Cormedix: An Interesting Play In The Catheter Care Space

Symbol: CRMD

Current Share Price: 1.19

Primary Shares Outstanding: Approximately 16 Million

Backgound Cormedix (CRMD) is a NJ based company that was formed to market Neutrolin (also referred to as CRMD003), a drug that is targeted to the kidney dialysis space. Neutrolin is a combination catheter lock solution that is placed into central venous catheters between hemodialysis sessions. The CVC is a physical tubular conduit that serves as a gateway between the patient and the dialysis machine. This conduit is prone to both blockage and contamination which leads to patient infections.

Neutrolin is designed to:

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

2) Prevent catheter dysfunction (due to blood clotting)

Neutrolin contains a mix of Taurolidine (the antimicrobial and antifungal agent) Citrate and Heparin (anti-clotting agents). Note: since Taurolidine is an antimicrobial (as opposed to an antibiotic), use of the drug should not lead to antibiotic resistance. Many of the competitive solutions utilize antibiotics, which can lead to resistant strains of bacteria and fungi. In addition to use in hemodialysis, Neutrolin is also likely to be used in other settings that employ the use of catheters such as chemotherapy, ICU and parenteral nutrition.

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

2012 was a year when CRMD's Board finally took action. A new management team was installed at year-end 2012. Randy Milby, an experienced drug industry veteran took over as CEO. Dr. Anthony Pfaffle, a long time BOD member, stepped in to become acting CSO. Steven Lefkowitz, a long time investor, took over as acting CFO. Their first task was to recapitalize the company.

Recent Financings Over the past year and one half, the new CRMD management team has done a series of small private placements that have given CRMD some much-needed breathing room. The good news is that the majority of the investors in these offerings were either legacy holders or members of CRMD's BOD. In my experience nothing speaks louder than insiders putting their own money on the table to participate in a recapitalization.

Another interesting note is the presence of Elliot Management in these recapitalization tranches. Public filings indicate that Elliot has participated in at least two recent financing rounds and currently holds an approximate 20% equity stake in CRMD. As many of you know, Elliot is a multi-billion dollar fund that is known on the Street as a shrewd and sophisticated investor. I suspect this investment behemoth did ample due diligence prior to writing the recent check(s) and may lend its weight in any future IP dispute (discussed below) .

Neutrolin EU Approval and Sales Launch On July 5th 2013 European Mark Approval for Neutrolin was granted, The EU approval opens the door to a likely $200 million plus sales opportunity in the EU. The CE Mark permits Cormedix to market Neutrolin in 27 EU and EFTA countries. I estimate that the total size of the European market in all applications is approximately $200MM. The company has announced publically that it is also in the process of seeking an EU label expansion into oncology.

Over the last year, CRMD has laid the groundwork for a European launch by hiring Joachim Petrak (who led the German launch of Renagel (Sevelamer)) to act as sales regional sales manager in Europe. They have built out a small team that will initially focus on the German and Austrian markets. In my opinion, it was a very smart move to hire a local with experience in the dialysis market in lieu of attempting to direct the marketing efforts from North America.

On December 12th, 2013 the company announced that it had booked initial product sales in Germany. This positive event fulfilled a promise made in the Fall that the company would launch sales prior to EOY 2013. The sales launch was an important milestone since any amount of current revenue reduces the company's net burn rate and will hopefully limit the size and frequency of future equity offerings.

U.S. Opportunity While it was an extremely important approval, the CE Mark is not recognized in the U.S. The U.S. market is similar in size to the EU opportunity and needed to be addressed. Again, Cormedix management delivered on a recent promise. On December 23, 2103 the company announced receipt of the official minutes from the Nov. 14, 2013 Pre-IND (Investigational New Drug) meeting with the U.S. Food and Drug Administration (FDA). The minutes confirmed the guidance received from the FDA concerning the development of Neutrolin (on a recent conference call management expressed that the pre-IND meeting's tone was quite positive). The market took note of this transformational event as over 1.2 mm shares changed hands on the news and the stock touched an intra-day high of $1.37.

Partnering Potential Now that sales in the E.U. have commenced and the company has begun to map out a U.S. trial strategy, I suspect CRMD will seek to partner in both the U.S. and abroad. The Middle East and parts of Asia seem like obvious candidates for expansion since many countries within these regions accept the CE Mark. Again, any commercial pairing in these locales and subsequent sales will slow the burn rate and alleviate much of the need for future financings.

In the U.S., I suspect the company will look to partner the U.S. registrational trial in dialysis with either Fresenius or DaVita since these two entities control the majority of the domestic dialysis market. A better fit might be either Baxter or Becton Dickinson if management is looking farther down the road beyond the dialysis space and wants to position CRMD as a catheter care company.

Intellectual Property Claims As most of you know, intellectual property rights are a critical asset for any drug or device company. Cormedix recently prevailed in European legal proceedings when a Swiss competitor (Geistlich Söhne AG für Chemische Industrie) challenged its Neutrolin intellectual property rights to Neutrolin. There is an additional IP issue that could provide significant upside and dramatically alter the marketing landscape in Europe. When reading the S-1, I noticed that TauroPharm Gmb H (a privately held German competitor) currently markets Taurolock, a catheter lock drug that seems strikingly similar to Neutrolin in its composition. If Cormedix ever decided to contest this German product, and was to subsequently win any potential legal action down the road, it could end up as a monopoly provider in Europe.

On September 5th, 2013 the company received notice from the European Patent Office which stated that the Examining Division intends to grant a European Patent on the basis of European Application No. 05803391.1, "Antimicrobial Locking Solutions Comprising Taurinamide Derivatives and Biologically Acceptable Salts and Acids". This notice is VERY important news. I suspect legal action to commence shortly after the issuance of the Prosl patent. Again, having Elliot onboard may increase the likelihood of an eventual legal settlement or victory.

Relative Valuation I don't believe the current market capitalization of approximately $20 million in any way reflects fair value for either the shorter term prospects in Europe or the longer term global potential of this issuer. Ask yourself a simple question: what is a company with an approved product in a potentially multi hundred million dollar EU market worth? What could it be worth one day if the company attains a global reach?

The market may worry that CRMD will need to raise significant funds to complete a U.S. trial but I suspect that they have no intention of trying to self finance the effort. As mentioned, the major players in the dialysis space, Fresenius and DeVita, spring to mind as natural fits as a U.S. registrational trial partner. Again, I tend to view CRMD in a brooder catheter care context so JNJ, BDX, BD, ABT and numerous others could also be viewed as potential partners.

There is an outside chance that one of the aforementioned companies may simply choose to buy CRMD outright given the size of the market opportunity and the fact that the product is already approved in the EU.

Risk Factors Investing in micro-cap issues is always a risky proposition. Here are a few concerns with the issue:

A) The primary risk here remains the thinness of the capital cushion (please refer to most recent quarterly SEC filings). CRMD will need to raise money in 2014 unless they can find a source of non-dilutive capital through a partnership agreement. As we all know, the ability to land a partnership is never a sure thing.

B) CRMD has a slower than expected sales ramp in the EU. There is no assurance that CRMD can displace Tauropharm in either the dialysis or oncology space

C) Illiquidity of the shares has also been a historical concern but volume seems to be improving over the last several weeks.

D) The issue currently has no Wall Street sponsorship and very limited institutional support. These two factors increase the likelihood of share price volatility over the short term.

Summary In summary, I believe an investment in Cormedix could yield significant returns over the next 2-3 years if a few things break their way. Please note that this issue should only be considered by investors who possess both strong stomachs and a bit of patience. The ride will likely not be smooth, but hopefully will be well worth it in the end.

Source: Cormedix: An Interesting Play In The Catheter Care Space

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

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