee’s requisite service
period on a straight-line basis.
Effective October
1, 2016, the Company adopted Accounting Standards Update
(“ASU”) 2016-09, Compensation — Stock Compensation
(“Topic 718”), Improvements to Employee Share-Based Payment
Accounting to account for forfeitures as they occur. All
share-based awards will be recognized on a straight-line method,
assuming all awards granted will vest. Forfeitures of share-based
awards will be recognized in the period in which they occur. Prior
to the adoption of ASU 2016-09, share-based compensation expense
was recognized by applying the expected forfeiture rate during the
vesting period to the fair value of the award. As of January
1, 2016, a cumulative effect adjustment of $129,730 was recognized
to reflect the forfeiture rate that had been applied to unvested
option awards prior to fiscal year 2016.
The
Company accounts for stock options granted to non-employees on a
fair value basis using the Black-Scholes option pricing model in
accordance with ASC 718 and ASC No. 505-50, “Equity-Based Payments to
Non-Employees” (“ASC 505”). The
non-cash charge to operations for non-employee options with time
based vesting provisions is based on the fair value of the options
re-measured each reporting period and amortized to expense over the
related vesting period. The non-cash charge to operations for
non-employee options with performance based vesting provisions is
recorded when the achievement of the performance condition is
probable and remeasured each reporting period until the performance
condition is achieved.
Research and Development
Research and
development costs are charged to expense as incurred. Research and
development includes fees associated with operational consultants,
contract clinical research organizations, contract manufacturing
organizations, clinical site fees, contract laboratory research
organizations, contract central testing laboratories, licensing
activities, and allocated executive, human resources and facilities
expenses. The Company accrues for costs incurred as the services
are being provided by monitoring the status of the trial and the
invoices received from its external service providers. As actual
costs become known, the Company adjusts its accruals in the period
when actual costs become known. Costs related to the acquisition of
technology rights and patents for which development work is still
in process are charged to operations as incurred and considered a
component of research and development expense.
Income Taxes
Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation
allowances are established when it is more likely than not that
some or all of the deferred tax assets will not be
realized.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Liability
The Company does not use derivative instruments to
hedge exposures to cash flow, market or foreign currency risks;
however, the Company has certain financial instruments that qualify
as derivatives and are classified as liabilities on the balance
sheet. The Company evaluates all its financial instruments to
determine if those instruments or any potential embedded components
of those instruments qualify as derivatives that need to be
separately accounted for in accordance with FASB ASC 815,
“Derivatives
and Hedging”. Derivatives satisfying certain
criteria are recorded at fair value at issuance and
marked-to-market at each balance sheet date with the change in the
fair value recorded as income or expense. In addition, upon
the occurrence of an event that requires the derivative liability
to be reclassified to equity, the derivative liability is revalued
to fair value at that date and any change in value since the last
re-measurement date is recorded as income or
expense.
The Company accounts for stock warrants as either
equity instruments or derivative liabilities depending on the
specific terms of the warrant agreement. Stock
warrants are classified as derivative liabilities if they can be
cash settled or if there are insufficient authorized and unissued
shares available to settle the contract after considering all other
commitments that may require the issuance of stock during the
maximum period the warrant could remain outstanding.
Liability classified warrants are adjusted to their estimated fair
values at each reporting period, with any decrease or increase in
the estimated fair value being recorded in other income
(expense).
In May
2017, the Company issued warrants that were liability-classified
because there were insufficient shares of common stock available to
settle the contracts. The carrying values of those warrants were
adjusted to their estimated fair values at June 30, 2017 and again
during the third quarter when sufficient additional common shares
were authorized to cause the warrants to be reclassified as equity.
The fair values on the issuance date and subsequent re-measurement
dates were estimated using a probability-weighted option pricing
model, requiring assumptions to be developed under different
scenarios for the expected term, expected volatility, expected
dividend yield and the risk-free interest rate. The Company
estimated the expected term of the warrants based on the remaining
contractual term. Expected volatility was calculated based on
implied volatility of the stock price. The expected dividend yield
is assumed to be zero in all scenarios because the Company have
never, and have no plans at this time, to pay any dividends. To
determine the risk free interest rate, the Company used the U.S.
Treasury yield curve in effect at the time of the measurement with
a term consistent with the remaining expected term of the
warrant.
Recently Adopted Authoritative Pronouncements
In
June 2014, the FASB issued an accounting standard that clarifies
the accounting for share-based payments when the terms of an award
provide that a performance target could be achieved after the
requisite service period. The standard requires that a
performance target that affects vesting and that could be achieved
after the requisite service period be treated as a performance
condition. The amendments are effective for
interim and annual reporting periods beginning after December 15,
2015. This adoption did not have a material impact on
the Company’s consolidated financial statements.
In
August 2014, the FASB issued new guidance related to disclosures of
uncertainties about an entity’s ability to continue as a
going concern. The ASU requires management to evaluate whether
there are conditions and events that raise substantial doubt about
the entity’s ability to continue as a going concern within
one year after the financial statements are issued and if
management’s plans will alleviate that doubt. Management will
be required to make this evaluation for both annual and interim
reporting periods. The Company adopted
this guidance for the fiscal year ended December 31, 2016. This
adoption did not have a material impact on the Company’s
consolidated financial statements.
In
April 2015, the FASB issued new guidance which requires that debt
issuance costs related to a recognized debt liability be presented
in the balance sheet as a direct deduction from the carrying amount
of that debt liability, consistent with debt discounts. This
guidance was effective for the Company beginning in the first
quarter of 2016. This adoption did not have a material
impact on the Company’s consolidated financial
statements.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2016, the FASB issued new guidance which
simplifies several aspects of the accounting for share-based
payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and
classification on the statement of cash flows. The Company adopted this guidance in the fourth
quarter of fiscal year 2016, which was applied retroactively
effective January 1, 2016. This adoption did not have a material
impact on the Company’s consolidated financial
statements.
Recent Authoritative Pronouncements
In May 2014, the FASB issued new guidance related
to how an entity should recognize revenue. The guidance specifies
that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods and services. In addition, the guidance
expands the required disclosures related to revenue and cash flows
from contracts with customers. In April 2016 and May 2016, the FASB
issued updates in order to provide improvements and clarifications
to the revenue recognition guidance. The Company will
adopt the new revenue recognition standard as of January 1, 2018
using the modified retrospective method, which requires the
cumulative effect of adoption, if any, to be recognized as an
adjustment to opening retained earnings in the period of adoption.
The majority of the Company’s revenue relates to the sale of
finished products to various customers, and the adoption will not
have any impact on revenue recognized from these transactions. The
Company analyzed the impact on certain less significant
transactions where the Company has deferred revenue for certain
product sales as a result of the ability of the customer to return
the product under certain conditions. As a result of the analysis,
the Company will accelerate the remaining deferred revenue under
these agreements as a cumulative effect adjustment to opening
retained earnings as of January 1, 2018 and at that time will
assess the need to adjust the reserve for returns and
allowances.
In
January 2016, the FASB issued a new standard that modifies certain
aspects of the recognition, measurement, presentation, and
disclosure of financial instruments. The accounting standard update
is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2017, and early adoption is
permitted. The Company will adopt this guidance on January 1, 2018
and it is not expected to have an impact on its consolidated
financial statements.
In
February 2016, the FASB issued new guidance related to how an
entity should lease assets and lease liabilities. The guidance
specifies that an entity who is a lessee under lease agreements
should recognize lease assets and lease liabilities for those
leases classified as operating leases under previous FASB
guidance. Accounting for leases by lessors is largely
unchanged under the new guidance. The guidance is effective for us
beginning in the first quarter of 2019. Early adoption is
permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The
Company is evaluating the impact of adopting this guidance on its
consolidated financial statements.
In
June 2016, the FASB issued new guidance which replaces the incurred
loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform
credit loss estimates. The guidance is effective for us beginning
in the first quarter of fiscal year 2020. Early adoption is
permitted beginning in the first quarter of fiscal year 2019. The
Company is evaluating the impact of adopting this guidance on its
consolidated financial statements.
In
August 2016, the FASB issued new guidance which clarifies how
certain cash receipts and cash payments are presented and
classified in the statement of cash flows in order to reduce
diversity in practice. The guidance is effective for us beginning
in the first quarter of fiscal year 2018. Early adoption is
permitted. The Company will adopt this guidance on January 1, 2018
and it is not expected to have an impact on its consolidated
financial statements.
In
November 2016, the FASB issued new guidance which clarifies how
restricted cash is presented and classified in the statement of
cash flows. The guidance is effective for us beginning in the first
quarter of fiscal year 2018. Early adoption is permitted. The
Company will adopt this guidance on January 1, 2018 and it is not
expected to have a significant impact on its consolidated financial
statements.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In
January 2017, the FASB issued new guidance which clarifies the
definition of a business in a business combination. The guidance is
effective for us beginning in the first quarter of fiscal year
2018. Early adoption is permitted. The Company will adopt this
guidance on January 1, 2018 and it is not expected to have an
impact on its consolidated financial statements.
In
May 2017, the FASB issued new guidance which clarifies the
application of stock based accounting guidance when a change is
made to the terms or conditions of a share-based payment award. The
guidance is effective for us beginning in the first quarter of
fiscal year 2018. Early adoption is permitted. The Company will
adopt this guidance on January 1, 2018 and it is not expected to
have an impact on its consolidated financial
statements.
In
July 2017, the FASB issued new guidance which changes the
classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features and
recharacterizes the indefinite deferral of certain provisions
within the guidance for distinguishing liabilities from equity. The
guidance is effective for us beginning in the first quarter of
fiscal year 2019. Early adoption is permitted. The Company is
evaluating the impact of adopting this guidance on its consolidated
financial statements.
Note 4 — Related Party Transactions:
In
September 2014, as part of the removal of anti-dilution, price
reset and change of control provisions in various securities that
had caused those securities to be classified as derivative
liabilities, the Company entered into a Consent and Exchange
Agreement with Manchester Securities Corp.
(“Manchester”), pursuant to which Manchester had a
right of 60% participation in equity financings undertaken by the
Company prior to September 15, 2017. Pursuant to this right of
participation, Manchester elected partial participation in the
equity financing that the Company closed on May 3, 2017 and
invested $2,000,000.
On
March 3, 2015, the Company entered into a backstop agreement with
Manchester under which Manchester had agreed to lend the Company,
at its request, up to $3,000,000. The Company did not
access the loan and the agreement expired on April 30, 2015. The
Company issued two warrants exercisable for an aggregate of up to
283,400 common shares with an exercise price of $7.00 per share and
a term of five years as a result of entering into the backstop
agreement. Additionally, the Company granted Manchester the right
for as long as it or its affiliates hold any of the Company’s
common stock or securities convertible into its common stock to
appoint up to two members to the Company’s board of directors
and/or to have up to two observers attend board meetings in a
non-voting capacity. As of December 31, 2017, two board members and
one observer had been appointed to the board. The Company’s
board of directors subsequently elected the observer to the
board.
On
April 28, 2017, the Company entered into an underwriting agreement
with H.C. Wainwright & Co., LLC, relating to an underwritten
public offering of 16,190,697 shares of its common stock, together
with Series A warrants to purchase up to an aggregate of 12,143,022
shares of its common stock and Series B warrants to purchase up to
an aggregate of 12,143,022 shares of its common stock, at a price
to the public of $0.75 per share and related warrants. Pursuant to
Manchester’s participation rights, Elliott Associates, L.P.
and Elliott International, L.P., affiliates of Manchester
(together, “Elliott”) collectively purchased an
aggregate of 2,666,668 shares of common stock, Series A warrants to
purchase up to 2,000,000 shares of common stock, and Series B
warrants to purchase up to 2,000,000 shares of common stock. The
Company’s director, Gary Gelbfish, purchased 1,333,334 shares
of common stock, Series A warrants to purchase up to 1,000,000
shares, and Series B warrants to purchase up to 1,000,000 shares of
our common stock. The purchases by Elliott and Dr. Gelbfish were on
the same terms as those for all other investors.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In
November 2017, the Company entered into a securities purchase
agreement with Elliott Associates, L.P. and Elliott International,
L.P., (the “Buyers”), long-term institutional investors
in CorMedix and, together with Manchester Securities Corp., a
subsidiary of Elliott Associates, L.P., our largest shareholder,
whereby they purchased a newly issued CorMedix Series F convertible
preferred stock at $1,000 per share. (See Note 7 –
Stockholders’ Equity). Separately, on November 9, 2017, the
Company entered into a backstop agreement with the Buyers to
purchase up to an additional $3.0 million of Series F convertible
preferred stock at $1,000 per share, (the “Backstop
Agreement”), at the Company’s sole discretion,
beginning January 15, 2018, through March 31, 2018. Gross proceeds
of the securities purchase agreement and the Backstop Agreement, if
the Backstop Agreement is used in full, total an aggregate of $5.0
million. As consideration for the Backstop Agreement, the Company
issued 564,858 warrants, exercisable for three years, to purchase
shares of the Company’s common stock at a per share exercise
price of $0.001. The number of shares issuable under the warrant
was determined by the closing price of the Company’s common
stock on November 8, 2017, which was $0.5278, reduced by the amount
of equity capital raised from the current ATM program and the sale
of common stock to directors, executive officers and other certain
employees of the Company totaling $2.4 million. The Buyers may
convert the preferred stock into common stock at its option at an
effective price of $0.6334 per share, which represents a 20%
premium to the closing price of the Company’s common stock on
November 8, 2017. The preferred stock will be mandatorily
convertible on April 2, 2018, subject to certain equity conditions,
at the lower of $0.6334 and a 10% discount to the notional price at
which an equity or equity linked transaction in an amount of $3.0
million or more is completed by March 31, 2018, or if no such
transaction is completed, a 10% discount to the closing price of
the stock on March 31, 2018. No warrants were issued under the
securities purchase agreement. The Backstop Agreement is no longer
available to the Company.
On November 29,
2017, the Company hired Dr. Gary Gelbfish, one of its directors, as
a consultant to assist in the Company’s planned interim
analysis for its ongoing LOCK-IT 100 clinical trial for Neutrolin.
For his services, the Company will pay Dr. Gelbfish $800.00 per
hour and will pay him for services rendered since November 10,
2017.
In
December 2017, the Company issued an aggregate of 624,246 shares of
its common stock to its directors and executive officers and to
certain of its employees at a per share purchase price of $0.48,
which was the closing price of the stock on November 16, 2017, the
date before the purchase agreements were executed. This common
stock financing reduced the number of shares issuable under the
warrants that the Company was required to issue to the Buyers
pursuant to the Backstop Agreement. The Company realized gross
proceeds of approximately $300,000. The following related parties
participated in the common stock financing:
|
|
|
|
|
|
Khoso
Baluch
|
CEO and
Director
|
$50,000
|
104,166
|
|
Robert W.
Cook
|
CFO
|
$25,000
|
52,083
|
|
John
Armstrong
|
Executive
VP
|
$10,000
|
20,833
|
|
Myron
Kaplan
|
Chairman of the
Board
|
$50,000
|
104,166
|
|
Janet
Dillione
|
Director
|
$25,000
|
52,083
|
|
Gary
Gelbfish
|
Director
|
$25,000
|
52,083
|
|
Mehmood
Khan
|
Director
|
$25,000
|
52,083
|
|
Steven W.
Lefkowitz
|
Director
|
$65,000
|
135,416
|
In each
instance, the terms of purchase were identical for each purchaser.
The Audit Committee of the Board of Directors approved the purchase
by these insiders.
Note 5 — Income Taxes:
The
Company’s U.S. and foreign loss before income taxes are set
forth below:
|
|
|
|
|
|
|
|
United
States
|
$(31,992,324)
|
$(23,743,682)
|
|
Foreign
|
(1,017,699)
|
(899,945)
|
|
Total
|
$(33,010,023)
|
$(24,643,627)
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There
were no current or deferred income tax provision for the years
ended December 31, 2017 and 2016 because the Company has incurred
operating losses since inception.
The
Company’s deferred tax assets consist of the
following:
|
|
|
|
|
|
|
|
Net operating loss
carryforwards – Federal
|
$23,833,000
|
$27,798,000
|
|
Net operating loss
carryforwards – State
|
7,264,000
|
4,082,000
|
|
Net operating loss
carryforwards – Foreign
|
1,678,000
|
1,373,000
|
|
Capitalized
licensing fees
|
1,068,000
|
1,734,000
|
|
Stock-based
compensation
|
2,232,000
|
2,511,000
|
|
Accrued
compensation
|
206,000
|
132,000
|
|
Other
|
65,000
|
181,000
|
|
Totals
|
36,346,000
|
37,811,000
|
|
Less valuation
allowance
|
(36,346,000)
|
(37,811,000)
|
|
Deferred tax
assets
|
$-
|
$-
|
The Tax
Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The
Act reduces the U.S federal corporate tax rate from 35% to 21%.
Accordingly, the Company has modified the value of the deferred tax
assets and liabilities including the net operating loss carryover
at December 31, 2017. Prior to enactment of the new tax reform, the
Company had total net deferred tax assets of $51.4M before
valuation allowance at December 31, 2017. Taking the new tax reform
into consideration, the total net deferred tax assets was $36.3M
before valuation allowance at December 31, 2017.
The
Company had approximately the following potentially utilizable net
operating loss tax carryforwards:
|
|
|
|
|
|
|
|
Federal
|
$113,492,000
|
$81,759,000
|
|
State
|
$102,159,000
|
$68,713,000
|
|
Foreign
|
$5,594,000
|
$4,577,000
|
The net
operating loss tax carryforwards will start to expire in 2026 for
Federal purposes and have already begun to expire for state
purposes. The foreign net operating loss tax carryforwards do not
expire. Our federal and state operating loss carryforwards include
windfall tax deductions from stock option exercises.
The
utilization of the Company’s federal and state net operating
losses may be subject to a substantial limitation due to the
“change of ownership provisions” under Section 382 of
the Internal Revenue Code and similar state provisions. Such
limitation may result in the expiration of the net operating loss
carryforwards before their utilization.
The
Company’s foreign earnings are derived from its German
subsidiary. The Company does not expect any foreign earnings to be
repatriated in the U.S. in the near future.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
effective tax rate varied from the statutory rate as
follows:
|
|
|
|
|
|
|
Statutory Federal
tax rate
|
34.0%
|
34.0%
|
|
State income tax
rate (net of Federal)
|
6.3%
|
5.7%
|
|
Effect of foreign
operations
|
0.9%
|
1.1%
|
|
Non-deductible
expenses associated with derivative liabilities
|
0.0%
|
0.0%
|
|
Warrant related
expenses
|
0.0%
|
0.0%
|
|
Federal Deferred
Tax Rate Change
|
(45.7)%
|
0.0%
|
|
Other permanent
differences
|
0.1%
|
0.7%
|
|
Effect of valuation
allowance
|
4.4%
|
(41.5)%
|
|
Effective tax
rate
|
0.0%
|
0.0%
|
In
assessing the realizability of deferred tax assets, management
considers whether it is more-likely-than-not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income of the appropriate character during the
periods in which those temporary differences become deductible and
the loss carryforwards are available to reduce taxable income. In
making its assessment, the Company considered all sources of
taxable income including carryback potential, future reversals of
existing deferred tax liabilities, prudent and feasible tax
planning strategies, and lastly, objectively verifiable projections
of future taxable income exclusive of reversing temporary
differences and carryforwards. At December 31, 2017 and 2016, the
Company maintained a full valuation allowance against its net
deferred tax assets. The Company will continue to assess all
available evidence during future periods to evaluate the
realization of its deferred tax assets.
As
per the prior tax footnote, the tax benefit assumed the newly
enacted Federal statutory tax rate of 21% and a state tax rate (net
of federal) of 7.1% for the tax year ending December 31, 2017 and
has been fully offset by the aforementioned valuation
allowance.
The
following table presents the changes in the deferred tax asset
valuation allowance for the periods indicated:
|
Year Ended
|
Balance at Beginning of Year
|
Increase (Decrease) Charged (Credited) to Income Taxes
(Benefit)
|
Increase (Decrease) Charged (Credited) to OCI
|
|
|
December
31, 2017
|
$37,811,000
|
$(1,433,000)
|
$(32,000)
|
$36,346,000
|
|
December
31, 2016
|
$26,527,000
|
$11,309,800
|
$(25,800)
|
$37,811,000
|
Accounting
for uncertainty in income taxes requires uncertain tax positions to
be classified as non-current income tax liabilities unless they are
expected to be paid within one year. The Company has concluded that
there are no uncertain tax positions requiring recognition in its
consolidated financial statements as of December 31, 2017 and 2016.
The Company recognizes interest and penalties related to uncertain
tax positions if any as a component of income tax
expense.
The
Company files income tax returns in the U.S. federal, state and
foreign jurisdictions. Tax years 2013 to 2017 remain open to
examination for both the U.S. federal and state jurisdictions. Tax
years 2014 to 2016 remain open for Germany.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 — Commitments and
Contingencies:
Contingency Matters
On
September 9, 2014, the Company filed in the District Court of
Mannheim, Germany a patent infringement action against TauroPharm
GmbH and Tauro-Implant GmbH as well as their respective CEOs (the
“Defendants”) claiming infringement of the
Company’s European Patent EP 1 814 562 B1, which was granted
by the European Patent Office (the “EPO”) on January 8,
2014 (the “Prosl European Patent”). The Prosl
European Patent covers the formulation of taurolidine and citrate
with low dose heparin in a catheter lock solution for maintaining
patency and preventing infection in hemodialysis catheters. In this
action, the Company claims that the Defendants infringe on the
Prosl European Patent by manufacturing and distributing catheter
locking solutions to the extent they are covered by the claims of
the Prosl European Patent. The Company believes that its
patent is sound, and is seeking injunctive relief and raising
claims for information, rendering of accounts, calling back,
destruction and damages. Separately, TauroPharm has filed an
opposition with the EPO against the Prosl European Patent alleging
that it lacks novelty and inventive step. The Company
cannot predict what other defenses the Defendants may raise, or the
ultimate outcome of either of these related matters.
In the
same complaint against the same Defendants, the Company also
alleged an infringement (requesting the same remedies) of ND
Partners’ utility model DE 20 2005 022 124 U1 (the
“Utility Model”), which the Company believes is
fundamentally identical to the Prosl European Patent in its main
aspects and claims. The Court separated the two proceedings and the
Prosl European Patent and the Utility Model claims are now being
tried separately. TauroPharm has filed a cancellation action
against the Utility Model before the German Patent and Trademark
Office (the “German PTO”) based on the similar
arguments as those in the opposition against the Prosl European
Patent.
On
March 27, 2015, the District Court held a hearing to evaluate
whether the Utility Model has been infringed by TauroPharm in
connection with the manufacture, sale and distribution of its
TauroLock-HEP100TM and
TauroLock-HEP500TM products. A hearing
before the same court was held on January 30, 2015 on the separate,
but related, question of infringement of the Prosl European Patent
by TauroPharm.
The
Court issued its decisions on May 8, 2015, staying both
proceedings. In its decisions, the Court found that the
commercialization by TauroPharm in Germany of its TauroLock
catheter lock solutions Hep100 and Hep500 infringes both the
Prosl European Patent and the Utility Model and further that there
is no prior use right that would allow TauroPharm to continue to
make, use or sell its product in Germany. However, the Court
declined to issue an injunction in favor of the Company that would
preclude the continued commercialization by TauroPharm based upon
its finding that there is a sufficient likelihood that the EPO, in
the case of the Prosl European Patent, or the German PTO, in the
case of the Utility Model, may find that such patent or utility
model is invalid. Specifically, the Court noted the possible
publication of certain instructions for product use that may be
deemed to constitute prior art. As such, the District Court
determined that it will defer any consideration of the request by
the Company for injunctive and other relief until such time as the
EPO or the German PTO made a final decision on the underlying
validity of the Prosl European Patent and the Utility
Model.
The
opposition proceeding against the Prosl European Patent before the
EPO is ongoing. The EPO held a hearing in the opposition proceeding
on November 25, 2015. In its preliminary consideration of the
matter, the EPO (and the German PTO) had regarded the patent as not
inventive or novel due to publication of prior art. However, the
EPO did not issue a decision at the end of the hearing but
adjourned the matter due to the fact that the panel was of the view
that Claus Herdeis, one of the managing directors of TauroPharm,
has to be heard as a witness in a further hearing in order to close
some gaps in the documentation presented by TauroPharm as regards
the publication of the prior art.
The
German PTO held a hearing in the validity proceedings relating to
the Utility Model on June 29, 2016, at which the panel affirmed its
preliminary finding that the Utility Model was invalid based upon
prior publication of a reference to the benefits that may be
associated with adding heparin to a taurolidine based solution. The
decision has only a declaratory effect, as the Utility Model had
expired in November 2015. Furthermore, it has no bearing on the
ongoing consideration by the EPO of the validity and possible
infringement of the Prosl European Patent. The Company filed an
appeal against the ruling on September 7, 2016.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In
October 2016, TauroPharm submitted a further writ to the EPO
requesting a date for the hearing and bringing forward further
arguments, in particular in view of the June 2016 decision of the
German PTO on the invalidity of the utility model, which we have
appealed. On November 22, 2017, the EPO in Munich, Germany held a
further oral hearing in this matter. At the hearing, the panel held
that the Prosl European Patent would be invalidated because it did
not meet the requirements of novelty based on a technical aspect of
the European intellectual property law. The Company disagrees with
this decision and plans to appeal. The Company’s appeal will
be based, in part, on the written opinion to be issued by the
Opposition Division, which is expected by the first quarter 2018.
The Company continues to believe that the Prosl European Patent is
indeed novel and that its validity should be maintained. There can
be no assurance that the Company will prevail in this matter with
either the German PTO or the EPO. In addition, the ongoing Unfair
Competition litigation brought by the Company against TauroPharm is
not affected and will continue.
On
January 16, 2015, the Company filed a complaint against TauroPharm
GmbH and its managing directors in the District Court of
Cologne, Germany. In the complaint, the Company alleges
violation of the German Unfair Competition Act by TauroPharm for
the unauthorized use of its proprietary information obtained in
confidence by TauroPharm. The Company alleges that
TauroPharm is improperly and unfairly using its proprietary
information relating to the composition and manufacture of
Neutrolin, in the manufacture and sale of TauroPharm’s
products TauroLockTM, TauroLock-HEP100
and TauroLock-HEP500. The Company seeks a cease and
desist order against TauroPharm from continuing to manufacture and
sell any product containing taurolidine (the active pharmaceutical
ingredient (“API”) of Neutrolin) and citric acid in
addition to possible other components, damages for any sales in the
past and the removal of all such products from the market. An
initial hearing in the District Court of Cologne, Germany was held
on November 19, 2015 to consider the Company’s claims. In
this hearing, the presiding judge explained that the court needed
more information with regard to several aspects of the case. As a
consequence, the court issued an interim decision in the form of a
court order outlining several issues of concern that relate
primarily to the court's interest in clarifying the facts and
reviewing any and all available documentation, in particular with
regard to the question which specific know-how was provided to
TauroPharm by whom and when. The Company's legal team has prepared
the requested reply and produced the respective documentation.
TauroPharm has also filed another writ within the same deadline and
both parties have filed further writs at the end of April setting
out their respective argumentation in more detail. A further oral
hearing in this matter was held on November 15, 2016. In this
hearing, the court heard arguments from CorMedix and TauroPharm
concerning the allegations of unfair competition. The court made no
rulings from the bench, and indicated that it is prepared to
further examine the underlying facts of the Company's allegations.
On March 7, 2017, the court issued another interim decision in the
form of a court order outlining again several issues relating to
the argumentation of both sides in the proceedings. In particular
the court requested the Company to further specify its requests and
to further substantiate in even more detail which know know-how was
provided by Biolink to TauroPharm by whom and when. The court also
raised the question whether the know-how provided at the time to
TauroPharm could still be considered to be secret know-how or may
have become public in the meantime. The court granted both sides
the opportunity to reply to this court order and provide additional
facts and evidence until May 15, 2017. Both parties have submitted
further writs in this matter and the court has now scheduled a
further hearing on May 8, 2018. After
having been rescheduled several times, the hearing will now take
place on November 20, 2018. The Company intends to continue
to pursue this matter, and to provide additional supplemental
documentary and other evidence as may be necessary to support its
claims.
In
connection with the aforementioned patent and utility model
infringement proceedings against TauroPharm, the Company was
required by the District Court Mannheim to provide a security
deposit of approximately $132,000 to cover legal fees in the event
TauroPharm is entitled to reimbursement of these costs. The
Company recorded the deposit as restricted cash for the year ended
December 31, 2015. The Company furthermore had to provide a deposit
in the amount of $40,000 in connection with the unfair competition
proceedings in Cologne. These amounts are shown as restricted cash
on the condensed consolidated balance sheets.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments
Manufacturing
The
Company has developed a program aimed at reducing the cost of goods
of Neutrolin through a more efficient, custom synthesis of the
active ingredient taurolidine. As part of that program, on April 8,
2015, the Company entered into a Preliminary Services Agreement
with [RC]2
Pharma Connect LLC (“RC2”), pursuant to which RC2 will
coordinate certain manufacturing services related to taurolidine
that the Company believes are necessary for the submission of its
planned new drug application for Neutrolin to the FDA, as well as
any foreign regulatory applications. The services related to this
agreement were completed in the first quarter of 2017 and the total
cost was $1.8 million. During the years ended December 31, 2017 and
2016, the Company recognized research and development expense of
$279,000 and $1,278,000, respectively. The API produced under this
agreement has been manufactured for future commercial sales in the
EU and Middle East and used for the U.S. Phase 3 clinical
trial.
The
Company also has several service agreements with RC2 for the
manufacture of clinical supplies to support its ongoing and planned
Phase 3 clinical trials for an aggregate amount of $8.9 million at
December 31, 2017. During the years ended December 31, 2017
and 2016, the Company recognized research and development expense
of approximately $2,513,000 and $2,359,000, respectively, related
to these agreements. The Company may terminate these agreements
upon 30 days written notice and is only obligated for project costs
and reasonable project shut down costs provided through the date of
termination.
Clinical and Regulatory
In
December 2015, the Company entered into a Master Service Agreement
and Work Orders (the “Master Service Agreement”) with
PPD Development, LP (“PPD”) to help the Company conduct
its Phase 3 multicenter, double-blind, randomized active control
study to demonstrate the safety and effectiveness of Neutrolin in
preventing catheter-related bloodstream infections and blood
clotting in subjects receiving hemodialysis therapy as treatment
for end stage renal disease. In May 2017, the Company signed a
contract modification with PPD for an additional cost of $7.2
million to cover the extension of the estimated study timeline,
incorporate several protocol amendments and take on several new
tasks related to the enrollment sites. Given several recent changes
to the study agreed with the FDA, the Company signed a second
contract modification with PPD for another $6.3 million, to cover
the continuation of trial enrollment which is anticipated to
continue into the second quarter of 2018, the increased length
oftime in which patients are enrolled and additional activities
related to the collection of retrospective data outside the
treatment centers. At December 31, 2017, the total cost of the
contract increased to $32.7 million from its original amount of
$19.2 million. During the years ended December 31, 2017 and 2016,
the Company recognized $14,380,000 and $5,283,000 in research and
development expense related to this agreement, respectively. The
current contract may be subject to further modifications as the
clinical trial progresses. The remaining commitment under the
current contract at December 31, 2017 is approximately $14.7
million, which may be further modified.
In-Licensing
In
2008, the Company entered into a License and Assignment Agreement
(the “NDP License Agreement”) with NDP. Pursuant to the
NDP 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”). The Company acquired such licenses and patents
through its assignment and assumption of NDP’s rights under
certain separate license agreements by and between NDP and Dr.
Hans-Dietrich Polaschegg, Dr. Klaus Sodemann and Dr. Johannes
Reinmueller. As consideration in part for the rights to the NDP
Technology, the Company paid NDP an initial licensing fee of
$325,000 and granted NDP a 5% equity interest in the Company,
consisting of 39,980 shares of the Company’s common
stock.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company is required to make payments to NDP upon the achievement of
certain regulatory and sales-based milestones. Certain of the
milestone payments are to be made in the form of shares of common
stock currently held in escrow for NDP, and other milestone
payments are to be paid in cash. The maximum aggregate number of
shares issuable upon achievement of milestones is 145,543 shares.
During the year ended December 31, 2014, a certain milestone was
achieved resulting in the release of 36,386 shares held in escrow.
The number of shares held in escrow as of December 31, 2017 and
2016 is 109,157 shares of common stock. The maximum aggregate
amount of cash payments upon achievement of milestones is
$3,000,000 with the balance of $2,500,000 for the years ended
December 31, 2017 and 2016. Events that trigger milestone payments
include but are not limited to the reaching of various stages of
regulatory approval and upon achieving certain worldwide net sales
amounts. There were no milestones
achieved in 2017 and 2016.
The NDP
License Agreement may be terminated by the Company on a
country-by-country basis upon 60 days prior written notice. If the
NDP License Agreement is terminated by either party, the
Company’s rights to the NDP Technology will revert back to
NDP.
Employment Agreements
On
September 27, 2016, the Company entered into an employment
agreement, effective October 3, 2016, with Khoso Baluch, its Chief
Executive Officer. Unless renewed pursuant to the terms thereof,
the agreement will expire on October 3, 2019. After the initial
three-year term of Mr. Baluch’s employment agreement, the
agreement will automatically renew for additional successive
one-year periods, unless either party notifies the other in writing
at least 90 days before the expiration of the then current term
that the agreement will not be renewed. Mr. Baluch also was
appointed to the Company’s Board of Directors (the
“Board”) on October 3, 2016.
If the
Company terminates Mr. Baluch’s employment other than for Cause
(as defined in the agreement), death or disability, other than by
notice of nonrenewal, or if Mr. Baluch resigns for Good Reason (as
defined in the agreement), Mr. Baluch will receive his base salary
and benefits for a period of 12 months following the effective date
of the termination of his employment and all restricted shares and
unvested stock options that are scheduled to vest on or before the
next succeeding anniversary of the date of termination shall be
accelerated and deemed to have vested as of the termination
date.
In January 2017, the Company entered into a
three-year employment agreement with Robert Cook to serve as its
Chief Financial Officer and with Judith Abrams to serve as its
Chief Medical Officer, and in March 2017, the Company entered into
an employment agreement with John Armstrong to serve as its
Executive Vice President for Technical Operations. After the initial three-year term of
each employment agreement, the agreement will automatically renew
for additional successive one-year periods, unless either party
notifies the other in writing at least 90 days before the
expiration of the then current term that the agreement will not be
renewed.
Under the agreements, in the event the
Company terminates the
employment of Mr. Cook, Dr. Abrams or Mr. Armstrong other than for
Cause (as defined in the agreements), death or disability, other
than by notice of nonrenewal, or if any of them resigns for Good
Reason (as defined in the agreements), he or she will receive his
or her base salary and benefits for a period of nine months
following the effective date of the termination of employment, and,
in the case of Mr. Cook and Dr. Abrams, all unvested time-based
stock options that are scheduled to vest on or before the next
succeeding anniversary of the date of termination shall be
accelerated and deemed to have vested as of the termination
date.
On
August 24, 2017, Dr. Abrams resigned for personal reasons. The
Company did not owe Dr. Abrams any severance obligations under her
employment agreement. In connection with her resignation, on August
25, 2017, the Company entered into a consulting agreement with Dr.
Abrams for a term of up to nine months. Pursuant to the consulting
agreement, Dr. Abrams will receive a monthly payment of
approximately $29,000, an upfront payment of approximately $17,000,
vesting in full of an option to purchase 46,250 shares of Company
common stock granted under her employment agreement, and, at her
option, COBRA premiums for the period during which she receives
monthly payments under the consulting agreement. The fair value of
the options that fully vested was recorded as an expense by the
Company in the amount of $60,250 for the year ended December 31,
2017.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other
In
September 2017, the Company entered into a sublease agreement for
approximately 6,960 square feet of office space in Berkeley
Heights, New Jersey, which sublease runs from September 15, 2017 to
June 29, 2020. This sublease is rent-free to the
Company.
Effective October
1, 2017, the Company terminated its sublease for the 4,700 square
feet of office space in Bedminster, New Jersey with no further
lease obligation for the remainder of the sublease. Rent was $5,000
per month plus occupancy costs such as utilities, maintenance and
taxes.
Rent
expense for the years ended December 31, 2017 and 2016, was $45,237
and $68,096, respectively.
As of
December 31, 2017, the Company has no remaining lease
obligation.
Note 7 — Stockholders’ Equity:
Common Stock:
On May
3, 2017, the Company closed an underwritten public offering of
18,619,301 shares of its common stock, par value $0.001 per share,
together with Series A warrants (“Series A Warrants”)
to purchase up to an aggregate of 13,964,476 shares of its common
stock and Series B warrants (“Series B Warrants”) to
purchase up to an aggregate of 13,964,476 shares of its common
stock. Series A Warrants have an exercise price of $0.75 per share
of common stock and will expire thirteen months following the
Exercisable Date (defined below). Series B Warrants have an
exercise price of $1.05 per share of common stock and will expire
five years following the Exercisable Date. The net proceeds from
this public offering was approximately $12.8 million.
The
Company issued to the underwriter warrants to purchase up to an
aggregate of 1,117,158 shares of common stock, with an exercise
price of $0.9375, which represents 125% of the public offering
price per combined share and related warrants. The underwriter
warrant will expire five years following the Exercisable Date.
Other than the exercise price, the terms of the underwriter
warrants are the same as the Series B Warrants.
In May
2017, the Company did not have a sufficient number of authorized
shares of common stock to cover the shares issuable upon exercise
of the warrants issued in the May 2017 public offering and
therefore classified the fair value of the warrants as a derivative
liability at June 30, 2017. On August 8, 2017, the Company’s
shareholders approved the amendment of
the Company’s amended and restated Certificate of
Incorporation (the “Charter Amendment”) increasing the
shares of authorized capital stock from 82,000,000 shares to
162,000,000 shares and increasing the number of authorized shares
of common stock from 80,000,000 to 160,000,000 shares. The
fair value of these warrants was re-measured on August 10, 2017,
the date the warrants became exercisable (the “Exercisable
Date”), with the increase in value recorded as a loss in the
statement of operations. The fair value of the warrants at August
10, 2017 was reclassified then from liability to
equity.
In
December 2017, the Company sold an aggregate of 624,246 shares of
its common stock to its directors and executive officers and to
certain of its employees at a per share purchase price of $0.48.
The Company realized gross proceeds of approximately $300,000. (See
Note 4 – Related Party Transactions).
During
the year ended December 31, 2017, the Company entered into warrant
exchange agreements whereby the Company agreed to exchange with
various investors (the “Investors”) Series A warrants
issued in its May 2017 public offering of common stock and
warrants. The exchanged warrants provided for the purchase of up to
an aggregate of 9,886,250 shares of the Company’s common
stock at an exercise price of $0.75, with an expiration date of
September 10, 2018. The Company issued an aggregate of 2,471,561
shares of common stock to the Investors in exchange for these
warrants at an exchange rate of 25%.
During the year ended December 31, 2017,
the Company issued 10,000 shares of its common stock upon exercise
of stock options resulting in gross proceeds of $6,800 to the
Company.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During
the year ended December 31,
2017, the Company issued an aggregate of 325,000 shares of
its common stock upon conversion of an aggregate of 32,500 Series
C-3 non-voting preferred stock.
During
the year ended December 31,
2017, the Company issued 970 shares of its common stock upon
cashless exercise of 62,500 warrants.
The
Company has a sales agreement, as amended on December 8, 2017, with
B. Riley (the “Sales Agreement”) under which the
Company may issue and sell up to an aggregate of $60.0 million of
shares of its common stock from time to time through B. Riley
acting as agent, subject to limitations imposed by the Company and
subject to B. Riley’s acceptance, such as the number or
dollar amount of shares registered under the registration statement
to which the offering relates. When the Company wishes to issue and
sell common stock under the Sales Agreement, it notifies B. Riley
of the number of shares to be issued, the dates on which such sales
are anticipated to be made, any minimum price below which sales may
not be made and other sales parameters as the Company deems
appropriate. B. Riley is entitled to a commission of up to 3% of
the gross proceeds from the sale of common stock sold under the
Sales Agreement. The shares of common stock to be sold under the
Sales Agreement are registered under an effective registration
statement filed with the SEC. During the years ended December 31,
2017 and 2016, the shares of common stock under the Sales Agreement
issued by the Company were 5,239,815 and 3,360,037, respectively,
and realized net proceeds of $3,484,000 in 2017 and $6,229,000 in
2016. As of December 31, 2017, the Company had approximately $17.9
million available under the Sales Agreement which will expire on
April 16, 2018.
During the year ended December 31, 2016,
the Company also issued 21,454 shares
of common stock upon cashless exercise of 25,000 warrants and
1,087,500 shares of common stock upon exercise of stock options at
a weighted average exercise price of $0.79 per share, resulting in
gross proceeds of $863,000 to the Company.
Restricted Stock Units
During
the year ended December 31, 2017, the Company granted an aggregate
of 112,931 restricted stock units (“RSUs”) to its
officers and directors under its 2013 Stock Incentive Plan with a
weighted average grant date fair value of $2.15 per share. These
RSUs vest over various dates through December 31, 2018. During the
year ended December 31, 2017, compensation expense recorded for
these RSUs was $88,000. Unrecognized compensation expense as of
December 31, 2017 was $50,000. The expected weighted average period
for the expense to be recognized is 0.48 years. During the year
ended December 31, 2017, 46,517 RSUs were forfeited.
Preferred Stock
The
Company is authorized to issue up to 2,000,000 shares of preferred
stock in one or more series without stockholder approval. The
Company’s board of directors has the discretion to determine
the rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of preferred
stock. Of the 2,000,000 shares of preferred stock authorized, the
Company’s board of directors has designated (all with par
value of $0.001 per share) the following:
|
|
|
|
|
|
Preferred Shares
Outstanding
|
Liquidation
Preference (Per
Share)
|
Total Liquidation
Preference
|
Preferred Shares
Outstanding
|
Liquidation
Preference (Per
Share)
|
Total Liquidation
Preference
|
|
Series
C-2
|
150,000
|
10.0
|
1,500,000
|
150,000
|
10.0
|
1,500,000
|
|
Series
C-3
|
104,000
|
10.0
|
1,040,000
|
136,500
|
10.0
|
1,365,000
|
|
Series
D
|
73,962
|
21.0
|
1,553,202
|
73,962
|
21.0
|
1,553,202
|
|
Series
E
|
89,623
|
49.2
|
4,409,452
|
89,623
|
49.2
|
4,409,452
|
|
Series
F
|
2,000
|
1,000
|
2,000,000
|
-
|
-
|
-
|
|
Total
|
419,585
|
|
10,502,654
|
450,085
|
|
8,827,654
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
November 9, 2017, the Company entered into a securities purchase
agreement with existing institutional investors (the
“Buyers”), pursuant to which, on November 16, 2017, the
Company sold $2.0 million of its newly designated Series F
convertible preferred stock (“Series F Stock”) at
$1,000 per share. Each share of Series F Stock is convertible into
shares of the Company’s common stock, at the option of the
Buyers, at an effective price of $0.6334 per share, which
represents a 20% premium to the closing price of the
Company’s common stock on November 8, 2017. The conversion
price of the Series F Stock is subject to anti-dilution adjustment
for customary recapitalization events such as stock splits, as well
as full ratchet anti-dilution protection in the event that the
Company does not obtain the subordination of the Series C-3
preferred stock to that of the Series F Stock (as described below)
or obtain stockholder approval of the issuance of common stock that
exceeds NYSE American rules (as described below). The Series F
Stock will be mandatorily convertible on April 2, 2018, subject to
certain equity conditions, at (A) the lower of (i) $0.6334 and (ii)
a 10% discount to the notional price at which an equity or equity
linked transaction in an amount of $3 million or more is completed
by March 31, 2018, or (B) if such a transaction is completed and
results in gross proceeds of less than $3 million, the average
closing price of the common stock for the immediately preceding
five trading days, or (C) otherwise the lower of (i) $0.6334 and
(ii) a 10% discount to the closing price of the stock on April 2,
2018.
The
Series F Stock is non-voting and has no dividend right outside of
receiving dividends in the same form as we pay to holders of shares
of our common stock. It contains a prohibition on its conversion
if, as a result of such conversion, the Company would have issued
shares of our common stock in an aggregate amount equal to
13,336,939 shares, which is 20% of its outstanding shares of common
stock on November 9, 2017, unless the Company has received the
approval of its stockholders for such overage, or the Series F
Stock does not rank senior to all previously issued preferred
stock.
The
Buyers will be prohibited from converting Series F Stock into
shares of its common stock to the extent that, as a result of such
conversion, the Buyers, together with their affiliates, would own
more than 9.99% of the total number of shares of our common stock
then issued and outstanding. In the event of the Company’s
liquidation, dissolution, or winding up, holders of the Series F
Stock will receive a payment equal to $1,000 per share of Series F
Stock, subject to adjustment, before any proceeds are distributed
to the holders of common stock. Shares of the Series F Stock will
rank:
●
senior to all
common stock and the Series C-2, Series C-3 Convertible Preferred
Stock (subject to the Company obtaining any consent, waiver or
other authorization from the holders of the Series C-3 Convertible
Preferred Stock necessary for the subordination of the Series C-3
Convertible Preferred Stock to the Series F Preferred Stock),
Series D Non-Voting Convertible Preferred Stock, Series E
Non-Voting Convertible Stock; and
●
senior to any class
or series of capital stock hereafter created.
in each
case, as to distributions of assets upon our liquidation,
dissolution or winding up whether voluntarily or
involuntarily.
As a
part of the financing, the Company also entered into a registration
rights agreement with the Buyers whereby the Buyers can demand that
the Company register the shares issuable upon exercise of the
warrants, and shares issuable upon conversion of the Series F
Stock, if issued.
The
backstop agreement (see Warrant section of this Note) provides that
until the later of (x) the date that no Series F preferred shares
are outstanding and (y) the date the no warrants issued under the
backstop agreement are outstanding, the Company may not effect a
issue any securities in a “variable rate transaction”
other than at-the-market offerings through a registered
broker-dealer or offerings of the Series F preferred stock. A
“variable rate transaction” is a transaction on terms
more favorable than those of the backstop agreement and the Series
F preferred stock, in which the Company issues any convertible
securities either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading
prices of or quotations for the shares of the Company’s
common Stock at any time after the initial issuance of such
convertible securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date
after the initial issuance of such convertible securities or upon
the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for
its common stock, other than pursuant to a customary
“weighted average” anti-dilution provision or (ii)
enters into any agreement (other than an at-the-market offering
through a registered broker-dealer) whereby the Company may sell
securities at a future determined price (other than standard and
customary “preemptive” or “participation”
rights).
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following terms and conditions apply to
the Series C, Series D and Series E non-voting convertible
preferred stock outstanding at December 31, 2017 and
2016:
Dividends - Holders of the Series
C, Series D and Series E non-voting preferred stock are entitled to
receive, and the Company is required to pay, dividends on shares of
the Series C, Series D and Series E non-voting preferred stock
equal to (on an as-if-converted-to-common-stock basis) and in the
same form as dividends (other than dividends in the form of common
stock) actually paid on shares of the common stock when, as and if
such dividends (other than dividends in the form of common stock)
are paid on shares of the common stock.
Fundamental Transactions- If, at
any time that shares of Series C, Series D, Series E or Series F
non-voting preferred stock are outstanding, the Company effects a
merger or other change of control transaction, as described in the
certificate of designation and referred to as a fundamental
transaction, then, upon each and every fundamental transaction, a
holder will have the right to receive, upon any subsequent
conversion of a share of Series C, Series D or Series E non-voting
preferred stock (in lieu of conversion shares) for each issuable
conversion share, the same kind and amount of securities, cash or
property as such holder would have been entitled to receive upon
the occurrence of such fundamental transaction if such holder had
been, immediately prior to such fundamental transaction, the holder
of a share of common stock.
Redemption – The Company is not
obligated to redeem or repurchase any shares of Series C, Series D
or Series E non-voting preferred stock. Shares of Series C, series
D and Series E Preferred Stock are not otherwise entitled to any
redemption rights.
Listing- There is no established public
trading market for the Series C, Series D or Series E non-voting
preferred stock, and the Company does not expect a market to
develop. In addition, the Company does not intend to apply for
listing of the Series C, Series D or Series E non-voting preferred
stock on any national securities exchange or trading
system.
Series C-2 and Series C-3 Non-Voting Convertible Preferred Stock
and Warrants
In October 2013, the Company issued 150,000 shares
of Series C-2 non-voting convertible preferred stock, together with warrants to
purchase up to an aggregate of 1,500,000 shares of common
stock.
In January 2014, the Company sold to various
investors 200,000 shares of Series C-3 non-voting
convertible preferred stock, together
with warrants to purchase up to an aggregate of 1,000,000 shares of
common stock, for aggregate gross proceeds of
$2,000,000.
The
Series C-2 non-voting preferred stock and Series C-3 non-voting
preferred stock have identical rights, privileges and terms and are
referred to collectively as the “Series C
Stock.” Each share of Series C Stock is
convertible into 10 shares of common stock at any time at the
holder’s option at a conversion price of $1.00 per
share. In the event of the Company’s liquidation,
dissolution, or winding up, holders of the Series C Stock will
receive a payment equal to $10.00 per share of Series C Stock,
subject to adjustment, before any proceeds are distributed to the
holders of common stock. Shares of the Series C Stock
will not be entitled to receive any dividends, unless and until
specifically declared by the Company’s board of
directors.
The Series C Preferred Stock ranks senior to the
Company’s common stock; senior to any class or series of capital stock created
after the issuance of the Series C Preferred Stock (subject
to the Company obtaining any consent, waiver or other authorization
from the holders of the Series C-3 Convertible Preferred Stock
necessary for the subordination of the Series C-3 Convertible
Preferred Stock to the Series F Preferred Stock); and junior to the Series D, Series E and Series F
non-voting convertible preferred stock. As long as any of the
Series C-2 Preferred Stock is outstanding, the Company cannot incur
any indebtedness other than indebtedness existing prior to
September 15, 2014, trade payables incurred in the ordinary course
of business consistent with past practice, and letters of credit
incurred in an aggregate amount of $3.0 million at any point in
time.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series D Non-Voting Convertible Preferred Stock
Each share of Series D non-voting
convertible preferred stock is
convertible into 20 shares of common stock (subject to adjustment)
at a per share price of $0.35 at any time at the option of the
holder, except that a holder will be prohibited from converting
shares of Series D non-voting convertible preferred stock into shares of common stock if, as
a result of such conversion, such holder, together with its
affiliates, would beneficially own more than 9.99% of the total
number of shares of the Company’s common stock then issued
and outstanding. In the event of the Company’s liquidation,
dissolution or winding up, holders of Series D non-voting
convertible preferred stock will
receive a payment equal to $21.00 per share of Series D
non-voting convertible preferred stock
on parity with the payment of the liquidation preference due the
Series E non-voting convertible preferred stock, but before any proceeds are
distributed to the holders of common stock, the Series C-2
non-voting convertible preferred
stock.
The Series D non-voting convertible preferred
stock ranks senior to the Company’s common stock; senior to
any class or series of capital stock created after the issuance of
the Series D non-voting convertible preferred stock; senior to the
Series C-2 non-voting convertible preferred stock and the Series
C-3 non-voting convertible preferred stock; on parity with the
Series E non-voting convertible preferred stock; and junior to the
Series F non-voting convertible preferred stock. As long as any of
the Series D non-voting convertible preferred stock is outstanding, the Company cannot
incur any indebtedness other than indebtedness existing prior to
September 15, 2014, trade payables incurred in the ordinary course
of business consistent with past practice, and letters of credit
incurred in an aggregate amount of $3.0 million at any point in
time.
In
addition to the debt restrictions above, as long as any shares of
the Series D non-voting convertible preferred stock are
outstanding, the Company cannot, among others things: create,
incur, assume or suffer to exist any encumbrances on any of its
assets or property; or redeem, purchase or otherwise acquire or pay
or declare any dividend or other distribution on any junior
securities.
Series E Non-Voting Convertible Preferred Stock
Each share of Series E non-voting convertible
preferred stock was originally convertible into 21.8667 shares of
the Company’s common stock (subject to adjustment) at a per
share price of $0.75 at any time at the option of the holder,
except that a holder will be prohibited from converting shares of
Series E non-voting convertible preferred stock into shares of
common stock if, as a result of such conversion, such holder,
together with its affiliates, would beneficially own more than
9.99% of the total number of shares of the Company’s common
stock then issued and outstanding. In the event of the
Company’s liquidation, dissolution or winding up, holders of
Series E preferred stock will receive a payment equal to $49.20 per
share of Series E non-voting convertible preferred stock on parity
with the payment of the liquidation preference due the Series D
non-voting convertible preferred stock, but before any proceeds are
distributed to the holders of common stock, the Series C-2
non-voting convertible preferred
stock.
The Series E non-voting convertible
preferred stock ranks senior to the
Company’s common stock; senior to any class or series of
capital stock created after the issuance of the Series E non-voting
preferred stock; senior to the Series C-2 and the Series C-3
non-voting convertible preferred stock; on parity with the Series D
non-voting convertible preferred stock; and junior to the Series F
non-voting convertible preferred stock. As long as any of the
Series E non-voting convertible preferred stock is outstanding, the Company cannot
incur any indebtedness other than indebtedness existing prior to
September 15, 2014, trade payables incurred in the ordinary course
of business consistent with past practice, and letters of credit
incurred in an aggregate amount of $3.0 million at any point in
time.
In addition to the debt restrictions above, as
long as any the Series E non-voting convertible
preferred stock is outstanding
, the Company cannot, among others things: create, incur, assume or
suffer to exist any encumbrances on any of our assets or property;
redeem, repurchase or pay any cash dividend or distribution on any
of our capital stock (other than as permitted); redeem, repurchase
or prepay any indebtedness; or engage in any material line of
business substantially different from our current lines of
business.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the
event the Company issues any options, convertible securities or
rights to purchase stock or other securities pro rata to the
holders of common stock, then holders of Series E non-voting
convertible preferred stock will be entitled to acquire, upon the
same terms a pro rata amount of such stock or securities as if the
Series E non-voting convertible preferred stock had been converted
to common stock.
Stock Options:
The
Company’s 2013 Stock Incentive Plan (the “2013
Plan”) was approved by the shareholders in July 2013. The
2013 Plan provides for the issuance of equity grants in the form of
options, restricted stock, stock awards and other forms of equity
compensation. Awards may be made to directors, officers, employees
and consultants under the 2013 Plan. Initially, an aggregate of
5,000,000 shares of the Company’s common stock was reserved
for issuance under the 2013 Plan. On January 19, 2016, the
shareholders approved the increase of the shares issuable under the
2013 Plan from 5,000,000 to 8,000,000 and on June 13, 2016 from
8,000,000 to 11,000,000.
During
the year ended December 31, 2017, the Company granted ten-year
qualified and non-qualified stock options to its officers,
directors, employees and consultants covering an aggregate of
1,387,500 shares of the Company’s common stock under the 2013
Stock Incentive Plan. The weighted average exercise price of these
options is $1.54 per share.
During
the year ended December 31, 2016, the Company granted ten-year
non-qualified stock options under the 2013 Plan covering an
aggregate of 2,891,000 shares of the Company’s common stock
to its officers, directors, employees and consultants. Of these
options, 1,850,000 were granted on September 30, 2016 to the
Company’s new CEO in connection with his employment.
1,250,000 of the options will vest in four equal annual
installments on the first four anniversaries of the grant date. Of
the remaining options, 300,000, split into three equal tranches,
become exercisable upon the achievement of specified performance
milestones, provided that these options will be forfeited if the
milestones are not achieved within four years of grant date and
provided further that these options will not vest before December
18, 2018. The remaining 300,000 options become exercisable upon the
achievement of a specified average closing stock price, provided
that these options will not vest before December 31, 2018 and if
the closing price per share of the Company’s common stock is
below the specified average closing stock price on December 31,
2018, the options will be forfeited. In each case, the new CEO must
be an employee of the Company or consultant to the Company on the
applicable vesting date. The total fair value of the 1,850,000
stock options issued to the Company’s CEO on the date of
grant was $3,186,450 which is being amortized to expense over the
related vesting periods.
During
the years ended December 31, 2017 and 2016, total compensation
expense for stock options issued to employees, directors, officers
and consultants was $1,571,137 and $1,335,157,
respectively.
As of
December 31, 2017, there was $2,834,000 total unrecognized
compensation expense related to stock options granted which expense
will be recognized over an expected remaining weighted average
period of 1.67 years.
Effective October
1, 2016, the Company adopted Accounting Standards Update
(“ASU”) 2016-09, Compensation — Stock Compensation
(“Topic 718”), Improvements to Employee Share-Based Payment
Accounting to account for forfeitures as they occur. All
share-based awards will be recognized on a straight-line method,
assuming all awards granted will vest. Forfeitures of share-based
awards will be recognized in the period in which they occur. Prior
to the adoption of ASU 2016-09, share-based compensation expense
was recognized by applying the expected forfeiture rate during the
vesting period to the fair value of the award. As of January
1, 2016, a cumulative effect adjustment of $129,730 was recognized
to reflect the forfeiture rate that had been applied to unvested
option awards prior to fiscal year 2016.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
fair value at grants dates of the grants issued subject to service
and performance based vesting conditions were determined using the
Black-Scholes option pricing model with the following
assumptions:
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
Risk-free
interest rate
|
|
1.77% -
2.40%
|
|
1.14% -
1.94%
|
|
Expected
volatility
|
|
95% -
106%
|
|
96% -
98%
|
|
Expected
term (years)
|
|
5 - 10
years
|
|
5 - 10
years
|
|
Expected
dividend yield
|
|
0.0%
|
|
0.0%
|
|
Weighted-average
grant date fair value of options granted during the
period
|
|
$
1.18
|
|
$
1.76
|
The
Company estimated the expected term of the stock options granted
based on anticipated exercises in future periods. The expected term
of the stock options granted to consultants is based upon the full
term of the respective option agreements. Beginning January 1,
2017, the expected stock price volatility for the Company’s
stock options is calculated based on the historical volatility
since the initial public offering of the Company’s common
stock in March 2010. In 2016, the expected stock price volatility
was calculated based on the historical volatility since the initial
public offering, weighted between the period pre and post CE Mark
approval in the European Union. The expected dividend yield of 0.0%
reflects the Company’s current and expected future policy for
dividends on the Company’s common stock. To determine the
risk-free interest rate, the Company utilized the U.S. Treasury
yield curve in effect at the time of grant with a term consistent
with the expected term of the Company’s awards which is 5
years for employees and 10 years for non-employees.
The
fair value of the grant issued subject to a market based vesting
condition was determined using the Monte Carlo option pricing model
which values financial instruments whose value is dependent on
share price by sampling random paths for share price. The key
inputs for the simulation included the closing stock price of the
Company on the date of grant, the expected term of the stock
options granted was based on anticipated exercises in future
periods, the expected stock price volatility for the
Company’s stock options was calculated based on the
historical volatility since the initial public offering of the
Company’s common stock in March 2010, weighted pre and post
CE Mark, the expected dividend yield of 0.0% reflects the
Company’s current and expected future policy for dividends on
the Company’s common stock and the risk-free interest rate
which was determined by utilizing the U.S. Treasury yield curve in
effect at the time of grant with a term consistent with the
expected term of the Company’s awards. The table below
summarizes the key inputs used in the Monte Carlo
simulation:
|
Expected
Term
|
|
|
Volatility
|
97%
|
|
Dividend
yield
|
0.0%
|
|
Risk-free interest
rate
|
1.13%
|
|
Weighted-average
grant date fair value of options granted during the
period
|
$1.12
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the Company’s stock options
activity and related information for the year ended December 31,
2017:
|
|
|
Weighted-AverageExercisePrice
|
Weighted-AverageRemaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value
|
|
Outstanding at
beginning of year
|
4,609,755
|
$2.29
|
8.2
|
$581,823
|
|
Granted
|
1,387,500
|
$1.54
|
|
247,500
|
|
Exercised
|
(10,000)
|
$0.68
|
|
13,200
|
|
Expired/Cancelled
|
(588,344)
|
$2.97
|
|
|
|
Forfeited
|
(436,116)
|
$1.85
|
|
|
|
Outstanding at end
of year
|
4,962,795
|
$2.04
|
7.5
|
$247,500
|
|
Vested at end of
year
|
2,479,971
|
$1.91
|
6.1
|
$76,249
|
|
Expected to vest in
the future
|
2,482,824
|
$2.17
|
8.9
|
$171,251
|
The
total intrinsic value of stock options exercised during the years
ended December 31, 2017 and 2016 was $13,200 and $1,497,506,
respectively. The aggregate intrinsic value is calculated as the
difference between the exercise prices of the underlying options
and the quoted closing price of the common stock of the Company at
the end of the reporting period for those options that have an
exercise price below the quoted closing price.
Warrants:
On
November 9, 2017, in addition to the
securities purchase agreement issued to the Buyers (See Preferred
Stock, Note 7), the Company entered into a backstop agreement with
the Buyers to purchase additional Series F convertible preferred
Stock at $1,000 per share, at the Company’s sole discretion,
beginning January 15, 2018 through March 31, 2018. As consideration
for the backstop agreement, the Company issued 564,858 warrants,
exercisable for three years, to purchase shares of the
Company’s common stock at a per share exercise price of
$0.001. The number of shares issuable under the warrant was
determined by the closing price of the Company’s common stock
on November 8, 2017, which was $0.5278, reduced by the
amount of equity capital raised from the ATM program and the sale
of common stock to directors, executive officers and other certain
employees of the Company totaling $2.4 million. Each Buyer may convert the preferred stock into
common stock at its option at an effective price of $0.6334 per
share, which represents a 20% premium to the closing price of the
Company’s common stock on November 8, 2017. On
November 16, 2017, the Company recorded a derivative liability of
$270,592 and a corresponding reduction to additional paid in
capital based on the initial Black Scholes valuation. The warrants
were initially classified as a liability as the Company had a
conditional obligation to settle the warrants by issuing a variable
number of shares with variations of the obligation based on inputs
other than the fair value of the Company’s shares (i.e. the
amount subject to the backstop agreement).
The
fair value of the warrants was determined using a Black-Scholes
option pricing model using the following assumptions at the grant
date of the warrants:
|
|
|
|
Expected
Term
|
|
|
Volatility
|
98%
|
|
Dividend
yield
|
0.0%
|
|
Exercise
Price
|
$0.00
|
|
Risk-free interest
rate
|
1.83%
|
|
Fair value of
warrants granted
|
$270,592
|
|
Number of shares
underlying warrants granted
|
564,858
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
December 24, 2017, the derivative liability of $327,079 was
reclassified to equity as the number of issued warrants was
determined on that date. Prior to the reclassification to equity,
an expense of $56,487 for the change in fair value of derivative
liability was recorded on the Company’s consolidated statement of operations and
comprehensive income (loss) for the year ended December 31,
2017, which represented the
increase in the fair value of the derivative liability from
November 16, 2017, the original valuation date of the warrants, and
December 24, 2017, the date the warrants became classified as
equity.
As
these warrants were liability-classified prior to the
reclassification to equity, the fair value of the warrants were
revalued at December 24, 2017 using the following
assumptions:
|
|
|
|
Expected
Term
|
|
|
Volatility
|
98%
|
|
Dividend
yield
|
0.0%
|
|
Exercise
Price
|
$0.00
|
|
Risk-free interest
rate
|
2.01%
|
|
Weighted average
fair value of warrants granted
|
$327,079
|
|
Number of shares
underlying warrants granted
|
564,858
|
In the
May 2017 public offering, the Company issued 29,046,110 warrants,
of which 9,886,250 warrants were subsequently exchanged for
2,471,561 shares of the Company's common stock during the year
ended December 31, 2017.
In the
May 2017 public offering, the Company did not have sufficient
number of authorized shares of common stock available to reserve
the shares issuable upon the exercise of 29,046,110 outstanding
warrants issued in the May 2017 public offering. Therefore, these
warrants were classified as liabilities at June 30, 2017 and were
re-measured on August 10, 2017, which was the Exercisable Date,
with any increase or decrease in value recorded as a loss or gain
in the income statement. The Company recorded a loss of $1,974,019
during the year ended December 31, 2017. As of August 9, 2017, the
Company had enough authorized shares to cover the issuance of these
warrants, and therefore the derivative liability was reclassified
to equity on that date in the amount of $3,854,195.
The
fair value of the warrants was determined using a
probability-weighted Black-Scholes option pricing under different
scenarios regarding the expected probability and timing of
sufficient additional shares being authorized to allow the warrants
to become exercisable. The following assumptions were used to value
the warrants at the grant date.
|
|
Series A
|
|
Series B
|
|
Underwriter’s
|
|
Expected
Term
|
1.18
– 1.33 years
|
|
5.10
– 5.25 years
|
|
5.10
– 5.25 years
|
|
Volatility
|
55%
|
|
55%
|
|
55%
|
|
Dividend
yield
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
Exercise
Price
|
$0.75
|
|
$1.05
|
|
$0.94
|
|
Risk-free
interest rate
|
1.13% -
1.16%
|
|
1.86% -
1.88%
|
|
1.86% -
1.88%
|
|
Weighted
average fair value of warrants granted
|
$0.08
|
|
$0.17
|
|
$0.18
|
|
Number
of shares underlying warrants granted
|
13,964,476
|
|
13,964,476
|
|
1,117,158
|
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As
these warrants are liability-classified, they were revalued at
August 10, 2017 using the following assumptions:
|
|
Series A
|
|
Series B
|
|
Underwriter’s
|
|
Expected
Term
|
1.09
|
|
5.00
|
|
5.00
|
|
Volatility
|
96.95%
|
|
96.95%
|
|
96.95%
|
|
Dividend
yield
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
Exercise
Price
|
$
0.75
|
|
$
1.05
|
|
$
0.94
|
|
Risk-free
interest rate
|
1.22%
|
|
1.76%
|
|
1.76%
|
|
Weighted
average fair value of warrants
|
$
0.06
|
|
$
0.20
|
|
$
0.20
|
The
following table is the summary of warrant activities:
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life
|
|
Outstanding at
December 31, 2016
|
4,006,468
|
$1.65
|
2.36
|
|
Issued
|
29,610,968
|
0.95
|
3.77
|
|
Converted to common
shares
|
(9,886,250)
|
|
|
|
Exercised
|
(62,500)
|
0.40
|
-
|
|
Expired
|
(250,795)
|
0.40
|
-
|
|
Outstanding at
December 31, 2017
|
23,417,891
|
$1.08
|
3.42
|
Various
warrants that the Company has issued contain a prohibition on the
Company entering into a merger, sale of all or substantially all of
its assets or similar transaction unless the acquiring entity
assumes all of the obligations of the Company under the warrants
and also is a publicly traded corporation whose common stock is
quoted on or listed for trading on a securities exchange, provided
that this prohibition will not apply to an all cash
acquisition.
Stock-based Deferred Compensation Plan for Non-Employee
Directors
During
the third quarter of 2014, the Company established an unfunded
stock-based deferred compensation plan, providing non-employee
directors the opportunity to defer up to one hundred percent of
fees and compensation, including restricted stock units. The
amount of fees and compensation deferred by a non-employee director
is converted into stock units, the number of which is determined
based on the closing price of the Company’s common stock on
the date such compensation would have otherwise been payable.
At all times, the plan participants are one hundred percent vested
in their respective deferred compensation accounts. On the
tenth business day of January in the year following a
director’s termination of service, the director will receive
a number of common shares equal to the number of stock units
accumulated in the director’s deferred compensation
account. The Company accounts for this plan as stock based
compensation under ASC 718. During the year ended December
31, 2017 and 2016, the amount of compensation that was deferred
under this plan was $57,940 and $95,666, respectively.
Note 8 — Concentrations:
At
December 31, 2017, approximately 81% of net accounts receivable was
due from two customers (57% and 24%). During the year ended
December 31, 2017 and 2016, the Company had revenue from two
customers that each exceeded 10% of its total sales (25% and 19%)
and (24% and 12%), respectively.
CORMEDIX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Subsequent Event:
Through
March 9, 2018, the Company issued an
aggregate of 9,709,621 shares under its current ATM Program with a
weighted average sale price of $0.33 per share, resulting in net
proceeds of approximately $3.2 million.
On
March 9, 2018, the Company entered into a new agreement with B.
Riley FBR, Inc. for the sale of up to $14.1 million of the
Company’s common stock, subject to the effectiveness of the
registration statement for such offering, which the Company filed
on March 9, 2018. The new ATM program
is expected to become effective upon the expiration of the current
ATM Program; in no event will the two ATM programs run
concurrently.
On
March 19, 2018, the Company entered into a binding term sheet with
Elliott Management Corporation for a proposed $3.0 million backstop
facility. If a definitive agreement can be negotiated and executed,
the proposed backstop facility would be available for drawing
between April 16, 2018 and July 31, 2018. In the event of the
execution of a definitive backstop agreement, for which the Company
can give no assurance, the Company will report such execution and
publicly disclose the terms of the backstop agreement.
|
Exhibit
Number
|
|
Description
of Document
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
At-the-Market
Issuance Sales Agreement, dated April 8, 2015, between CorMedix
Inc. and MLV.
|
|
S-3
|
|
4/09/2015
|
|
1.2
|
|
|
|
|
|
Amendment
No. 1, dated December 8, 2017, to At-the-Market Issuance Sales
Agreement, dated April 8, 2015, between CorMedix Inc. and B. Riley
FBR, Inc.
|
|
8-K
|
|
12/08/2017
|
|
1.1
|
|
|
|
|
|
Underwriting
Agreement, dated April 28, 2017 by and among CorMedix Inc. and H.C.
Wainwright & Co., LLC.
|
|
8-K
|
|
5/03/2017
|
|
1.1
|
|
|
|
|
|
At
Market Issuance Sales Agreement, dated March 9, 2018, between
CorMedix Inc. and B. Riley FBR, Inc.
|
|
S-3
|
|
3/09/2018
|
|
1.1
|
|
|
|
|
|
Form of Amended and
Restated Certificate of Incorporation.
|
|
S-1/A
|
|
3/01/2010
|
|
3.3
|
|
|
|
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated February 24, 2010.
|
|
S-1/A
|
|
3/19/2010
|
|
3.5
|
|
|
|
|
|
Form of Amended and
Restated Bylaws as amended April 19, 2016.
|
|
10-Q
|
|
5/10/2016
|
|
3.1
|
|
|
|
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated December 3, 2012.
|
|
10-K
|
|
3/27/2013
|
|
3.3
|
|
|
|
3.5
|
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation,
dated August 9, 2017.
|
|
8-K
|
|
8/10/2017
|
|
3.1
|
|
|
|
|
|
Certificate of
Designation of Series A Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on
February 18, 2013, as corrected on February 19, 2013.
|
|
8-K
|
|
2/19/2013
|
|
3.3
|
|
|
|
|
|
Certificate of
Designation of Series B Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on July
26, 2013.
|
|
8-K
|
|
7/26/2013
|
|
3.4
|
|
|
|
|
|
Certificate of
Designation of Series C-1 Non-Voting Convertible Preferred Stock of
CorMedix Inc., filed with the Delaware Secretary of State on
October 21, 2013.
|
|
8-K
|
|
10/23/2013
|
|
3.5
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series C-2 Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.15
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series C-3 Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.16
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series D Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.17
|
|
|
|
Exhibit
Number
|
|
Description
of Document
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
Amended and
Restated Certificate of Designation of Series E Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on September 15, 2014.
|
|
8-K
|
|
9/16/2014
|
|
3.18
|
|
|
|
|
|
Amended and
Restated Certificate of Designation of Series F Non-Voting
Convertible Preferred Stock of CorMedix Inc., filed with the
Delaware Secretary of State on December 11, 2017.
|
|
8-K
|
|
12/11/2017
|
|
3.1
|
|
|
|
|
|
Specimen of Common
Stock Certificate.
|
|
S-1/A
|
|
3/19/2010
|
|
4.1
|
|
|
|
|
|
Form of Warrant
issued on February 19, 2013.
|
|
8-K
|
|
2/19/2013
|
|
4.13
|
|
|
|
|
|
Form of Warrant
issued to ND Partners on April 11, 2013.
|
|
10-Q
|
|
5/15/2013
|
|
4.18
|
|
|
|
|
|
Form of Warrant
issued on July 30, 2013.
|
|
8-K
|
|
7/26/2013
|
|
4.21
|
|
|
|
|
|
Form of Warrant
issued on October 22, 2013.
|
|
8-K
|
|
10/18/2013
|
|
4.22
|
|
|
|
|
|
Form of Warrant
issued on January 8, 2014.
|
|
8-K
|
|
1/09/2014
|
|
4.23
|
|
|
|
|
|
Form of Warrant
issued on March 10, 2014
|
|
8-K
|
|
03/05/2014
|
|
4.24
|
|
|
|
|
|
Warrant issued
March 3, 2015.
|
|
8-K
|
|
03/04/2015
|
|
4.1
|
|
|
|
|
|
Amended and
Restated Warrant originally issued March 24, 2010.
|
|
8-K
|
|
03/04/2015
|
|
4.3
|
|
|
|
|
|
Amended and
Restated Warrant originally issued May 30, 2013.
|
|
8-K
|
|
03/04/2015
|
|
4.2
|
|
|
|
|
|
Registration Rights
Agreement, dated March 3, 2015, by and between CorMedix Inc. and
Manchester Securities Corp.
|
|
8-K
|
|
03/04/2015
|
|
4.5
|
|
|
|
|
|
Form
of Series A Warrant to Purchase Common Stock of CorMedix Inc.
issued on May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.1
|
|
|
|
|
|
Form
of Series B Warrant to Purchase Common Stock of CorMedix Inc.
issued on May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.2
|
|
|
|
|
|
Form
of Underwriter’s Warrant to Purchase Common Stock of CorMedix
Inc., issued May 3, 2017.
|
|
8-K
|
|
5/03/2017
|
|
4.3
|
|
|
|
|
|
Form
of Warrant issued on November 16, 2017.
|
|
8-K
|
|
11/13/2017
|
|
4.15
|
|
|
|
|
|
License and
Assignment Agreement, dated as of January 30, 2008, between the
Company and ND Partners LLC.
|
|
S-1/A
|
|
12/31/2009
|
|
10.5
|
|
|
|
|
|
Escrow Agreement,
dated as of January 30, 2008, among the Company, ND Partners LLC
and the Secretary of the Company, as Escrow
Agent.
|
|
S-1
|
|
11/25/2009
|
|
10.6
|
|
|
|
Exhibit
Number
|
|
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
Consulting
Agreement, dated as of January 30, 2008, between the Company and
Frank Prosl.
|
|
S-1
|
|
11/25/2009
|
|
10.12
|
|
|
|
|
|
Amended and
Restated 2006 Stock Incentive Plan.
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S-1/A
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3/01/2010
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10.8
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Form of
Indemnification Agreement between the Company and each of its
directors and executive officers.
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S-1/A
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3/01/2010
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10.17
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Agreement for Work
on Pharmaceutical Advertising dated January 10, 2013 by and between
MKM Co-Pharma GmbH and CorMedix Inc.
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8-K
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1/16/2013
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10.22
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2013 Stock
Incentive Plan
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10-K
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3/27/2013
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10.27
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Form of Securities
Purchase Agreement, dated January 7, 2014, between CorMedix Inc.
and the investors named therein.
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8-K
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1/09/2014
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10.36
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Preliminary
Services Agreement dated April 8, 2015, between CorMedix Inc. and
[RC]2 Pharma Connect LLC.
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10-Q
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8/06/2015
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10.1
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|
|
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Release of Claims
and Severance Modification, dated July 17, 2015, between Randy
Milby and CorMedix Inc.
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10-K
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3/15/2016
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10.16
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|
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Employment
Agreement, dated as of September 27, 2016 and effective as of
October 3, 2016, between CorMedix, Inc. and Khoso
Baluch
|
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8-K
|
|
10/03/2016
|
|
10.1
|
|
|
|
|
|
Employment
Agreement, effective February 1, 2017, between CorMedix Inc. and
Robert Cook.
|
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10-K
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|
3/16/2017
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10.12
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|
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|
Employment
Agreement, effective February 1, 2017, between CorMedix Inc. and
Judith Abrams.
|
|
10-K
|
|
3/16/2017
|
|
10.13
|
|
|
|
|
|
Employment
Agreement, effective March 1, 2017, between CorMedix Inc. and John
Armstrong.
|
|
10-K
|
|
3/16/2017
|
|
10.14
|
|
|
|
|
|
Form
of Securities Purchase Agreement, dated November 17, 2017, between
CorMedix Inc. and the investors signatory thereto.
|
|
8-K
|
|
11/13/2017
|
|
10.1
|
|
|
|
|
|
Backstop Agreement,
dated November 9, 2017, between CorMedix Inc. and the investor
named therein.
|
|
8-K
|
|
11/13/2017
|
|
10.2
|
|
|
|
|
|
Form of
Registration Rights Agreement, dated November 9, 2017, by and
between CorMedix Inc. and the investor named therein.
|
|
8-K
|
|
11/13/2017
|
|
10.3
|
|
|
|
|
|
Amendment
No. 1, dated as of December 11, 2017, to Registration Rights
Agreement, dated November 9, 2017, by and between CorMedix Inc. and
the investor named therein.
|
|
8-K
|
|
12/11/2017
|
|
10.1
|
|
|
|
Exhibit
Number
|
|
|
|
Registrant’s
Form
|
|
Dated
|
|
Exhibit
Number
|
|
Filed
Herewith
|
|
|
|
List of
Subsidiaries
|
|
10-K
|
|
3/27/2013
|
|
21.1
|
|
|
|
|
|
Consent of
Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
|
|
Certification of
Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
X
|
|
101
|
|
The following
materials from CorMedix Inc. Form 10-K for the year ended December
31, 2017, formatted in Extensible Business Reporting Language
(XBRL): (i) Balance Sheets at December 31, 2017 and 2016, (ii)
Statements of Operations for the years ended December 31, 2017 and
2016, (iii) Statements of Changes in Stockholders’ Equity for
the years ended December 31, 2017 and 2016, (iv) Statements of Cash
Flows for the years ended December 31, 2017 and 2016 and (v) Notes
to the Financial Statements.**
|
|
|
|
|
|
|
|
X
|
_____________
|
*
|
Confidential
treatment has been granted for portions of this document. The
omitted portions of this document have been filed separately with
the SEC.
|
|
**
|
Pursuant to Rule
406T of Regulation S-T, the Interactive Data Files in Exhibit 101
hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, are deemed not filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those
sections.
|