CorMedix Inc (CRMD)

[WallStreetTeacher]

Cormedix Granted EU Approval-CC Highlights
about:CRMD
Symbol: CRMD

Current Share Price: 1.17

Shares Outstanding: Approximately 15 Million

Today, CorMedix (CRMD) was granted a CE Mark for Neutrolin, its catheter lock solution. The European approval has been the culmination of a long and difficult quest for this small issuer. Market response to the positive news was muted--perhaps an understandable reaction given the timing of the announcement over what many on the Street view as a long holiday weekend.

My investment premise is that the import of this approval will soon become apparent to Wall Street as the company sheds light on its commercialization plans. Here is an excerpt from the release: from CRMD's PR release put out on mid-day Friday.

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BRIDGEWATER, N.J.--(BUSINESS WIRE)--

CorMedix Inc. (NYSE MKT: CRMD) today announced that it has received CE Mark approval for Neutrolin®, a catheter lock solution, for patients with central venous catheters on hemodialysis secondary to advanced chronic kidney disease. The Neutrolin solution includes an anti-coagulant and broad-spectrum antimicrobial (antibacterial and antifungal) combination that is active against common microbes including antibiotic-resistant strains, and in addition, inhibits the formation of biofilm. Neutrolin, as a catheter lock solution, has been proven to significantly reduce the incidence of catheter related bloodstream infections (CRBIs) as well as maintain catheter patency by inhibiting thrombosis, thus reducing the need for systemic antibiotics and prolonging central venous catheter life.

CorMedix received the CE Mark for Neutrolin as a Class III device, which allows the company the ability to market and sell the catheter lock solution in European Union (EU) member countries that have adopted the Medical Devices Directive (MDD) without being subject to additional national regulations with regard to demonstration of performance and safety (although certain EU member countries may request or require additional performance and/or safety data on a case-by-case basis). The CE mark also permits the sale of Neutrolin in countries that have an MDD Mutual Recognition Agreement with the EU.

"Receipt of the CE mark for Neutrolin as a Class III device is a significant accomplishment for CorMedix, as this registration required rigorous regulatory review against high clinical and manufacturing standards," said Randy Milby, CorMedix's Chief Executive Officer. "We are well prepared to make this important medical device available to patients with central venous catheters on hemodialysis. We look forward to Neutrolin being widely available in Europe with commercialization efforts led by national sales manager Joachim Petrak and his team at CorMedix Europe GmbH."

Background

CorMedix is a NJ based company that was formed to market Neutrolin (also referred to as CRMD003) , a drug that is intended for use in the kidney dialysis space. Neutrolin is a combination catheter lock solution that is placed into central venous catheters (CVCs) between hemodialysis sessions. The drug is designed to:

1) Aid in the prevention of Catheter-Related Bloodstream Infections (CRBIs) and

2) Prevent catheter dysfunction (due to blood clotting)

Neutrolin contains a mix of Taurolidine (the antimicrobial and antifungal agent) Citrate, and Heparin (the later two are anti-clotting agents). Note: since Taurolidine is an antimicrobial (as opposed to an antibiotic), use of the drug should not lead to antibiotic resistance. Many of the competitive solutions utilize antibiotics, which can lead to resistant strains of bacteria and fungi. In addition to use in hemodialysis, Neutrolin could likely be expanded into both the chemotherapy and parenteral nutrition settings.

The Difficult Past

CRMD went public in March, 2010 when it sold 1,925,000 units at $6.50 each resulting in gross proceeds of $12,512,500 and net proceeds of $10,457,270. Each unit consisted of two shares of common stock and a warrant to purchase one share of common stock at an exercise price of $3.4375. The IPO was the high point-over the next few years everything went wrong including a failed FDA trial for another product, the classification of Neutrolin as a drug (rather than a device) by the FDA, and a botched attempt to garner European regulatory approval (CE Mark Approval) for Neutrolin. Management had dropped the ball and a changing of the guard was needed.

2012-2013--Hopeful Signs

2012 was a year when CRMD's Board finally took action. Here are six positives that have recently occurred. :

1) A new management team was installed at year-end 2012. Randy Milby, an experienced drug industry veteran took over as CEO. Dr. Antony Pfaffle, a long time BOD member, stepped in to become acting CSO.

http://finance.yahoo.com/news/cormedix-announces-changes-executive-team-140000235.html

2) Recent private placements have given CRMD some much-needed breathing room.(See details below)

http://finance.yahoo.com/news/cormedix-final-closing-2012-financing-223100811.html

BRIDGEWATER, N.J.--(BUSINESS WIRE)--

CorMedix Inc. ("CorMedix") (NYSE Amex: CRMD), a pharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of cardiorenal disease, held the second and final closing of its 2012 private placement of Units consisting of (I) a one-year $1,000 aggregate principal amount 9% Senior Convertible Note, convertible into shares of common stock, par value $0.001 per share, at a conversion price of $0.35 per Note, and (ii) a five-year redeemable Warrant, to purchase 2,500 shares of Common Stock, to certain accredited investors pursuant to a Subscription Agreement. At the second closing, held on November 13, 2012, the Company issued and sold 474 Units for gross proceeds of $474,000. Combined with the initial closing, held on September 20, 2012, in which the Company issued and sold 850 Units for gross proceeds of $850,000, the Company received an aggregate total of $1,324,000 in gross proceeds from the 2012 financing. Proceeds from the 2012 financing will be used by the Company for marketing, manufacturing, rent and utilities, licensing obligations, payroll and working capital and, general corporate purposes.

John Carris Investments, LLC acted as the sole placement agent on the transaction.

http://biz.yahoo.com/e/130524/crmd8-k.html

24-May-2013

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligati

Item 1.01. Entry into a Material Definitive Agreement.

On May 23, 2013, we entered into a securities purchase agreement with existing institutional investors for the purchase and sale of senior secured convertible notes in the aggregate principal amount of $1,500,000 and warrants to purchase up to an aggregate of 1,000,000 shares of common stock, for gross proceeds of $1,425,000, which represents a 5% discount off the aggregate principal amount of the notes.

A description of the notes is set forth in Item 2.03 hereof. As noted in Item 2.03, the holder will be prohibited from converting the notes into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% or 9.99%, at the initial holder's election, of the total number of shares of our common stock then issued and outstanding.

The warrants are exercisable one year after issuance, have an exercise price of $1.10 per share, subject to adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a warrant if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% or 9.99%, at the initial holder's election, of the total number of shares of our common stock then issued and outstanding.

We will not issue any shares of our common stock upon conversion of the notes or exercise of the warrants if, as a result of such issuance, we would have issued shares of our common stock in an aggregate amount equal to 2,640,528 shares, which is 20% of our shares of common stock outstanding on May 1, 2013, unless we have received the prior approval of our stockholders for such overage, which approval we are required to seek by July 30, 2013. If our stockholders do not approve the anti-dilution protection of the notes on July 30, 2013, we are required to continue to seek stockholder approval in each of the next three fiscal quarters and thereafter semi-annually until such approval is received.

We currently anticipate that closing of the sale of the notes and the warrants will take place on or before May 31, 2013, subject to the satisfaction of customary closing conditions. No placement agent or underwriter was involved in the offering.

We intend to use the net proceeds of the offering for general corporate purposes, including the development and commercialization of Neutrolin?, and working capital and capital expenditures.

The form of warrant and the form of securities purchase agreement are filed herewith as Exhibits 4.20 and 10.29, respectively, and are incorporated herein by reference. The foregoing descriptions of the securities purchase agreement and the warrants are not complete and are qualified in their entirety by reference to the respective exhibits.

The notes (and the shares of common stock underlying the notes and any interest added to the principal amount of the notes) will be issued pursuant to a prospectus supplement, to be filed with the Securities and Exchange Commission pursuant to Rule 424(b)(5) of the Securities Act of 1933, as amended, to our effective shelf registration statement on Form S-3 (File No. 333-185737), which became effective on January 10, 2013. A copy of the opinion of Wyrick Robbins Yates & Ponton LLP relating to the validity of the issuance and sale of the notes in the offering and the shares of common stock underlying the notes and any interest added to the principal amount of the notes is attached as Exhibit 5.1 hereto.

The warrants to be issued will be sold in a transaction exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) thereof. The warrants may not be offered or sold in the United States absent registration or exemption from registration under the Securities Act and any applicable state securities laws.

The information contained in this Current Report on Form 8-K is not an offer to sell or the solicitation of an offer to buy the warrants or any other securities of our company.

Note: Many of the investors in these offerings were either legacy holders or members of CRMD's management team and/or BOD. In my experience nothing speaks louder than insiders putting their own money on the table to participate in a recapitalization.

3) As noted, CRMD has been on a multi-year quest to obtain a CE Mark in Europe. With today's news, CRMD has finally attained the long coveted European Mark Approval. CE marking permits CorMedix to market Neutrolin in 27 EU and EFTA countries. I estimate that the total size of the European market in all applications (dialysis, oncology, ICU, others) is approx. $200-250MM.

4) CRMD seems to be laying the groundwork for a European launch. They have hired Joachim Petrak (who led the German launch of Renagel (Sevelamer)) to act as sales regional sales manager in Europe. In my opinion, it was a very smart move to hire a local with experience in the dialysis market in lieu of attempting to direct the marketing efforts from North America. Hopefully Mr. Perrak is able to gain traction quickly once the product is launched.

http://finance.yahoo.com/news/cormedix-signs-sales-marketing-agreement-133000345.html

(5) The company has generated significant net operating losses (NOLs) over its life. This $28MM accumulated NOL (as of 2012) represents a hidden asset. If CorMedix is successful in launching Neutrolin, its effective tax rate will be dramatically lightened over the next few years.

6) Intellectual Property Claims: As most of you know, intellectual property rights are a critical asset for any drug or device company. CorMedix recently prevailed in European legal proceedings when a Swiss competitor (Geistlich Söhne AG für Chemische Industrie) challenged its Neutrolin intellectual property rights to Neutrolin.

There is an additional IP issue that could provide significant upside and dramatically alter the marketing landscape in Europe. When reading the S-1, I noticed that TauroPharm Gmb H (a privately held German competitor) currently markets Taurolock, a catheter lock drug that seems strikingly similar to Neutrolin in its composition. The CRMD S-1 provides background on this IP issue.

If CorMedix ever decided to contest this German product, and was to subsequently win any potential legal action down the road, it could end up with a significant boost in sales as well as potential clawbacks for prior (potential) infringement. Disclosure: Since I am neither an attorney not a scientist, please see CRMD's IPO S-1 Filing for details re: potential IP issues and draw your own conclusions.

Risk Factors

CRMD's balance sheet remains very thin but today's approval will provide a capital infusion per an earlier agreement. The good news is that legacy investors (including Elliot Management) have stuck with the company in recent financing rounds and will likely continue to do so in light of today's positive news.

Lack of coverage is also a concern. The company is under-followed and unloved. Not a single Wall Street firm provides coverage. Now that European Mark Approval has finally been granted, I suspect the company will pick up credibility and following on Wall Street.

My Investment Thesis

As mentioned, the Neutrolin approval today opens the door to a likely $200-250 million plus sales opportunity in the EU. Additionally, there is significant further upside potential if the company ever decides to run FDA trials for eventual expansion into the United States which is likely a similarly sized market to the EU. Additional shorter term opportunities (not included in my EU estimate)will exist in the Middle East and parts of South America since many venues outside of the EU view the Mark CE as sufficient once the appropriate local documentation has been filed.

I don't believe the current market cap of less than $20 million in any way reflects fair value for either the shorter term prospects in Europe or longer term global potential of this issue. Ask yourself a simple question; what is a company with an approved product in a potentially multi hundred million dollar European dialysis/oncology market worth? What could it be worth one day if the company attains a global reach? Again, all in we are likely looking at a $500 million global sales opportunity.

Will CorMedix Partner ?

As the major players in the dialysis space, Fresenius and DeVita spring to mind as potential partners. That said, if you view this as a catheter company as opposed to a dialysis company, JNJ, BDX, ABT and numerous others could also be viewed as potential partners or even acquirers.

Conference Call

The EU approval was step one. The short term key for me is to understand how quickly the sales opportunity will likely play out. Has manufacturing been established? Is the sales force ready to go? Are there any plans on partnering outside of the EU ? I will be listening very intently to the company's conference call this Monday to get answers to these and many other questions. (details below)

CorMedix will host a webcast teleconference on July 8, 2013 at 9 am ET to further discuss the significance of the CE Mark designation, the commercial plan for Neutrolin going forward, and other related developments. Please call 866-866-1333 or 404-260-1421 approximately 10-15 minutes before the conference.

CC Takeaways

1) Major Positive---Sales are projected to commence in Q3/Q4 2013. I was expecting to get Q1 2014 guidance.

2) Product is considered a device in EU. No need to negotiate pricing (reimbursement rates) as would be the case with a drug.

3) Herr Petrak seemed positive on call. It was apparent that he has been busy over the last 6 months. CEO Milby confirmed that they have visited 60 dialysis centers.

4) Company pegs market size in EU @ $300-400MM. My assumptions were too conservative.

5) Dr. Pfaffle confirmed that he has made initial contacts to FDA re: U.S. registrational trial parameters. Trial estimated to take approx. 1 year to read out post initiation. Company is still debating partnering US trial to share costs or a "go it alone" route.

6) Potential short term expansion into Asia, Australia, Middle East, And Canada was confirmed based on partial/full acceptance of CE Mark.

7) The tenor of the call was direct. Management did not engage in hyperbole and promised transparency re: commercial progress and FDA discussions. A refreshing change in the world of micro-caps.

In summary, I believe the market has not yet come to appreciate the potential of this issue. Investment in CorMedix could yield significant returns over the next 1-2 years. The key for this issuer is to get the story out.

Even marginal success on the commercial front should yield significantly higher valuation given the company's very lean cost structure and NOL tax benefit. If a few things break their way (IP issue, partnering), the issue could see significant additional upside beyond that generated by organic sales growth. Please note that the stock should only be considered by investors who possess both strong stomachs and a bit of patience. The ride will likely not be smooth, but hopefully will be well worth it in the end.

Disclosure: I am long CRMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.