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,
2018
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)
|
Delaware
|
|
20-5894890
|
|
(State
or Other Jurisdiction ofIncorporation or Organization)
|
|
(I.R.S.
EmployerIdentification No.)
|
|
400
Connell Drive, Suite 5000, Berkeley Heights, NJ
|
|
07922
|
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (908) 517-9500
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
|
Name of
each exchange on which registered
|
|
Common
Stock, $0.001 Par Value
|
|
NYSE
American LLC
|
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 every
Interactive Data File required to be submitted 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 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, 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:
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
|
|
|
|
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 $19.2 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 119,014,093 as of March 12, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
CORMEDIX INC.
|
PART
I
|
1
|
|
Item
1. Business
|
1
|
|
Item
1A. Risk
Factors
|
15
|
|
Item
1B. Unresolved Staff
Comments
|
32
|
|
Item
2. Properties
|
32
|
|
Item
3. Legal
Proceedings
|
32
|
|
Item
4. Mine Safety
Disclosures
|
33
|
|
PART
II
|
34
|
|
Item
5. Market for the
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
34
|
|
Item
6. Selected Financial
Data
|
34
|
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35
|
|
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk
|
44
|
|
Item
8. Financial
Statements and Supplementary Data
|
44
|
|
Item
9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
|
44
|
|
Item
9A. Controls and
Procedures
|
45
|
|
Item
9B. Other
Information
|
45
|
|
PART
III
|
46
|
|
Item 10.
Directors,
Executive Officers, and Corporate Governance
|
46
|
|
Item 11.
Executive
Compensation
|
50
|
|
Item 12.
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
|
57
|
|
Item 13.
Certain
Relationships and Related Transactions and Director
Independence
|
59
|
|
Item 14.
Principal
Accounting Fees and Services
|
59
|
|
PART
IV
|
|
60
|
|
Item
15. Exhibits, Financial
Statement Schedules
|
60
|
|
Item
16. Form 10-K
Summary
|
63
|
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
1.35%, citrate 3.5%, and heparin 1000 u/ml) intended for the
reduction and prevention of catheter-related infections and
thrombosis in patients requiring central venous catheters in
clinical settings such as 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, 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. 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, was a prospective, multicenter, randomized,
double-blind, active control trial which aimed 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 was
time to CRBSI. The trial evaluated whether Neutrolin was superior
to the active control heparin by documenting the incidence
of CRBSI and the time until the occurrence of CRBSI. Secondary
endpoints were catheter patency, which is defined as required use
of tissue plasminogen activating factor (tPA), or removal of
catheter for any reason. On July 25, 2018, we announced that
the independent Data Safety Monitoring Board (“DSMB”)
had completed its review of the interim analysis of the data from
the LOCK-IT-100 study and, because the pre-specified level of
statistical significance was reached and efficacy had been
demonstrated, the DSMB recommended the study be terminated early.
No safety concerns were reported by the DSMB based on the interim
analysis.
We established the
Clinical Adjudication Committee, or CAC, to critically and
independently assess CRBSI. As announced in July 2018, 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 was
performed when the first 28 CRBSIs were identified.
In late January
2019, we announced the topline results
of the full data set of the LOCK-IT-100 study. Because the study
continued enrolling and treating subjects until study termination,
the final efficacy analysis was based on a total of 795
subjects.
The primary endpoint of the Phase 3 LOCK-IT-100
study was the reduction of the risk of occurrence of CRBSI by
Neutrolin relative
to the active control of heparin. In
the analysis of the full data set, a total of 41 CRBSI events were
determined by the CAC. There was a 71% reduction in the risk of
occurrence of CRBSIs compared with the active control of heparin,
which is well in excess of the study’s assumed treatment
effect size of a 55% reduction. In the Neutrolin arm, the CRBSI
event rate was 0.13 per 1000 catheter days, which is significantly
lower than the event rate of 0.46 per 1000 catheter days in the
control arm. The statistical significance of the primary endpoint
in the full data set (p=0.0006) was even more impressive than that
of the interim analysis (p=0.0034).
There were no statistically significant
differences between the results in the Neutrolin arm compared with
the control arm in the final analysis for the secondary endpoints. The event rate for one of the
secondary endpoints, catheter removal for any reason, was 3.48 per
1,000 catheter-days (236 out of 397 subjects) in the Neutrolin arm
and 3.23 per 1,000 catheter-days (224 out of 398 subjects) in the
control arm (p=0.39). The loss of catheter patency, which was
defined either as catheter removal due to loss of catheter patency
or the administration of tissue plasminogen
activating factor (tPA), was also a secondary endpoint. The event
rate for loss of catheter patency was 1.01 per 1,000 catheter-days
(64 out of 397 subjects) in the Neutrolin arm and 0.74 per 1,000 catheter-days (48
out of 398 subjects) in the control arm
(p=0.10).
In
the top-line safety analysis, the observed rate of
treatment-emergent adverse events was lower in the Neutrolin arm.
The rate of adverse events per patient was 5.1 in the Neutrolin arm
and 5.8 in the control arm.
Although two
pivotal clinical trials to demonstrate safety and effectiveness of
Neutrolin would generally be required by the FDA to secure
marketing approval in the U.S., based on the recently completed and unblinded topline
results of the LOCK-IT-100 study, we have begun discussions with the FDA on
the appropriate next steps to support
regulatory approval for Neutrolin. We agreed to provide the FDA a
detailed analysis of the full data set including secondary
endpoints from the LOCK-IT-100 study to facilitate FDA’s
consideration of our request to file the New Drug Application
(“NDA”) for Neutrolin on the basis of the LOCK-IT-100
study results. These data became available following the locking
and unblinding of the study data in late January 2019. The analysis
is planned to be completed over the next several weeks. We
can provide no assurances that the FDA will not require a second
clinical trial prior to NDA submission for Neutrolin.
The FDA also agreed that we could request
consideration of Neutrolin for approval under the Limited
Population Pathway for Antibacterial and Antifungal Drugs, or LPAD.
LPAD, passed as part of the 21st
Century Cures Act, is a new program
intended to expedite the development of drug products which allows
for the FDA’s determination of safety and effectiveness to
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.
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 CRBSI, and maintenance of catheter patency in
hemodialysis patients using a tunneled, cuffed central venous
catheter for vascular access. To date, Neutrolin is
registered and may be sold in certain European Union and Middle
Eastern countries for such treatment.
In
September 2014, the TUV-SUD and The Medicines Evaluation Board of
the Netherlands, or MEB, granted a label expansion for Neutrolin
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 of 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 because taurolidine is an unapproved drug, there
is no appropriate predicate device currently marketed in the U.S.
on which a 510(k) approval process could be based. As a result, we
will be required to submit a premarket approval application, or
PMA, for marketing authorization for these indications. In the
event that the NDA for Neutrolin is approved by the FDA, the
regulatory pathway for these other indications may 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, 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 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 in the U.S. 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 CRBSI and the clinical complications
associated with them. There are an estimated 250,000 CRBSI 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 CRBSI episodes and their
complications amounts to approximately $6.0 billion.
Biofilm
build up is the pathogenesis of both infections and thrombotic
complications in central venous catheters. Prevention of CRBSI 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 CRBSI in central venous catheters. As noted above, we received
the CE Mark approval for Neutrolin from the MEB of the EU in July
2013. We believe there is a significant need for prevention of
CRBSI 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. primarily to key dialysis
center operators. We anticipate that Medicare reimbursement could
be available for Neutrolin in hemodialysis and 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 DMEPOS 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 are performing health economic
evaluations to support this review in the context of the
prospective use of Neutrolin in dialysis, the ICU and oncology
settings. Our studies may 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. Given that there are
no approved catheter lock solutions with anti-microbial properties
in the U.S., and that the current standard of care is heparin, we
believe there is an opportunity for Neutrolin to become the new
standard of care in the U.S. market, if approved.
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.
None of these formulations is approved for use in the
U.S.
●
Zuragen by Ash
Access Technology (Lafayette, IN), has antimicrobial and
anticoagulant activity and contains methylene blue, parabens and 7%
citrate. Clinicaltrials.gov
most recently reported status as not yet recruiting subjects as of
October 2014.
●
B-Lock by Great
Lakes Pharmaceuticals Inc. (Cleveland, OH). It has
anti-microbial, anti-coagulant and anti-fungal activity and
contains trimethoprim, EDTA and ethanol combinations. B-Lock
initiated a study in 2012 in Poland and Hungary to support CE Mark
in European Union. Clinicaltrials.gov
reported the study as terminated for failure to meet primary
endpoint in February 2017.
●
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. No clinical update
has been provided for this product on Clinicaltrials.gov since
March 2008. This
product has not been approved for use in the U.S.
market.
●
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. This product has not been approved for use in the
U.S. market.
●
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. This product has not been
approved for use in the U.S. market.
●
Mino-Lok, being
developed by Citius Pharmaceutical (Cranford, NJ). Mino-Lok is
intended to salvage the central venous catheter obviating the need
to remove and replace the catheter. Mino-Lok contains a proprietary
combination of minocycline, edetate (disodium EDTA), and ethyl
alcohol. This product is in Phase 3 development in the
U.S.
Medical Devices:
●
Tego®
Needlefree Connector, manufactured by ICU Medical Inc. (San
Clemente, CA). 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 central venous catheter, or 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 (San Diego, CA). 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. (Maple Grove, MN). 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 (Latham, NY). 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 $1.8 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, Middle East and the U.S. The API was used for the U.S. Phase 3
clinical trial. Further, CorMedix has a Drug Master File
filed with FDA for taurolidine.
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 during 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 and/or any related
impact 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 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 IRB 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, or PDUFA, 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 LPAD, which was passed as part of the
21st
Century Cures Act. LPAD allows for the
FDA’s determination of safety and effectiveness to 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. Under LPAD, a sponsor may request drug
approval for an antibacterial or antifungal drug if the drug is
intended to treat a serious life-threatening infection in a limited
population of patients with unmet needs. 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. The FDA must provide prompt advice to sponsors seeking
approval under LPAD to enable them to plan a development program.
If approved under LPAD, 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
infectious 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 have 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 product candidates may change
significantly from the current descriptions provided herein in the
time that it may take for any of our product candidates 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.
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 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 510(k) 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 NDA for Neutrolin is approved by the FDA, the regulatory
pathway for these taurolidine product candidates 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,
2018. 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 was exercisable immediately upon
issuance and had a term of five years and expired in April
2018.
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, 2018 is 109,157 shares of common stock. There were no
milestones achieved in 2017 or 2018.
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. The patent portfolio licensed from NDP consists of 11
issued U.S. patents, 1 pending U.S. patent application, 14 issued
foreign patents and 1 pending foreign patent application. We intend
to file additional patent applications to cover any additional
related subject matter we develop. We currently have 12 U.S.
non-provisional patent applications, 3 U.S. provisional patent
applications, 6 international (PCT) patent applications, and 34
foreign patent applications pending which cover additional
applications using taurolidine in, among others, sutures,
hydrogels, meshes, transdermal and biofilm products.
Employees
As of
March 10, 2019, we had twenty-two 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
have announced our intention to effect a 1-for-5 reverse stock
split to be effective on March 26, 2019 and we have not given
effect to the proposed reverse stock split in this
Report.
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 $26.8 million and $33.0 million for the years ended
December 31, 2018 and 2017, respectively. As of December 31, 2018,
we had an accumulated deficit of approximately $179.0 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 and our other product
candidates. 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 unless and until it is approved
by the FDA and launched in the U.S. market, and we 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:
obtaining FDA approval of Neutrolin for hemodialysis catheters;
successfully launching and marketing Neutrolin in the U.S., if
approved by the FDA; successfully marketing Neutrolin in foreign
countries in which it is approved for sale; obtaining necessary
regulatory approvals for our other product candidates from the FDA
and, if sought, international regulatory agencies; 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.
Our cost of operations could increase significantly more than what
we expect depending on the costs to complete our development
program for Neutrolin.
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, 2018 we had an
accumulated deficit of $179.0 million, and incurred net losses from
operations of $26.8 million for the year then ended. Based on the
current development plans for Neutrolin in both the U.S. and
foreign markets (including the recently concluded hemodialysis
Phase 3 clinical trial in the U.S.) and our other operating
requirements, management believes that the existing cash at
December 31, 2018 plus funding raised through March 8, 2019, will
be sufficient to fund operations into the second quarter of 2020.
We will need additional funding for the second Phase 3 clinical
trial, if required by the FDA, and funding for the
commercialization of Neutrolin upon FDA approval.
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 the development
of Neutrolin 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, 2018 plus funding raised through March 8, 2019, will be sufficient to fund
operations into the second quarter of 2020. We will need additional funding thereafter to
prepare for Neutrolin’s commercial launch, or if
required by the FDA, to undertake a second Phase 3 study prior to
filing an NDA. If we are unable to raise additional funds when
needed, we may not be able to complete the Neutrolin development
program 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 continue to use
significant cash to fund our operations as we 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 preferred 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 at a conversion price of below $0.162
per share 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). Under
certain conditions, this restriction could make raising capital
through the sale of equity securities 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 the FDA requires a second clinical trial for Neutrolin in order
for us to submit the NDA, the development of Neutrolin will take
longer and cost more to complete and we will need significant
additional funds to undertake a second
trial.
Although two
pivotal clinical trials to demonstrate safety and effectiveness of
Neutrolin are generally required by the FDA to secure marketing
approval in the U.S., in light of the interim analysis results and
the DSMB recommendation, we are in dialogue with the FDA on the
appropriate next steps for the development of Neutrolin based on
the results of the interim analysis of our recently terminated
Phase 3 clinical trial, LOCK-IT-100. However, we can provide no
assurances that the FDA will not require a second clinical trial
prior to NDA submission for Neutrolin. Were the FDA to require a
second clinical trial, the clinical development program for
Neutrolin will be more expensive and will take longer to complete.
We may need to raise significant additional funds to undertake and
complete a second trial. Whether or
not and how quickly we complete a second Phase 3 clinical trial
would be dependent in part upon the size and scope of the trial,
the rate of enrollment of patients, and the rate we collect, clean,
lock and analyze the clinical trial database. We could be required
to incur additional costs and extend the anticipated time for
completion of the trial. If we
experience issues related to the clinical 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, including the preparation and filing of an NDA,
possibly a second clinical trial, and/or investment by us or our
collaborators as we continue its commercialization, as will any of
our other product candidates.
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 may be
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 the Neutrolin development program or
the development plans for our other product candidates 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.
Further,
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, Bahrain and United Arab Emirates.
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 product candidates.
We have not submitted an NDA, PMA or 510(k) to the FDA for any
product candidate. We are preparing an NDA for Neutrolin in
hemodialysis catheters based on our recently terminated Phase 3
trial, LOCK-IT-100. We may be required to conduct a second Phase 3
clinical trial before the NDA may be submitted. Financing will be
required to conduct a second Phase 3 trial, if required. However,
we might not obtain any financing necessary to complete the
development of Neutrolin for use in hemodialysis catheters.
We also
are pursuing development of taurolidine-based devices for wound
closure, surgical meshes, wound management and osteoarthritis. 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 510(k) approval process for these devices 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 NDA for Neutrolin is approved by
the FDA, the regulatory pathway for these devices 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, financial condition and results of
operations.
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 led many European and
other foreign countries to adopt healthcare reform proposals and
medical cost containment measures. Similar legislation could be
introduced in the U.S. 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 regulatory approval, product acceptance, revenues or
income with certainty or even confidence.
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
both the United States and certain foreign jurisdictions, there
have been and we expect there will continue to be a number of
legislative and regulatory changes to the health care system that
could affect our ability to sell our approved products profitably.
The U.S. government and other governments have shown significant
interest in pursuing healthcare reform. In particular, the Medicare
Modernization Act of 2003 revised the payment methodology for many
products under the Medicare program in the United States. This has
resulted in lower rates of reimbursement. In 2010, the Patient
Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act (collectively, the
“Affordable Care Act”), was enacted. The Affordable
Care Act substantially changed the way healthcare is financed by
both governmental and private insurers. Such government-adopted
reform measures may adversely affect the pricing of healthcare
products and services in the United States or internationally and
the amount of reimbursement available from governmental agencies or
other third-party payors.
In
recent years, the U.S. Congress has sought to repeal and has
significantly amended the Affordable Care 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. Any
such legislation 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,
Paul Chew, our Acting Chief Medical Officer, Elizabeth Masson, our
Executive Vice President and Head of Clinical Operations, 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 government regulation, formulation and manufacturing,
and sales and marketing, among others. 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.
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.
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, after the written opinion was issued by the
Opposition Division in September 2018, have appealed the decision.
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-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 submitted further writs in this matter and the court
scheduled a further hearing for May 8, 2018. After having been
rescheduled several times, the hearing took place on November 20,
2018. A decision was rendered by the court on December 11, 2018,
dismissing the complaint in its entirety. However, we intend to
continue to pursue this matter, and still believe that our claims
are well-founded. We therefore filed an appeal in January
2019.
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
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 outside of the U.S. 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 or we may
undertake marketing and sales of Neutrolin in the U.S. on our own.
We will be dependent on the firms and individuals with whom we
contract for the success of sales in the countries in which they
operate. 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
undertake the marketing and sales of Neutrolin in the U.S. on our
own, we will need to hire and create our own marketing and sales
infrastructure. The establishment and development of our own
marketing and sales force would be expensive and time consuming and
we could face delays in such undertaking, which would adversely
affect the product launch. We cannot be certain that we would be
able to successfully develop this capability. The failure to
successfully develop our own marketing and sales infrastructure
would have a negative adverse effect on our business and results of
operations.
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.
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 sufficient supplies. 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
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, 2018, we had
an accumulated deficit of $179.0 million, and incurred net losses
from operations of $26.8 million for the year then ended. Based on
the current development plans for Neutrolin in both the U.S. and
foreign markets (including the preparation of an NDA for Neutrolin
in hemodialysis catheters) and our other operating requirements,
management believes that the existing cash at December 31, 2018
plus funding raised through March 8, 2019, will be sufficient to
fund operations into the second quarter of 2020. Further, we will
need additional funding to prepare for Neutrolin’s commercial
launch, or if required by the FDA, to undertake a second Phase 3
study prior to filing an NDA. 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. 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, 2018,
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 4,936,326 shares of common stock
issued under our 2013 Stock Plan at a weighted average exercise
price of $1.87 per share were outstanding. In addition, at December
31, 2018, there were outstanding warrants to purchase an aggregate
of 16,595,016 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 18,324,678
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.
The anticipated benefits of our recently announced reverse stock
split might not materialize.
We have
announced our intention to effect a 1-for-5 reverse stock split to
be effective on March 26, 2019. The reverse stock split is intended
to reduce the number of outstanding shares of our common stock and
thereby, absent other factors, to increase the per share market
price of our common stock. However, other factors, such as the
status of our development program for Neutrolin and other potential
products, operating and financial results, market conditions and
the market perception of our business may adversely affect the
market price of our common stock. As a result, we cannot assure you
that the reverse stock split, if completed, will result in the
intended benefit of an increase in the market price per share of
our common stock after the reverse stock split. Additionally, we
cannot assure you that an increase, if any, in the market price of
our common stock as a result of the reverse stock split will be in
proportion to the reduction in the number of shares of our common
stock outstanding before the reverse stock split. Further, we
cannot assure you that the market price of our common stock will
not decrease in the future. Accordingly, the total market
capitalization of our common stock after the reverse stock split
may be lower than the total market capitalization before the
reverse stock split.
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, 2019, 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:
●
the
receipt of or failure to obtain additional regulatory approvals for
Neutrolin, including FDA approval in the U.S.;
●
market
acceptance of Neutrolin in those markets in which it is approved
for sale;
●
our
need for additional capital;
●
results
of clinical trials of our product candidates, including any other
Phase 3 trial for Neutrolin in the U.S., if required, 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;
●
future
sales or anticipated sales of our securities by us or our
stockholders;
●
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;
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 you should invest only if you can withstand wide fluctuations
in and a significant or complete loss of 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, 2018, we had outstanding the following securities
that are convertible into or exercisable for shares of our common
stock:
●
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 4,936,326 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 $1.87 per share;
●
warrants
for 500,000 shares of common stock issued in May 2013 with an
exercise price of $0.001 per share that expire on May 30,
2019;
●
warrants
for 750,000 shares of common stock with an exercise price of $0.001
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 12,345,679 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 share 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 B warrants
for 11,974,839 shares of common stock with an exercise price of
$1.05 that expire on August 10, 2022;
●
underwriter
warrants for 664,419 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;
●
warrants for
450,000 shares of common stock with an exercise price of $1.50 that
expire on December 31, 2023;
●
Senior convertible
note convertible into 5,000,000 shares of common stock;
and
●
restricted stock
units for 29,087 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.
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 June 2018, we received a
notice 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 are not in
compliance with Section 1003(a)(i) (requiring stockholders’
equity of $2.0 million or more if the issuer has reported losses
from continuing operations and/or net losses in two of its three
most recent fiscal years), Section 1003(a)(ii) (requiring
stockholders’ equity of $4.0 million or more if the issuer
has reported losses from continuing operations and/or net losses in
three of its four most recent fiscal years); and Section
1003(a)(iii) (requiring stockholders’ equity of $6.0 million
or more if the issuer has reported losses from continuing
operations and/or net losses in its five most recent fiscal years).
The notice noted that we reported stockholders’ equity of
$0.8 million as of March 31, 2018, and net losses in our five most
recent fiscal years ended December 31, 2017. As a result, we have
become subject to the procedures and requirements of Section 1009
of the Company Guide. We had to submit to the NYSE American no
later than July 16, 2018 a plan of compliance to address how we
intend to regain compliance with Section 1003(a)(i), Section
1003(a)(ii) or Section 1003(a)(iii) of the Company Guide by
December 16, 2019 (the “Sections 1003(a)(i)-(iii) Plan
Period”). The plan was submitted on time and was accepted by
the NYSE American. As a result, we are able to continue our listing
during the Sections 1003(a)(i)-(iii) Plan Period, during which time
we will be subject to periodic review to determine whether we are
making progress consistent with the plan. If we are not in
compliance with the NYSE American’s continued listing
standards of Section 1003(a)(i), Section 1003(a)(ii) or Section
1003(a)(iii) within the timeframe provided, or do not make progress
consistent with the plan during the Sections 1003(a)(i)-(iii) Plan
Period, the NYSE American will initiate delisting
proceedings.
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.
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.
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.
Our
subsidiary leases its offices in Fulda, Germany pursuant to 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, had 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, after the written opinion was issued by the
Opposition Division in September 2018, have appealed the decision.
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 our
proprietary information obtained in confidence by TauroPharm. We
allege that TauroPharm is improperly and unfairly using our
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 prepared the requested reply and produced the
respective documentation. TauroPharm also filed another writ within
the same deadline and both parties filed further writs at the end
of April 2016 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-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 submitted further writs in this matter and the court
scheduled a further hearing for May 8, 2018. After having been
rescheduled several times, the hearing took place on November 20,
2018. A decision was rendered by the court on December 11, 2018,
dismissing the complaint in its entirety. However, we intend to
continue to pursue this matter, and still believe firmly that our
claims are well-founded. We therefore filed an appeal in January
2019.
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 American 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 American:
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
$0.59
|
$0.17
|
$2.48
|
$1.44
|
|
Second
Quarter
|
$0.40
|
$0.17
|
$1.64
|
$0.36
|
|
Third
Quarter
|
$1.03
|
$0.23
|
$0.54
|
$0.32
|
|
Fourth
Quarter
|
$2.40
|
$0.84
|
$0.77
|
$0.45
|
Based
upon information furnished by our transfer agent, at March
7, 2019, we had
approximately 66
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, 2018 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)
|
5,056,326
|
$1.86
|
5,025,305
|
(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.
Item
6.
Selected
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 United States (“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. To date,
Neutrolin is registered and may be sold in certain European Union
(“EU”) and Middle Eastern countries for the prevention
of catheter-related bloodstream infections and maintenance of
catheter patency in hemodialysis patients.
In
December 2015, we initiated a multicenter, double-blind,
randomized, active control Phase 3 clinical trial in the U.S. in
hemodialysis patients with a central venous catheter
(“LOCK-IT-100”). In April 2017, a safety review by our
independent Data Safety Monitoring Board, or DSMB, was completed.
The DSMB unanimously concluded that it was 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 July
25, 2018, the DSMB completed its review of the interim analysis of
the data from the LOCK-IT-100 study and, because the pre-specified
level of statistical significance was reached and efficacy had been
demonstrated, the DSMB recommended the study be terminated early.
The DSMB
also reported that there were no safety
concerns.
Although two
pivotal clinical trials to demonstrate safety and effectiveness of
Neutrolin are generally required by the FDA to secure marketing
approval in the U.S., based on the
recently completed and unblinded topline results of the LOCK-IT-100
study, we have begun
discussions with the FDA on the appropriate next steps
to support regulatory approval for
Neutrolin. We agreed to provide the FDA a detailed analysis of the
full data set including secondary endpoints from the LOCK-IT-100
study to facilitate FDA’s consideration of our request to
file the New Drug Application (“NDA”) for Neutrolin on
the basis of the LOCK-IT-100 study results. These data became
available following the locking and unblinding of the study data in
late January 2019. The analysis is planned to be completed over the
next several weeks.
The FDA also agreed that we could request
consideration of Neutrolin for approval under the Limited
Population Pathway for Antibacterial and Antifungal Drugs, or LPAD.
LPAD, passed as part of the 21st
Century Cures Act, is a new program
intended to expedite the development of drug products which allows
for the FDA’s determination of safety and effectiveness to
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.
In
addition to Neutrolin, we are sponsoring a pre-clinical research
collaboration for the use of taurolidine as a possible treatment
for rare orphan pediatric tumors. In February 2018, the FDA granted
orphan drug designation to taurolidine for the treatment of
neuroblastoma. We are seeking one or more strategic partners or
other sources of capital to help us develop and commercialize
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.
The FDA has 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 510(k) approval
process could be based. As a result, we will be required to submit
a premarket approval application, or PMA, for marketing
authorization for these indications. In the event that an NDA for
Neutrolin is approved by the FDA, the regulatory pathway for these
product candidates may be revisited with the FDA. Although there
may be no appropriate predicate, de
novo Class II
designation can be proposed, based on a risk assessment and a
reasonable assurance of safety and
effectiveness.
In August 2017, we secured a research grant from the National
Institutes of Health (NIH) to expand our 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.
As
previously announced, the New Jersey Economic Development Authority
(“NJEDA”) has approved our application to participate
in the New Jersey Technology Business Tax Certificate Transfer
(“NOL”) program for State Fiscal Year 2018. The
approval will allow us to sell approximately $5.4 million of the
total $6.1 million in available tax benefits to an unrelated,
profitable New Jersey corporation in return for approximately $5.0
million in cash. Closing is subject to NJEDA’s typical
closing conditions, which are in process.
Since
our inception, 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 EU and other foreign markets, and maintaining and
improving our patent portfolio. We have funded our
operations primarily through debt and equity
financings. We have generated significant losses to
date, and we expect to use substantial amounts of cash for our
operations as we close out our LOCK-IT-100 Phase 3 clinical trial
in hemodialysis patients with catheters, possibly plan a second
Phase 3 clinical trial for Neutrolin, if required by the FDA,
prepare and submit a NDA for Neutrolin to the FDA, commercialize
Neutrolin in the EU and other foreign markets, pursue business
development activities, and incur additional legal costs to defend
our intellectual property. As of December 31, 2018, we
had an accumulated deficit of approximately $179.0
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, 2018, 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 significant
R&D expenses for the foreseeable future in order to complete
development of Neutrolin in the U.S., especially closing out the
LOCK-IT-100 clinical trial, preparing an NDA for Neutrolin and
possibly planning a second Phase 3 trial, if required.
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 of
Neutrolin in the U.S. and optimization of sales in foreign markets
where Neutrolin is approved. In December 2015, we contracted with
our contract research organization, or CRO, to help us conduct our
LOCK-IT-100 Phase 3 clinical trial in hemodialysis patients with
central venous catheters to demonstrate the efficacy and safety of
Neutrolin in preventing catheter-related bloodstream infections and
blood clotting in subjects receiving hemodialysis therapy as
treatment for end stage renal disease. During 2017, we modified the
original contract to cover various changes in cost due to timeline
extensions, protocol changes, and additional activities related to
the collection of retrospective data outside the treatment centers.
In 2018, we brought in-house and assumed direct responsibility for
several aspects of the study, among them site management and review
of severe adverse events, or SAEs, for the remainder of the study.
At December 31, 2018, approximately $28.5 million of clinical trial
expense has been recorded in connection with the Master Service
Agreement and work orders. Approximately $24.0 million has been
paid. We contested a substantial amount of the unpaid clinical
trial expense due to the unexpected delay and additional costs we
incurred in preparing for the interim analysis of the LOCK-IT-100
study. In November 2018, we signed a confidential settlement
agreement with the CRO in which we received cash and other
consideration in return for agreeing to make cumulative net
payments of approximately $6.2 million, plus investigator fees and
third-party costs that had not been invoiced as of September 30,
2018. Among other benefits, the settlement agreement resulted in
full satisfaction of all outstanding accounts payable and accrued
expenses related to the period through June 30, 2018. Additionally,
in parallel with the settlement agreement, a new work order under
the Master Service Agreement was executed specifying certain
services the CRO will continue to provide to us related to the
closeout of the study. The budgeted amount of the new work order is
approximately $1.4 million.
We are
pursuing additional opportunities to generate value from
taurolidine, an active component of Neutrolin. Based on initial
feasibility work, we have completed an initial round of
pre-clinical studies for taurolidine-infused surgical meshes,
suture materials, and hydrogels, which 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. We are seeking one or more
strategic partners or other sources of capital to help us develop
and commercialize 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 2,000 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
2017.
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 and were reclassified from liability to
equity, which resulted in a loss of $121,000, recorded on our
consolidated statement of operations and comprehensive income
(loss) for the year ended December 31, 2017.
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, 2018 and
2017
The
following is a tabular presentation of our consolidated operating
results for the years ended December 31, 2018 and 2017 (in thousands):
|
|
|
|
%
of Change
Increase
(Decrease)
|
|
Revenue
|
$430
|
$329
|
31%
|
|
Cost of
sales
|
(397)
|
(115)
|
245%
|
|
Gross profit
(loss)
|
33
|
214
|
(85)%
|
|
Operating
Expenses:
|
|
|
|
|
Research and
development
|
(18,822)
|
(24,486)
|
(23)%
|
|
Selling, general
and administrative
|
(8,075)
|
(8,652)
|
(7)%
|
|
Total operating
expenses
|
(26,897)
|
(33,138)
|
(19)%
|
|
Loss from
operations
|
(26,864)
|
(32,924)
|
(18)%
|
|
Interest
income
|
37
|
111
|
(67)%
|
|
Foreign exchange
transaction loss
|
(1)
|
(14)
|
(93)%
|
|
Change in fair
value of derivative liabilities
|
-
|
(177)
|
(100)%
|
|
Interest
expense
|
(2)
|
(6)
|
(67)%
|
|
Total other income
(expense)
|
34
|
(86)
|
(140)%
|
|
Net
loss
|
(26,830)
|
(33,010)
|
(19)%
|
|
Other comprehensive
income gain (loss)
|
(2)
|
17
|
(112)%
|
|
Comprehensive
loss
|
$(26,832)
|
$(32,993)
|
(19)%
|
Revenue. Revenue for the year ended
December 31, 2018 was $430,000 as compared to $329,000 for the same
period in 2017, an increase of $101,000. The increase was primarily
attributable to higher sales in the Middle East and Germany of
$190,000 and $14,000, respectively, offset by a decrease of sales
of Neutrolin in other areas of the EU in the amount of
$103,000.
Cost of Sales. Cost of sales for the
year ended December 31, 2018 was $397,000 as compared to $115,000
for the same period in 2017, an increase of $282,000. The increase
was primarily due to the recognition of additional cost of goods
sold for the year ended December 31, 2018 of $43,000 related to
products shipped under warranty in addition to the reduction of the
inventory reserve during the year ended December 31, 2017 in the
amount of $327,000, mainly due to longer shelf life of the products
manufactured. The increase was partially offset by decreases in
packaging and stability studies of $55,000 and cost of materials of
$33,000, respectively.
Research and Development Expense.
R&D expense for the year ended December 31, 2018 was
$18,822,000, a decrease of $5,664,000 from $24,486,000 for the same
period in 2017. The decrease was primarily attributable to a net
decrease in expenses related to the LOCK-IT-100 clinical trial in
the U.S. of $3,734,000, mainly due to the confidential settlement
agreement with our CRO. Additionally, there were also decreases in
costs related to manufacturing process development activities of
$2,359,000, due to the completion or cancelation of majority of the
projects, and reduced activity related to antimicrobial sutures,
nanofiber webs, wound management and osteoarthritis and
visco-supplementation of $566,000. These decreases were partially
offset by a $1,001,000 increase in personnel expenses, mainly due
to the hiring of new staff supporting the LOCK-IT-100
trial.
Selling, General and Administrative
Expense. SG&A expense for the year ended December 31,
2018 was $8,075,000, a decrease of $577,000 from $8,652,000 for the
same period in 2017. The decrease was primarily attributable to a
decrease in non-cash charge for stock-based compensation expense of
$511,000, due to non-achievement of performance conditions related
to certain stock options which resulted in a reversal of expense of
$306,000; and a reduction of consulting fees of $437,000, mainly
due to executive search fees that were incurred in 2017. These
decreases, among others of lesser significance, were partially
offset by a $162,000 increase in legal fees, mainly due to fees
related to the settlement agreement with our CRO, a $138,000
increase in costs related to marketing research studies, a $44,000
increase in personnel expenses, and an increase in business
development activities of $30,000.
Interest Income. Interest income for
the year ended December 31, 2018 was $37,000, a decrease of $74,000
from $111,000 for the same period in 2017. The decrease was
attributable to lower average interest-bearing cash balances and
short-term investments during 2018 as compared to the same period
in 2017.
Foreign Exchange Transaction Gain
(Loss). Foreign exchange transaction loss for the year ended
December 31, 2017 of $14,000 was due to the foreign exchange rate
fluctuations for the payment of invoices paid in foreign currency.
There was minimal foreign exchange transaction loss for the year
ended December 31, 2018.
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
represented 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, 2018 was $2,000 as compared to $6,000
for the same period in 2017, a decrease of $4,000 due to fees
incurred for financing some of 2017 expenditures.
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 $2,000 loss in 2018 and a
$17,000 gain in 2017.
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, 2018, we received
net proceeds of $21,968,000 from the issuance of 35,888,772 shares
of common stock under our at-the-market-issuance sales agreement;
$7,391,000 from the issuance of a 10% convertible note; $26,000
from the exercise of 25,000 warrants; and $11,600 from the exercise
of 40,000 stock options.
Net Cash Used in Operating Activities
Net
cash used in operating activities for the year ended December 31,
2018 was $23,700,000 as compared to $28,587,000 in 2017, a decrease
in net cash use of $4,887,000. The decrease was primarily
attributable to a decrease in net loss of $6,180,000 driven by
decreased research and development expenses due to the benefits
received from the settlement agreement with our CRO. The net loss
of $26,830,000 for the year ended December 31, 2018 was higher than
cash used in operating activities by $3,130,000. The difference is
primarily attributable to non-cash stock-based compensation of
$1,111,000, and increases in accrued expenses and accounts payable
of $998,000 and $782,000, respectively, primarily due to the
schedule of payments agreed with our CRO in the confidential
settlement agreement signed in November 2018.
Net Cash Provided by Investing Activities
Cash
provided by investing activities for the year ended December 31,
2018 was $1,555,000 attributable to the proceeds on the sale of
short-term investments of $1,604,000, offset by the purchase of
equipment of $49,000. In the same period in 2017, net cash provided
by investing activities of $10,358,000 was attributable to the
proceeds from the sale of short-term investments used to fund
operations of $23,584,000 offset by $13,074,000 purchases of
short-term investments.
Net Cash Provided by Financing Activities
Net
cash provided by financing activities for the year ended December
31, 2018 was $29,397,000 as compared to $20,525,000 for the same
period in 2017. During 2018, we generated net proceeds of
$21,968,000 from the sale of our common stock in our at-the-market
program; $7,391,000 from issuance of a 10% convertible note;
$26,000 from the exercise of warrants; and $12,000 from the
exercise of stock options. In comparison to the same period in
2017, we generated net proceeds of $12,798,000 from the 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.
Funding Requirements and Liquidity
Our
total cash on hand and short-term investments as of December 31,
2018 was $17,624,000, excluding restricted cash of $172,000,
compared with $11,984,000 at December 31, 2017. At December 31,
2018, we have approximately $20.3 million available under our
current at-the-market program and approximately $30.3 million available under our
current shelf registration for the issuance of equity, debt or
equity-linked securities unrelated to the current ATM program. We
expect to utilize our ATM program, if conditions allow, to support
our ongoing development of Neutrolin in hemodialysis catheters in
the U.S.
Because
our business has not generated positive operating cash flow, we
will need to raise additional capital in order to continue to fund
our research and development activities, as well as to fund
operations generally. Our continued operations are focused
primarily in activities leading to the preparation and submission
of an NDA for Neutrolin to the FDA and will depend on our ability
to raise sufficient funds through various potential sources, such
as equity, debt financings, and/or strategic relationships. We can
provide no assurances that financing or strategic relationships
will be available on acceptable terms, or at all.
We
expect to continue to fund operations from cash on hand and through
capital raising sources as previously described, which may be
dilutive to existing stockholders, through revenues from the
licensing of our products, or through strategic alliances.
We expect to continue to utilize our
ATM program, if conditions allow, to support our ongoing funding
requirements. Additionally, we may seek to sell additional equity
or debt securities through one or more discrete transactions, or
enter into a strategic alliance arrangement, but can provide
no assurances that any such financing or strategic alliance
arrangement will be available on acceptable terms, or at all.
Moreover, the incurrence of indebtedness would result in increased
fixed obligations and could contain covenants that would restrict
our operations. Raising additional
funds through strategic alliance arrangements with third parties
may require significant time to complete and could force us to
relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates, or to grant
licenses on terms that may not be favorable to us or our
stockholders. Our actual cash requirements may vary
materially from those now planned due to a number of factors,
including the potential necessity to fund an additional Phase 3
clinical trial, if required by the FDA, 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 will continue to use cash as we
close out our Phase 3 clinical trial, and increase other activities
leading to the preparation and submission of an NDA to seek
marketing approval of Neutrolin in the U.S., and, if required, fund
an additional Phase 3 clinical trial for Neutrolin, pursue business
development activities, and incur additional legal costs to defend
our intellectual property.
Based
on the current development plans for Neutrolin and our other
operating requirements, we believe that the existing cash and cash
equivalents at December 31, 2018, plus the funds raised under our
ATM program through the filing date of this report, will be
adequate to fund the costs of our operations into the second
quarter of 2020. If we are unable to raise additional funds when
needed, we may be forced to slow or discontinue our preparations
for the commercial launch of Neutrolin, or if required by the FDA,
to undertake a second Phase 3 study prior to filing an NDA. 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.
Until
the date that none of the preferred 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 at a conversion price of below $0.162
per share 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). Under
certain conditions, this restriction could make raising capital
through the sale of equity securities difficult and could have a
material adverse impact on our business, financial condition and
prospects.
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.
As of
December 31, 2018, we have no 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. 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. The expected stock price
volatility for the Company’s stock options is calculated
based on the historical volatility of the Company’s common
stock. The expected dividend yield reflects our current and
expected future policy for dividends on our common stock. To
determine the risk-free interest rate, we utilize the U.S. Treasury
yield curve in effect at the time of grant with a term consistent
with the expected term of our awards which is 5 years for employees
and 10 years for non-employees.
Revenue Recognition
We adopted the new revenue recognition, ASC 606,
“Revenue from Contracts with
Customers”, as of January
1, 2018 using the modified retrospective method. ASC 606 prescribes
a five-step model for recognizing revenue which includes (i)
identifying contracts with customers; (ii) identifying performance
obligations; (iii) determining the transaction price; (iv)
allocating the transaction price; and (v) recognizing
revenue.
We
recognize net sales upon shipment of product to the dialysis
centers and upon meeting the five-step model prescribed by ASC 606
outlined above.
In
October 2015, we 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 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. As a result of the adoption of ASC 606, we accelerated the
recognition of the deferred revenue and related cost of sales in
the net amount of $70,500 and recorded the warranty obligation in
the amount of $52,900 upon adoption.
Deferred Revenue
In August 2014, we 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
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 (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 the Wonik agreement at December 31,
2018 and 2017 amounted to approximately $11,000 and $20,000,
respectively.
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.
Recent Authoritative Pronouncements:
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. This adoption on January 1, 2019 did not have a
material impact 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 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. This
adoption on January 1, 2019 did not have a material impact on our
consolidated financial statements.
In
June 2018, the FASB issued a new guidance which expands the scope
of ASC 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. The guidance is
effective for the Company beginning in the first quarter of fiscal
year 2019. Early adoption is permitted. This adoption on January 1,
2019 did not have a material impact on our consolidated financial
statements.
In
August 2018, the FASB issued a new guidance which modifies the
disclosure requirements on fair value measurements. The guidance is
effective for the Company beginning in the first quarter of fiscal
year 2020. Early adoption is permitted. We are assessing the impact
of adopting this guidance on our consolidated financial
statements.
In November 2018, the FASB issued new guidance
to clarify the interaction between the authoritative
guidance for collaborative arrangements and revenue from contracts
with customers. The new
guidance clarifies that, when the collaborative arrangement
participant is a customer in the context of a unit-of-account,
revenue from contracts with customers guidance should be applied,
adds unit-of-account guidance to collaborative arrangements
guidance, and requires, that in a transaction with a collaborative
arrangement participant who is not a customer, presenting the
transaction together with revenue recognized under contracts with
customers is precluded. The guidance
is effective for us beginning in the first quarter of fiscal year
2020. Early adoption is permitted. We are assessing the impact of
adopting this guidance on our consolidated financial
statements.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements.
Item
7A.
Quantitative
and Qualitative Disclosures About Market Risk
Not
applicable.
Item
8.
Financial
Statements and Supplementary Data
See the
financial statements included at the end of this report beginning
on page F-1.
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, 2018, 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, 2018, 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, 2018.
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
Not
applicable.
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.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires our directors, executive
officers and holders of more than 10% of our common stock to file
with the SEC initial reports of ownership and reports of changes in
the ownership of our common stock and other equity securities. Such
persons are required to furnish us copies of all Section 16(a)
filings. Based solely upon a review of the copies of the forms
furnished to us, we believe that our officers, directors and
holders of more than 10% of our common stock complied with all
applicable filing requirements during the fiscal year ended
December 31, 2018, with the exception of: a Form 4 for Janet
Dillione to report the grant on February 21, 2018 of 15,357
restricted stock units that was due on February 23, 2018 and was
filed on March 22, 2018; a Form 4 for Myron Kaplan to report the
grant of 10,000 restricted stock units on February 21, 2018 that
was due on February 23, 2018 and was filed on March 22, 2018 and a
Form 4 for Mr. Kaplan to report the grant of 5,000 restricted stock
units on November 6, 2018 that was due on November 8, 2018 and was
filed on November 27, 2018 ; a Form 4 for John Armstrong to report
the vesting of 18,028 restricted stock units on December 31, 2017
that was due on January 2, 2018 and was filed on March 22, 2018 and
a Form 4 for Mr. Armstrong to report the vesting of 18,029
restricted stock units on December 31, 2018 that was due on January
2, 2019 and was filed on January 3, 2019; and a Form 3 for Elizbeth
Masson to report her hiring as an executive officer on March 19,
2018 that was due on March 29, 2018 and was filed on April 9, 2018
and a Form 4 for Ms. Masson to report the grant on March 19, 2018
of options to purchase 310,000 shares of common stock that was due
on March 21, 2018 and was filed on April 9, 2018.
Directors
The
following table sets forth the name, age and position of each of
our directors as of December 31, 2018:
|
Name
|
|
Age
|
|
Director Since
|
|
Position(s) with CorMedix
|
|
Khoso
Baluch
|
|
60
|
|
October 2016
|
|
Director and Chief Executive Officer
|
|
Janet
M. Dillione
|
|
58
|
|
August 2015
|
|
Director
|
|
Gary Gelbfish (1)
|
|
59
|
|
August 2017
|
|
Director
|
|
Myron
Kaplan
|
|
73
|
|
April 2016
|
|
Chairman of the Board
|
|
Mehmood
Khan
|
|
60
|
|
June 2017
|
|
Director
|
|
Steven
Lefkowitz
|
|
62
|
|
June 2017
|
|
Director
|
(1)
Dr. Gelbfish
resigned as a director on January 14, 2019.
Khoso
Baluch joined our Board in
October 2016 upon his appointment as our Chief Executive Officer.
Mr. Baluch previously served as Senior Vice President and President
Europe, Middle East & Africa EMEA of UCB, SA, or UCB, from
January 2015 to early 2016, Senior Vice President and President of
the European Region of UCB from February 2013 to December 2014, and
Senior Vice President and Chief Marketing Officer of UCB from
January 2010 to February 2013. Prior to joining UCB, Mr. Baluch
worked for Eli Lilly & Co for 24 years, holding international
positions spanning Europe, the Middle East and the United States in
general management, business development, market access and product
leadership. He has served as an independent director of Poxel SA, a
French publicly traded biotech company, since 2013. Mr. Baluch
holds a BSc in Aeronautical Engineering from City University London
and a Masters of Business Administration from Cranfield School of
Management. Among other qualifications, attributes and
skills, Mr. Baluch’s business expertise and significant
executive management experience in the pharmaceutical industry led
to the conclusion of our Board that he should serve as a director
of our company in light of our business and structure.
Janet M. Dillione
has been a director of CorMedix since August 2015. Ms. Dillione has
served as the Chief Executive Officer of Bernoulli (formerly known
as Cardiopulmonary Corp.), a leader in medical device connectivity
for EMR integration, and integrated clinical applications and
workflows for over 20 years, since 2014. Previously, she was at
Nuance Communications, Inc., a leading provider of voice and
language solutions for businesses and consumers around the world,
having joined Nuance in April 2010 as Executive Vice President and
General Manager of the Healthcare Division and serving as an
executive officer from May 2010 until March 2014. From June 2000 to
April 2010, Ms. Dillione held several senior level management
positions at Siemens Medical Solutions, a global leader in medical
imaging, laboratory diagnostics, and healthcare information
technology, including President and CEO of the global healthcare IT
division. Ms. Dillione received her
B.A. from Brown University in 1981 and completed the Executive
Program at The Wharton School of Business of the University of
Pennsylvania in 1995. She has over 25 years of experience
leading global teams in the development and delivery of healthcare
technology and services. Among other qualifications, attributes and
skills, Ms. Dillione’s financial expertise and significant
executive management experience with medical device and healthcare
companies led to the conclusion of our Board that she should serve
as a director of our company in light of our business and
structure.
Myron
Kaplan became a director
of CorMedix in April 2016. On August 3, 2017, he was elected as our
Chairman of the Board. Mr. Kaplan is a founding partner of
Kleinberg, Kaplan, Wolff & Cohen, P.C., a New York City general
practice law firm, where he has practiced corporate and securities
law for more than forty years. In 2012, Mr. Kaplan became a trustee
of the Lehman Brothers Plan Holding Trust. Previously, he served as
a member of the board of directors of SAirGroup Finance (USA) Inc.,
a subsidiary of SAirGroup that had publicly issued debt securities,
Trans World Airlines, Inc. and Kitty Hawk, Inc. Among his business
and civic involvements, Mr. Kaplan currently serves on the boards
of directors of a number of private companies and has been active
for many years on the Boards of Trustees and various board
committees of The Children’s Museum of Manhattan and JBI
International (formerly The Jewish Braille Institute of America).
Mr. Kaplan graduated from Columbia College and holds a Juris Doctor
from Harvard Law School. Among other experience, qualifications,
attributes and skills, Mr. Kaplan’s experience in a broad
range of corporate and securities matters and service as a director
of public companies led to the conclusion of our Board that he
should serve as a director of our company in light of our business
and structure.
Mehmood Khan, M.D.
became a director of CorMedix in June 2017. Dr. Khan currently
serves as the
Chief Executive Officer of Life BioSciences Inc., a private company
focused on age-related decline, a position he has held since March
2019. Prior to that, Dr. Khan served as Vice Chairman (from January 2015 to
March 2019) and Chief Scientific Officer of Global Research and
Development (from December 2007 to March 2019) for PepsiCo, where
he led global R&D and oversees the company’s 2025
sustainability agenda, which included plans for the further
transformation of its current food and beverage portfolio as well
as expansion of offerings containing positive nutrition with a
focus on reaching more underserved communities and consumers with
healthier choices. Prior positions at PepsiCo included Chief
Executive Officer, Global Nutrition Group from January 2011 to
September 2013. Previously, Dr. Khan served as Head of Medical
Affairs and then President of Takeda Pharmaceuticals’ Global
Research & Development Center from January 2002 to December
2007. Earlier in his career Dr. Khan was a faculty member at the
Mayo Clinic and Mayo Medical School in Rochester, Minnesota,
serving as Director of the Diabetes, Endocrine and Nutritional
Trials Unit in the division of endocrinology. Prior to the Mayo
Clinic, Dr. Khan spent nine years leading programs in diabetes,
endocrinology, metabolism, and nutrition for the Hennepin County
Medical Center in Minneapolis. His practice included extensive work
with patients with diabetes requiring hemodialysis as well as
parenteral nutrition. Dr. Khan also currently serves as a member of
the board of directors for HemoShear Therapeutics,
a biotechnology company focused on discovering novel biological
targets and developing drugs to treat rare juvenile metabolic
disorders, and Reckett Benckhiser Group, a British private
company. He earned his medical degree from the University of
Liverpool Medical School, England. Among other qualifications,
attributes and skills, Dr. Khan’s business expertise and
significant executive management experience, as well as his medical
background and pharmaceutical company experience led to the
conclusion of our Board that he should serve as a director of our
company in light of our business and structure.
Steven Lefkowitz was
a director of CorMedix from August 2011 to June 2016. He was
reappointed to the Board in June 2017. He also served as
our acting Chief Financial Officer from August 2013 to July 2014.
Mr. Lefkowitz has been the President and Founder of Wade
Capital Corporation, a financial advisory services company, since
June 1990. Mr. Lefkowitz has
been a director of both public and private companies. He has
served as a director AIS, RE.,
a privately held reinsurance company since 2001. Mr.
Lefkowitz received his A.B. from Dartmouth College in 1977 and his
M.B.A. from Columbia University in 1985. Among other experience,
qualifications, attributes and skills, Mr. Lefkowitz’s
education, experience and financial expertise led to the conclusion
of our Board that he should serve as a director of our company in
light of our business and structure.
On
February 27, 2019, our Board of Directors appointed Alan W. Dunton,
M.D., as a director, effective March 1, 2019, to serve until the
2019 annual meeting or until his respective successor is duly
elected and qualified. In 2006, Dr. Duncan founded Danerius, LLC, a
biotechnology and pharmaceutical consulting business. Prior to
starting Danerius, he was Chief Executive Officer of Panacos
Pharmaceuticals, Inc., as well as Metaphore Pharmaceuticals, Inc.,
both biotechnology companies. He was also President and Managing
Director of the Janssen Research Foundation, the research and
development and regulatory arm of the pharmaceuticals division at
Johnson and Johnson. Dr. Dunton received his Bachelor of Science
degree in biochemistry, magna cum laude, from State University of
New York at Buffalo, and received his M.D. from New York University
School of Medicine. Dr. Dunton currently serves on the boards of
two public companies, Palatin Technologies, Inc. and Oragenics,
Inc. He chairs the audit and compensation committees of each of
these companies. He is also a member of the board of Cytogel Pharma
LLC, a private bio-pharmaceutical
development company focused on acquiring promising early-stage
programs. Among other qualifications, Dr. Dunton’s
significant depth of experience in the pharmaceutical industry,
including service as a director of public pharmaceutical companies,
led to the
conclusion of our Board that he should serve as a director of our
company in light of our business and structure.
Board Independence
Our
Board has undertaken a review of the independence of our directors
and has determined that (i) all current directors except Khoso
Baluch are independent within the meaning of Section 803A(2) of the
NYSE American Rules, (ii) all members of our Audit Committee meet
the additional test for independence for audit committee members
imposed by SEC regulation and Section 803B(2) of the NYSE American
Rules, (iii) all of the members of our Compensation Committee are
independent within the meaning of Section 805(c) of the NYSE
American Rules, and (iv) all of the members of our Nominating and
Governance Committee are independent within the meaning of Section
805(c) of the NYSE American Rules.
Board Committees
Our
Board has established an Audit Committee, Compensation Committee
and Nominating and Governance Committee. Our Audit Committee
currently consists of Mr. Lefkowitz (Chair), Mr. Kaplan and Ms.
Dillione. Our Compensation Committee currently consists of Ms.
Dillione (Chair), Mr. Lefkowitz and Dr. Khan. Our Nominating and
Governance Committee currently consists of Dr. Khan (Chair) and Mr.
Kaplan.
Each of
the above-referenced committees operates pursuant to a formal
written charter. The charters for each committee, which have been
adopted by our Board, contain a detailed description of the
respective committee’s duties and responsibilities and are
available on our website at www.cormedix.com
under the “Investor Relations—Corporate
Governance” tab.
Audit Committee
The
Audit Committee monitors our corporate financial statements and
reporting and our external audits, including, among other things,
our internal controls and audit functions, the results and scope of
the annual audit and other services provided by our independent
registered public accounting firm and our compliance with legal
matters that have a significant impact on our financial statements.
The Audit Committee also consults with our management and our
independent registered public accounting firm prior to the
presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial
affairs. The Audit Committee is responsible for establishing
procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing
matters, and for the confidential, anonymous submission by our
employees of concerns regarding questionable accounting or auditing
matters. In addition, the Audit Committee is directly responsible
for the appointment, retention, compensation and oversight of the
work of our independent registered public accounting firm,
including approving services and fee arrangements. All related
party transactions will be approved by the Audit Committee before
we enter into them.
Both
our independent registered public accounting firm and internal
financial personnel regularly meet with, and have unrestricted
access to, the Audit Committee.
The
Board has determined that each of Steven Lefkowitz (Chair) and
Janet Dillione qualifies as an “audit committee financial
expert” as that term is defined in the rules and regulations
of the SEC. The designation of each of Mr. Lefkowitz and Ms.
Dillione as an “audit committee financial expert” does
not impose on them any duties, obligations or liability that are
greater than those that are generally imposed on them as a member
of the Audit Committee and the Board, and their designation as an
“audit committee financial expert” pursuant to this SEC
requirement does not affect the duties, obligations or liability of
any other member of the Audit Committee or the Board.
Compensation Committee
The
Compensation Committee reviews and approves our compensation
policies and all forms of compensation to be provided to our
executive officers and directors, including, among other things,
annual salaries, bonuses, and other incentive compensation
arrangements. In addition, the Compensation Committee administers
our stock option and employee stock purchase plans, including
granting stock options to our executive officers and directors. The
Compensation Committee also reviews and approves employment
agreements with executive officers and other compensation policies
and matters.
Each
member of the Compensation Committee is a non-employee director, as
defined pursuant to Rule 16b-3 promulgated under the Exchange Act,
and an outside director, as defined pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”).
Nominating and Governance Committee
The
Nominating and Governance Committee identifies, evaluates and
recommends nominees to the Board and committees of the Board,
conducts searches for appropriate directors and evaluates the
performance of the Board and of individual directors. The
Nominating and Governance Committee also is responsible for
reviewing developments in corporate governance practices,
evaluating the adequacy of our corporate governance practices and
reporting and making recommendations to the Board concerning
corporate governance matters.
Executive Officers
The
following table sets forth information concerning our current
executive officers:
|
Name
|
|
Age
|
|
Position(s) with CorMedix
|
|
Khoso
Baluch
|
|
61
|
|
Chief Executive Officer
|
|
Robert
Cook
|
|
63
|
|
Chief Financial Officer
|
|
John
Armstrong
|
|
75
|
|
Executive Vice President for Technical Operations
|
|
Elizabeth
Masson
|
|
40
|
|
Executive Vice President and Head of Clinical
Operations
|
See the
biography for Khoso Baluch under
“Directors.”
Robert Cook most
recently served as Chief Financial Officer of Bioblast Pharma Ltd.
from January 2016 to July 2016. His prior pharma experience
includes: Executive Vice President and Chief Financial Officer at
Strata Skin Sciences, Inc. from April 2014 to January 2016; Senior
Vice President and Chief Financial Officer at Immune
Pharmaceuticals, Inc. from August 2013 to March 2014, and its
predecessor EpiCept Corporation from April 2004 to August 2013,
including one year as Interim President and CEO of EpiCept in which
he completed the reverse merger of EpiCept into Immune. Previously
he served as CFO of publicly-held Pharmos Corporation. Mr. Cook
began his career in financial services at Chase Manhattan and he
also held a position as a Vice President in the Healthcare Group at
General Electric Capital Commercial Finance. Mr. Cook holds a B.S.
in Finance, magna cum
laude, from The American University, in Washington,
DC.
John Armstrong
became our Executive Vice President
for Technical Operations in March 2017. Prior to that, he
was been employed by us as a consultant beginning in November 2014,
performing the same services that he now performs as our
Executive Vice President for Technical
Operations. John has over 45
years’ experience in the pharmaceutical industry with broad
senior level cross functional experience and has held a number of
General Management positions. Most recently, from August 2010 to
January 2013, he was President, Operations for Correvio, a private
pharmaceutical company supplying product to over 50 countries, and
prior positions include President/CEO of Genaera Corporation, Sr.
Vice President of Urocor Corporation, CEO of Mills Biopharma,
President of Oread CMO, President of Endo Laboratories (subsidiary
of DuPont Merck), President of World-wide Manufacturing for DuPont
Merck Pharmaceuticals, Vice President Operations for Marion/ Marion
Merrill Dow, and held varied roles in Manufacturing, QA, Led
Integrated business systems development for three companies as well
as having expertise in business development. Mr. Armstrong holds an
executive M.B.A. from Century University. He is also a CPIM
(Certified in Production and Inventory
Management).
Elizabeth Masson
became our Executive Vice President
and Head of Clinical Operations in March 2018. Prior to her
employment with us, Ms. Masson had been providing us clinical
operations expertise as a consultant beginning in late November
2017. Before she began her consulting career, she held several
progressive management roles in clinical operations, most recently
at Gemphire Therapeutics, as Vice President, Clinical Operations.
Ms. Masson received her B.A. in Leadership and Organizational
Management from Bay Path College.
Item 11.
Executive Compensation
DIRECTOR COMPENSATION
Director Compensation in Fiscal 2018
The
following table shows the compensation earned by each non-employee
director of our company for the year ended December 31,
2018.
|
Name
|
|
Option
Awards (1)
(2)
($)
|
Restricted Units Awards
(1)
(3) ($)
|
|
|
Janet
M. Dillione
|
30,000(4)
|
16,440
|
7,980
|
54,420
|
|
Gary Gelbfish (5)
|
235,000(5)
|
16,440
|
5,700
|
257,140
|
|
Myron
Kaplan
|
30,000
|
16,440
|
24,440
|
70,880
|
|
Mehmood
Khan
|
30,000
|
16,440
|
7,125
|
53,565
|
|
Steven
Lefkowitz
|
30,000
|
16,440
|
21,020
|
67,460
|
(1)
The
amounts included in this column are the dollar amounts representing
the full grant date fair value of each stock option award
calculated in accordance with FASB ASC Topic 718 and do not
represent the actual value that may be recognized by the directors
upon option exercise. For information on the valuation assumptions
used in calculating this amount, see Note 8 to our audited
financial statements included in this Annual Report on Form
10-K.
(2)
As of December 31,
2018, the number of shares underlying options held by each
non-employee director was as follows: 225,000 shares for Ms.
Dillione; 115,000 shares for Dr. Gelbfish; 130,000 shares for Mr.
Kaplan; 115,000 shares for Dr. Khan; and 115,000 shares for Mr.
Lefkowitz.
(3)
As
of December 31, 2018, the number of restricted stock units held by
each non-employee director was as follows: 2,334 shares for Ms.
Dillione; 1,667 shares for Dr. Gelbfish; 12,001 shares for Mr.
Kaplan; 2,084 shares for Dr. Khan; and 11,001 shares for Mr.
Lefkowitz.
(4)
Includes
fees of $30,000 for Ms. Dillione that were deferred. See
“Directors Compensation Plan” below for a description
of the deferral plan pursuant to which the deferrals were
made.
(5)
Fees
earned for 2018 include $25,000 as a director and $210,000 as a
consultant. Also see “Related Party Transactions”
below. Dr. Gelbfish resigned as a director on January 14,
2019.
Director Compensation Plan
In late
2016 and again in late 2018, with the assistance of Frederic W.
Cook & Co., the Compensation Committee reviewed a peer group of
14 public companies, which group was used by Frederic W. Cook &
Co. to conduct a compensation study for purposes of establishing
director compensation. The composition of the peer group was based
on the following criteria: (i) companies operating in a similar
industry sector, (ii) publicly traded companies, (iii) companies of
similar size, and (iv) companies of similar business operation and
stage of research and development. The Compensation Committee also
used this data in various combinations in an effort to establish
director compensation that reflects our particular facts and
circumstances.
Based
on the information presented by Frederic W. Cook & Co., in
February 2017, we adopted the following cash and equity
compensation plan for non-employee directors. In December 2018, we
increased several elements of non-employee director compensation,
effective January 1, 2019, as reflected below. Each director
receives an annual cash fee of $25,000, the Board Chair and
committee Chairs each receives an additional $5,000. Upon a
director’s first election to the Board, he or she will be
granted an option to purchase 75,000 (increased to 100,000) shares
of our common stock that vest one third each on the date of grant
and the first and second anniversary of the date of grant, subject
to continued service on the Board through the vesting date. In the
next calendar year after his or her election to the Board and
annually thereafter, each director will be granted (i) an option to
purchase 40,000 (increased to 75,000) shares of our common stock
that vest monthly over one year after the date of grant, subject to
continued service on the Board through the vesting date, and
(ii) restricted stock units in the amount of the lesser of
10,000 units or $25,000 divided by our stock price on the date of
grant (increased to 12,500 and $25,000), with the Board chair
receiving an additional number of restricted stock units in the
amount of the lesser of 12,000 units or $24,000 divided by our
stock price on the date of grant (increased to 15,000 and $30,000),
the Audit Committee chair receiving an additional number of
restricted stock units in the amount of the lesser of 6,000 units
or $12,000 divided by our stock price on the date of grant
(increased to 7,500 and $15,000), the Compensation Committee chair
receiving an additional number of restricted stock units in the
amount of the lesser of 4,000 units or $8,000 divided by our stock
price on the date of grant (increased to 5,000 and $10,000), and
the Nomination and Governance Committee chair receiving an
additional number of restricted stock units in the amount of the
lesser of 2,500 units or $5,000 divided by our stock price on the
date of grant (increased to 3,000 and $6,000). In addition, in
September 2018, we formed the Strategic Finance Committee, which
has two co-chairs each of whom, beginning with fiscal year 2019,
receives an annual cash fee of $5,000 and restricted stock units in
the amount of the lesser of 5,000 units or $10,000 divided by our
stock price on the date of grant. Restricted stock units vest
monthly over one year after the grant date, subject to continued
service on the Board through the vesting date.
The
exercise price per share of each stock option granted to our
non-employee directors is equal to the fair market value of our
common stock as determined in good faith by our Board on the date
of the grant.
In July
2014, we adopted a Deferred Compensation Plan for Directors,
pursuant to which our non-employee directors may defer all of their
cash director fees and restricted stock units. Any cash fees due a
participating director will be converted into a number of shares of
our common stock by dividing the dollar amount of fees payable by
the closing price of our common stock on the date such fees would
be payable, and the director’s unfunded account would be
credited with the shares. The shares that accumulate in a
director’s account will be paid to the director on the tenth
business day in January following the year in which the
director’s service terminates for whatever reason, other than
death, in which case the account will be paid within 30 days of the
date of death to the designated beneficiaries, if any. If there are
no designated beneficiaries, the account will be paid out the same
as with any other termination of service. In the event of a change
in control of our company, the director would receive cash in an
amount equal to the number of shares in the account multiplied by
the fair market value of our common stock on the change in control
date, and the payment would be accelerated to five business days
after the effective date of the change in control.
EXECUTIVE COMPENSATION
Components of Compensation
The key components of our executive compensation
package are cash compensation (salary and annual bonuses),
long-term equity incentive awards and change in control and other
severance agreements. These components are administered with the
goal of providing total compensation that recognizes meaningful
differences in individual performance, is competitive, varies the
opportunity based on individual and corporate performance, and is
valued by our Named Executive Officers.
Base Salary
It
is the Compensation Committee’s objective to set a
competitive rate of annual base salary for each Named Executive
Officer. The Compensation Committee believes competitive base
salaries are necessary to attract and retain top quality
executives, since it is common practice for public companies to
provide their named executive officers with a guaranteed annual
component of compensation that is not subject to performance risk.
The Compensation Committee, on its own or with outside consultants,
may establish salary ranges for the Named Executive Officers, with
minimum to maximum opportunities that cover the normal range of
market variability. The actual base salary for each Named Executive
Officer is then derived from those salary ranges based on his
responsibility, tenure and past performance and market
comparability. Annual base salaries for the Named Executive
Officers are reviewed and approved by the Compensation Committee in
the first quarter following the end of the previous performance
year. Changes in base salary are based on the scope of an
individual’s current job responsibilities, individual
performance in the previous performance year, target pay position
relative to the peer group, and our salary budget guidelines. The
Compensation Committee reviews established goals and objectives,
and determines an individual’s achievement of those goals and
objectives and considers the recommendations provided by the Chief
Executive Officer to assist it in determining appropriate salaries
for the Named Executive Officers other than the Chief Executive
Officer.
The base salary information for our Named
Executive Officers for 2017 and 2018 is set forth in the Summary
Compensation Table below. In October 2016, February 2017, March
2017, and March 2018, respectively, we entered into an employment
agreement with each of Khoso Baluch, our Chief Executive Officer,
Robert Cook, our Chief Financial Officer, John Armstrong, our
Executive Vice President for Technical Operations, and Elizabeth
Masson, our Executive Vice President and Head of Clinical
Operations. These agreements provide for a salary for each Named
Executive Officer and are described under the caption
“Employment Agreements.”
Annual Bonuses
As
part of their compensation package, our Named Executive Officers
generally have the opportunity to earn annual non-equity incentive
bonuses. Annual non-equity bonuses are designed to reward superior
executive performance while reinforcing our short-term strategic
operating goals. The Compensation Committee establishes each year a
target award for each Named Executive Officer based on a percentage
of base salary, and based on any applicable terms in any individual
employment agreements. Annual bonus targets as a percentage of
salary increase with executive rank so that for the more senior
executives, a greater proportion of their total cash compensation
is contingent upon annual performance.
At
the beginning of the performance year, each Named Executive
Officer, in conjunction with the Chief Executive Officer,
establishes annual goals and objectives. Actual bonus awards are
based on an assessment against the pre-established goals for each
Named Executive Officer’s individual performance, the
performance of the business function for which he is responsible,
the executive management team’s overall performance, and/or
our company’s overall performance for the year. For any given
performance year, proposed annual bonuses may range from 0% to 100%
of target, or higher under certain circumstances, based on
corporate, team and individual performance. Corporate, team and
individual performance has a significant impact on the annual bonus
amounts because the Compensation Committee believes it is a precise
measure of how the Named Executive Officer contributed to business
results.
Pursuant to their
respective employment agreements, Mr. Baluch, Mr. Cook, Mr.
Armstrong and Ms. Masson are each eligible for an annual bonus,
which may equal up to 80%, 30%, 35% and 30%, respectively, of his
or her base salary then in effect, as determined by our Board or
compensation committee. In determining such bonus, our Board or
compensation committee will take into consideration the achievement
of specified company objectives, predetermined by the Board in
consultation with the Chief Executive Officer, and specified
personal objectives, predetermined by the Board and the Chief
Executive Officer.
Long-Term Incentive Equity Awards
We
believe that long-term performance is achieved through an ownership
culture that encourages high performance by our Named Executive
Officers through the use of stock-based awards. Our 2006 Stock Plan
and 2013 Stock Plan were each established to provide our employees,
including our Named Executive Officers, with incentives to help
align employees’ interests with the interests of our
stockholders. Effective upon the approval by our stockholders of
our 2013 Stock Plan, we were no longer able to issue any award
under the 2006 Stock Plan. The Compensation Committee believes that
the use of stock-based awards offers the best approach to achieving
our compensation goals. We have historically elected to use stock
options as the primary long-term equity incentive vehicle; however,
the Compensation Committee has used restricted stock in the past
and may in the future utilize restricted stock as part of our
long-term incentive program. We have selected the Black-Scholes
method of valuation for share-based compensation. Due to the early
stage of our business and our desire to preserve cash, we may
provide a greater portion of total compensation to our Named
Executive Officers through stock options and restricted stock
grants than through cash-based compensation. The Compensation
Committee generally oversees the administration of our 2006 Stock
Plan and our 2013 Stock Plan.
Stock Options
Our
2013 Stock Plan (and formerly our 2006 Stock Plan) authorizes us to
grant options to purchase shares of common stock to our employees,
directors and consultants.
The
Compensation Committee reviews and approves stock option awards to
Named Executive Officers based upon a review of competitive
compensation data, its assessment of individual performance, a
review of each Named Executive Officer’s existing long-term
incentives, and retention considerations. Periodic stock option
grants are made at the discretion of the Compensation Committee to
eligible employees and, in appropriate circumstances, the
Compensation Committee considers the recommendations of our Chief
Executive Officer.
Stock
options granted to employees have an exercise price equal to the
fair market value of our common stock on the day of grant,
typically vest over a time or upon the achievement of certain
performance-based milestones and are based upon continued
employment, and generally expire 10 years after the date of grant.
The fair value of the options granted to the Named Executive
Officers in the Summary Compensation Table is determined in
accordance with the Black-Scholes method of valuation for
share-based compensation. Incentive stock options also include
certain other terms necessary to ensure compliance with the
Internal Revenue Code of 1986.
We
expect to continue to use stock options as a long-term incentive
vehicle because:
●
Stock
options align the interests of our Named Executive Officers with
those of our stockholders, supporting a pay-for performance
culture, foster employee stock ownership, and focus the management
team on increasing value for our stockholders.
●
Stock
options are performance-based. All of the value received by the
recipient of a stock option is based on the growth of the stock
price. In addition, stock options can be issued with vesting based
on the achievement of specified milestones.
●
Stock
options help to provide balance to the overall executive
compensation program as base salary and annual bonuses focus on
short-term compensation, while the vesting of stock options
increases stockholder value over the longer term.
●
The
vesting period of stock options encourages executive retention and
the preservation of stockholder value. In determining the number of
stock options to be granted to our Named Executive Officers, we
take into account the individual’s position, scope of
responsibility, ability to affect profits and stockholder value and
the individual’s historic and recent performance and the
value of stock options in relation to other elements of the
individual Named Executive Officer’s total
compensation.
Restricted Stock
Our
2013 Stock Plan (and formerly our 2006 Stock Plan) authorizes us to
grant restricted stock. Restricted stock grants were awarded to
John Armstrong in 2017 and are included in the summary compensation
table. In order to implement our long-term incentive goals, we may
grant shares of restricted stock in the future.
Executive Benefits and Perquisites
Our
Named Executive Officers, some of whom may be parties to employment
or consulting agreements, will continue to be parties to such
agreements in their current form until the expiration or
termination of the employment or consulting agreement or until such
time as the Compensation Committee determines in its discretion
that revisions to such agreements are advisable. In addition,
consistent with our compensation philosophy, we intend to continue
to maintain our current benefits for our Named Executive Officers,
including medical, dental and life insurance and the ability to
contribute to a 401(k) plan; however, the Compensation Committee in
its discretion may revise, amend or add to the officer’s
executive benefits if it deems it advisable. We believe these
benefits are currently comparable to benefit levels for comparable
companies.
Employment Agreements
Employment Agreements with Current Named Executive
Officers
On September 27, 2016, we entered into an
employment agreement with Khoso Baluch, our Chief Executive
Officer. On January 30, 2017, we entered into an employment
agreement, effective February 1, 2017, with Robert Cook to serve as
our Chief Financial Officer. On March 1, 2017, we entered into an
employment agreement with John Armstrong to serve as our Executive
Vice President for
Technical Operations. On March 19,
2018, we entered into an employment agreement with Elizabeth Masson
to serve as our Executive Vice President and Head of Clinical 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.
Pursuant
to their respective agreements, Mr. Baluch will receive an annual
salary of $375,000, Mr. Cook an annual salary of $350,000, Mr.
Armstrong an annual salary of $310,000 and Ms. Masson an annual
salary of $280,000, which cannot be decreased unless all officers
and/or members of our executive management team experience an equal
or greater percentage reduction in base salary and/or total
compensation, provided that any reduction in executive’s
salary may be no greater than 25%. Each executive will be eligible
for an annual bonus, which may equal up to 80% for Mr. Baluch, up
to 30% for Mr. Cook, up to 35% for Mr. Armstrong and up to 30% for
Ms. Masson, of his or her base salary then in effect, as determined
by our Board or the Compensation Committee. In determining such
bonus, our Board or the Compensation Committee will take into
consideration the achievement of specified company objectives,
predetermined by our Board and Chief Executive Officer, in the case
of Mr. Baluch, and by our Chief Executive Officer in the case of
Mr. Cook, Mr. Armstrong and Ms. Masson, and approved by the Board
or the Compensation Committee, and specified personal objectives,
predetermined by the Board with each executive. For fiscal year
2017, Mr. Cook’s and Mr. Armstrong’s bonuses were
prorated, and for fiscal 2018, Ms. Masson’s bonus was
prorated, contingent upon each meeting performance objectives
established by the Board with the executive. Each executive must be
employed through December 31 of a given year to earn that
year’s annual bonus.
The following provisions of the employment agreements with Mr.
Baluch, Mr. Cook, Mr. Armstrong and Ms. Masson are identical except
where noted.
If we terminate the executive’s employment
for Cause (as defined below), the executive will be entitled to
receive only the accrued compensation due to him or her as of the date of such
termination, rights to
indemnification and directors’ and officers’ liability
insurance, and as otherwise required by law. All unvested shares of
restricted stock in the case of Mr. Baluch, and all unvested
options then held by the executive will be forfeited to us as of
such date.
If we terminate the executive’s employment other than for
Cause, death or disability, other than by notice of nonrenewal, or
if the executive resigns for Good Reason (as defined below), the
executive will receive the following benefits: (i) payment of any
accrued compensation and any unpaid bonus for the prior year, as
well as rights to indemnification and directors’ and
officers’ liability insurance and any rights or privilege
otherwise required by law; (ii) we
will continue to pay his or her base salary and benefits for a
period of twelve months in the case of Mr. Baluch and nine months
for the other executives following the effective date of the
termination of employment; (iii) payment on a prorated basis
for any target bonus for the year of termination based on the
actual achievement of the specified bonus objectives; (iv) if the
executive timely elects continued health insurance coverage under
COBRA, then we will pay the premium to continue such coverage for
him or her and his or her eligible dependents in an amount equal to
the portion paid for by us during the executive’s employment
until the conclusion of the time when he or she is receiving
continuation of base salary payments or until he or she becomes
eligible for group health insurance coverage under another
employer’s plan, whichever occurs first, provided however
that we have the right to terminate such payment of COBRA premiums
on behalf of the executive and instead pay him a lump sum amount
equal to the COBRA premium times the number of months remaining in
the specified period if we determine in our discretion that
continued payment of the COBRA premiums is or may be discriminatory
under Section 105(h) of the Internal Revenue Code of 1986, as
amended; and (v) in the case of Mr. Baluch, all restricted shares
and stock options, and in the case of Mr. Cook and Ms. Masson, 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. The separation benefits set forth above are
conditioned upon the executive executing a release of claims
against us, our parents, subsidiaries and affiliates and each such
entities’ officers, directors, employees, agents, successors
and assigns in a form acceptable to us, within a time specified
therein, which release is not revoked within any time period
allowed for revocation under applicable law.
For purposes of the agreement, “Cause” is defined
as: (i) the willful failure, disregard or refusal by the executive
to perform his or her material duties or obligations under the
agreement (other than as a result of executive’s mental
incapacity or illness, as confirmed by medical evidence provided by
a physician selected by us) that, in the case of Mr. Cook, Mr.
Armstrong and Ms. Masson, is not cured, to the extent subject to
cure, by the executive to our reasonable satisfaction within 30
days after we gave written notice thereof to executive; (ii) any
willful, intentional or grossly negligent act by the executive
having the effect of materially injuring (whether financially or
otherwise) our business or reputation or any of our affiliates;
(iii) executive’s conviction of any felony involving moral
turpitude (including entry of a guilty or nolo contendere plea);
(iv) the executive’s qualification as a “bad
actor,” as defined by 17 CFR 230.506(a); (v) the good faith
determination by the Board, after a reasonable and good-faith
investigation by us that the executive engaged in some form of
harassment or discrimination prohibited by law (including, without
limitation, harassment on the basis of age, sex or race) unless the
executive’s actions were specifically directed by the Board;
(vi) any material misappropriation or embezzlement by the
executive of our property or our affiliates (whether or not a
misdemeanor or felony); or (vii) material breach by the executive
of the agreement that is not cured, to the extent subject to cure,
by executive to our reasonable satisfaction within 30 days after we
give written notice thereof to the executive (20 days in the case
of Mr. Baluch).
For purposes of the agreement, “Good
Reason” is defined as: (i) any material breach of the
agreement by us; (ii) any material diminution by us of the
executive’s duties, responsibilities, or authority; (iii) a
material reduction in the executive’s annual base
salary unless all officers
and/or members of our executive management team experience an equal
or greater percentage reduction in annual base salary and/or total
compensation; (iv) in the case of Mr. Cook and Mr.
Armstrong, a required relocation of the primary place of
performance of the executive’s duties to a location more than
50 miles from our then location in Bedminster, New Jersey, provided
that a change in the location of the primary place of performance
of the executive’s duties will not constitute Good Reason if
such change occurs prior to a change in control and we only require
the executive to physically work at that new location two days or
less per workweek and provide reimbursement of the
executive’s reasonable travel expenses in commuting to such
new location; or (v) a material
reduction in the executive’s target bonus level unless all
officers and/or members of our executive management team experience
an equal or greater percentage reduction related to target bonus
levels.
If the executive terminates his or her employment by written notice
of termination or if the executive or we terminate his or her
employment by providing a notice of nonrenewal at least 90 days
before the agreement is set to expire, the executive will not be
entitled to receive any payments or benefits other than any accrued
compensation, any unpaid prior year’s bonus, rights to
indemnification and directors’ and officers’ liability
insurance and as otherwise required by law.
If the
executive’s employment is terminated as a result of his or
her death or disability, we will pay him or her or his or her
estate, as applicable, any accrued compensation and any unpaid
prior year’s bonus.
Our
agreements with Mr. Baluch, Mr. Cook, Mr. Armstrong and Ms. Masson
each contain a non-compete provision that provides that during the
term of each agreement and the 12-month period immediately
following the executive’s separation from employment for any
reason, the executive is prohibited from engaging in any business
involving the development or commercialization of a preventive
anti-infective product that would be a direct competitor of
Neutrolin or a product containing taurolidine or any other product
being actively developed or produced by us within the United States
and the European Union on the date of termination of his or her
employment.
Tax and Accounting Considerations
U.S.
federal income tax generally limits the tax deductibility of
compensation we pay to our Named Executive Officers to $1.0 million
in the year the compensation becomes taxable to the executive
officers. There is an exception to the limit on deductibility for
performance-based compensation that meets certain requirements.
Although deductibility of compensation is preferred, tax
deductibility is not a primary objective of our compensation
programs. Rather, we seek to maintain flexibility in how we
compensate our executive officers so as to meet a broader set of
corporate and strategic goals and the needs of stockholders, and as
such, we may be limited in our ability to deduct amounts of
compensation from time to time. Accounting rules require us to
expense the cost of our stock option grants. Because of option
expensing and the impact of dilution on our stockholders, we pay
close attention to, among other factors, the type of equity awards
we grant and the number and value of the shares underlying such
awards.
Pension Benefits
We do
not maintain any qualified or non-qualified defined benefit plans.
As a result, none of our Named Executive Officers participate in or
have account balances in qualified or non-qualified defined benefit
plans sponsored by us. Our Compensation Committee may elect to
adopt qualified or non-qualified benefit plans in the future if it
determines that doing so is in our best interests.
Nonqualified Deferred Compensation
None of
our Named Executive Officers participate in our have account
balances in nonqualified defined contribution plans or other
non-qualified deferred compensation plans maintained by us. Our
Compensation Committee may elect to provide our officers and other
employees with non-qualified defined contribution or other
non-qualified deferred compensation benefits in the future if it
determines that doing so is in our best interests.
Summary Compensation Table
The
following table sets forth information with respect to compensation
earned by our Named Executive Officers in the years ended December
31, 2018 and 2017:
|
Name and Principal Position
|
|
|
|
Restricted Stock Units
Awards (1)
($)
|
Non-equity Incentive Plan Compensation
($)
|
All Other Compensation ($)
|
|
|
Khoso Baluch (2)
|
2018
|
375,000
|
--
|
--
|
189,000(6)
|
22,841(7)
|
586,841
|
|
Chief
Executive Officer
|
2017
|
375,000
|
--
|
--
|
(6)
|
68,533(8)
|
443,533
|
|
Robert W. Cook (3)
|
2018
|
350,000
|
--
|
--
|
60,638(6)
|
23,546(7)
|
434,184
|
|
Chief
Financial Officer
|
2017
|
320,385
|
455,945
|
--
|
(6)
|
24,273(7)
|
800,603
|
|
John Armstrong (4)
|
2018
|
312,308
|
--
|
--
|
56,963(6)
|
--
|
369,271
|
|
Executive
Vice President for
|
2017
|
341,056(4)
|
167,020
|
78,604(4)
|
|
--
|
586,680
|
|
Technical
Operations
|
|
|
|
|
|
|
|
|
Elizabeth Masson (5)
|
2018
|
277,345(5)
|
65,410
|
--
|
(6)
|
21,723(7)
|
364,478
|
|
Executive
Vice President and Head of Clinical Operations
|
2017
|
2,800(5)
|
--
|
--
|
--
|
--
|
2,800
|
_____________________
(1)
The
amounts included in this column are the dollar amounts representing
the full grant date fair value of each award calculated in
accordance with FASB ASC Topic 718 and do not represent the actual
value that may be recognized by the Named Executive Officers upon
option exercise.
(2)
Mr.
Baluch became our Chief Executive Officer on October 3,
2016.
(3)
Mr.
Cook became our Chief Financial Officer on February 1,
2017.
(4)
Mr.
Armstrong became our Executive Vice President for Technical
Operations on March 1, 2017. His salary for 2017 includes fees as a
consultant.
(5)
Ms.
Masson became our Executive Vice President and Head of Clinical
Operations on March 19, 2018. Her salary for 2018 included fees as
a consultant and her 2017 salary consists of consulting
fees.
(6)
Non-equity
incentive bonuses paid in 2018 were for performance criteria set
for the year 2017. For the performance criteria set for the year
2018, we will report in a Form 8-K non-equity incentive bonuses, if
any, that are achieved.
(7)
Consists of 401K employer match, health and
insurance benefits.
(8)
Consists of health benefits, 401K employer match
and reimbursed moving expenses.
Outstanding Equity Awards at Fiscal Year-End 2018
The
following table contains certain information concerning unexercised
options for the Named Executive Officers as of December 31,
2018.
|
|
Number of Shares Underlying Unexercised Options (#) –
Exercisable
|
Number of Shares Underlying Unexercised Options (#) –
Unexercisable
|
Option Exercise Price ($)
|
|
|
Khoso
Baluch
|
725,000
|
825,000
|
2.52
|
10/03/2026
|
|
Robert
W. Cook
|
178,250
|
171,750
|
1.69
|
1/30/2027
|
|
John
Armstrong
|
10,000
|
--
|
1.52
|
11/14/2024
|
|
|
15,000
|
--
|
3.25
|
7/28/2025
|
|
|
195,632
|
4,368
|
2.51
|
3/08/2026
|
|
|
33,000
|
67,000
|
2.18
|
3/01/2027
|
|
Elizabeth
Masson
|
0
|
186,000
|
0.29
|
3/19/2028
|
Option Repricings
We
did not engage in any repricings or other modifications to any of
our Named Executive Officers’ outstanding options during the
year ended December 31, 2018.
Potential Payments on Change of Control
If the
severance payments called for in our agreements for Mr. Baluch, Mr.
Cook, Mr. Armstrong and Ms. Masson had been triggered on December
31, 2018, we would have been obligated to make the following
payments:
|
Name
|
Cash Payment
($ per month) and
(# of months paid)
|
Benefits
($ per month) and
(# of months paid)
|
Number of Options
(# that would vest) and
($ market value) (1)
|
|
Khoso
Baluch
|
$31,250
|
12
mos.
|
$1,858
|
12
mos.
|
825,000
|
$-0-
|
|
Robert W.
Cook
|
$29,167
|
9
mos.
|
$1,858
|
9 mos.
|
171,750
|
$-0-
|
|
John
Armstrong
|
$25,833
|
9
mos.
|
$1,858
|
9 mos.
|
71,368
|
$-0-
|
|
Elizabeth
Masson
|
$23,333
|
9
mos.
|
$2,317
|
9 mos.
|
186,000
|
$186,000
|
______________________
(1)
The market value
equals the difference the fair market value of the shares that
could be acquired based on the closing sale price per share of our
common stock on the NYSE American on December 31, 2018, which was
$1.29, and the exercise prices for the underlying stock
options.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Principal Stockholders
The
following table shows the number of shares of our common stock
beneficially owned as of February 28, 2019 by:
|
●
|
each
person known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
|
|
●
|
each
director;
|
|
●
|
each of
our executive officers named in the Summary Compensation Table
below (the “Named Executive Officers”) and our current
executive officers; and
|
|
●
|
all of
our current directors and executive officers as a
group.
|
This
table is based upon the information supplied by our Named Executive
Officers, directors and principal stockholders and from Schedules
13D and 13G filed with the SEC. Except as indicated in footnotes to
this table, the persons named in this table have sole voting and
investment power with respect to all shares of common stock shown,
and their address is c/o CorMedix Inc., 400 Connell Drive, Suite
5000, Berkeley Heights, New Jersey 07922. As February 28, 2019, we
had 118,404,171 shares of common stock outstanding. Beneficial
ownership in each case also includes shares issuable upon exercise
of outstanding options that can be exercised within 60 days after
February 28, 2019 for purposes of computing the percentage of
common stock owned by the person named. Options owned by a person
are not included for purposes of computing the percentage owned by
any other person.
|
Name and Address
of Beneficial Owner
|
Common
Stock
Beneficially Owned (1)
|
|
|
|
|
|
5% or Greater Stockholders
|
|
|
|
Elliott Associates,
L.P. (2)
|
12,137,477
|
9.9%
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
Khoso Baluch
(3)
|
1,010,373
|
*
|
|
Robert Cook
(4)
|
360,333
|
*
|
|
John Armstrong
(5)
|
565,708
|
*
|
|
Elizabeth Masson
(6)
|
181,000
|
*
|
|
Janet M. Dillione
(7)
|
369,533
|
*
|
|
Myron Kaplan
(8)
|
585,540
|
*
|
|
Mehmood Khan
(9)
|
677,208
|
*
|
|
Steven Lefkowitz
(10)
|
515,885
|
*
|
|
All executive officers and directors as a
group (8 persons) (11)
|
4,265,580
|
3.5%
|
|
|
|
|
|
|
|
|
(1)
|
Based
upon 118,404,171 shares of our common stock outstanding on February
28, 2019 and, with respect to each individual holder, rights to
acquire our common stock exercisable within 60 days of February 28,
2019.
|
|
|
(2)
|
Due to
the Ownership Limitation (as defined below), Elliott Associates,
L.P. (“Elliott Associates”) may be deemed the
beneficial owner of 12,137,477 shares of our common stock
through securities held by it and by Manchester Securities Corp., a
wholly-owned subsidiary of Elliott Associates
(“Manchester”), and Elliott International, L.P.
(“Elliott International”), the investment advisor of
which is an affiliate of the investment advisor of Elliott
Associates. Elliott Associates beneficially holds: (i) 2,833,470
shares of our common stock held by Elliott International, (ii)
1,333,398 shares of our common stock held by Elliott Associates,
(iii) May 2013 warrants held by Manchester exercisable for 500,000
shares of our common stock, (iv) 52,500 shares of our Series C-2
non-voting convertible preferred stock held by Elliott Associates
convertible into 525,000 shares of our common stock, (v) October
2013 warrants held by Elliott Associates exercisable for 262,500
shares of our common stock, (vi) 97,500 shares of ourSeries C-2
non-voting convertible preferred stock held by Elliott
International convertible into 975,000 shares of our common stock,
(vii) October 2013 warrants held by Elliott International
exercisable for 487,500 shares of our common stock, (viii) 73,962
shares of our Series D non-voting convertible preferred stock held
by Manchester convertible into 1,479,240 shares of our common
stock, (ix) March 2015 Warrants held by Manchester convertible into
200,000 shares of our common stock, (x) May 2017 Series B warrants
held by Elliott International convertible into 1,360,001 shares of
our common stock, (xi) May 2017 Series B warrants held by Elliott
Associates convertible into 640,000 shares of our common stock,
(xii) 89,623 shares of our Series E non-voting convertible
preferred stock held by Manchester convertible into 1,959,759
shares of our common stock, (xiii) 1,360 shares of our Series F
non-voting convertible preferred stock held by Elliott
International convertible into 8,395,062 shares of our common
stock, (xiv) 640 shares of our Series F non-voting convertible
preferred stock held by Elliott Associates convertible into
3,950,617 shares of our common stock, (xv) November 2017 warrants
exercisable for 384,103 shares of our common stock held by Elliott
International, (xvi) November 2017 warrants exercisable for 180,755
shares of our common stock held by Elliott Associates, (xvii)
December 2018 warrants exercisable for 450,000 shares of our common
stock held by Manchester, and (xviii) a convertible note held by
Manchester convertible into 5,000,000 shares of our common stock
(the May 2013 warrants, the October 2013 warrants, the March 2015
Warrants, the May 2017 Series B warrants, the November 2017
warrants, the December 2018 warrants and convertible note and all
shares of preferred stock shall collectively be referred to herein
as the “Convertible Securities”). However, in
accordance with Rule 13d-4 under the Exchange Act, the number of
shares of our common stock into which the Convertible Securities
are convertible or exercisable, as applicable, are limited pursuant
to the terms of the Convertible Securities to that number of shares
of our common stock which would result in Elliott Associates having
aggregate beneficial ownership of, with respect to the May 2013
warrants, the October 2013 warrants, the March 2015 Warrants, the
May 2017 Series B warrants, the November 2017 warrants, the
December 2018 warrants, the Series C-2 preferred stock, the Series
D preferred stock, the Series E preferred stock, the Series F
preferred stock and the December 2018 convertible note, 9.99% of
the total issued and outstanding shares of our common stock (the
"Ownership Limitation"). Elliott Associates disclaims beneficial
ownership of any and all shares of our common stock issuable upon
any conversion or exercise of the Convertible Securities if such
conversion or exercise would cause Elliott Associates’
aggregate beneficial ownership to exceed or remain above the
applicable Ownership Limitation (as is currently the case).
Therefore, Elliott Associates disclaims beneficial ownership of any
shares of our common stock, issuable upon any conversion or
exercise of the May 2013 warrants, the October 2013 warrants, the
March 2015 Warrants, the May 2017 Series B warrants, the November
2017 warrants, the December 2018 warrants, the Series C-2 preferred
stock, the Series D preferred stock, the Series E preferred stock,
the Series F preferred stock and the December 2018 convertible
note, which conversion or exercise would be prohibited by the
Ownership Limitation. The business address of Elliott Associates is
40 West 57th Street, 30th Floor, New York, New York 10019. Based
solely on information contained in a Schedule 13D filed with the
SEC on November 13, 2017 by Elliott Associates and other
information known to us.
|
|
|
|
|
|
(3)
|
Consists
of (i) 250,373 shares of our common stock, and (ii) 760,000 shares
of our common stock issuable upon exercise of stock
options.
|
|
|
(4)
|
Consists
of (i) 127,083 shares of our common stock, and (ii) 233,250 shares
of our common stock issuable upon exercise of stock
options.
|
|
|
(5)
|
Consists
of (i) 306,890 shares of our common stock, and (ii) 258,818 shares
of our common stock issuable upon exercise of stock
options.
|
|
|
(6)
|
Consists
of (i) 40,000 shares of our common stock, and (ii) 141,000 shares
of our common stock issuable upon exercise of stock
options.
|
|
|
(7)
|
Consists
of (i) 122,867 shares of our common stock, (ii) 243,750 shares of
our common stock issuable upon exercise of stock options, and (iii)
2,916 shares of our common stock upon issuance of restricted stock
units.
|
|
|
(8)
|
Consists
of 428,040 shares of our common stock, (ii) 148,750 shares of our
common stock issuable upon exercise of stock options. and (iii)
8,750 shares of our common stock upon issuance of restricted stock
units.
|
|
|
(9)
|
Consists
of 565,874 shares of our common stock, and (ii) 108,750 shares of
our common stock issuable upon exercise of stock options, and (iii)
2,584 shares of our common stock upon issuance of restricted stock
units.
|
|
|
(10)
|
Consists
of 362,969 shares of our common stock, (ii) 108,750 shares of our
common stock issuable upon exercise of stock options, (iii) 22,500
shares of our common stock issuable upon exercise of warrants, and
(iv) 15,000 shares of our common stock issuable upon exercise of
warrants through Wade Capital Corporation Money Purchase Plan, an
entity for which Mr. Lefkowitz has voting and investment control,
and (v) 6,666 shares of our common stock upon issuance of
restricted stock units.
|
|
|
(11)
|
Consists
of (i) the following held by our directors and executive officers
(A) 2,204,096 shares of our common stock, (B) 2,003,068 shares of
our common stock issuable upon exercise of stock options, (C)
37,500 shares of our common stock upon exercise of warrants, and
(D) 20,916 shares of our common stock upon issuance of restricted
stock units, as referenced in footnotes 3 through 10.
|
Item 13.
Certain
Relationships and Related Transactions and Director
Independence
Related Party Transactions
On
November 29, 2017, we hired Dr. Gary Gelbfish, at that time one of
our directors, as a consultant to assist in our planned interim
analysis for our LOCK-IT 100 clinical trial for Neutrolin. Pursuant
to the consulting agreement between us and Dr. Gelbfish, in
September 2018, we paid $210,000 in fees submitted by Dr. Gelbfish
under the consulting agreement for his work in the data quality
review for the interim analysis of our LOCK-IT-100 clinical trial
for Neutrolin. Under the terms of the consulting agreement, Dr.
Gelbfish was compensated at the rate of $800 per hour. The
consulting agreement expired on September 30, 2018. In January
2019, Dr. Gelbfish resigned as a director.
Procedures
for Review and Approval of Transactions with Related
Persons
Pursuant to the
Audit Committee Charter, the Audit Committee is responsible for
reviewing and approving all related party transactions as defined
under Item 404 of Regulation S-K, after reviewing each such
transaction for potential conflicts of interests and other
improprieties. Our policies and procedures for review and approval
of transactions with related persons are in writing in our Code of
Conduct and Ethics available on our website at www.cormedix.com
under the “Investor Relations—Corporate
Governance” tab.
The
information on Board independence is found in Item 10 of this
Report under the heading “Board
Independence.”
Item 14.
Principal
Accounting Fees and Services
Fees Paid to the Independent Registered Public Accounting
Firm
The
following table sets forth fees billed to us by Friedman LLP, our
independent registered public accounting firm for the years ended
December 31, 2018 and 2017, for services relating to: auditing our
annual financial statements; reviewing our financial statements
included in our quarterly reports on Form 10-Q; reviewing
registration statements during 2018 and 2017; financing activities
in 2018 and 2017; and services rendered in connection with tax
compliance, tax advice and tax planning, and all other fees for
services rendered.
|
|
|
|
|
Audit
Fees
|
$195,500
|
$188,100
|
|
Audit Related
Fees
|
-
|
5,000
|
|
Tax
Fees
|
-
|
11,300
|
|
All Other
Fees
|
-
|
--
|
|
Total
|
$195,500
|
$204,400
|
Audit Committee Pre-Approval Policies and Procedures
Pursuant to its
charter, the Audit Committee is responsible for reviewing and
approving in advance any audit and any permissible non-audit
engagement or relationship between us and our independent
registered public accounting firm. The Audit Committee may delegate
to one or more designated members of the Audit Committee the
authority to grant pre-approvals, provided such approvals are
presented to the Audit Committee at a subsequent meeting. If the
Audit Committee elects to establish pre-approval policies and
procedures regarding non-audit services, the Audit Committee must
be informed of each non-audit service provided by our independent
registered public accounting firm. Audit Committee pre-approval of
audit and non-audit services will not be required if the engagement
for the services is entered into pursuant to pre-approval policies
and procedures, provided the policies and procedures are detailed
as to the particular service, the Audit Committee is informed of
each service provided and such policies and procedures do not
include delegation of the Audit Committee’s responsibilities
under the Exchange Act to our management. Audit Committee
pre-approval of non-audit services (other than review and
attestation services) also will not be required if such services
fall within available exceptions established by the SEC. All
services performed by our independent registered public accounting
firm during 2018 were pre-approved by the Audit
Committee.
PART
IV
Item
15.
Exhibits,
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 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 Second
Amended Restated Warrant originally issued on October 22,
2013.
|
|
8-K
|
|
1/3/2019
|
|
4.2
|
|
|
|
|
|
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
|
|
|
|
|
|
Third Amended and
Restated Warrant originally issued May 30,
2013.
|
|
8-K
|
|
01/03/2019
|
|
4.3
|
|
|
|
|
|
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 B Warrant to Purchase Common Stock of CorMedix Inc.
issued on May 3, 2017.
|
|
8-K
|
|
05/03/2017
|
|
4.2
|
|
|
|
|
|
Form
of Underwriter’s Warrant to Purchase Common Stock of CorMedix
Inc., issued May 3, 2017.
|
|
8-K
|
|
05/03/2017
|
|
4.3
|
|
|
|
|
|
Form
of Warrant issued on November 16, 2017.
|
|
8-K
|
|
11/13/2017
|
|
4.15
|
|
|
|
|
|
Form of Warrant issued
on December 31, 2018
|
|
8-K
|
|
1/03/2019
|
|
4.1
|
|
|
|
|
|
Senior Secured
Convertible Note issued December 31, 2018.
|
|
8-K
|
|
1/03/2019
|
|
4.4
|
|
|
|
|
|
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.
|
|
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
|
|
|
|
|
|
2013 Stock
Incentive Plan
|
|
10-K
|
|
3/27/2013
|
|
10.27
|
|
|
|
|
|
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 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
|
|
|
|
|
|
Employment
Agreement, effective March 19, 2018, between CorMedix Inc. and
Elizabeth Masson
|
|
10-Q
|
|
5/15/2018
|
|
10.1
|
|
|
|
|
|
Securities
Purchase Agreement, dated December 31, 2018, between CorMedix Inc.
and the investor named therein.
|
|
8-K
|
|
1/03/2019
|
|
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, 2018, formatted in Extensible Business Reporting Language
(XBRL): (i) Balance Sheets at December 31, 2018 and 2017, (ii)
Statements of Operations for the years ended December 31, 2018 and
2017, (iii) Statements of Changes in Stockholders’ Equity for
the years ended December 31, 2018 and 2017, (iv) Statements of Cash
Flows for the years ended December 31, 2018 and 2017 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.
|
Item
16.
Form
10-K Summary
Not
applicable.
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
14, 2019
|
|
By: /s/
Khoso Baluch
|
|
|
|
|
Khoso
Baluch
|
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
March
14, 2019
|
|
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
14, 2019
|
|
Khoso
Baluch
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
/s/
Robert Cook
|
Chief
Financial Officer
|
March
14, 2019
|
|
Robert
Cook
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
/s/
Myron Kaplan
|
Chairman
of the Board and Director
|
March
14, 2019
|
|
Myron
Kaplan
|
|
|
|
|
|
|
|
/s/
Janet Dillione
|
Director
|
March
14, 2019
|
|
Janet
Dillione
|
|
|
|
|
|
|
|
/s/
Alan Dunton
|
Director
|
March
14, 2019
|
|
Alan
Dunton
|
|
|
|
|
|
|
|
/s/
Mehmood Khan
|
Director
|
March
14, 2019
|
|
Mehmood
Khan
|
|
|
|
|
|
|
|
/s/
Steven Lefkowitz
|
Director
|
March
14, 2019
|
|
Steven
Lefkowitz
|
|
|
CORMEDIX
INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
Financial Statements Index
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2018 and 2017
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) Years
Ended December 31, 2018 and 2017
|
F-4
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity Years Ended
December 31, 2018 and 2017
|
F-5
|
|
|
|
|
Consolidated
Statements of Cash Flows Years Ended December 31, 2018 and
2017
|
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,
2018 and 2017, 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, 2018, 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 t