CorMedix Inc. - Quarter Report: 2020 March (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 March 31, 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

(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 May 7, 2020 was 26,127,171.

CORMEDIX INC. AND SUBSIDIARY

INDEX

PART I

FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

CorMedix Inc. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended March 31, 2020

For the three months ended March 31, 2019

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization, Business and Basis of Presentation:

Organization and Business

CorMedix Inc. (“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, Neutrolin®, for potential commercialization in the United States (“U.S.”) and other key markets. The Company has in-licensed the worldwide rights to develop and commercialize Neutrolin. Neutrolin is a novel anti-infective solution (a formulation of taurolidine 1.35%, citrate 3.5%, and heparin 1000 u/ml) intended for the reduction and prevention of catheter-related infections and thrombosis in patients requiring central venous catheters (“CVCs”) in clinical settings such as hemodialysis, critical/intensive care, and oncology. Infection and thrombosis represent key complications among hemodialysis, critical care/intensive care and cancer 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 (“IV”) antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the CVC, related treatment costs and increased mortality. The Company believes Neutrolin addresses a significant unmet medical need and a potential large market opportunity.

In late 2013, the Company met with the U.S. Food and Drug Administration (“FDA”), to determine the pathway for U.S. marketing approval of Neutrolin as a new drug to prevent catheter-related blood stream infections (“CRBSIs”) in patients with end stage renal disease who are receiving hemodialysis through a CVC. In January 2015, the FDA designated Neutrolin as Fast Track, which is a program designed to facilitate development of drugs that are intended to address an unmet medical need and provides eligibility for priority review of the marketing application. Also, in January 2015, the FDA designated Neutrolin as a Qualified Infectious Disease Product (“QIDP”), which provides an additional five years of marketing exclusivity that is added to the five years granted to a New Chemical Entity upon approval of a New Drug Application (“NDA”).

The Company launched its Phase 3 clinical trial LOCK-IT-100 in patients with hemodialysis catheters in the U.S. in December 2015. The clinical trial was a multicenter, double-blind study to demonstrate the safety and effectiveness of Neutrolin compared to the standard of care, 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.

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 Neutrolin 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 study was terminated early. Following discussions with the FDA, the Company proceeded with an orderly termination of LOCK-IT-100. The study had continued enrolling and treating subjects until study termination, and the final efficacy and safety analyses were based on a total of 795 subjects.

In late January 2019, the Company announced the topline results of the full data set of LOCK-IT-100. In a total of 41 cases, there was a 71% reduction in CRBSI by Neutrolin relative to the heparin control, which was highly statistically significant (p=0.0006), with a good safety profile.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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, the Company began the modular submission process for the NDA for Neutrolin for the prevention of CRBSI in hemodialysis patients. 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 Company still believes that it is on schedule for the potential approval of the NDA during the second half of 2020, however, disruptions incurred by the FDA may result in a delay.

The FDA also agreed that the Company could request consideration of Neutrolin for approval under the Limited Population Pathway for Antibacterial and Antifungal Drugs (“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. 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, we believe that LPAD will provide additional flexibility for the FDA to approve Neutrolin to prevent CRBSIs in the limited population of patients with end-stage renal disease receiving hemodialysis through a central venous catheter.

In March 2020, the Company was granted by the FDA a deferral under the Pediatric Research Equity Act (“PREA”) that requires sponsors to conduct pediatric studies for NDAs for a new active ingredient, such as taurolidine in Neutrolin, 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. CorMedix 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 would provide an additional six months of marketing exclusivity. Neutrolin would then have the potential to receive a total marketing exclusivity period of 10.5 years.

In the European Union (“EU”), Neutrolin is regulated as a Class 2 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 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 (“MEB”), granted a label expansion for Neutrolin for these same expanded indications for the EU. In December 2014, the Company received approval from the Hessian District President in Germany to expand the label to include use in oncology patients receiving chemotherapy, IV hydration and IV medications via CVC. 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.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition to Neutrolin, the Company is sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. 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.

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 clinical development 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 (“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 (“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.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“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 is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. 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 requires, that in a transaction with a collaborative arrangement participant who is not a customer, presenting the transaction together with revenue recognized under contracts with customers is precluded. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. This adoption on January 1, 2020 did not have a material impact on the Company’s condensed consolidated financial statements.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED 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 (“ASC”) 718. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. 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 March 31, 2020, the Company had an accumulated deficit of $201.0 million, and incurred losses from operations of $5.6 million and $5.2 million for the three months ended March 31, 2020 and 2019, respectively. The Company currently estimates that as of March 31, 2020 it has sufficient cash, cash equivalents and short-term investments on hand to fund operations through the second quarter of 2021, after taking into consideration, the receipt of net proceeds from the sale of its net operating loss carryforwards, the refund of the advance payment of the NDA application fee, additional costs related to the submission of the NDA for Neutrolin and initial preparations for commercial launch. The Company currently anticipates that the FDA marketing approval for Neutrolin could be received in the second half of 2020.

In April 2020, the Company received approximately $5.2 million, net of expenses, from the sale of a portion of its unused New Jersey net operating losses (“NOL”). The NOL was sold through the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program, which 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 the refund for the NDA application fee in the amount of $2.9 million. 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 Neutrolin 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 March 31, 2020, the Company had approximately $2.1 million available under its current ATM program and $30.3 million available under its current shelf registration statement for the issuance of equity, debt or equity-linked securities unrelated to the current ATM program.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 and CorMedix Europe GmbH, its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 reevaluated 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 March 31, 2020 or December 31, 2019.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 March 31, 2020 and December 31, 2019, all of the Company’s investments had contractual maturities of less than one year. As of March 31, 2020, no allowance for credit loss was recorded. The following table summarizes the amortized cost, unrealized gains and losses and the fair value at March 31, 2020 and December 31, 2019:

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 SUBSIDIARY

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 March 31, 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 subsidiary, 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.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash

As of March 31, 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 security deposit of an aggregate of approximately €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 €36,000 and €10,000 for the first and second instances, respectively, in connection with the unfair competition proceedings in Cologne.

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 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:

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. On April 29, 2020, the refund in the amount of $2,942,965 was received from the FDA.

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 Neutrolin product. Inventories consist of the following:

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 the Company conduct its LOCK-IT-100 Phase 3 multicenter, double-blind, randomized active control study to demonstrate the safety and effectiveness of Neutrolin in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease.

Through March 31, 2020, approximately $30.0 million of clinical trial expense has been recorded, of which approximately $27.4 million has been paid. During the quarters ended March 31, 2020 and 2019, the Company recognized $22,000 and $517,000, respectively, in research and development expense related to this agreement. At March 31, 2020, the Company had accrued approximately $2.5 million in accounts payable and accrued expenses.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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. 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 SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Stockholders’ Equity:

Common Stock

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. At March 31, 2020, the Company has approximately $2.1 million available under its current ATM program and $30.3 million available under its current shelf registration for the issuance of equity, debt or equity-linked securities unrelated to the current ATM program.

During the three months ended March 31, 2020 and 2019, the Company sold 368,144 and 1,768,012 shares of common stock under the ATM program, respectively, and realized net proceeds of approximately $2.5 million and $15.2 million, respectively.

During the quarter ended March 31, 2020, the Company issued an aggregate of 91,500 shares of its common stock upon exercise of warrants, resulting in net proceeds to the Company of $412,000.

During the quarter ended March 31, 2020, the Company issued an aggregate of 2,073 shares of its common stock upon the vesting of restricted stock units issued to the Company’s board of directors.

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:

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

During the three months ended March 31, 2020, the Company granted ten-year qualified and non-qualified stock options covering an aggregate of 380,234 shares of the Company’s common stock under the 2019 Stock Incentive Plan. The weighted average exercise price of these options is $5.91 per share.

During the three months ended March 31, 2020 and 2019, total compensation expense for stock options issued to employees, directors, officers and consultants was $670,000 and $759,000, respectively.

As of March 31, 2020, there was approximately $2,828,000 in total unrecognized compensation expense related to stock options granted, which expense will be recognized over an expected remaining weighted average period of 1.6 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 three months ended March 31, 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.

The following table summarizes the Company’s stock options activity and related information for the three months ended March 31, 2020:

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 three months ended March 31, 2019.

Restricted Stock Units

During the three months ended March 31, 2020, the Company issued an aggregate of 2,073 shares of its common stock upon the vesting of RSUs issued to the Company’s board of directors.

During the three months ended March 31, 2020 and 2019, compensation expense recorded for the RSUs was $7,000 and $50,000, respectively. Unrecognized compensation expense for these RSUs amounted to $3,000. The expected weighted average period for the expense to be recognized is 0.18 years.

Warrants

During the three months ended March 31, 2020 and 2019, the Company issued an aggregate of 91,500 and 119,220 shares of its common stock upon exercise of warrants, respectively, resulting in net proceeds to the Company of $412,000 and $620,000, respectively.

As of March 31, 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 2.4 years.

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.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 on 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.

CORMEDIX INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. Next steps will be taken after the receipt of the supplementary expert opinion.

CORMEDIX INC. AND SUBSIDIARY

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 $170,000, 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.

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 March 31, 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 March 31, 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 quarters ended March 31, 2020 and 2019.

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.

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, is expected to commence in the third quarter of 2020 upon the Company’s occupation of the premises.

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 SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating lease expense in the Company’s condensed consolidated statements of operations and comprehensive loss for each of the three months ended March 31, 2020 and 2019 was approximately $2,000, which includes costs associated with leases for which ROU assets have been recognized as well as short-term leases.

At March 31, 2020, the Company has a total operating lease liability of $3,500. Approximately $1,500 and $2,000, respectively, are included in accrued expenses and operating lease liabilities, net of current portion on the condensed consolidated balance sheet. Operating ROU assets as of March 31, 2020 are $4,000 and are included in property and equipment, net on the condensed consolidated balance sheet.

For each of the three months ended March 31, 2020 and 2019, cash paid for amounts included in the measurement of lease liabilities in operating cash flows from operating leases was $2,000.

The weighted average remaining lease term as of March 31, 2020 and 2019 were 2.3 and 2.8 years, respectively, and the weighted average discount rate for operating leases was 10.0% each as of March 31, 2020 and 2019.

As of March 31, 2020, maturities of lease liabilities were as follows:

Note 6 — Concentrations:

At March 31, 2020, 95% of net accounts receivable was due from three customers that exceeded 10% of the Company’s accounts receivable (40%, 40% and 15%) and at December 31, 2019, no net accounts receivable was due from a customer that exceeded 10% of the Company’s accounts receivable. During the three months ended March 31, 2020 and 2019, the Company had revenue from three customers that exceeded 10% of its total sales, 62%, 19% and 10% in 2020, and 64%, 19% and 10%, in for the same period in 2019.

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.

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. 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. and our wholly owned German subsidiary, CorMedix Europe GmbH (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, Neutrolin®, for potential commercialization in the United States, or U.S., and other key markets. We have in-licensed the worldwide rights to develop and commercialize Neutrolin. Neutrolin is a novel anti-infective solution (a formulation of 1.35% taurolidine, 3.5% citrate, and 1000 u/ml heparin) intended for the reduction and prevention of catheter-related infections and thrombosis in patients requiring central venous catheters in clinical settings such as hemodialysis, critical/intensive care, and oncology. Infection and thrombosis represent key complications among hemodialysis, critical care/intensive care and cancer patients with central venous catheters. These complications can lead to treatment delays and increased costs to the healthcare system when they occur due to hospitalizations, need for IV antibiotic treatment, long-term anticoagulation therapy, removal/replacement of the central venous catheter, related treatment costs and increased mortality. We believe Neutrolin addresses a significant unmet medical need and a potential large market opportunity.

In December 2015, we launched our Phase 3 clinical trial in patients with hemodialysis catheters in the U.S. The Phase 3 clinical trial (“LOCK-IT-100”), was a prospective, multicenter, randomized, double-blind, active control trial, which aimed to demonstrate the efficacy and safety of Neutrolin compared to the standard of care, heparin, in preventing catheter-related bloodstream infections (“CRBSI”) in subjects receiving hemodialysis therapy as treatment for end stage renal disease. The primary endpoint for the trial assessed the incidence of CRBSI and time to CRBSI. 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, as previously agreed with the FDA, an interim efficacy analysis was performed based on the first 28 cases. There was a 72% reduction in CRBSI (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 study was terminated early. In late January 2019, we announced the topline results of the full data set of the LOCK-IT-100 study. The study continued enrolling and treating subjects until study termination, and the final efficacy analysis was based on 41 cases from a total of 795 subjects. There was a 71% reduction in CRBSI (p=0.0006) with a good safety profile.

The FDA granted our request for a rolling submission and review of the NDA, which is designed to expedite the approval process for products being developed to address an unmet medical need. Although the FDA usually requires two pivotal clinical trials to provide substantial evidence of safety and effectiveness for approval of 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 prevention of a disease with potentially serious outcome.

In March 2020, we began the submission process of the NDA for Neutrolin for the prevention of CRBSIs in hemodialysis patients. 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 still believe that we are on schedule for the potential approval of the NDA during the second half of 2020, however, disruptions incurred by the FDA may result in a delay.

In the European Union, or EU, Neutrolin is regulated as a Class 2 medical device. In July 2013, we received CE Mark approval for Neutrolin. In December 2013, we commercially launched Neutrolin in Germany for the prevention of CRBSI, and maintenance of catheter patency in hemodialysis patients using a tunneled, cuffed central venous catheter for vascular access.  To date, Neutrolin is registered and may be sold in certain European Union and Middle Eastern countries for such treatment.

In September 2014, the TUV-SUD and The Medicines Evaluation Board of the Netherlands, or MEB, granted a label expansion for Neutrolin for these same expanded indications for the EU. In December 2014, we received approval from the Hessian District President in Germany to expand the label to include use in oncology patients receiving chemotherapy, IV hydration and IV medications via central venous catheters. The expansion also adds patients receiving medication and IV fluids via central venous catheters in intensive or critical care units (cardiac care unit, surgical care unit, neonatal critical care unit, and urgent care centers). An indication for use in total parenteral nutrition was also approved.  

In addition to Neutrolin, we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors. In February 2018, the FDA granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children. We may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in children. We are also evaluating opportunities for the possible expansion of taurolidine as a platform compound for use in certain medical devices. Patent applications have been filed in several indications, including wound closure, surgical meshes, and wound management. Based on initial feasibility work, we are advancing pre-clinical studies for taurolidine-infused surgical meshes, suture materials and hydrogels. We will seek to establish development/commercial partnerships as these programs advance.

The FDA regards taurolidine as a new chemical entity and therefore an unapproved new drug. Consequently, there is no appropriate predicate medical device currently marketed in the U.S. on which a 510(k) approval process could be based. As a result, we will be required to submit a premarket approval application, or PMA, for marketing authorization for any medical device indications that we may pursue. In the event that an NDA for Neutrolin 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 April 2020, we received approximately $5.2 million, net of expenses, from the sale of a portion of our unused New Jersey net operating losses, or NOL. The NOL was sold through the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program, which 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 the refund for the NDA application fee in the amount of $2.9 million. 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.

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.

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 Neutrolin in the EU and other foreign markets, and maintaining and improving our patent portfolio.  We have funded our operations primarily through debt and equity financings.  We have generated significant losses to date, and we expect to use substantial amounts of cash for our operations as we prepare and submit a NDA for Neutrolin to the FDA, commence pre-launch commercial activities for Neutrolin for the U.S. market and commercialize Neutrolin in the EU and other foreign markets, pursue business development activities, and incur additional legal costs to defend our intellectual property.  As of March 31, 2020, we had an accumulated deficit of approximately $201.0 million.  We are unable to predict the extent of any future losses or when we will become profitable, if ever.

Financial Operations Overview

Revenue

We have not generated substantial revenue since our inception. Through March 31, 2020, we have funded our operations primarily through debt and equity financings.

Research and Development Expense

Research and development, or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations, 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. All R&D is expensed as incurred.

Conducting a significant amount of development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials. We expect to incur significant R&D expenses for the foreseeable future in order to complete development of Neutrolin in the U.S., including the close out of our LOCK-IT-100 clinical trial and the ongoing filing of an NDA for Neutrolin.

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 completing the necessary requirements for filing an NDA for Neutrolin in the U.S. as well as on continuing sales in foreign markets where Neutrolin is approved. 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 Neutrolin in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease. During 2018, we contested a substantial amount of the unpaid clinical trial expense due to the unexpected delay and additional costs we incurred in preparing for the interim analysis of the LOCK-IT-100 study. In November 2018, we signed a settlement agreement with the CRO. In parallel with the settlement agreement, a new work order under the Master Service Agreement was executed specifying certain services the CRO would provide to us related to the closeout of the study. The budgeted amount of the new work order was approximately $1.4 million, which has been completed.

In March 2020, we were granted by the FDA a deferral under the Pediatric Research Equity Act (“PREA”) that requires sponsors to conduct pediatric studies for NDAs for a new active ingredient, such as taurolidine in Neutrolin, 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. CorMedix has made a commitment to conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients and has submitted a plan for the proposed pediatric study to the FDA for its review and approval. Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which would provide an additional six months of market exclusivity. Neutrolin would then have the potential to receive a total marketing exclusivity period of 10.5 years.

We are pursuing additional opportunities to generate value from taurolidine, an active component of Neutrolin. Based on initial feasibility work, we have completed an initial round of pre-clinical studies for taurolidine-infused surgical meshes, suture materials, and hydrogels, which 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.

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 months ended March 31, 2020 compared to three months ended March 31, 2019

The following is a tabular presentation of our consolidated operating results (in thousands):

Revenue. Revenue for the three months ended March 31, 2020 was $74,000 as compared to $164,000 in the same period last year, a decrease of $90,000. The decrease was attributable to decreased sales in the Middle East of $136,000, partially offset by higher sales in the European Union of $47,000. The sales decrease in the Middle East was mainly due to the expiration of our registration with the Saudi Arabia Food and Drug Administration. The registration must be renewed in order for us to continue selling in Saudi Arabia.

Cost of Sales. Cost of sales was $49,000 for the three months ended March 31, 2020 compared to $227,000 in the same period last year, a decrease of $178,000. The decrease was primarily attributable to the decrease in cost of materials as a result of decreased sales in the Middle East in addition to write-offs of expired raw material of $40,000 and the cost of replacement of expired product of $24,000 that occurred during the three months ended March 31, 2019.

Research and Development Expense. R&D expense was $2,472,000 for the three months ended March 30, 2020, a decrease of $403,000, or 14%, from $2,875,000 for the three months ended March 31, 2019. The decrease was primarily attributable to a decrease in clinical trial expenses of $871,000, mainly due to the closing of our LOCK-IT-100 clinical trial, a decrease of $103,000 in consulting fees, and a decrease in non-cash charges for stock-based compensation of $90,000, partially offset by $340,000 increase in costs related to the manufacturing of a raw material that could potentially be available to support the commercial launch of Neutrolin prior to marketing approval, an increase in personnel expenses of $209,000, mainly due to additional hires during the first quarter of this year and an increase in costs required for an NDA filing of $120,000.

Selling, General and Administrative Expense. SG&A expense was $3,165,000 for the three months ended March 31, 2020, an increase of $1,180,000, or 59%, from $1,985,000 for the three months ended March 31, 2019. The increase was primarily attributable to increases in: legal fees related to general corporate legal advice of $304,000; personnel expenses of $178,000, mainly due to additional hires; recruitment fees of $148,000, in search for additional personnel; insurance expenses of $143,000; accounting fees of $132,000, due to audit costs related to internal control on financial reporting; consulting fees of $87,000; board fees of $74,000, due to elimination of equity compensation; and increased costs related to business development and investor activities of $27,000 and $23,000, respectively. These increases were partially offset, among others of lesser significance, a decrease in non-cash charge of stock-based compensation of $43,000.

Foreign Exchange Transaction Gain (Loss). A foreign exchange transaction loss of $3,000 was recorded for the three months ended March 31, 2020 compared to a loss of $1,000 for the same period last year. These losses occur due to the re-measuring of transactions denominated in a currency other than our functional currency.

Interest Income. Interest income was $64,000 for the three months ended March 31, 2020 compared to $59,000 for the same period last year, an increase of $5,000. The increase was attributable to higher average interest-bearing cash balances and short-term investments during the first quarter of 2020 as compared to the same period in 2019.

Interest Expense. Interest expense was $6,000 for the three months ended March 31, 2020 as compared to $302,000 for the three months ended March 31, 2019. This was attributable to the amortization of debt discount and non-cash interest expense recognized during the three months ended March 31, 2019 in connection with the senior secured convertible note issued in December 2018 that are no longer outstanding.

Other Comprehensive Income (Loss). Unrealized foreign exchange movements related to long-term intercompany loans, the translation of the foreign affiliate financial statements to U.S. dollars and unrealized movements related to short-term investment resulted in losses of $7,000 and $1,000 for the three months ended March 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our cost of sales, R&D and SG&A expenditures and the lack of substantial product sales revenue, our ongoing operations have not been profitable since our inception. During the three months ended March 31, 2020, we received net proceeds of $2,470,000 from the issuance of 368,144 shares of common stock under our at-the-market-issuance sales agreement and $412,000 from the exercise of warrants. We will continue to be reliant on external sources of cash for the foreseeable future until we are able to generate revenue.

In April 2020, we received approximately $5.2 million, net of expenses, from the sale of a portion of our NOL. The NOL was sold through the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program, which 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.

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2020 was $7,967,000 as compared to $7,367,000 for the same period in 2019, an increase in net cash use of $600,000. The increase was mainly attributable to the increase in net loss of $390,000, primarily driven by an increase in general and administrative expenses partially offset by decreased research and development expenses, mainly due to the close out of our LOCK-IT-100 clinical trial, and decreases in accrued expenses and non-cash stock-based compensation of $328,000 and $132,000, respectively. Additionally, the increase was also due to an increase in prepaid expenses and other current assets of $3,122,000, mainly due to the $2,943,000 advance payment of the NDA application fee which was refunded to the Company in April 2020, and an increase in accounts payable of $309,000 for the three months ended March 31, 2020, as compared to decreases in accounts payable and accrued expenses for the same period in 2019 of $1,127,000 and $2,302,000, respectively.

 Net Cash Provided by (Used in) Investing Activities

Cash provided by investing activities for the three months ended March 31, 2020 was $985,000 as compared to $7,965,000 used in same period in 2019. The increase in cash provided during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 was due to the maturity of short-term investments and a decline in purchases of short-term investments in 2020, due to lower proceeds from the Company’s ATM program for the three months ended March 31, 2020 as compared to higher proceeds received during the same period last year.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2020 was $2,835,000 as compared to $15,968,000 for the same period in 2019. During the three months ended March 31, 2020, we generated net proceeds of $2,470,000 from the sale of our common stock in our at-the-market, or ATM program, $412,000 from the exercise of warrants and paid $47,000 in financing fees. In comparison to the same period in 2019, the net proceeds we generated in the amount of $15,235,000 was from the sale of our common stock in our ATM program, $620,000 and $113,000 proceeds from the exercise of warrants and stock options, respectively.

Funding Requirements and Liquidity

Our total cash on hand and short-term investments as of March 31, 2020 was $23.2 million, excluding restricted cash of $0.2 million, compared with $28.3 million at December 31, 2019. As of March 31, 2020, we have approximately $2.1 million available under our current ATM program and approximately $30.3 million available under our current shelf registration statement for the issuance of equity, debt or equity-linked securities unrelated to the current ATM program. We may utilize our ATM program, if conditions allow, to support our activities in connection with our planned filing of the NDA for Neutrolin and for activities required for commercial launch of Neutrolin, as well as general corporate expenses.

Because our business has not generated positive operating cash flow, additional capital will likely be required in order to fund pre-commercial launch activities for Neutrolin, as well as other taurolidine-based research and development activities and our operations generally. Our continued operations will depend on our ability to raise sufficient funds through various potential sources, such as equity, debt financings, and/or strategic relationships. We can provide no assurances that financing or strategic relationships will be available on acceptable terms, or at all.

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

Sales of Neutrolin outside the U.S. are not expected to generate significant product revenues for the foreseeable future, and while we expect to grow product sales for Neutrolin in the U.S., should we receive the FDA approval, such approval is not anticipated before the second half of 2020. In the absence of significant revenue, we are likely to continue generating operating cash flow deficits. We will continue to use cash as we close out our LOCK-IT-100 clinical trial, increase other activities leading to the preparation and submission of an NDA and commercialize upon approval, pursue business development activities, and incur additional legal costs to defend our intellectual property.

We currently estimate that as of March 31, 2020 we have sufficient cash on hand to fund operations through the second quarter of 2021, after taking into consideration, the receipt of net proceeds from the sale of our NOL, the refund of the advance payment of the NDA application fee, additional costs related to the submission of the NDA for Neutrolin and initial preparations for commercial launch. Additional financing will be required to build out our commercial infrastructure and to continue our operations should we decide to market and sell Neutrolin in the U.S. on our own. We currently anticipate that the FDA marketing approval for Neutrolin could be received in the second half of 2020. If we are unable to raise additional funds when needed, we may be forced to slow or discontinue our preparations for the commercial launch of Neutrolin. We may also be required to delay, scale back or eliminate some or all of our research and development programs. Each of these alternatives would likely have a material adverse effect on our business.

Contractual Obligations

In March 2020, we entered into a seven-year lease agreement for approximately 6,089 square feet of office space at 300 Connell Drive, Berkeley Heights, New Jersey. The average monthly lease payment is approximately $17,000. The lease agreement is expected to commence in the third quarter of 2020 upon our occupation of the premises.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.

For the three-month period ended March 31, 2020, there were no significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“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 our 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 us beginning in the first quarter of fiscal year 2020. Early adoption is permitted. This adoption on January 1, 2020 did not have a material impact on our 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 requires, that in a transaction with a collaborative arrangement participant who is not a customer, presenting the transaction together with revenue recognized under contracts with customers is precluded. The guidance is effective for us beginning in the first quarter of fiscal year 2020. Early adoption is permitted. This adoption on January 1, 2020 did not have a material impact on our 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 ASC 718. The guidance is effective for us beginning in the first quarter of fiscal year 2020. Early adoption is permitted. This adoption on January 1, 2020 did not have a material impact on our 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 us beginning in the first quarter of fiscal year 2021. Early adoption is permitted. We are assessing the impact of adopting this guidance on our consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

None.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of March 31, 2020.  Based on the foregoing evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2020, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

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

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

On March 27, 2015, the District Court held a hearing to evaluate whether the Utility Model has been infringed by TauroPharm in connection with the manufacture, sale and distribution of its TauroLock-HEP100TM and TauroLock-HEP500TM products. A hearing before the same court was held on January 30, 2015 on the separate, but related, question of infringement of the Prosl European Patent by TauroPharm.

The Court issued its decisions on May 8, 2015, staying both proceedings. In its decisions, the Court found that the commercialization by TauroPharm in Germany of its TauroLock catheter lock solutions Hep100 and Hep500 infringes both the Prosl European Patent and the Utility Model and further that there is no prior use right that would allow TauroPharm to continue to make, use or sell its product in Germany. However, the Court declined to issue an injunction in favor of us that would preclude the continued commercialization by TauroPharm based upon its finding that there is a sufficient likelihood that the EPO, in the case of the Prosl European Patent, or the German PTO, in the case of the Utility Model, may find that such patent or utility model is invalid. Specifically, the Court noted the possible publication of certain instructions for product use that may be deemed to constitute prior art. As such, the District Court determined that it will defer any consideration of the request by us for injunctive and other relief until such time as the EPO or the German PTO made a final decision on the underlying validity of the Prosl European Patent and the Utility Model. 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, however, not 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. In its preliminary consideration of the matter, the EPO (and the German PTO) regarded the patent as not inventive or novel due to publication of prior art. Oral proceedings before the Opposition Division at the EPO were held on November 25, 2015, at which the three-judge patent examiner panel considered arguments related to the validity of the Prosl European Patent. The hearing was adjourned due to the fact that the panel was of the view that Claus Herdeis, one of the managing directors of TauroPharm, had to be heard as a witness in a further hearing in order to close some gaps in the documentation presented by TauroPharm as regards the publication of prior art.

The German PTO held a hearing in the validity proceedings relating to the Utility Model on June 29, 2016, at which the panel affirmed its preliminary finding that the Utility Model was invalid based upon prior publication of a reference to the benefits that may be associated with adding heparin to a taurolidine based solution. We 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, we filed a withdrawal on the complaint on the German utility model, thereby waiving our claims on these proceedings. We estimate 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. We disagree with this decision and, after the written opinion was issued by the Opposition Division in September 2018, have appealed the decision. We continue to believe that the Prosl European Patent is indeed novel and that its validity should be maintained. There can be no assurance that we will prevail in this matter. In addition, the ongoing Unfair Competition litigation against TauroPharm is not affected and will continue.

On January 16, 2015, we filed a complaint against TauroPharm GmbH and its managing directors in the District Court of Cologne, Germany. In the complaint, we allege violation of the German Unfair Competition Act by TauroPharm for the unauthorized use of our proprietary information obtained in confidence by TauroPharm. We allege that TauroPharm is improperly and unfairly using our proprietary information relating to the composition and manufacture of Neutrolin, in the manufacture and sale of TauroPharm’s products TauroLockTM, TauroLock-HEP100 and TauroLock-HEP500. We seek a cease and desist order against TauroPharm from continuing to manufacture and sell any product containing taurolidine (the API of Neutrolin) and citric acid in addition to possible other components, damages for any sales in the past and the removal of all such products from the market. An initial hearing in the District Court of Cologne, Germany was held on November 19, 2015 to consider our claims. The judge made no decision on the merits of our complaint. On January 14, 2016, the Court issued an interim decision in the form of a court order outlining several issues of concern that relate primarily to 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. We have prepared the requested reply and produced the respective documentation. TauroPharm has also filed another writ within the same deadline and both parties have filed further writs at the end of April 2016 setting out their respective argumentation in more detail. A further oral hearing in this matter was held on November 15, 2016. In this hearing, the Court heard arguments from CorMedix and TauroPharm concerning the allegations of unfair competition. The Court made no rulings from the bench and indicated that it is prepared to further examine the underlying facts of our allegations. On March 7, 2017, the Court issued another interim decision in the form of a court order outlining again several issues relating to the argumentation of both sides in the proceedings. In particular the Court requested us to further specify our requests and to further substantiate in even more detail which know-how was provided by Biolink (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 had scheduled a further hearing for May 8, 2018. After having been rescheduled several times, the hearing took place on November 20, 2018. A decision was rendered by the Court on December 11, 2018, dismissing the complaint in its entirety. However, we intend to continue to pursue this matter, and still believe firmly that our claims are well-founded. We have therefore appealed in January 2019 and filed our grounds of appeal in March 2019. An oral hearing was held on September 6, 2019 in which our legal counsel 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 our favor, but we have 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 our submission. Next steps will be taken after the receipt of the supplementary expert opinion.

The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

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 our offices, clinical trial sites, key vendors and partners. Our clinical development program timelines may be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, due to “shelter in place” orders and other public health guidance measures, we have implemented a work-from-home policy for all staff members excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business.

As a result of the COVID-19 outbreak, or similar pandemics, and related “shelter in place” orders and other public health guidance measures, we have and may in the future experience disruptions that could materially and adversely impact our clinical trials, business, financial condition and results of operations. Potential disruptions include but are not limited to:

The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.

In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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