CRMD CorMedix Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ 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)

(908) 517-9500 

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 new 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 Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer’s common stock, as of August 12, 2024 was 55,859,964.

CORMEDIX INC. AND SUBSIDIARIES

INDEX

PART I
FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS
(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended June 30, 2024

For the six months ended June 30, 2024

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended June 30, 2023

For the six months ended June 30, 2023

CORMEDIX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and our audited 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 12, 2024.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. 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. All statements, other than statements of historical facts, regarding management’s expectations, beliefs, goals, plans or CorMedix’s prospects should be considered forward-looking statements. Readers are cautioned that actual results may differ materially from projections or estimates due to a variety of important factors, and readers are directed to the Risk Factors identified in CorMedix’s filings with the SEC, including its most recent Annual Report on Form 10-K, copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from CorMedix, and a summary of which is copied below. CorMedix may not actually achieve the goals or plans described in its forward-looking statements, and such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Investors should not place undue reliance on these statements. CorMedix assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Risks Related to our Financial Position and Need for Additional Capital

Risks Related to the Commercialization of DefenCath

Risks Related to the Development and Commercialization of our Other Products

Risks Related to Healthcare Regulatory and Legal Compliance Matters

Risks Related to Our Business and Industry

Risks Related to Our Intellectual Property

Risks Related to Dependence on Third Parties

Risks Related to Our Common Stock

Overview

CorMedix Inc. (collectively, with our wholly owned subsidiaries, referred to herein as “we,” “us,” “our” or the “Company”) is a biopharmaceutical company focused on developing and commercializing therapeutic products of life-threatening diseases and conditions.

Our primary focus is on the commercialization of our lead product, DefenCath, in the U.S. The name DefenCath is the U.S. proprietary name that was approved by the FDA.

DefenCath is an antimicrobial catheter lock solution (“CLS”) (a formulation of taurolidine 13.5 mg/mL, and heparin 1000 USP Units/mL) indicated to reduce the incidence of catheter-related bloodstream infections (“CRBSI”) in adult patients with kidney failure receiving chronic hemodialysis through a central venous catheter (“CVC”). It is indicated for use in a limited and specific population of patients. CRBSIs can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations, need for IV antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the CVC, related treatment costs, as well as increased mortality. We believe DefenCath can address a significant unmet medical need.

On November 15, 2023, we announced that the FDA approved the NDA for DefenCath to reduce the incidence of CRBSI in adult patients with kidney failure receiving chronic hemodialysis through a CVC. DefenCath is indicated for use in a limited and specific population of patients. DefenCath is the first and only FDA-approved antimicrobial CLS in the U.S. and was shown to reduce the risk of CRBSI by up to 71% in a Phase 3 clinical study. As a result of the November 2023 FDA approval, CorMedix launched the product commercially in April in the inpatient setting and July in the outpatient hemodialysis setting.

DefenCath is listed in the Orange Book as having NCE exclusivity (5 years) expiring on November 15, 2028, and the Generating Antibiotic Incentives Now or GAIN exclusivity extension of the NCE exclusivity (an additional 5 years) expiring on November 15, 2033. The GAIN exclusivity extension of 5 years is the result of the January 2015 designation of DefenCath as a Qualified Infectious Disease Product (“QIDP”).

We announced on April 26, 2023 that following the submission of a duplicate New Technology Add-On Payment (“NTAP”) application in the fourth quarter of 2022 to Centers for Medicare and Medicaid Services (“CMS”), CMS has subsequently issued the Inpatient Prospective Payment System (“IPPS”) 2024 proposed rule that includes a NTAP of up to $17,111 per hospital stay for DefenCath. This NTAP represents reimbursement to inpatient facilities of 75% of the anticipated wholesaler acquisition cost price of $1,170 per 3 mL vial, and an average utilization of 19.5 vials per hospital stay. The final IPPS rule was published in early August 2023 and confirmed this payment amount in that final rule. This NTAP was conditioned upon the DefenCath NDA obtaining final FDA approval prior to July 1, 2024. As the NTAP was calculated by CMS based upon an anticipated wholesale acquisition price (“WAC”) of $1,170, and following FDA approval of the DefenCath NDA, an actual WAC of $249.99 per 3ml vial was established, we anticipate that CMS will revise the amount of the NTAP payment to reflect the actual WAC price in the next IPPS rulemaking, effective October 1, 2024. Upon the listing in the compendia of the actual WAC price of $249.99 per 3ml vial, the Company notified CMS of the new lower WAC pricing and recommended that CMS make an off-cycle adjustment to the NTAP to reflect the current lower WAC pricing amount. CMS subsequently communicated to the Company that they do not intend to update the NTAP reimbursement amount until the next review cycle in October 2024.

On January 25, 2024, CMS determined that DefenCath should be classified as a renal dialysis service that is subject to the Medicare end-stage renal disease prospective payment system (“ESRD PPS”). The ESRD PPS provides bundled payment for renal dialysis services, but also affords a transitional drug add-on payment adjustment, or TDAPA, which provides temporary, additional payments for certain new drugs and biologicals. We submitted an application for TDAPA on January 26, 2024, and received confirmation that our application was approved on April 18, 2024. We also submitted a HCPCS application for a J-code to CMS on December 8, 2023, for DefenCath, which is relevant to billing and the TDAPA application. The HCPCS J-code for DefenCath was published by CMS on April 2, 2024. TDAPA reimbursement is calculated based on 100 percent ASP (or 100 percent of wholesale acquisition price or else manufacturers’ list price, respectively, if such data is unavailable). TDAPA and post-TDAPA add-on payment adjustments for DefenCath apply for five years (with such add-on payments applying to all ESRD PPS payments for years three through five). CMS confirmed a July 1, 2024 implementation date for HCPCS and TDAPA.

We announced on June 6, 2024 that the Center for Medicare & Medicaid Services (CMS) has determined that DefenCath® qualified for pass-through status under the hospital Out-Patient Prospective Payment System (OPPS). Pass-through status provides for separate payment under Medicare Part B for the utilization of DefenCath in the outpatient ambulatory setting for a period of at least two years, and up to a maximum of three years. While vascular access for hemodialysis can be initiated in an inpatient setting, ambulatory surgical centers or vascular access centers offer a less-invasive, outpatient-based alternative for patients. We estimate that up to 100,000 HD-CVC placements occur each year, and pass-through status ensures that providers are reimbursed separately for administration of DefenCath in this setting of care.

In May 2024, we announced that we have entered into a multi-year commercial supply contract with a top tier midsized dialysis provider, for the supply of DefenCath® (taurolidine and heparin). While on a no requirements basis, this agreement will allow for patients to have access to DefenCath at more than 500 dialysis facilities located nationally. We also announced previously a 5-year commercial no requirements supply contract with Florida-based dialysis provider, ARC Dialysis, LLC for the supply of DefenCath® (taurolidine and heparin). ARC Dialysis, a Miami-based medium-sized dialysis organization, provides inpatient dialysis services to approximately 100 inpatient facilities, and is the operator of 18 outpatient dialysis units throughout Florida. In addition, we secured agreements with group purchasing organizations (GPOs) that are relevant to our ongoing launch in the hospital inpatient setting. We are committed to building meaningful long-term relationships with dialysis providers that are dedicated to innovation and infection reduction.

We may pursue additional indications for DefenCath use as a CLS in populations with unmet medical needs that may also represent potentially significant market opportunities. While we are continuing to assess these areas, potential future indications may include use as a CLS to reduce CRBSIs in total parenteral nutrition patients using a central venous catheter and in certain oncology patients using a central venous catheter. In June 2024, CorMedix announced that the U.S. Food and Drug Administration (FDA) provided feedback to the Company’s request to discuss development plans for additional indications for DefenCath. The FDA provided supportive feedback regarding the Company’s plans to pursue an expanded indication in adult Total Parenteral Nutrition (TPN) patients. CorMedix expects to submit a complete clinical protocol to FDA in the 3rd quarter of 2024 with a goal of gaining further alignment and initiating the program by year-end 2024. In addition, the FDA confirmed its requirement that the Company conduct a study in pediatric hemodialysis (HD) patients under the Pediatric Research Equity Act (PREA).

We currently have one FDA approved source for each of our two key APIs for DefenCath, taurolidine and heparin sodium, respectively. With regards to taurolidine, we have a DMF filed with the FDA. There is a master commercial supply agreement between a third-party manufacturer and us in place from August 2018. We are currently in the process of identifying and qualifying an alternate third-party manufacturer for taurolidine under our existing DMF. With respect to heparin sodium API, we have identified an alternate third-party supplier and intend to qualify such supplier under the DefenCath NDA over the next twelve months.

We received FDA approval of DefenCath with finished dosage production from our European based CMO Rovi Pharma Industrial Services. We believe this CMO has adequate capacity to produce the volumes needed to meet near-term projected demand for the commercial launch of DefenCath.

We previously announced a commercial arrangement with Siegfried Hameln to qualify their site as an additional finished dosage manufacturing site for DefenCath. The Company submitted the NDA supplement to FDA on May 7, 2024 as described below.

We announced on May 1, 2023 that the USPTO allowed our patent application directed to a locking solution composition for treating and reducing infection and flow reduction in central venous catheters. This application was granted on August 29, 2023 as U.S. Patent No. 11,738,120.  Our newly granted U.S. Patent reflects the unique and proprietary formulation of our product, DefenCath, for which we received FDA approval on November 15, 2023. This patent supplements the coverage of our existing licensed U.S. Patent No. 7,696,182, and has the potential to provide an additional layer of patent protection for DefenCath through 2042.

As part of the DefenCath approval letter, the FDA communicated the existence of a required pediatric assessment under the Pediatric Research Equity Act, or PREA. PREA requires sponsors to conduct pediatric studies for, among other things, NDAs for a new active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral acknowledges that a pediatric assessment is required but permits the applicant to submit the pediatric assessment after the submission of an NDA. FDA deferred submission of the pediatric study for DefenCath because the product is ready for approval for use in adults and the pediatric study has not been completed. We are currently obligated to conduct the study communicated in the approval letter: an open-label, two-arm (DefenCath vs. standard of care) study to assess safety and time to CRBSI in subjects from birth to less than 18 years of age with kidney failure receiving hemodialysis via a central venous catheter. CorMedix announced in June 2024 that the FDA confirmed its requirement that the Company conduct a study in pediatric hemodialysis (HD) patients under the Pediatric Research Equity Act (PREA). Because this is a required post-marketing study, we would be required to make annual reports to the FDA. Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which, if granted, provides an additional six months of exclusivity that attaches to the end of existing marketing exclusivity and patent periods for DefenCath. Depending on the timing of final report submission, DefenCath could potentially receive a total marketing exclusivity period of 10.5 years. However, there are factors that could affect whether this exclusivity is received or the duration of exclusivity, and DefenCath may or may not ultimately be eligible for the additional 0.5 years of exclusivity associated with this pediatric study.

We previously marketed and sold Neutrolin, a CLS product where we received CE-Mark approval for commercial distribution in the EU and other territories. We previously elected to discontinue sales of Neutrolin for lack of commercial viability. The winding down of our operations in the EU is nearly complete and Neutrolin sales in both the EU and the Middle East have been discontinued since 2022.

Financial Operations Overview

Revenues

We have not generated substantial revenue since our inception. Our ability to generate future revenue and become profitable depends on our ability to successfully commercialize DefenCath beginning in the second quarter of 2024 and any product candidates that we may advance in the future. If we fail to successfully commercialize DefenCath, or any other product candidates we advance in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, could be adversely affected. Through June 30, 2024, we have funded our operations primarily through debt and equity financings.

Cost of Revenues

Cost of revenues include direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight, amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits and insurance.

Research and Development Expense

Research and development, or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property license costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock–based compensation expense, benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings and pre-clinical studies and clinical trials; (vii) facilities and other allocated expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii) manufacturing-related costs, including previously expensed pre-NDA approval inventory amounting to approximately $6,400,000. All R&D is expensed as incurred.

The process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate’s early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our future product candidates.

Development timelines, probability of success and development costs vary widely. We are currently focused on the commercialization of DefenCath in the U.S.

Selling and Marketing Expense

Selling and marketing expense includes the cost of salaries and related costs for personnel in sales and marketing, brand building, advocacy, market research and consulting. Selling and marketing expenses are expensed as incurred.

General and Administrative Expense

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance and administrative functions including payroll taxes and health insurance, stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, insurance and professional fees for legal, patent review, consulting, and accounting services. General and administrative expenses are expensed as incurred. 

Foreign Currency Exchange Transaction Gain (Loss)

Foreign currency exchange transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional currency and is reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany loans outstanding between our New Jersey-based company and our subsidiaries will not be repaid and the nature of the funding advanced was of a long-term investment nature. As such, unrealized foreign exchange movements related to long-term intercompany loans are recorded in other comprehensive income (loss).

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and short-term investments.

Interest Expense

Interest expense consists of interest incurred on financing of expenditures.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

The following is a tabular presentation of our consolidated operating results for the three months ended June 30, 2024 and 2023 (in thousands):

Revenues. Revenue increased by $0.8 million for both the three and six months ended June 30, 2024. Revenue consists of sales of DefenCath, which was approved by the FDA in November 2023 and launched in the US in April 2024 in inpatient settings and reflects the shipment of DefenCath to specialty distributors, net of estimates for applicable variable consideration, which consists primarily of distribution service fees, prompt pay and other discounts, product returns, chargebacks, rebates and volume incentive rebates.

Cost of Revenues. Cost of revenues include direct and indirect costs related to the manufacturing and distribution of DefenCath, including product cost, packaging services, freight, amortization of the license intangible asset and an allocation of overhead costs that are primarily fixed such as salaries, benefits and insurance.  We expect these relatively fixed costs to become less significant as a percentage of net sales with anticipated sales volume increases. Direct costs of product sales during the three and six months ended June 30, 2024 are minimal as DefenCath sold to date, represents validation lot units previously expensed as R&D. Indirect costs of approximately $0.5 million for the three months and $1.3 million for the six-months ended June 30, 2024, respectively, represent the proportion of salaries, benefits and insurance expenses representing excess capacity pertaining to pre-launch related activities. Certain pre-approval validation batch product previously expensed as R&D will improve margins throughout 2024 or until such inventory is depleted.

Research and Development Expense. R&D expense was $0.7 million for the three months ended June 30, 2024, a decrease of $4.1, or 86%, from $4.8 for the same period in 2023. For the six months ended June 30, 2024, R&D expense was $1.5 million, compared to $8.2 million for the six months ended June 30, 2023, a decrease of 82%. The decrease for both comparison periods was driven by the approval of DefenCath. As a result of the post FDA approval commercial operations, costs related to medical affairs and certain personnel expenses that supported R&D efforts prior to the FDA approval of DefenCath have been recognized in selling or general and administrative expense during the three months ended June 30, 2024, as compared to the same period last year that were recognized in R&D. In addition, a portion of the costs related to the manufacturing of DefenCath, previously recognized in R&D, are now capitalized as a result of the FDA approval. There was also a decrease in non-cash charges for stock-based compensation of $0.1 million and $0.5 million for the three months and the six months ended June 30, 2024, respectively.

Selling and Marketing Expense. S&M expense was $7.4 million for the three months ended June 30, 2024, an increase of $4.1 million, or 127%. For the six months ended June 30, 2024, S&M expense increased $7.8 million to $13.7 million, an increase of 133%. The increase in both periods was due primarily to increased marketing efforts and new personnel, inclusive of our sales force and support for the commercial launch of DefenCath in the second quarter of 2024 as well as certain expenses previously expensed as a component of R&D prior to FDA approval.

General and Administrative Expense. G&A expense was $7.6 million for the three months ended June 30, 2024, an increase of $3.8 million, or 103%, from $3.8 million for the same period in 2023. For the six months ended June 30, 2024, G&A expense was $16.3 million, compared to $8.7 million for the six months ended June 30, 2023, an increase of $7.6 million, or 87%. The increase was primarily attributable to increases in personnel expenses of $2.0 million and $4.2 million for the three and six months ended June 30, 2024, respectively, in preparation for support activities pertaining to commercial launch, as well as certain expenses previously expensed as a component of R&D prior to FDA approval. There were also increases in legal and compliance of $0.8 million and $1.2 million, consulting fees of $0.3 million and $0.5 million and non-cash charges for stock-based compensation of $0.2 million and $0.5 million, for the three and six month periods ended June 30, 2024, respectively.

Interest Income. Interest income was $0.7 million and $1.5 million for the three- and six months ended June 30, 2024, compared to $0.6 million and $1.0 million for the same period last year, respectively, an increase of $0.1 million, or 19% and $0.5 million, or 52%, respectively. The increase was attributable to higher interest rates in short-term investments during this period as compared to the same period last year.

Foreign Exchange Transaction Loss. Foreign exchange transaction losses were due to the re-measuring of transactions denominated in a currency other than our functional currency. Balances and changes were immaterial for all periods presented.

Other Income. Other income relates to a settlement with a previously utilized vendor, occurring during the three month period ended June 30, 2024.

Interest Expense. Interest expense pertains to certain liabilities we chose to finance. Balances and changes were immaterial for all periods presented.

Other Comprehensive (Loss) Income. Unrealized foreign exchange movements related to long-term intercompany loans, the translation of the foreign affiliate financial statements to U.S. dollars and unrealized movements related to short-term investment are recorded in other comprehensive (loss) income. Income and (loss) is considered immaterial for all periods presented.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our R&D, S&M and G&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable since our inception. During the six months ended June 30, 2024, we received net proceeds of $1.0 million from the issuance of 231,097 shares of common stock under our at-the-market-issuance sales agreement, or ATM program, as compared to $12.5 million net proceeds for the same period in 2023 from the issuance of 2,866,421 shares of common stock. We will continue to be reliant on external sources of cash for the foreseeable future until we are able to generate profits.

In March 2024, we received $1.4 million, net of expenses, from the sale of our unused New Jersey net operating losses (“NOL”), that was eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program (“NJEDA Program”). The NJEDA Program allowed us to sell our available NOL tax benefits for the state fiscal year 2023 in the amount of approximately $1.5 million.

Net Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2024, was $31.4 million compared to $19.0 million for the same period in 2023, an increase of $12.4 million. The increase is primarily driven by an increase in net loss of $6.8 million, attributable to a net increase in operating expenses of $8.7 million. As a result of the approval of DefenCath, cost of revenues of $1.3 million, which include indirect fixed costs related to the manufacturing and distribution of DefenCath were recognized, as compared to the same period last year, these costs were recognized as R&D. There was also an increase in prepaid expenses and other current assets of $2.1 million and decreases in accrued expenses of $1.4 million and accounts payable of $0.9 million, among others of lesser significance.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2024, was $15.2 million as compared to $17.1 million of net cash used in investing activities for the same period in 2023. The net cash provided during the six months ended June 30, 2024, was mainly driven by an increase in maturity of the amount invested in short-term investments, partially offset by lower purchase of short-term investments in 2024 as compared to the same period in 2023.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024, was $1.0 million as compared to $12.6 million for the same period in 2023, a decrease of $11.6 million. The decrease was mainly attributable to the decrease of $11.5 million in net proceeds generated from the sale of our common stock in our ATM program.

Funding Requirements and Liquidity

Our total cash, cash equivalents and short-term investments as of June 30, 2024, was $45.6 million, excluding restricted cash of $0.1 million, compared with $76.0 million for the year ended December 31, 2023, excluding restricted cash of $0.2 million. As of June 30, 2024, $48.8 million of the Company’s common stock remains available for sale under the ATM program. Additionally, we have $100 million of remaining capacity available under our 2024 Shelf Registration Statement for the issuance of Company securities.

Because our business has not generated positive operating cash flow, we may need to raise additional capital in order to continue to fund our research and development activities, as well as to fund operations generally. Our continued operations are focused on the commercial launch of DefenCath and we can provide no assurances that financing or strategic relationships will be available on acceptable terms, or at all, if additional funds are needed.

We expect to continue to fund operations from cash, cash equivalents and short-term investments and through capital raising sources as previously described, which may be dilutive to existing stockholders, through revenues from the sale of our products or through strategic alliances. In May 2024, we implemented an ATM program, which may be utilized to support our ongoing funding requirements. Additionally, we may enter into a credit facility in case necessary to support ongoing working capital needs. We may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness would result in increased fixed obligations and could contain covenants that would restrict our operations. Raising additional funds through strategic alliance arrangements with third parties may require significant time to complete and could force us to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders. Our actual cash requirements may vary materially from those now planned due to a number of factors, including any change in the timing of the commercial launch of DefenCath or the focus and direction of our research and development programs, any acquisition or pursuit of development of new product candidates, competitive and technical advances, the costs of commercializing any of our product candidates, and costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights.

We expect to generate product sales for DefenCath in the U.S. In the absence of significant revenue, we are likely to continue generating operating cash flow deficits. We will continue to use cash as we increase other activities relating to the commercialization of DefenCath and pursue business development activities.

We currently estimate that as of June 30, 2024, we have sufficient cash, cash equivalents and short-term investments to fund operations for at least twelve months from the issuance of this Quarterly Report on Form 10-Q. These estimates are based upon the Company’s base case assumptions for market penetration, average selling price, gross-to-net discounts, research and development expense and commercial infrastructure cost. Additional financing may be needed to build out our commercial infrastructure and to continue our operations. If we are unable to raise additional funds when needed, we may be forced to slow or discontinue the commercial launch of DefenCath. We may also be required to delay, scale back or eliminate some or all of our research and development programs. Each of these alternatives would likely have a material adverse effect on our business.

Contractual Obligations

We entered into a seven-year operating lease agreement in March 2020 for our office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease agreement, with a monthly average cost of approximately $17,000, commenced on September 16, 2020.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. While our significant accounting policies are described in more detail in “Note 2 – Summary of Significant Accounting Policies and Liquidity and Uncertainties,” to our consolidated financial statements included in Item 1, “Unaudited Condensed Consolidated Financial Statements,” of this Quarterly Report on Form 10-Q, we believe that the following accounting policies require the application of significant judgments and estimates.

For the six months period ended June 30, 2024, there were no significant changes to our critical accounting estimates as identified in our Annual Report on Form 10-K for the year ended December 31, 2023, except as noted below:

We include an estimate of variable consideration in our transaction price at the time of sale when control of the product transfers to the customer. Variable consideration includes:

We assess whether or not an estimate of our variable consideration is constrained based on the probability that a significant reversal in the amount of cumulative revenue may occur in the future when the uncertainty associated with the variable consideration is subsequently resolved. Actual amounts of consideration ultimately received may vary from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect product sales and earnings in the period such variances become known.

The specific considerations that we use in estimating certain amounts related to variable considerations are as follows:

Distribution services fees – We pay distribution service fees primarily to our wholesale distributors. We reserve these fees based on actual net sales and the contractual fee rates negotiated with the customers in the distribution channel.

Prompt pay and other discounts – We provide customers with prompt pay discounts. The specific prompt pay terms vary by customer and are contractually fixed. Prompt pay discounts are expected to be taken by our customers, so an estimate of the discount is recorded at the time of sale based on the invoice price.

Product returns – Customers have the right to return the product that is within six months or less of the labeled expiration date or that is past the expiration date by no more than six months. An estimate for product returns is made based on: (i) data provided to us from our distributors and (ii) the estimated remaining shelf life of DefenCath previously shipped and currently being shipped to distributors.

Chargebacks – Certain covered entities, group purchasing organizations (GPO) and government entities will be able to purchase the product at a discounted price. The difference between the GPO, government or covered entity purchase price and the wholesale distributor purchase price will be charged back to us. We estimate the amount in chargebacks based on the expected number of claims and related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period.

Rebates – We are subject to negotiated discount obligations to different prescription benefit managers, other commercial organizations or government programs. The rebate amounts for these programs are determined by statutory requirements or contractual arrangements. Our liability for these rebates consists of invoices received for claims that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter are based on expected product utilization, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel at the end of each reporting period.

Volume Incentive Rebates – Volume incentive rebates are provided to certain customers. Rebates are owed based on predetermined volume levels and payable per the terms in the customer contracts. We estimate and record volume incentive rebates based on anticipated purchase volume with specific customers based on communications with the customer.

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

The Company is not required to provide the information called for in this item due to its status as a Smaller Reporting Company.

Item 4. Controls and Procedures.

Disclosure controls and procedures are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of June 30, 2024. Based on the foregoing evaluation, our Chief Executive Officer and our Chief Financial Officer 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 our 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 that occurred during the period covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding our legal proceedings, see Note 5, Commitments and Contingencies, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A. Risk Factors.

There were no material changes from the risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Default Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibit index set forth below is incorporated by reference in response to this Item 6.