Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes
contained elsewhere in this report. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities
Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995, including statements regarding our
expected financial condition, business and financing plans. These statements involve risks and uncertainties. Our actual results could
differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this report, particularly under the heading “Risk Factors.”
Overview
CorMedix
Inc. and our wholly owned German subsidiaries, CorMedix Europe GmbH and CorMedix Spain, S.L.U. (collectively referred to herein as “we,”
“us,” “our” and the “Company”), is a biopharmaceutical company focused on developing and commercializing
therapeutic products for the prevention and treatment of life-threatening diseases and conditions.
Our
primary focus is on the development of our lead product candidate, DefenCathTM, for potential commercialization in the United States,
or U.S., and other key markets as a catheter lock solution, or CLS. We have in-licensed the worldwide rights to develop and commercialize
DefenCath and Neutrolin®. The name DefenCath is the U.S. proprietary name that was conditionally approved by the U.S.
Food and Drug Administration, or FDA, while the name Neutrolin was used in the European Union, or EU, and other territories where we
received CE-Mark approval for the commercial distribution of Neutrolin as a CLS regulated as a medical device. DefenCath/Neutrolin is
a novel anti-infective solution (a formulation of taurolidine 13.5 mg/mL and heparin 1000 USP Units/mL) intended for the reduction and
prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as
hemodialysis, total parenteral nutrition, and oncology. Infection and thrombosis represent key complications among hemodialysis, total
parenteral nutrition and oncology 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 intravenous, or IV antibiotic treatment, long-term anticoagulation
therapy, removal/replacement of the central venous catheter, related treatment costs and increased mortality. We believe DefenCath addresses
a significant unmet medical need and a potential large market opportunity.
In
January 2015, the FDA designated DefenCath 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 upon approval of a New Drug Application, or NDA. In addition, in January 2015, the
FDA granted Fast Track designation to DefenCath Catheter Lock Solution, a designation intended to facilitate development and expedite
review of drugs that treat serious and life-threatening conditions so that the approved drug can reach the market expeditiously. The
Fast Track designation of DefenCath 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
December 2015, we launched our Phase 3 Prospective, Multicenter, Double-blind, Randomized, Active Control Study to Demonstrate Safety
& Effectiveness of DefenCath/Neutrolin in Preventing Catheter-related Bloodstream Infection in Subjects on Hemodialysis for End Stage
Renal Disease, or LOCK-IT-100, in patients with hemodialysis catheters in the U.S. The clinical trial was designed to demonstrate the
safety and effectiveness of DefenCath compared to the standard of care CLS, Heparin, in preventing CRBSIs. The primary endpoint for the
trial assessed the incidence of CRBSI and time to CRBSI for each study subject. Secondary endpoints were catheter patency, which was
defined as required use of tPA, or removal of catheter due to dysfunction, and removal of catheter for any reason.
As
previously agreed with the FDA, an interim efficacy analysis was performed when the first 28 potential CRBSI cases were identified in
our LOCK-IT-100 study that occurred through early December 2017. Based on these first 28 cases, there was a highly statistically significant
72% reduction in CRBSI by DefenCath relative to the active control of heparin (p=0.0034). Because the pre-specified level of statistical
significance was reached for the primary endpoint and efficacy had been demonstrated with no safety concerns, the LOCK-IT-100 study was
terminated early. The study continued enrolling and treating subjects until study termination, and the final analysis was based on a
total of 795 subjects with a total of 41 cases. There was a 71% reduction in CRBSI by DefenCath relative to heparin, which was highly
statistically significant (p=0.0006), with a good safety profile.
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The
FDA granted our request for a rolling submission and review of the NDA, which is designed to expedite the approval process for products
being developed to address an unmet medical need. Although the FDA usually requires two pivotal clinical trials to provide substantial
evidence of safety and effectiveness for approval of an NDA, the FDA will in some cases accept one adequate and well-controlled trial,
where it is a large multicenter trial with a broad range of subjects and study sites that has demonstrated a clinically meaningful and
statistically very persuasive effect on a disease with potentially serious outcome.
In
March 2020, we began the modular submission process for the NDA for DefenCath for the prevention of CRBSI in hemodialysis patients, and
in August 2020, the FDA accepted for filing the DefenCath NDA. The FDA also granted our request for priority review, which provides for
a six-month review period instead of the standard ten-month review period. As we announced in March 2021, the FDA informed us in its
Complete Response Letter, or CRL, that it could not approve the NDA for DefenCath in its present form. The FDA noted concerns at the
third-party manufacturing facility after a review of records requested by the FDA and provided by the contract manufacturing organization,
or CMO. Additionally, the FDA required a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn
from the vials despite an existing in-process control to demonstrate fill volume within specifications.
In
April 2021, we and the CMO met with the FDA to discuss proposed resolutions for the deficiencies identified in the CRL to us and the
Post-Application Action Letter, or PAAL, received by the CMO from the FDA for the NDA for DefenCath. There was an agreed upon protocol
for the manual extraction study identified in the CRL, which has been successfully completed. Addressing the FDA’s concerns regarding
the qualification of the filling operation necessitated adjustments in the process and generation of additional data on operating parameters
for manufacture of DefenCath. We and the CMO determined that additional process qualification was needed with subsequent validation to
address these issues. The FDA did not request additional clinical data and did not identify any deficiencies related to the data submitted
on the efficacy or safety of DefenCath from LOCK-IT-100. In draft labeling discussed with the FDA, the FDA added that the initial approval
will be for the limited population of patients with kidney failure receiving chronic hemodialysis through a central venous catheter.
This is consistent with our request for approval pursuant to 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 and approval of certain
antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs.
LPAD provides for a streamlined clinical development program involving smaller, shorter, or fewer clinical trials and is intended to
encourage the development of safe and effective products that address unmet medical needs of patients with serious bacterial and fungal
infections. We believe that LPAD will provide additional flexibility for the FDA to approve DefenCath to reduce CRBSIs in the limited
population of patients with kidney failure receiving hemodialysis through a central venous catheter.
On
February 28, 2022, we resubmitted the NDA for DefenCath to address the CRL issued by the FDA. In parallel, our third-party manufacturer
submitted responses to the deficiencies identified at the manufacturing facility in the PAAL issued by the FDA concurrently with the
CRL. On March 28, 2022, we announced that the resubmission of the NDA for DefenCath had been accepted for filing by the FDA. The FDA
considered the resubmission as a complete, Class 2 response with a six-month review cycle. The CMO notified us that an onsite inspection
by the FDA was conducted that resulted in FORM FDA 483 observations that are being addressed. The CMO submitted responses to the inspectional
observations along with a corrective action plan and requested a meeting with the FDA to discuss. We were also notified by our supplier
of heparin, an active pharmaceutical ingredient, or API, for DefenCath, that an inspection by the FDA for an unrelated API resulted in
a Warning Letter due to deviations from good manufacturing practices for the unrelated API.
On
August 8, 2022, we announced receipt of a second CRL from the FDA regarding our DefenCath NDA. The FDA stated that the DefenCath NDA
cannot be approved until deficiencies conveyed to the CMO and the heparin API supplier are resolved to the satisfaction of the FDA. There
were no other requirements identified by the FDA for us prior to resubmission of the NDA. The FDA has acknowledged the progress reports
submitted by the CMO on implementation of the ongoing corrective actions. Validation of manufacturing with heparin from an alternative
supplier is underway to prepare for resubmission of the NDA in the event that the Warning Letter at our current API supplier remains
unresolved. Corrective actions have been implemented to address the inspectional observations at the CMO and are under review by the
FDA.
47
As part of the NDA review process, the FDA notified
us that although the tradename DefenCath was conditionally approved, the FDA now has identified potential confusion with another pending
product name that is also under review. The ultimate acceptability of our proposed tradename is dependent upon which application is approved
first. As a precaution, we are preparing to submit an alternative proprietary name to the FDA which will undergo review.
We
previously announced an agreement with Alcami Corporation, or Alcami, a U.S. based contract manufacturer with proven capabilities for
manufacturing commercial sterile parenteral drug products. Alcami may function as an alternate manufacturing site for DefenCath for the
U.S. market. As part of the technology transfer and validation of the manufacturing process at Alcami, we would also expect to qualify
an alternate source of heparin API sourced from a major U.S. supplier.
We
intend to pursue additional indications for DefenCath use as a CLS in populations with unmet medical needs that may also represent potentially
significant market opportunities. While we are continuing to assess these areas, potential future indications may include use as a CLS
to reduce CRBSIs in total parenteral nutrition patients using a central venous catheter and in oncology patients using a central venous
catheter.
In
addition to DefenCath, 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
in children. We may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine
for the treatment of neuroblastoma in children. 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 several indications, including wound closure, surgical
meshes, and wound management. 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.
We
were granted a deferral by the FDA under the Pediatric Research Equity Act, or PREA, that requires sponsors to conduct pediatric studies
for NDAs for a new active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral
acknowledges that a pediatric assessment is required but permits the applicant to submit the pediatric assessment after the submission
of an NDA. We have made a commitment to conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients.
Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which, if granted, would provide
an additional six months of marketing exclusivity. DefenCath would then have the potential to receive a total marketing exclusivity period
of 10.5 years, including exclusivity pursuant to NCE and QIDP.
The
FDA regards taurolidine as a new chemical entity and therefore an unapproved new drug. Consequently, there is no appropriate predicate
medical 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 any medical device indications that we may pursue. In
the event that an NDA for DefenCath is approved by the FDA, the regulatory pathway for these medical device 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
the European Union, or EU, Neutrolin is regulated as a Class 3 medical device. 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.
In
September 2014, the TUV-SUD and The Medicines Evaluation Board of the Netherlands, or MEB, granted a label expansion for Neutrolin to
include use in oncology patients receiving chemotherapy, intravenous, or IV, hydration and IV medications via CVC for the EU. In December
2014, we received approval from the Hessian District President in Germany to expand the label for these same expanded indications. The
expansion also adds patients receiving medication and IV fluids via CVC 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.
48
In
September 2019, our registration with the Saudi Arabia Food and Drug Administration, or the SFDA, expired. As a result, we cannot sell
Neutrolin in Saudi Arabia and we do not intend to pursue renewal of our registration with the SFDA.
As
announced in May 2022, we began the process of winding down our operations in the EU and discontinued Neutrolin sales in both the EU
and the Middle East at the end of 2022.
Since
our inception, our operations 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 DefenCath in the U.S. and 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 prepare our pre-launch
commercial activities for DefenCath for the U.S. market and 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, 2022, we had an
accumulated deficit of approximately $275.4 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, 2022, 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; (vii) facilities and other allocated
expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii)
costs related to the manufacturing of the product that could potentially be available to support the commercial launch prior to marketing
approval. 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.
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 securing the marketing approval for
DefenCath in the U.S. In December 2015, we signed an agreement with a clinical 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 DefenCath
in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for
end stage renal disease. Our LOCK-IT-100 study was completed and all costs related to the agreement with the CRO has been paid.
49
We
are pursuing additional opportunities to generate value from taurolidine, an active component of DefenCath. 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 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 in children. We may seek one or more strategic partners or other sources of capital to help us develop
and commercialize taurolidine for the treatment of neuroblastoma in children.
Selling,
General and Administrative Expense
Selling,
general and administrative, or SG&A, expense includes costs related to commercial personnel, medical education professionals, marketing
and advertising, salaries and other related costs, including stock-based compensation expense, for persons serving in our executive,
sales, finance and accounting functions. Other SG&A expense includes facility-related costs not included in R&D expense, promotional
expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services.
Foreign
Currency Exchange Transaction Gain (Loss)
Foreign
currency exchange transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than our functional
currency and is reported in the consolidated statement of operations as a separate line item within other income (expense). The intercompany
loans outstanding between our Company based in New Jersey and our subsidiary based in Germany are not expected to be repaid in the foreseeable
future and the nature of the funding advanced is of a long-term investment nature. As such, unrealized foreign exchange movements related
to long-term intercompany loans are recorded in other comprehensive income (loss).
Interest
Income
Interest
income consists of interest earned on our cash equivalents and short-term investments.
Interest
Expense
Interest
expense consists of interest incurred on financing of expenditures.
Results
of Operations
Comparison
of the Years Ended December 31, 2022 and 2021
The
following is a tabular presentation of our consolidated operating results for the years ended December 31, 2022 and 2021 (in thousands):
2022 2021 % of Change Increase (Decrease)
Cost of sales (4 ) (149 ) (97 )%
Operating Expenses:
Foreign exchange transaction loss 37 (21 ) (275 )%
Interest expense, including amortization of debt discount (26 ) (16 ) 66 %
Total other (expense) income 337 (23 ) (1,575 )%
Other comprehensive (loss) income (4 ) (15 ) (71 )%
50
Revenue.
Revenue for the year ended December 31, 2022 was $65,000 as compared to $191,000 for the same period in 2021, a decrease of $126,000.
The decrease was attributable to lower sales in 2022 as compared to the same period in 2021, as a result of the winding down of our operations
in the EU and the discontinuance of Neutrolin sales in both the EU and the Middle East.
Cost
of Sales. Cost of sales for the year ended December 31, 2022 was $4,000 as compared to $149,000 for the same period in 2021, a decrease
of $145,000. The decrease was primarily attributable to the net decrease in cost of materials due to lower sales in 2022 as compared
to the same period in 2021, as a result of the winding down of our operations in the EU and the discontinuance of Neutrolin sales in
both the EU and the Middle East.
Research
and Development Expense. R&D expense for the year ended December 31, 2022 was $10,680,000, a decrease of $2,453,000 from $13,133,000
for the same period in 2021. The decrease was driven by a decrease in personnel expenses of $731,000, as a result of lower R&D headcount
in 2022 as compared to 2021, net decreases in costs related to the manufacturing of DefenCath prior to its potential marketing approval
of $617,000, and a decrease in consulting fees of $591,000, attributable to lower costs related to the resubmission of the DefenCath
NDA to the FDA. Additionally, there was also a decrease of $352,000 in non-cash charges for stock-based compensation.
Selling,
General and Administrative Expense. SG&A expense for the year ended December 31, 2022 was $20,006,000, an increase of $3,660,000
from $16,346,000 for the same period in 2021. The increase was primarily attributable to an increase in costs related to market research
studies and pre-launch activities in preparation for the potential marketing approval of DefenCath of $2,982,000 and an increase in legal
fees of $1,175,000, mainly due to securities litigation. There was also an increase in personnel expenses of $382,000, as a result of
additional SG&A hires in 2022 as compared to 2021. These increases were partially offset, among others of lesser significance, a
decrease in non-cash charges for stock-based compensation of $622,000, a decrease in consulting fees of $412,000.
Interest
Income. Interest income for the year ended December 31, 2022 was $326,000, an increase of $312,000 from $14,000 for the same period
in 2021. The increase was attributable to higher interest rates this year as compared to the same period last year.
Foreign
Exchange Transaction Income (Loss). Foreign exchange transaction income (losses) for the year ended December 31, 2022 and 2021 were
due to the re-measuring of transactions denominated in a currency other than our functional currency.
Interest
Expense. Interest expense for the year ended December 31, 2022 was $26,000 as compared to $16,000 for the same period in 2021. The
increase of $10,000 was due primarily to higher interest rates on expenses that were financed this year as compared to the same period
last year.
Tax
Benefit. Tax benefits for the years ended December 31, 2022 and 2021 of $586,000 and $1,250,000, respectively, was an income tax
benefit due to the sale of our unused NOL for the state fiscal years 2021 and 2020, respectively, through the NJEDA Program.
Other
Comprehensive Income (Loss). Unrealized foreign exchange movements related to long-term loans and the translation of the foreign
affiliate financial statements to U.S. dollars and unrealized movements related to short term investment are recorded in other comprehensive
income (loss) which resulted in a loss of $4,000 and $15,000 for the years ended December 31, 2022 and 2021, respectively.
51
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, our ongoing operations
have not been profitable since our inception. During the year ended December 31, 2022, we received net proceeds of $17,770,000 from the
issuance of 4,704,259 shares of common stock under our at-the-market-issuance sales agreement as compared to $41,456,000 of net proceeds
for the same period in 2021 from the issuance of 3,737,862 shares of common stock. Additionally, we also received $129,000 and $165,000
from the exercise of warrants during the years ended December 31, 2022 and 2021, respectively. We will continue to be reliant on external
sources of cash for the foreseeable future until we are able to generate revenue.
Net
Cash Used in Operating Activities
Net
cash used in operating activities for the year ended December 31, 2022 was $24,357,000 as compared to $21,155,000 in 2021, an increase
in net cash use of $3,202,000. The increase is primarily driven by an increase in net loss of $1,492,000, attributable to a net increase
in operating expenses of $1,206,000, and lower net proceeds from tax benefits of $586,000 as compared to $1,250,000 for the same period
in 2021. Additionally, the increase in net cash used in operating activities for the twelve months ended December 31, 2022 was due to
a decrease in accounts payable of $7,000 as compared to an increase of $1,082,000 for the same period in 2021, and a decrease in prepaid
expense and other current assets of $187,000 as compared to $667,000 last year, offset by an increase in accrued expenses of $962,000
compared to $94,000 for the same period in 2021.
Net
Cash (Used in) Provided by Investing Activities
Cash
used in investing activities for the year ended December 31, 2022 was $3,709,000 as compared to $9,135,000 of cash provided in the same
period in 2021. The net cash used during the year ended December 31, 2022, was mainly driven by the higher amount invested in short-term
investments, offset by the higher amount of matured investments and lower purchases of equipment as compared to the same period in 2021.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities for the year ended December 31, 2022 was $17,898,000 as compared to $41,758,000 for the same period
in 2021. During the year ended December 31, 2022, we generated net proceeds of $17,770,000 from the sale of our common stock in our at-the-market,
or ATM program, and $129,000 from the exercise of warrants. In the same period in 2021, we generated net proceeds of $41,456,000 from
the sale of our common stock in our ATM program, $165,000 from the exercise of warrants and $137,000 from the exercise of stock options.
Funding
Requirements and Liquidity
Our
total cash and cash equivalents and short-term investments as of December 31, 2022 and 2021, excluding restricted cash of $226,000 and
$234,000, respectively, was $58,792,000 and $65,466,000, respectively. During the year ended December 31, 2022, we realized net proceeds
of $17,770,000 from the sale of 4,704,259 shares of common stock under our ATM program. At December 31, 2022, we have $150,000,000 available
under our shelf registration statement filed on August 12, 2021 for the issuance of equity, debt or equity-linked securities and $31,640,000
under our ATM program, filed in November 2020.
Because
our business has not generated positive operating cash flow, we will likely 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 pre-launch and commercialization for DefenCath and will depend on our ability to raise
sufficient funds through various potential sources, such as equity, debt financings, and/or strategic relationships and potential
strategic transactions. We can provide no assurances that financing or strategic relationships will be available on acceptable
terms, or at all.
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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, 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.
Sales
of Neutrolin outside the U.S. are not expected to generate significant product revenues for the foreseeable future, and we expect to
grow product sales for DefenCath in the U.S., should we receive FDA approval. In the absence of significant revenue, we are likely to
continue generating operating cash flow deficits. We will continue to use cash as we increase other activities leading to the commercialization
of DefenCath upon approval, pursue business development activities, and incur additional legal costs to defend our intellectual property.
We
currently estimate that as of December 31, 2022, we have sufficient cash to fund operations for at least twelve months from the issuance
of this Annual Report on Form 10-K, after taking into consideration the costs for resubmission of the NDA and initial preparations for
the commercial launch for DefenCath. Additional financing will likely be needed to build out our commercial infrastructure following
FDA approval and to continue our operations should we decide to market and sell DefenCath in the U.S. on our own. 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 DefenCath.
We may also be required to delay, scale back or eliminate some or all of our research and development programs. Each of these alternatives
would likely have a material adverse effect on our business.
Contractual
Obligations
We
entered into a seven-year operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey
07922. The lease agreement, with a monthly average cost of approximately $17,000, commenced on September 16, 2020.
Critical
Accounting Estimates
Our
management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation
of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. On an ongoing basis, we evaluate these estimates and judgments, 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 requisite service period
on a straight-line basis.
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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.
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 Annual Report on Form 10-K beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
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)). 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
Other
than the appointment of our Chief Executive Officer, effective May 10, 2022, there were no changes in our internal control over financial reporting
during our year ended December 31, 2022, 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.
54
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 Principal Executive and Financial
Officer, has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022,
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,
2022.
Item 9B. Other Information
Not
applicable.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not
applicable.
55
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.
Directors
The
following table sets forth the name, age and position of each of our directors as of March 15, 2023:
Name Age Director Since Position(s) with CorMedix
Joseph Todisco 47 March 2022 Director and Chief Executive Officer
Paulo F. Costa 72 September 2020 Director
Janet Dillione 62 August 2015 Director
Gregory Duncan 58 November 2020 Director
Alan W. Dunton 68 March 2019 Director
Myron Kaplan 77 April 2016 Director and Chairman of the Board
Steven Lefkowitz 67 June 2017 Director
Joseph
Todisco became a director of CorMedix in March 2022. Prior to joining CorMedix as our Chief Executive Officer, he was a senior
executive at Amneal Pharmaceuticals, where for the past 11 years he has held various roles, most recently as Executive Vice President,
Chief Commercial Officer where he was responsible for Amneal Specialty, a growing branded products business. During his tenure at Amneal,
Mr. Todisco held roles overseeing corporate development and international operations, leading commercial teams in several international
markets including the UK, Australia and Germany, as well as leading Amneal’s merger integration with Impax Laboratories in 2018.
He was previously Co-Founder and managing executive of Gemini Laboratories, a specialty pharmaceutical company focused on the sales and
marketing for niche branded products in the US Market. Gemini Laboratories was established as an affiliate of Amneal Pharmaceuticals
and was subsequently acquired by Amneal in 2018. Prior to joining Amneal, Mr. Todisco was Vice President, Business Development &
Licensing at Ranbaxy, Inc. where he was responsible for developing and executing Ranbaxy’s North American commercial business strategy.
Prior to Ranbaxy, he held various roles at Par Pharmaceutical, and in his earlier career held positions at Oppenheimer & Company
and Marsh & McLennan Companies. Mr. Todisco obtained his MBA in finance from Fordham Graduate School of Business and his BA in Economics
from Georgetown University. Among other qualifications, attributes and skills, Mr. Todisco’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.
Paulo
F. Costa has been a director of CorMedix since September 2020. Mr. Costa previously served as President and Chief Executive Officer
of Novartis U.S. Corporation, from October 2005 to August 2008. Prior to his work at Novartis U.S. Corporation, Mr. Costa was President
and Chief Executive Officer of Novartis Pharmaceuticals, U.S. from July 1999 to September 2005. Prior to joining Novartis, Mr. Costa
spent 30 years at Johnson & Johnson, including as President of Janssen Pharmaceutica, Inc. from 1992 to 1998. From August 2009 to
August 2012, Mr. Costa served as Chairman of the Board of Amylin Pharmaceuticals Inc, a commercial stage biopharma company, until its
sale to Bristol-Myers Squibb and AstraZeneca in a $7 billion transaction in 2012. Mr. Costa served as Director from June 2009 to October
2013 and Chairman until May 2022 of MacroGenics, Inc., a public oncology focused biopharma company. Mr. Costa received his undergraduate
degree from São Paulo School of Business Administration and earned a master’s degree in business administration from Harvard
Business School. Among other experience, qualifications, attributes and skills, Mr. Costa’s significant depth of experience in
the pharmaceutical industry, including service as a director and executive of 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.
56
Janet
Dillione has been a director of CorMedix since August 2015. Since November 2020, Ms. Dillione has served as the Chief Executive
Officer of Connect America, a nationally recognized leader in comprehensive telehealth and remote patient monitoring solutions. Prior
to joining Connect America and starting in May 2014, she served as Chief Executive Officer of Bernoulli Enterprise, Inc., a real-time
connected healthcare information technology company. 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 March 2010 until May 2014. From June 2000 to
March 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 currently serves as a director of Vizient, Inc., a private health care performance improvement company. 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 1998. 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 and IT 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.
Gregory
Duncan has been a director of CorMedix since November 2020. Mr. Duncan currently serves as the Chairman and CEO of Virios Therapeutics,
a clinical-stage biopharmaceutical company developing and commercializing innovative antiviral therapies to treat diseases associated
with a viral triggered abnormal immune response, such as fibromyalgia (FM), and has served since April 2020. From 2014 and prior to joining
his current company, Mr. Duncan served as President and CEO of Celtaxsys, a privately held biotechnology company focused on cystic fibrosis
and other rare, inflammatory diseases. Mr. Duncan has spent the majority of his career in senior leadership roles in commercial stage
pharmaceutical companies. From 2007 to 2013, he served as a senior executive at UCB, including as President of its North America business,
as well as an executive committee member. Prior to his roles with UCB, Mr. Duncan spent approximately 17 years at Pfizer where he gained
significant experience across sales and marketing functions including serving as SVP of US Marketing and later as President of Pfizer’s
Latin America business from 2005 to 2007. Mr. Duncan received his undergraduate degree from the State University of New York, Albany,
and earned an MBA degree from Emory University. Among other experience, qualifications, attributes and skills, Mr. Duncan’s significant
depth of 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.
Alan
W. Dunton, M.D. has been a director of CorMedix since March 2019. He is the founder and principal consultant of Danerius,
LLC, a biotechnology and pharmaceutical consulting business which he started in 2006. From 1994, he served in senior positions in Research
and Development in the Pharmaceutical Division of Johnson and Johnson including President and Managing Director of Janssen, the major
research, development and regulatory arm of the pharmaceuticals division at Johnson & Johnson. From January 2007 through March 2009,
Dr. Dunton served as President and Chief Executive Officer of Panacos Pharmaceuticals, Inc. From November 2015 through March 2018, Dr.
Dunton was the Head/Senior Vice President of Research, Development and Regulatory Affairs of Purdue Pharma L.P., a private pharmaceutical
company. 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. In addition to CorMedix, Dr. Dunton currently serves on the boards
of three public companies, as a Director at Palatin Technologies, Inc. and Oragenics, Inc. he chairs the Compensation Committees of both
companies. He also serves as a member of the Audit Committees of these companies. Additionally, Dr. Dunton is a member of the board of
Recce Pharma Ltd., an Australian public biotechnology company focused on developing novel anti-infectives for serious and life threatening
diseases. 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.
Myron
Kaplan became a director of CorMedix in April 2016 and became Chairman of the Board in August 2017. He 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.
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.
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.
57
Board
Independence
Our
Board has undertaken a review of the independence of our directors and has determined that (i) all current directors, except Mr. Todisco, our Chief Executive Officer, are independent
within the meaning of Section 5605(b) of the Nasdaq Marketplace Rules, (ii) all members of our Audit Committee meet the additional test
for independence for audit committee members imposed by SEC regulation and Section 5605(c) of the Nasdaq Marketplace Rules, (iii) all
of the members of our Compensation Committee are independent within the meaning of Section 5605(d) of the Nasdaq Marketplace Rules, and
(iv) all of the members of our Nominating and Governance Committee, except Mr. Todisco, our Chief Executive Officer, are independent within the meaning of Section 5605(e) of the Nasdaq
Marketplace Rules.
Board
Committees
Our
Board has established an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Our Audit Committee currently
consists of Mr. Lefkowitz (Chair), Dr. Dunton and Mr. Duncan. Our Compensation Committee currently consists of Ms. Dillione (Chair),
Dr. Dunton and Mr. Duncan. Our Nominating and Governance Committee currently consists of Mr. Costa (Chair), Mr. Kaplan, Ms. Dillione
and Mr. Todisco. The membership of these Committees may be changed after our next annual meeting.
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 Mr. Lefkowitz, Dr. Dunton and Mr. Duncan qualifies as an “audit committee financial expert”