CorMedix Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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

For the transition period from ________ to ________

Commission file number 001-34673

CORMEDIX INC.

(Exact Name of Registrant as Specified in Its Charter)

(908) 517-9500

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer’s common stock, as of November 4, 2020 was 32,132,492.

CORMEDIX INC. AND SUBSIDIARIES

INDEX

PART I
FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended September 30, 2020

For the nine months ended September 30, 2020

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended September 30, 2019

For the nine months ended September 30, 2019

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization, Business and Basis of Presentation:

Organization and Business

CorMedix Inc., together with its wholly owned subsidiaries (collectively “CorMedix” or the “Company”), is a biopharmaceutical company focused on developing and commercializing therapeutic products for the prevention and treatment of infectious and inflammatory diseases. The Company’s primary focus is on the development of its lead product candidate, Defencath^™, for potential commercialization in the United States, or the U.S., and other key markets as a catheter lock solution, or the CLS. The name Defencath is the U.S. proprietary name conditionally approved by the U.S. Food and Drug Administration, or the FDA, while the name Neutrolin® is currently used in the European Union, or the EU, and other territories where the Company has received CE-Mark approval for the commercial distribution of Neutrolin as a CLS regulated as a medical device.

The Company has in-licensed the worldwide rights to develop and commercialize Defencath and Neutrolin. The CLS is a formulation of 1.35% taurolidine, 3.5% citrate, and 1000 u/ml heparin and is regulated by the FDA as an investigational new drug, where it is being developed to prevent catheter-related blood stream infections, or CRBSIs, and thrombosis in patients using central venous catheters, or CVCs, for hemodialysis. CRBSIs and thrombosis represent key complications among hemodialysis, intensive care, cancer and total parenteral nutrition, or TPN, patients with CVCs. 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 CVC, related treatment costs and increased mortality. The Company initially expects to sell Defencath directly to dialysis centers and hospitals, but also plans to expand its usage into intensive care, oncology and TPN patients using central venous catheters. The Company believes Defencath addresses a significant unmet medical need and a potential large market opportunity in the U.S.

In late 2013, the Company met with the FDA to determine the regulatory pathway for U.S. marketing approval of Defencath and began discussions on the clinical development program. In January 2015, the FDA granted Fast Track designation to Defencath, which is a program designed to facilitate development of drugs that are intended to treat serious and life-threatening conditions and to address an unmet medical need. Fast Track designation provides eligibility to request Priority Review of the marketing application.

Also, in January 2015, the FDA designated Defencath as a Qualified Infectious Disease Product, or QIDP, which provides an additional five years of marketing exclusivity to be added to any exclusivity for which the application qualifies upon approval. For example, an additional five years of marketing exclusivity will be added to the five years granted to a New Chemical Entity, or the NCE, upon approval of the NDA. QIDP designation also confers eligibility for Priority Review of the NDA.

The Company launched its 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. in December 2015. 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 tissue plasminogen activating factor (“tPA”), or removal of catheter due to dysfunction, and removal of catheter for any reason.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In July 2018, 28 potential cases of CRBSI were identified in LOCK-IT-100 that occurred through early December 2017. As previously agreed with the FDA, an interim efficacy analysis was performed. 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 independent Data Safety Monitoring Board, or the DSMB, recommended early termination. Following discussions with the FDA, we proceeded with an orderly termination of LOCK-IT-100. The study had continued enrolling and treating subjects until study termination, and the final analysis was based on a total of 795 subjects. The Company remained blinded until the topline results of the full data set of LOCK-IT-100 were announced in late January 2019. In 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. During 2019, CorMedix had a series of meetings with the FDA to discuss the analyses of data from LOCK-IT-100, including an end of Phase 3 meeting, a pre-NDA meeting and a CMC meeting, in preparation for submission of the NDA.

The FDA granted the Company’s 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, the Company began the modular submission process for the NDA for Defencath for the prevention of CRBSI in hemodialysis patients, and recently announced on July 8, 2020, that submission of all modules for the NDA was completed. In August 2020, the FDA accepted for filing the Defencath NDA and also granted the Company’s request for Priority Review. Priority Review provides for six-month review period instead of the standard ten-month review period, and February 28, 2021 has been set as the Prescription Drug User Fee Act, or PDUFA, date for the completion of the review for approval of the NDA. The FDA noted that it is planning to hold an advisory committee meeting to discuss the application and that it had not identified any potential review issues at this time. The meeting of the Antimicrobial Drugs Advisory Committee to discuss the Defencath NDA has tentatively been scheduled for January 14, 2021. The Company has not been informed of any delays by the FDA in the review of the NDA, but the FDA has limited international and domestic travel due to COVID-19, and pre-approval inspections are required for manufacturing sites.

The FDA also previously agreed that the Company could request consideration of Defencath for approval under the Limited Population Pathway for Antibacterial and Antifungal Drugs, or LPAD. LPAD, passed as part of the 21^st 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 medical needs. Given that the LPAD pathway provides for a streamlined clinical development program for a limited population that may involve smaller, shorter, or fewer clinical trials, the Company believes that LPAD will provide additional flexibility for the FDA to approve Defencath to prevent CRBSIs in the limited population of adult patients with end-stage renal disease receiving hemodialysis through a CVC.

The Company was 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. The Company has 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.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company anticipates that Medicare reimbursement could be available for Defencath in hemodialysis and other catheter indications in intensive care, oncology and TPN through relevant hospital inpatient diagnosis-related groups, or DRGs, or outpatient ambulatory payment classifications, or APCs, the End-Stage Renal Disease Prospective Payment System, or ESRD PPS, base payment, or under the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies, or DMEPOS, Fee Schedule, depending on the setting of care. The Company also plans 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, or TDAPA, under the ESRD PPS, or reimbursement as a drug used with a DMEPOS infusion pump. The Company has engaged U.S. Centers for Medicare & Medicaid Services, or CMS, in preliminary discussions concerning the reimbursement for Defencath under TDAPA, however, qualifications cannot be determined until after FDA approval and CMS evaluates the request for coverage in a quarterly review. If approved under TDAPA, reimbursement of Defencath would be calculated based on its average selling price.

Although the Company cannot fully anticipate changes in reimbursement requirements and mechanisms in the coming years, the Company expects Defencath would be eligible for and would obtain TDAPA. To be eligible for TDAPA, an innovative new renal drug or biologic must be, among other things, identified as having an end action effect that treats or manages a condition or conditions associated with ESRD and as not fitting into an established ESRD PPS functional category. The Company believes that in addition to the Fast Track and QIDP designations granted by the FDA, Defencath meets the criterion of being a new renal dialysis product used to treat or manage a condition associated with ESRD, since infections are the second leading cause of death in patients with ESRD and CVCs are a significant risk factor for infection-associated mortality.

In the EU, Neutrolin is regulated as a Class 3 medical device. In July 2013, the Company received CE Mark approval for Neutrolin. In December 2013, the Company started commercial sales of Neutrolin in Germany for the prevention of CRBSI, and maintenance of catheter patency in hemodialysis patients using a tunneled, cuffed CVC 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, to include use in oncology patients receiving chemotherapy, IV hydration and IV medications via CVC for the EU. In December 2014, the Company 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.   

In May 2020, the Company formed a wholly-owned Spanish subsidiary, CorMedix Spain, S.L.U.

The Company intends to pursue additional indications for Defencath use as a CLS in populations with an unmet medical need that also represent a significant market opportunity. For example, the Company intends to pursue marketing authorization in the U.S. for use as a CLS to reduce CRBSIs in oncology and total parenteral nutrition patients using a CVC.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition to the CLS, the Company is sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. The Company may seek one or more strategic partners or other sources of capital to help with the development and commercialization of taurolidine for the treatment of neuroblastoma in children. The Company is 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, the Company is advancing pre-clinical studies for taurolidine-infused surgical meshes, suture materials and hydrogels. The Company will seek to establish development/commercial partnerships as these programs advance.

The FDA regards taurolidine as an NCE and therefore it is currently an unapproved new drug. The Company may in the future pursue product candidates that would involve devices impregnated with taurolidine, and the Company believes that at the current time such products would be combination products subject to device premarket submission requirements, while subject also, under review by the FDA, to the standards for drug approvability. Consequently, given that there is no appropriate predicate medical device currently marketed in the U.S. on which a 510(k) approval process could be based and that taurolidine is not yet approved in any application, the Company anticipates that it would be required to submit a premarket approval application, or PMA, for marketing authorization for any medical device indications that the Company may pursue for devices containing taurolidine. 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 December 2019, the novel coronavirus disease, COVID-19, was identified in Wuhan, China. This virus has been declared a pandemic and has spread to multiple global regions. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of the Company’s offices, clinical trial sites, key vendors and partners. The Company’s program timelines may be negatively affected by COVID-19, which could materially and adversely affect its business, financial condition and results of operations.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary to fairly state the interim results. Interim operating results are not necessarily indicative of results that may be expected for the full year ending December 31, 2020 or for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 16, 2020. The accompanying condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements included in such Form 10-K.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or 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. This adoption on January 1, 2020 did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued a new guidance which modifies the disclosure requirements on fair value measurements. The guidance was effective for the Company beginning in the first quarter of fiscal year 2020. This adoption on January 1, 2020 did not have a material impact on the Company’s condensed 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 that, in a transaction with a collaborative arrangement participant who is not a customer, precludes presenting the transaction together with revenue recognized under contracts with customers. The guidance was effective for the Company beginning in the first quarter of fiscal year 2020. This adoption on January 1, 2020 did not have a material impact on the Company’s condensed consolidated financial statements.

In November 2019, the FASB issued new guidance which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in FASB’s Accounting Standards Codification, or ASC, 718. The guidance was effective for the Company beginning in the first quarter of fiscal year 2020. This adoption on January 1, 2020 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Authoritative Pronouncements

In December 2019, the FASB issued new guidance which removes certain exceptions to the general principles of the accounting for income taxes and also improves consistent application of and simplification of other areas when accounting for income taxes. The guidance is effective for the company beginning in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is assessing the impact of adopting this guidance on its consolidated financial statements.

Note 2 — Summary of Significant Accounting Policies:

Liquidity and Uncertainties

The financial statements have been prepared in conformity with GAAP which contemplate continuation of the Company as a going concern. To date, the Company’s commercial operations have not generated sufficient revenues to enable profitability. As of September 30, 2020, the Company had an accumulated deficit of $211.4 million, and incurred losses from operations of $6.6 million and $5.3 million for the three months ended September 30, 2020 and 2019, respectively, and $15.9 million and $11.1 million for the nine months ended September 30, 2020 and 2019, respectively. The Company currently estimates that as of September 30, 2020 it has sufficient cash, cash equivalents and short-term investments on hand to fund operations for at least twelve months after the filing date of this report, after taking into consideration the net proceeds received through October 14, 2020 from the At-the-Market Issuance Sales Agreement (the “ATM program”) of $4.6 million (see Note 7) and the costs for the initial preparations for commercial launch for Defencath.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In April 2020, the Company received approximately $5.2 million, net of expenses, from the sale of most of its remaining unused New Jersey net operating losses, or NOL, eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program, or NJEDA Program. The NJEDA Program allowed the Company to sell approximately $5.5 million of its total $6.0 million in available NOL tax benefits for the state fiscal year 2019.

In April 2020, the Company received from the FDA a refund for the NDA application fee in the amount of $2.9 million, which was paid in the first quarter of 2020. The Company met the conditions of the Federal Food, Drug, and Cosmetic Act for the small business waiver of the user fees and its request for a waiver of an application user fee was granted by the FDA.

The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, or out-licensing of its products, to commercially launch Defencath upon NDA approval, and until profitability is achieved, if ever. Management can provide no assurances that such financing or strategic relationships will be available on acceptable terms, or at all. At September 30, 2020, the Company had approximately $8.7 million available under its ATM program (see Note 3).

The Company’s operations are subject to a number of other factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the ability to obtain regulatory approval to market the Company’s products; ability to manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, Company products; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products; the results of clinical testing and trial activities of the Company’s product candidates; and the Company’s ability to raise capital to support its operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company, CorMedix Europe GmbH and CorMedix Spain, S.L.U. its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing accounts, the balances of which, at times, may exceed federally insured limits.

The following table is the reconciliation of the accounting standard that modifies certain aspects of the recognition, measurement, presentation and disclosure of financial instruments as shown on the Company’s consolidated statement of cash flows:

The appropriate classification of marketable securities is determined at the time of purchase and re-evaluated as of each balance sheet date. Investments in marketable debt classified as available-for-sale and equity securities are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Changes in fair value that are considered temporary are reported in the condensed consolidated statement of operations. Realized gains and losses, amortization of premiums and discounts and interest and dividends earned are included in other income (expense). For declines in the fair value of equity securities that are considered other-than-temporary, impairment losses are charged to other income (expense), net. The Company considers available evidence in evaluating potential impairments of its investments, including the duration and extent to which fair value is less than cost. There were no deemed permanent impairments at September 30, 2020 or December 31, 2019.

The Company’s marketable securities are highly liquid and consist of U.S. government agency securities, high-grade corporate obligations and commercial paper with original maturities of more than 90 days. As of September 30, 2020, and December 31, 2019, all of the Company’s investments had contractual maturities of less than one year. As of September 30, 2020, no allowance for credit loss was recorded. The following table summarizes the amortized cost, unrealized gains and losses and the fair value at September 30, 2020 and December 31, 2019:

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

The Company’s financial instruments recorded in the condensed consolidated balance sheets include cash and cash equivalents, accounts receivable, investment securities, accounts payable and accrued expenses.  The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their estimated fair values based upon the short-term nature of their maturity dates. 

The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 the Company’s condensed consolidated balance sheets are categorized as follows:

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019:

Foreign Currency Translation and Transactions

The condensed consolidated financial statements are presented in U.S. Dollars (“USD”), the reporting currency of the Company. For the financial statements of the Company’s foreign subsidiaries, whose functional currency is the EURO, foreign currency asset and liability amounts, are translated into USD at end-of-period exchange rates. Foreign currency income and expenses are translated at average exchange rates in effect during the period in which the income and expenses were recognized. Translation gains and losses are included in other comprehensive income (loss).

The Company has intercompany loans between the parent company based in New Jersey and its German subsidiary. The intercompany loans outstanding are not expected to be repaid in the foreseeable future and unrealized foreign exchange movements related to long-term intercompany loans are recognized in other comprehensive income (loss).

Foreign currency exchange transaction gain (loss) is the result of re-measuring transactions denominated in a currency other than the functional currency of the entity recording the transaction.

Restricted Cash

As of September 30, 2020, and December 31, 2019, the Company has restricted cash in connection with the patent and utility model infringement proceedings against TauroPharm (see Note 4).  The Company was required by the District Courts of Mannheim to provide a security deposit of an aggregate of approximately $124,000 (€110,000) to cover legal fees in the event TauroPharm is entitled to reimbursement of these costs. The company furthermore had to provide a deposit in the amount of $40,000 (€36,000) and $11,000 (€10,000) for the first and second instances, respectively, in connection with the unfair competition proceedings in Cologne. During the nine months ended September 30, 2020, the Company accrued expenses of $12,000 in connection with the utility model infringement proceedings, which may be deducted from restricted cash when settled.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Research and Development and Other Prepaid Expenses

Prepaid expenses consist of payments made in advance to vendors relating to service contracts for clinical trial development, manufacturing, preclinical development, deposits on equipment and insurance policies. These advanced payments are amortized to expense either as services are performed or over the relevant service period using the straight-line method.

Other prepaid expenses consist of the following:

Inventories, net

Inventories are valued at the lower of cost or net realizable value on a first in, first out basis. Inventories consist of raw materials (including labeling and packaging), work-in-process, and finished goods, if any, for the Defencath product. Inventories consist of the following:

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion, on the condensed consolidated balance sheet.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has elected, as an accounting policy, not to apply the recognition requirements in ASC 842 to short-term leases. Short-term leases are leases that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term.

The Company has also elected, as a practical expedient, by underlying class of asset, not to separate lease components from non-lease components and, instead, account for them as a single component.

Accrued Expenses

Accrued expenses consist of the following:

In December 2015, the Company contracted a clinical research organization (“CRO”) to help conduct its LOCK-IT-100 Phase 3 multicenter, double-blind, randomized active control study to demonstrate the safety and effectiveness of Defencath/Neutrolin in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease.

Through September 30, 2020, approximately $30.0 million of clinical trial expense has been recorded and paid. During the three and nine months ended September 30, 2020, the Company recognized $2,000 and $36,000 in research and development expense related to this agreement, and $61,000 and $763,000 during the three and nine months ended September 30, 2019, respectively. During the quarter ended September 30, 2020, the Company paid the outstanding balances in accounts payable and accrued expenses in the amount of $2.4 million.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” 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.

The Company recognizes net sales upon shipment of product and upon meeting the five-step model prescribed by ASC 606 outlined above.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loss Per Common Share

Basic loss per common share excludes any potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. However, since their effect is anti-dilutive, the Company has excluded potentially dilutive shares. The following potentially dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive.

Stock-Based Compensation

Share-based compensation cost for stock options granted to employees is measured at grant date using the Black-Scholes stock option pricing model in accordance with ASC No. 718, “Compensation-Stock Compensation”, based on the estimated fair value of the award for options with service or performance-based conditions and is recognized as expense over the requisite service period on a straight-line basis. For stock options with performance-based vesting provisions, share-based compensation cost is recorded when the achievement of the performance condition is probable.

Research and Development

Research and development costs are charged to expense as incurred. Research and development include fees associated with operational consultants, contract clinical research organizations, contract manufacturing organizations, clinical site fees, contract laboratory research organizations, contract central testing laboratories, licensing activities, and allocated executive, human resources, facilities expenses and costs related to the manufacturing of the product that could potentially be available to support the commercial launch prior to marketing approval. For the nine months ended September 30, 2020, costs related to the manufacturing of commercial pre-launch inventory that were expensed amounted to approximately $4.8 million. The Company accrues for costs incurred as the services are being provided by monitoring the status of the activities and the invoices received from its external service providers. Costs related to the acquisition of technology rights and patents for which development work is still in process are charged to operations as incurred and considered a component of research and development expense.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Stockholders’ Equity:

Common Stock

On July 30, 2020, the Company completed an underwritten public offering of its common stock, par value $0.001 per share, which yielded net proceeds of approximately $21.3 million. The public offering was made pursuant to an underwriting agreement with SunTrust Robinson Humphrey, Inc. and JMP Securities LLC (collectively, the “Underwriters”), relating to the issuance and sale of an aggregate of 5,111,110 shares of common stock, including 666,666 shares of common stock pursuant to the full exercise of the Underwriters’ option, at a public offering price of $4.50 per share. The offering was made pursuant to the Company’s effective registration statement on Form S-3 Registration Statement No. 333-223562 previously filed with and declared effective by the SEC and a prospectus supplement and accompanying prospectus filed with the SEC.

The Company is a party to a sales agreement with B. Riley dated March 9, 2018 for the sale of up to $14.7 million of the Company’s common stock under the Company’s ATM program, pursuant to a registration statement filed on March 9, 2018 for an aggregate of $70.0 million of the Company’s securities, which became effective on April 16, 2018. In November 2018, the ATM program amount was increased by $25.0 million. Under the ATM program, the Company may issue and sell common stock from time to time through B. Riley acting as agent, subject to limitations imposed by the Company and subject to B. Riley’s acceptance, such as the number or dollar amount of shares registered under the registration statement to which the offering relates. B. Riley is entitled to a commission of up to 3% of the gross proceeds from the sale of common stock sold under the ATM program. On August 31, 2020, the Company filed a prospectus supplement which allocated to the ATM program the remaining balance of its current shelf registration statement of approximately $7.3 million. The $7.3 million under the prospectus supplement, plus the $2.1 million already available under the ATM program, resulted in a total of approximately $9.4 million available to be sold under the Company’s ATM program. At September 30, 2020, the Company has approximately $8.7 million available under its ATM program (see Note 7 for subsequent event sales under the ATM program).

During the nine months ended September 30, 2020 and 2019, the Company sold 477,721 and 1,768,012 shares of common stock under the ATM program, respectively, and realized net proceeds of approximately $3.0 million and $15.2 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 91,500 and 1,944,707 shares of its common stock upon exercise of warrants, respectively, resulting in net proceeds to the Company of $0.4 million and $8.7 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 2,490 and 19,425 shares of its common stock, respectively, upon the vesting of restricted stock units issued to the Company’s board of directors.

During the nine months ended September 30, 2019, the Company issued an aggregate of 36,590 shares of its common stock upon exercise of stock options, resulting in net proceeds of $117,000 to the Company. No stock options were exercised during the nine months ended September 30, 2020.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Preferred Stock

The Company is authorized to issue up to 2,000,000 shares of preferred stock in one or more series without stockholder approval. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Of the 2,000,000 shares of preferred stock authorized, the Company’s board of directors has designated (all with par value of $0.001 per share) the following:

Stock Options

During the nine months ended September 30, 2020, the Company granted ten-year qualified and non-qualified stock options covering an aggregate of 1,086,984 shares of the Company’s common stock under the 2019 Stock Incentive Plan. The weighted average exercise price of these options is $5.11 per share.

During the three and nine months ended September 30, 2020, total compensation expense for stock options issued to employees, directors, officers and consultants was $611,000 and $1,973,000, respectively, and $519,000 and $1,835,000 for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, there was approximately $3,719,000 in total unrecognized compensation expense related to stock options granted, which expense will be recognized over an expected remaining weighted average period of 1.7 years.

The fair value of each stock option award estimated on the grant date is determined using the Black-Scholes option pricing model with the following assumptions, for the nine months ended September 30, 2020:

The Company estimated the expected term of the stock options granted based on anticipated exercises in future periods. The expected term of the stock options granted to consultants is based upon the full term of the respective option agreements. The expected stock price volatility for the Company’s stock options is calculated based on the historical volatility since the initial public offering of the Company’s common stock in March 2010. The expected dividend yield of 0.0% reflects the Company’s current and expected future policy for dividends on the Company’s common stock. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards which is 5 years for employees and 10 years for non-employees.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s stock options activity and related information for the nine months ended September 30, 2020:

The aggregate intrinsic value is calculated as the difference between the exercise prices of the underlying options and the quoted closing price of the common stock of the Company at the end of the reporting period for those options that have an exercise price below the quoted closing price. There were no stock options exercised during the nine months ended September 30, 2020.

Restricted Stock Units

During the nine months ended September 30, 2020, the Company issued an aggregate of 2,490 shares of its common stock upon the vesting of RSUs issued to the Company’s board of directors.

During the three and nine months ended September 30, 2020, compensation expense recorded for the RSUs was $400 and $11,000, respectively, and $52,000 and $151,000 for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, all outstanding RSUs had vested and compensation expense had been fully recognized.

Warrants

During the nine months ended September 30, 2020 and 2019, the Company issued an aggregate of 91,500 and 1,944,707 shares of its common stock upon exercise of warrants, respectively, resulting in net proceeds to the Company of $412,000 and $8,658,000, respectively.

As of September 30, 2020, there were 183,148 outstanding warrants with a weighted average exercise price of $4.96 per share and a weighted average remaining contractual life of 1.86 years.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Commitments and Contingencies:

Contingency Matters

On September 9, 2014, the Company filed in the District Court of Mannheim, Germany, a patent infringement action against TauroPharm GmbH and Tauro-Implant GmbH as well as their respective CEOs (the “Defendants”) claiming infringement of the Company’s European Patent EP 1 814 562 B1, which was granted by the European Patent Office (the “EPO”) on January 8, 2014 (the “Prosl European Patent”).  The Prosl European Patent covers the formulation of taurolidine and citrate with low dose heparin in a catheter lock solution for maintaining patency and preventing infection in hemodialysis catheters. In this action, the Company claims that the Defendants infringe on the Prosl European Patent by manufacturing and distributing catheter locking solutions to the extent they are covered by the claims of the Prosl European Patent. The Company believes that its patent is sound and is seeking injunctive relief and raising claims for information, rendering of accounts, calling back, destruction and damages. Separately, TauroPharm has filed an opposition with the EPO against the Prosl European Patent alleging that it lacks novelty and inventive step. The Company cannot predict what other defenses the Defendants may raise, or the ultimate outcome of either of these related matters. At present, the EPO has revoked the Prosl European Patent as invalid, and the Company has filed an appeal, which is currently pending.

In the same complaint against the same Defendants, the Company also alleged an infringement (requesting the same remedies) of ND Partners’ utility model DE 20 2005 022 124 U1 (the “Utility Model”), which the Company believes is fundamentally identical to the Prosl European Patent in its main aspects and claims. The Court separated the two proceedings and the Prosl European Patent and the Utility Model claims are now being tried separately. TauroPharm has filed a cancellation action against the Utility Model before the German Patent and Trademark Office (the “German PTO”) based on the similar arguments as those in the opposition against the Prosl European Patent.

On March 27, 2015, the District Court held a hearing to evaluate whether the Utility Model has been infringed by TauroPharm in connection with the manufacture, sale and distribution of its TauroLock-HEP100^TM and TauroLock-HEP500^TM products. A hearing before the same court was held on January 30, 2015 on the separate, but related, question of infringement of the Prosl European Patent by TauroPharm.

The Court issued its decisions on May 8, 2015, staying both proceedings. In its decisions, the Court found that the commercialization by TauroPharm in Germany of its TauroLock catheter lock solutions Hep100 and Hep500 infringes both the Prosl European Patent and the Utility Model and further that there is no prior use right that would allow TauroPharm to continue to make, use or sell its product in Germany. However, the Court declined to issue an injunction in favor of the Company that would preclude the continued commercialization by TauroPharm based upon its finding that there is a sufficient likelihood that the EPO, in the case of the Prosl European Patent, or the German PTO, in the case of the Utility Model, may find that such patent or utility model is invalid. Specifically, the Court noted the possible publication of certain instructions for product use that may be deemed to constitute prior art. As such, the District Court determined that it will defer any consideration of the request by the Company for injunctive and other relief until such time as the EPO or the German PTO made a final decision on the underlying validity of the Prosl European Patent and the Utility Model. We expect that the complaint regarding the infringement of the Utility Model will be dismissed now that the German PTO has voided the Utility Model (see below). This does not, however, have a direct effect on the infringement proceedings concerning the Prosl European Patent.

The opposition proceeding against the Prosl European Patent before the EPO is ongoing. The EPO held a hearing in the opposition proceeding on November 25, 2015. In its preliminary consideration of the matter, the EPO (and the German PTO) had regarded the patent as not inventive or novel due to publication of prior art. However, the EPO did not issue a decision at the end of the hearing but adjourned the matter due to the fact that the panel was of the view that Claus Herdeis, one of the managing directors of TauroPharm, 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 the prior art.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Company filed an appeal against the ruling on September 7, 2016. An oral hearing was held on September 17, 2019 in which the German Federal Patent Court affirmed the first instance decision that the Utility Model was invalid. The decision has only a declaratory effect, as the Utility Model had expired in November 2015. On April 28, 2020, the Company filed a withdrawal of the complaint on the German utility model, thereby waiving its claims on these proceedings. The Company estimates that the expense will be less than €40,000.

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. On November 22, 2017, the EPO in Munich, Germany held a further oral hearing in this matter. At the hearing, the panel held that the Prosl European Patent would be invalidated because it did not meet the requirements of novelty based on a technical aspect of the European intellectual property law. The Company disagrees with this decision and, after the written opinion was issued by the Opposition Division in September 2018, has appealed the decision. The Company continues to believe that the Prosl European Patent is indeed novel and that its validity should be maintained. There can be no assurance that the Company will prevail in this matter. In addition, the ongoing Unfair Competition litigation brought by the Company against TauroPharm is not affected and will continue.

On January 16, 2015, the Company filed a complaint against TauroPharm GmbH and its managing directors in the District Court of Cologne, Germany. In the complaint, the Company alleges violation of the German Unfair Competition Act by TauroPharm for the unauthorized use of its proprietary information obtained in confidence by TauroPharm. The Company alleges that TauroPharm is improperly and unfairly using its proprietary information relating to the composition and manufacture of Neutrolin, in the manufacture and sale of TauroPharm’s products TauroLock^TM, TauroLock-HEP100 and TauroLock-HEP500. The Company seeks a cease and desist order against TauroPharm from continuing to manufacture and sell any product containing taurolidine (the active pharmaceutical ingredient (“API”) of Neutrolin) and citric acid in addition to possible other components, damages for any sales in the past and the removal of all such products from the market. An initial hearing in the District Court of Cologne, Germany was held on November 19, 2015 to consider the Company’s claims. In this hearing, the presiding judge explained that the court needed more information with regard to several aspects of the case. As a consequence, the Court issued an interim decision in the form of a court order outlining several issues of concern that relate primarily to the court’s interest in clarifying the facts and reviewing any and all available documentation, in particular with regard to the question which specific know-how was provided to TauroPharm by whom and when. The Company’s legal team prepared the requested reply and produced the respective documentation. TauroPharm had also filed another writ within the same deadline and both parties have 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 the Company’s allegations. On March 7, 2017, the Court issued another interim decision in the form of a court order outlining again several issues relating to the argumentation of both sides in the proceedings. In particular the court requested the Company to further specify its requests and to further substantiate in even more detail which know-how was provided by Biolink (the company who developed Neutrolin that was acquired by ND Partners) to TauroPharm by whom and when. The Court also raised the question whether the know-how provided at the time to TauroPharm could still be considered to be secret know-how or may have become public in the meantime. The Court granted both sides the opportunity to reply to this court order and provide additional facts and evidence until May 15, 2017. Both parties have submitted further writs in this matter and the Court scheduled a further hearing on 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, the Company intends to continue to pursue this matter, and still believes firmly that its claims are well-founded. The Company therefore appealed in January 2019 and filed its grounds of appeal in March 2019. An oral hearing was held on September 6, 2019 in which the legal counsel of the Company brought forward further arguments for the fact that the manufacturing process of the respective catheter locking solution is indeed protectable as a trade secret. In view of these new arguments, the Court issued an evidentiary order on September 27, 2019 ordering an expert opinion. The expert opinion was not in the Company’s favor but the Company has filed a response to the expert opinion in reaction to which the Court asked the expert to supplement his opinion to address the issues brought forward in the Company’s submission. In the supplementary expert opinion, the expert confirmed his view. The Company has filed a response and requested an oral hearing which has not yet been scheduled.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the aforementioned patent and utility model infringement and unfair competition proceedings against TauroPharm, the Company was required by the District Courts of Mannheim and Cologne to provide security deposits of an aggregate of approximately $183,000, to cover legal fees in the event TauroPharm is entitled to reimbursement of these costs. The Company recorded the deposits as restricted cash on the consolidated balance sheets. During the nine months ended September 30, 2020, the Company accrued an expense of $12,000 in connection with the utility model infringement proceedings, which will be deducted from restricted cash when settled.

Commitments

In-Licensing

In 2008, the Company entered into a License and Assignment Agreement (the “NDP License Agreement”) with ND Partners, LLP (“NDP”). Pursuant to the NDP License Agreement, NDP granted the Company exclusive, worldwide licenses for certain antimicrobial catheter lock solutions, processes for treating and inhibiting infections, a biocidal lock system and a taurolidine delivery apparatus, and the corresponding United States and foreign patents and applications (the “NDP Technology”). The Company acquired such licenses and patents through its assignment and assumption of NDP’s rights under certain separate license agreements by and between NDP and Dr. Hans-Dietrich Polaschegg, Dr. Klaus Sodemann and Dr. Johannes Reinmueller. As consideration in part for the rights to the NDP Technology, the Company paid NDP an initial licensing fee of $325,000 and granted NDP a 5% equity interest in the Company, consisting of 7,996 shares of the Company’s common stock.

The Company is required to make payments to NDP upon the achievement of certain regulatory and sales-based milestones. Certain of the milestone payments are to be made in the form of shares of common stock currently held in escrow for NDP, and other milestone payments are to be paid in cash. The maximum aggregate number of shares issuable upon achievement of milestones is 29,109 shares. In 2014, a certain milestone was achieved resulting in the release of 7,277 shares held in escrow. The number of shares held in escrow as of September 30, 2020 is 21,832 shares of common stock. The maximum aggregate amount of cash payments due upon achievement of milestones is $3,000,000 with the balance being $2,500,000 as of September 30, 2020 and 2019. Events that trigger milestone payments include but are not limited to the reaching of various stages of regulatory approval and upon achieving certain worldwide net sales amounts. There were no milestones achieved during the three and nine months ended September 30, 2020 and 2019.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The NDP License Agreement may be terminated by the Company on a country-by-country basis upon 60 days prior written notice. If the NDP License Agreement is terminated by either party, the Company’s rights to the NDP Technology will revert back to NDP.

Employment Agreements

On April 30, 2020, the Company entered into an employment agreement with Dr. Matthew David, pursuant to which Dr. David became the Company’s Executive Vice President and Chief Financial Officer effective on May 11, 2020. After the initial three-year term of the 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. In connection with Dr. David’s employment, the Company granted him stock options to purchase 250,000 shares of common stock, 166,000 of which vest in four equal installments over four years beginning one year after his start date and continuing on each of the next three anniversaries, subject to Dr. David’s continued employment with the Company, and 84,000 of which vest upon the achievement of designated performance milestones, subject to Dr. David’s continued employment with the Company.

If the Company terminates Dr. David’s employment other than for Cause (as defined in the agreement), death, disability, or by notice of nonrenewal, or if he resigns for Good Reason (as defined in the agreement), including in each case within 24 months of a Change of Control (as defined in the agreement), Dr. David will receive his base salary and benefits for a period of nine months following the effective date of the termination of his employment, and all unvested stock options held by him that are scheduled to vest on or before the next succeeding anniversary of the date of termination will be accelerated and deemed to have vested as of the termination date, provided that any milestone option whose vesting requirements have not been met as of the termination date will be terminated.

If the Company terminates Dr. David’s employment for Cause (as defined in the agreement), Dr. David will be entitled to receive only the accrued compensation due to him as of the date of such termination, rights to indemnification and directors’ and officers’ liability insurance, and as otherwise required by law. All outstanding equity awards and all outstanding stock options then held by Dr. David that are granted on or after the effective date of his employment agreement, whether or not vested, will be forfeited to us as of such date.

Note 5 — Leases:

The Company 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.

The Company’s lease on its current premises at 400 Connell Drive, Berkeley Heights, New Jersey 07922 terminates on November 30, 2020.

The Company entered into an operating lease for office space in Germany that began in July 2017. The rental agreement has a three-month term which automatically renews and includes a monthly cost of 400 Euros. The Company elected to apply the short-term practical expedient to the office lease. The Company also has an operating lease for office equipment.

CORMEDIX INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating lease expense in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 was approximately $10,000 and $14,000, respectively, which includes costs associated with leases for which ROU assets have been recognized as well as short-term leases. Operating lease expense in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 was approximately $2,000 and $6,000, respectively, which includes costs associated with leases for which ROU assets have been recognized as well as short-term leases.

At September 30, 2020, the Company has a total operating lease liability and operating lease ROU assets of $1,050,000 and $1,042,000, respectively.

For the three and nine months ended September 30, 2020 and 2019, cash paid for amounts included in the measurement of lease liabilities in operating cash flows from operating leases was $2,000 and $6,000, respectively.

The weighted average remaining lease term as of September 30, 2020 and 2019 were 7.0 and 2.8 years, respectively, and the weighted average discount rate for operating leases was 9.0% and 10.0% as of September 30, 2020 and 2019, respectively.

As of September 30, 2020, maturities of lease liabilities were as follows:

Note 6 — Concentrations:

At September 30, 2020, 99% of net accounts receivable was due from two customers that exceeded 10% of the Company’s accounts receivable (50% each) and at December 31, 2019, no customer exceeded 10% of the Company’s accounts receivable. During the three months ended September 30, 2020, the Company had revenue from three customers that exceeded 10% of its total sales (50%, 24% and 16%) and for the nine months ended September 30, 2020, the Company had revenue from three customers that each exceeded 10% of its total sales (50%, 16% and 12%). During the three months ended September 30, 2019, the Company had revenue from one customer that exceeded 10% of its totals sales (77%) and for the nine months ended September 30, 2019, the Company had revenue from four customers that each exceeded 10% of its total sales (46%, 20%, 13% and 13%).

Note 7 — Subsequent Event:

During October 2020, the Company sold an aggregate of 784,321 shares of its common stock under the ATM program and realized net proceeds of approximately $4.6 million.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 16, 2020 and the notes to our unaudited consolidated financial statements contained in Item 1 above.

Forward Looking Statements

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, referred to herein as 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 and those discussed in the section titled “Risk Factors” included in our most recent annual report on Form 10-K, as well as any amendments thereto, as filed with the SEC and which are incorporated herein by reference. The impact of COVID-19 may also exacerbate these risks, any of which could have a material effect on us. 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

CorMedix Inc., together with our wholly owned subsidiaries (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 infectious and inflammatory diseases.

Our primary focus is on the development of our lead product candidate, Defencath™, for potential commercialization in the United States, or U.S., and other key markets as a catheter lock solution, or CLS. The name Defencath is the U.S. proprietary name conditionally approved by the U.S. Food and Drug Administration, or FDA, while the name Neutrolin® is currently 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. In May 2020, we formed a wholly-owned Spanish subsidiary, CorMedix Spain, S.L.U.

We have in-licensed the worldwide rights to develop and commercialize Defencath and Neutrolin. The CLS is a formulation of 1.35% taurolidine, 3.5% citrate and 1000 u/ml heparin and is regulated by the FDA as an investigational new drug, where it is being developed to prevent catheter-related blood stream infections, (CRBSIs) and thrombosis in patients using central venous catheters, or CVCs, for hemodialysis. CRBSIs and thrombosis represent key complications among hemodialysis, intensive care, cancer and total parenteral nutrition, or TPN, patients with CVCs. 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 CVC, related treatment costs and increased mortality. We initially expect to sell Defencath directly to dialysis centers and hospitals, but also plan to expand its usage into intensive care, oncology and total parenteral nutrition patients using central venous catheters. We believe Defencath addresses a significant unmet medical need and a potential large market opportunity in the U.S.

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 tissue plasminogen activating factor, or tPA, or removal of catheter due to dysfunction, and removal of catheter for any reason.

In July 2018, 28 potential cases of CRBSI were identified in LOCK-IT-100 that occurred through early December 2017. As previously agreed with the FDA, an interim efficacy analysis was performed. 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 independent Data Safety Monitoring Board (“DSMB”) recommended early termination. Following discussions with the FDA, we proceeded with an orderly termination of LOCK-IT-100. The study had continued enrolling and treating subjects until study termination, and the final analysis was based on a total of 795 subjects. We remained blinded until the topline results of the full data set of LOCK-IT-100 were announced in late January 2019. In 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. During 2019, we had a series of meetings with the FDA to discuss the analyses of data from LOCK-IT-100, including an end of Phase 3 meeting, a pre-NDA meeting and a CMC meeting, in preparation for submission of the NDA.

The FDA granted our request for a rolling submission and review of the New Drug Application, or 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 the 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 recently announced on July 8, 2020, that submission of all modules for the NDA was completed. 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. FDA has set a Prescription Drug User Fee Act, or PDUFA, date of February 28, 2021 for the completion of its review for the approval of the NDA.  The FDA noted that it is planning to hold an advisory committee meeting to discuss the application and that it had not identified any potential review issues at this time. The meeting of the Antimicrobial Drugs Advisory Committee to discuss the Defencath NDA has tentatively been scheduled for January 14, 2021. We have not been informed of any delays by the FDA in the review of the NDA, but the FDA has limited international and domestic travel due to COVID-19, and pre-approval inspections are required for manufacturing sites.

We intend to pursue additional indications for Defencath use as a CLS in populations with an unmet medical need that also represent a significant market opportunity. For example, we intend to pursue marketing authorization in the U.S. for use as a CLS to reduce CRBSIs in oncology and total parenteral nutrition patients using a CVC.

In the EU, Neutrolin is regulated as a Class 3 medical device. In July 2013, we received CE Mark approval for Neutrolin. In December 2013, we started commercial sales of 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 to include use in oncology patients receiving chemotherapy, IV hydration and IV medications via central venous catheters 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 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. 

In addition to the CLS, we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for 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 with the development and commercialization of 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.

The FDA regards taurolidine as a new chemical entity and therefore it is currently an unapproved new drug. We may in the future pursue product candidates that would involve devices impregnated with taurolidine, and we believe that at the current time such products would be combination products subject to device premarket submission requirements, while subject also, under review by the FDA, to the standards for drug approvability. Consequently, given that there is no appropriate predicate medical device currently marketed in the U.S. on which a 510(k) approval process could be based and that taurolidine is not yet approved in any application, we anticipate that it would be required to submit a premarket approval application, or PMA, for marketing authorization for any medical device indications that we may pursue for devices containing taurolidine. 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 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. We intend to complete the documentation required to renew our registration with the SFDA, however, we cannot predict how long the renewal process will take. There is no assurance that the registration will be renewed by the SFDA or that there will be significant sales in Saudi Arabia.

In April 2020, we received approximately $5.2 million, net of expenses, from the sale of most of our remaining unused New Jersey net operating losses, or NOL, eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program, or NJEDA Program. The NJEDA Program allowed us to sell approximately $5.5 million of our total $6.0 million in available NOL tax benefits for the state fiscal year 2019.

In April 2020, we received from the FDA a refund for the NDA application fee in the amount of $2.9 million, which was paid in the first quarter of 2020. We met the conditions of the Federal Food, Drug, and Cosmetic Act for the small business waiver of the user fees and our request for a waiver of an application user fee was granted by the FDA.

On July 30, 2020, we completed an underwritten public offering of our common stock, which yielded gross proceeds, before underwriting commissions and estimated expenses, of approximately $23.0 million. The public offering was made pursuant to an underwriting agreement with SunTrust Robinson Humphrey, Inc. and JMP Securities LLC (collectively, the “Underwriters”), relating to the issuance and sale of an aggregate of 5,111,110 shares of common stock, including 666,666 shares of common stock pursuant to the full exercise of the Underwriters’ option, at a public offering price of $4.50 per share. The offering was made pursuant to our effective registration statement on Form S-3 Registration Statement No. 333-223562 previously filed with and declared effective by the SEC and a prospectus supplement and accompanying prospectus filed with the SEC.

The novel coronavirus has been declared a pandemic and has spread to multiple global regions. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of our offices, clinical trial sites, key vendors and partners. Our program timelines may be negatively affected by COVID-19, which could materially and adversely affect its business, financial conditions and results of operations.

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 commence pre-launch commercial activities for Defencath for the U.S. market and continue to 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 September 30, 2020, we had an accumulated deficit of approximately $211.4 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 September 30, 2020, we have funded our operations primarily through debt and equity financings and the sale of our unused New Jersey NOL.

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, or CRO, 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 preclinical 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. For the nine months ended September 30, 2020, costs related to the manufacturing of commercial pre-launch inventory that were expensed amounted to approximately $4.8 million. 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, clinical trial enrollment, duration, conduct and results, investment in the program, competition, manufacturing capabilities and commercial viability of the product candidate. As a result of the uncertainties associated with clinical trials in specific, and the risks inherent in the development process in general, 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 that may be approved.

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 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.

In March 2020, we were granted a deferral by 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 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.

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. 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.

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. We expect to incur significant sales and marketing expenses for the foreseeable future as we prepare for the potential commercial launch of Defencath in the U.S.

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 condensed 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 and cash equivalents and short-term investments.

Interest Expense

Interest expense consists of interest incurred on our convertible debt, amortization of debt discount and on financing of expenditures.

Results of Operations

Three and nine months ended September 30, 2020 compared to three and nine months ended September 30, 2019

The following is a tabular presentation of our consolidated operating results:

Revenue. Revenue for the three months ended September 30, 2020 was $93,000 as compared to $60,000 in the same period last year, an increase of $33,000. The increase was attributable to the sales in Middle East countries other than Saudi Arabia during the three months ended September 30, 2020 as compared to no sales for the same period in 2019.

Revenue for the nine months ended September 30, 2020 was $184,000 as compared to $258,000 in the same period last year, a decrease of $74,000. The decrease was attributable to having no sales in Saudi Arabia during the nine months ended September 30, 2020 due to the expiration of our registration with the Saudi Arabia Food and Drug Administration as compared to the sales of $116,000 for the same period in 2019. The registration must be renewed in order for us to continue selling in Saudi Arabia.

Cost of Sales. Cost of sales for the three months ended September 30, 2020 and 2019 was $80,000 and $79,000, respectively.

Cost of sales for the nine months ended September 30, 2020 was $148,000 as compared to $327,000 in the same period last year, a decrease of $179,000, primarily attributable to the cost of replacement of expired product that occurred during the same period in 2019.

Research and Development Expense. R&D expense was $2,925,000 for the three months ended September 30, 2020, an increase of $404,000, or 16%, from $2,521,000 for the three months ended September 30, 2019. The increase was primarily attributable an increase in personnel expenses of $242,000, primarily due to additional hires, increase in costs related to the purchase of raw materials and manufacturing of Defencath to support the commercial launch prior to its potential marketing approval of $206,000, and an increase in non-cash charges for stock-based compensation of $55,000. These increases were offset, among other items of lesser significance, by a reduction in clinical trial expenses of $86,000, mainly due to the completion of our LOCK-IT-100 clinical trial.

R&D expense was $11,083,000 for the nine months ended September 30, 2020, an increase of $2,707,000, or 32%, from $8,376,000 for the nine months ended September 30, 2019. The increase was primarily attributable to an increase in costs related to the purchase of raw materials and manufacturing of Defencath prior to its potential marketing approval that could potentially support the commercial launch amounting to $3,761,000, an increase in personnel expenses of $593,000, primarily due to additional hires. These increases were offset, among other items of lesser significance, by a reduction in clinical trial expenses of $1,387,000, attributable to the closing of our LOCK-IT-100 clinical trial and a decrease in consulting fees of $264,000.

Selling, General and Administrative Expense. SG&A expense was $3,692,000 for the three months ended September 30, 2020, an increase of $1,061,000, or 40%, from $2,631,000 for the three months ended September 30, 2019. The increase was primarily attributable to increases in costs related to marketing research studies in preparation for the potential marketing approval of Defencath of $647,000; and an increase in personnel expenses of $362,000, due to additional hires; an increase in recruitment costs of $67,000, in search for additional personnel, and increases in investor relations activities and consulting fees of $56,000 and $46,000, respectively. In addition, board cash fees increased by $57,000 as a result of a change in compensation which has eliminated issuance of restricted stock units as compensation. These increases were partially offset, among others of lesser significance, by a reduction in legal fees related to litigation of $180,000.

SG&A expense was $10,089,000 for the nine months ended September 30, 2020, an increase of $2,901,000, or 40%, from $7,188,000 for the nine months ended September 30, 2019. The increase was primarily attributable to increases in personnel expenses of $879,000, primarily for additional hires during the nine months ended September 30, 2020, increases in costs related to marketing research studies in preparation for the potential marketing approval of Defencath of $661,000. Additionally, there was also an increase in insurance expenses of $342,000, driven by higher directors and officers insurance premium that have gone up for all companies in our space; an increase in recruitment fees of $230,000, in search for additional personnel; an increase in board fees of $208,000, as a result of a change in compensation which has eliminated issuance of restricted stock units as compensation; an increase in investor relations and business development activities of $171,000; an increase in consulting fees of $158,000, and increases in dues and subscription and office expenses of $122,000.