You should read the following discussion and analysis together with our audited
consolidated financial statements and the accompanying notes contained elsewhere
in this report. This discussion contains forward-looking statements, within the
meaning of Section 27A of Securities Act, Section 21E of the Exchange Act, and
the Private Securities Litigation Reform Act of 1995, including statements
regarding our expected financial condition, business and financing plans. These
statements involve risks and uncertainties. Our actual results could differ
materially from the results described in or implied by these forward-looking
statements as a result of various factors, including those discussed below and
elsewhere in this report, particularly under the heading "Risk Factors."
Overview
CorMedix Inc., together with our wholly owned subsidiaries, (collectively
referred to herein as "we," "us," "our" and the "Company"), is a
biopharmaceutical company focused on developing and commercializing therapeutic
products for the prevention and treatment of infectious and inflammatory
diseases. In May 2020, we formed a wholly-owned Spanish subsidiary, CorMedix
Spain, S.L.U.
Our primary focus is on the development of our lead product candidate,
DefenCath™, for potential commercialization in the United States, or U.S., and
other key markets as a catheter lock solution, or CLS. We have in-licensed the
worldwide rights to develop and commercialize DefenCath and Neutrolin®. The name
DefenCath is the U.S. proprietary name conditionally approved by the U.S. Food
and Drug Administration, or FDA, while the name Neutrolin® is currently used in
the European Union, or EU, and other territories where we received CE-Mark
approval for the commercial distribution of Neutrolin as a CLS regulated as a
medical device. DefenCath/Neutrolin is a novel anti-infective solution (a
formulation of taurolidine 13.5 mg/mL and heparin 1000 USP Units/mL) intended
for the reduction and prevention of catheter-related infections and thrombosis
in patients requiring central venous catheters in clinical settings such as
hemodialysis, total parenteral nutrition, and oncology. Infection and thrombosis
represent key complications among hemodialysis, total parenteral nutrition and
oncology patients with central venous catheters. These complications can lead to
treatment delays and increased costs to the healthcare system when they occur
due to hospitalizations, need for intravenous, or IV antibiotic treatment,
long-term anticoagulation therapy, removal/replacement of the central venous
catheter, related treatment costs and increased mortality. We believe DefenCath
addresses a significant unmet medical need and a potential large market
opportunity.
In January 2015, the FDA designated DefenCath as a Qualified Infectious Disease
Product, or QIDP, for prevention of catheter-related blood stream infections in
patients with end stage renal disease receiving hemodialysis through a central
venous catheter. Catheter-related blood stream infections and clotting can be
life-threatening. The QIDP designation provides five years of market exclusivity
in addition to the five years granted for a New Chemical Entity upon approval of
a New Drug Application, or NDA. In addition, in January 2015, the FDA granted
Fast Track designation to DefenCath Catheter Lock Solution, a designation
intended to facilitate development and expedite review of drugs that treat
serious and life-threatening conditions so that the approved drug can reach the
market expeditiously. The Fast Track designation of DefenCath provides us with
the opportunity to meet with the FDA on a more frequent basis during the
development process, and also ensures eligibility to request priority review of
the marketing application.
In December 2015, we launched our Phase 3 Prospective, Multicenter,
Double-blind, Randomized, Active Control Study to Demonstrate Safety &
Effectiveness of DefenCath/Neutrolin in Preventing Catheter-related Bloodstream
Infection in Subjects on Hemodialysis for End Stage Renal Disease, or
LOCK-IT-100, in patients with hemodialysis catheters in the U.S. The clinical
trial was designed to demonstrate the safety and effectiveness of DefenCath
compared to the standard of care CLS, Heparin, in preventing CRBSIs. The primary
endpoint for the trial assessed the incidence of CRBSI and time to CRBSI for
each study subject. Secondary endpoints were catheter patency, which was defined
as required use of tPA, or removal of catheter due to dysfunction, and removal
of catheter for any reason.
As previously agreed with the FDA, an interim efficacy analysis was performed
when the first 28 potential CRBSI cases were identified in our LOCK-IT-100 study
that occurred through early December 2017. Based on these first 28 cases, there
was a highly statistically significant 72% reduction in CRBSI by DefenCath
relative to the active control of heparin (p=0.0034). Because the pre-specified
level of statistical significance was reached for the primary endpoint and
efficacy had been demonstrated with no safety concerns, the LOCK-IT-100 study
was terminated early. The study continued enrolling and treating subjects until
study termination, and the final analysis was based on a total of 795 subjects.
In a total of 41 cases, there was a 71% reduction in CRBSI by DefenCath relative
to heparin, which was highly statistically significant (p=0.0006), with a good
safety profile.
47
The FDA granted our request for a rolling submission and review of the NDA,
which is designed to expedite the approval process for products being developed
to address an unmet medical need. Although the FDA usually requires two pivotal
clinical trials to provide substantial evidence of safety and effectiveness for
approval of an NDA, the FDA will in some cases accept one adequate and
well-controlled trial, where it is a large multicenter trial with a broad range
of subjects and study sites that has demonstrated a clinically meaningful and
statistically very persuasive effect on a disease with potentially serious
outcome.
In March 2020, we began the modular submission process for the NDA for DefenCath
for the prevention of CRBSI in hemodialysis patients, and in August 2020, the
FDA accepted for filing the DefenCath NDA. The FDA also granted our request for
priority review, which provides for a six-month review period instead of the
standard ten-month review period. As we announced in March 2021, the FDA
informed in its Complete Response Letter, or CRL, to us that it cannot approve
the NDA for DefenCath in its present form. The FDA noted concerns at the
third-party manufacturing facility after a review of records requested by the
FDA and provided by the contract manufacturing organization, or CMO.
Additionally, the FDA is requiring a manual extraction study to demonstrate that
the labeled volume can be consistently withdrawn from the vials despite an
existing in-process control to demonstrate fill volume within specifications.
In April 2021, we and the CMO met with the FDA to discuss proposed resolutions
for the deficiencies identified in the CRL to us and the Post-Application Action
Letter, or PAAL, received by the CMO from the FDA for the NDA for DefenCath.
There was an agreed upon protocol for the manual extraction study identified in
the CRL, which now has been successfully completed. Addressing the FDA's
concerns regarding the qualification of the filling operation necessitated
adjustments in the process and generation of additional data on operating
parameters for manufacture of DefenCath. We and the CMO determined that
additional process qualification is needed with subsequent validation to address
these issues. The FDA did not request additional clinical data and did not
identify any deficiencies related to the data submitted on the efficacy or
safety of DefenCath from LOCK-IT-100. In draft labeling discussed with the FDA,
the FDA added that the initial approval will be for the limited population of
patients with kidney failure receiving chronic hemodialysis through a central
venous catheter. This is consistent with our request for approval pursuant to
the Limited Population Pathway for Antibacterial and Antifungal Drugs, or LPAD.
LPAD, passed as part of the 21st Century Cures Act, is a new program intended to
expedite the development and approval of certain antibacterial and antifungal
drugs to treat serious or life-threatening infections in limited populations of
patients with unmet needs. LPAD provides for a streamlined clinical development
program involving smaller, shorter, or fewer clinical trials and is intended to
encourage the development of safe and effective products that address unmet
medical needs of patients with serious bacterial and fungal infections. We
believe that LPAD will provide additional flexibility for the FDA to approve
DefenCath to prevent CRBSIs in the limited population of patients with kidney
failure receiving hemodialysis through a central venous catheter.
On February 28, 2022, we announced that we resubmitted the NDA for DefenCath to
address the CRL issued by the FDA. In parallel, our third-party manufacturer
submitted responses to the deficiencies identified at the manufacturing facility
in the PAAL issued by the FDA concurrently with the CRL. FDA will evaluate the
submission to accept for filing and determine the review timeline. FDA has
stated that it expected all corrections to facility deficiencies to be complete
at the time of resubmission so that all corrective actions may be verified
during an onsite evaluation of the manufacturing facility in the next review
cycle, if the FDA determines it will do an onsite evaluation. If an onsite
inspection is required, we may encounter delays in obtaining FDA approval
because the FDA is currently facing a backlog due to the COVID-19 pandemic. The
FDA issued a guidance document on its plan to use voluntary remote interactive
evaluations at facilities, including for a pre-approval inspection to assess a
marketing application. The FDA will request the manufacturing facility to
participate in a voluntary remote interactive evaluation, if the FDA believes it
is appropriate. A manufacturing facility cannot request the remote interaction.
The FDA expects the use of remote interactive evaluations should help the FDA
operate within normal timeframes in spite of the COVID-19 pandemic.
We intend to pursue additional indications for DefenCath use as a CLS in
populations with an unmet medical need that also represent potentially
significant market opportunities. While we are continuing to assess these areas,
potential future indications may include use as a CLS to reduce CRBSIs in total
parenteral nutrition patients using a central venous catheter and in oncology
patients using a central venous catheter.
48
In addition to DefenCath, we are sponsoring a pre-clinical research
collaboration for the use of taurolidine as a possible treatment for rare orphan
pediatric tumors. In February 2018, the FDA granted orphan drug designation to
taurolidine for the treatment of neuroblastoma in children. We may seek one or
more strategic partners or other sources of capital to help us develop and
commercialize taurolidine for the treatment of neuroblastoma in children. We are
also evaluating opportunities for the possible expansion of taurolidine as a
platform compound for use in certain medical devices. Patent applications have
been filed in several indications, including wound closure, surgical meshes, and
wound management. Based on initial feasibility work, we are advancing
pre-clinical studies for taurolidine-infused surgical meshes, suture materials
and hydrogels. We will seek to establish development/commercial partnerships as
these programs advance.
We were granted a deferral by the FDA under the Pediatric Research Equity Act,
or PREA, that requires sponsors to conduct pediatric studies for NDAs for a new
active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral
is obtained from the FDA. A deferral acknowledges that a pediatric assessment is
required but permits the applicant to submit the pediatric assessment after the
submission of an NDA. We have made a commitment to conduct the pediatric study
after approval of the NDA for use in adult hemodialysis patients. Pediatric
studies for an approved product conducted under PREA may qualify for pediatric
exclusivity, which if granted would provide an additional six months of
marketing exclusivity. DefenCath would then have the potential to receive a
total marketing exclusivity period of 10.5 years, including exclusivity pursuant
to NCE and QIDP.
The FDA regards taurolidine as a new chemical entity and therefore an unapproved
new drug. Consequently, there is no appropriate predicate medical device
currently marketed in the U.S. on which a 510(k) approval process could be
based. As a result, we will be required to submit a premarket approval
application, or PMA, for marketing authorization for any medical device
indications that we may pursue. In the event that an NDA for DefenCath is
approved by the FDA, the regulatory pathway for these medical device product
candidates may be revisited with the FDA. Although there may be no appropriate
predicate, de novo Class II designation can be proposed, based on a risk
assessment and a reasonable assurance of safety and effectiveness.
In the European Union, or EU, Neutrolin is regulated as a Class 3 medical
device. In July 2013, we received CE Mark approval for Neutrolin. In December
2013, we commercially launched Neutrolin in Germany for the prevention of CRBSI,
and maintenance of catheter patency in hemodialysis patients using a tunneled,
cuffed central venous catheter for vascular access. To date, Neutrolin is
registered and may be sold in certain European Union countries for such
treatment.
In September 2014, the TUV-SUD and The Medicines Evaluation Board of the
Netherlands, or MEB, granted a label expansion for Neutrolin to include use in
oncology patients receiving chemotherapy, intravenous, or IV, hydration and IV
medications via CVC for the EU. In December 2014, we received approval from the
Hessian District President in Germany to expand the label for these same
expanded indications. The expansion also adds patients receiving medication and
IV fluids via CVC in intensive or critical care units (cardiac care unit,
surgical care unit, neonatal critical care unit, and urgent care centers). An
indication for use in total parenteral nutrition was also approved.
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.
The novel coronavirus has been declared a pandemic and has spread to multiple
global regions. The outbreak and government measures taken in response have also
had a significant impact, both direct and indirect, on businesses and commerce,
as worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services,
such as medical services and supplies, has spiked, while demand for other goods
and services, such as travel, has fallen. In response to the COVID-19 outbreak,
"shelter in place" orders and other public health guidance measures have been
implemented across much of the United States, Europe and Asia, including in the
locations of our offices, clinical trial sites, key vendors and partners. Such
"shelter in place" orders were previously lifted, at least partially, in many
locations. However, an increase in the spread of COVID-19 and variants,
including the Delta variant, which may affect the spread or severity of one or
more successive waves of the virus, has led, and may continue to lead, to the
re-imposition by many nations and U.S. of quarantine requirements for travelers
from other regions and may lead to the re-imposition of "shelter-in-place" or
other similar orders. Our program timelines may be negatively affected by
COVID-19, which could materially and adversely affect its business, financial
conditions and results of operations.
49
Since our inception, our operations have been primarily limited to conducting
clinical trials and establishing manufacturing for our product candidates,
licensing product candidates, business and financial planning, research and
development, seeking regulatory approval for our products, initial
commercialization activities for DefenCath in the U.S. and Neutrolin in the EU
and other foreign markets, and maintaining and improving our patent
portfolio. We have funded our operations primarily through debt and equity
financings. We have generated significant losses to date, and we expect to use
substantial amounts of cash for our operations as we prepare our pre-launch
commercial activities for DefenCath for the U.S. market and commercialize
Neutrolin in the EU and other foreign markets, pursue business development
activities, and incur additional legal costs to defend our intellectual
property. As of December 31, 2021, we had an accumulated deficit of
approximately $245.7 million. We are unable to predict the extent of any future
losses or when we will become profitable, if ever.
Financial Operations Overview
Revenue
We have not generated substantial revenue since our inception. Through December
31, 2021, we have funded our operations primarily through debt and equity
financings.
Research and Development Expense
Research and development, or R&D, expense consists of: (i) internal costs
associated with our development activities; (ii) payments we make to third party
contract research organizations, contract manufacturers, investigative sites,
and consultants; (iii) technology and intellectual property license costs; (iv)
manufacturing development costs; (v) personnel related expenses, including
salaries, stock-based compensation expense, benefits, travel and related costs
for the personnel involved in drug development; (vi) activities relating to
regulatory filings and the advancement of our product candidates through
pre-clinical studies and clinical trials; (vii) facilities and other allocated
expenses, which include direct and allocated expenses for rent, facility
maintenance, as well as laboratory and other supplies; and (viii) costs related
to the manufacturing of the product that could potentially be available to
support the commercial launch prior to marketing approval. All R&D is expensed
as incurred.
Conducting a significant amount of development is central to our business model.
Product candidates in later-stage clinical development generally have higher
development costs than those in earlier stages of development, primarily due to
the significantly increased size and duration of the clinical trials.
The process of conducting pre-clinical studies and clinical trials necessary to
obtain regulatory approval is costly and time consuming. The probability of
success for each product candidate and clinical trial may be affected by a
variety of factors, including, among others, the quality of the product
candidate's early clinical data, investment in the program, competition,
manufacturing capabilities and commercial viability. As a result of the
uncertainties associated with clinical trial enrollments and the risks inherent
in the development process, we are unable to determine the duration and
completion costs of current or future clinical stages of our product candidates
or when, or to what extent, we will generate revenues from the commercialization
and sale of any of our product candidates.
Development timelines, probability of success and development costs vary widely.
We are currently focused on securing the marketing approval for DefenCath in the
U.S. as well as on continuing sales in foreign markets where Neutrolin is
approved. In December 2015, we signed an agreement with a clinical research
organization, or CRO, to help us conduct our LOCK-IT-100 Phase 3 clinical trial
in hemodialysis patients with central venous catheters to demonstrate the
efficacy and safety of DefenCath in preventing catheter-related bloodstream
infections and blood clotting in subjects receiving hemodialysis therapy as
treatment for end stage renal disease. Our LOCK-IT-100 study was completed and
all costs related to the agreement with the CRO has been paid.
We are pursuing additional opportunities to generate value from taurolidine, an
active component of DefenCath. Based on initial feasibility work, we have
completed an initial round of pre-clinical studies for taurolidine-infused
surgical meshes, suture materials, and hydrogels, which require a PMA regulatory
pathway for approval. We are also involved in a pre-clinical research
collaboration for the use of taurolidine as a possible treatment for rare orphan
pediatric tumors. In February 2018, the FDA granted orphan drug designation to
taurolidine for the treatment of neuroblastoma in children. We may seek one or
more strategic partners or other sources of capital to help us develop and
commercialize taurolidine for the treatment of neuroblastoma in children.
50
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expense includes costs related to
commercial personnel, medical education professionals, marketing and
advertising, salaries and other related costs, including stock-based
compensation expense, for persons serving in our executive, sales, finance and
accounting functions. Other SG&A expense includes facility-related costs not
included in R&D expense, promotional expenses, costs associated with industry
and trade shows, and professional fees for legal services and accounting
services.
Foreign Currency Exchange Transaction Gain (Loss)
Foreign currency exchange transaction gain (loss) is the result of re-measuring
transactions denominated in a currency other than our functional currency and is
reported in the consolidated statement of operations as a separate line item
within other income (expense). The intercompany loans outstanding between our
Company based in New Jersey and our subsidiary based in Germany are not expected
to be repaid in the foreseeable future and the nature of the funding advanced is
of a long-term investment nature. As such, unrealized foreign exchange movements
related to long-term intercompany loans are recorded in other comprehensive
income (loss).
Interest Income
Interest income consists of interest earned on our cash equivalents and
short-term investments.
Interest Expense
Interest expense consists of interest incurred on our convertible debt,
amortization of debt discount and on financing of expenditures.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following is a tabular presentation of our consolidated operating results
for the years ended December 31, 2021 and 2020 (in thousands):
% of Change
Increase
2021 2020 (Decrease)
Revenue $ 191 $ 239 (20 )%
Cost of sales (149 ) (205 ) (27 )%
Gross profit 42 34 22 %
Operating Expenses:
Research and development (13,133 ) (13,377 ) (2 )%
Selling, general and administrative (16,346 ) (13,878 ) 18 %
Total operating expenses (29,479 ) (27,255 ) 8 %
Loss from operations (29,437 ) (27,221 ) 8 %
Interest income 14 116 (88 )%
Foreign exchange transaction loss (21 ) (59 ) (64 )%
Interest expense, including amortization of debt
discount (16 ) (33 ) (52 )%
Total other (expense) income (23 ) 24 (196 )%
Loss before income taxes (29,460 ) (27,197 ) 8 %
Tax benefit 1,250 5,169 (76 )%
Net loss (28,210 ) (22,028 ) 28 %
Other comprehensive (loss) income (15 ) 5 (413 )%
Comprehensive loss $ (28,225 ) $ (22,023 ) 28 %
51
Revenue. Revenue for the year ended December 31, 2021 was $191,000 as compared
to $239,000 for the same period in 2020, a decrease of $48,000. The decrease was
attributable to lower sales in the Middle East and European Union countries in
2021 as compared to the same period in 2020.
Cost of Sales. Cost of sales for the year ended December 31, 2021 was $149,000
as compared to $205,000 for the same period in 2020, a decrease of $56,000. The
decrease was primarily attributable to the net decrease in cost of materials as
a result of lower sales in 2021 as compared to the same period in 2020.
Research and Development Expense. R&D expense for the year ended December 31,
2021 was $13,133,000, a decrease of $244,000 from $13,377,000 for the same
period in 2020. The decrease was driven by net decreases in costs related to the
manufacturing of DefenCath prior to its potential marketing approval of
$1,489,000 and a reduction in clinical trial expenses of $444,000, attributable
to the closing of our LOCK-IT clinical trial. These decreases were partially
offset, among others of lesser significance, by increases in non-cash charges
for stock-based compensation of $704,000, an increase in consulting fees of
$554,000, driven by fees related to the resubmission of the DefenCath NDA to the
FDA, and an increase in personnel expenses of $487,000, as a result of
additional hires during the fourth quarter of 2020 through the first half of
2021.
Selling, General and Administrative Expense. SG&A expense for the year ended
December 31, 2021 was $16,346,000, an increase of $2,468,000 from $13,878,000
for the same period in 2020. The increase was primarily attributable to an
increase in non-cash charges for stock-based compensation of $1,839,000, and an
increase in personnel expenses of $1,237,000, as a result of additional hires
during the fourth quarter of 2020 through the first half of 2021. These
increases were partially offset, among others of lesser significance, by a
decrease in consulting fees of $730,000, and reduced costs related to marketing
research studies in preparation for the potential marketing approval of
DefenCath of $202,000.
Interest Income. Interest income for the year ended December 31, 2021 was
$14,000, a decrease of $102,000 from $116,000 for the same period in 2020. The
decrease was attributable to lower interest rates this year as compared to the
same period last year.
Foreign Exchange Transaction Loss. Foreign exchange transaction losses for the
year ended December 31, 2021 and 2020 were due to the re-measuring of
transactions denominated in a currency other than our functional currency.
Interest Expense. Interest expense for the year ended December 31, 2021 was
$16,000 as compared to $33,000 for the same period in 2020. The decrease of
$17,000 was due primarily to lower interest rates on expenses that were financed
this year as compared to the same period last year.
Tax Benefit. Tax benefit for the years ended December 31, 2021 of $1,250,000 and
December 31, 2020 of $5,169,000, represents income tax benefits due to the sale
of our unused NOL for state fiscal year 2021 and 2020, respectively, through the
NJEDA Technology Business Tax Certificate Transfer program.
Other Comprehensive Income (Loss). Unrealized foreign exchange movements related
to long-term loans and the translation of the foreign affiliate financial
statements to U.S. dollars and unrealized movements related to short term
investment are recorded in other comprehensive income (loss) which resulted in a
loss of $15,000 and a gain of $5,000 for the years ended December 31, 2021 and
2020, 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 year ended December 31, 2021, we
received net proceeds of $41,456,000 from the issuance of 3,737,862 shares of
common stock under our at-the-market-issuance sales agreement as compared to
$18,433,000 of net proceeds for the same period in 2020 from the issuance of
2,687,646 shares of common stock. Additionally, we also received $165,000 and
$412,000 from the exercise of warrants during the years ended December 31, 2021
and 2020, respectively. We will continue to be reliant on external sources of
cash for the foreseeable future until we are able to generate revenue.
52
In June 2021, we received approximately $1,250,000, net of expenses, from the
sale of our unused New Jersey NOL eligible for sale under the NJEDA Program. The
NJEDA Program allowed us to sell approximately $1,250,000 of our total
$1,337,000 in available NOL tax benefits for the state fiscal year 2020.
The NJEDA has approved our application to participate in the NJEDA Program for
the state fiscal year 2021. The approval will allow us to sell approximately
$0.6 million of the total $0.6 million in available tax benefits to an
unrelated, profitable New Jersey corporation in return for approximately $0.6
million in cash. Closing is subject to NJEDA's typical closing conditions, which
are in process of completion.
Net Cash Used in Operating Activities
Net cash used in operating activities for the year ended December 31, 2021 was
$21,155,000 as compared to $21,968,000 in 2020, a decrease in net cash use of
$813,000. The decrease was driven by an increase in accounts payable of
$1,082,000 as compared to $103,000 for the same period in 2020, partially offset
by an increase in net loss of $6,182,000 mainly attributable to lower cash
received from the NOL sale of $1,250,000 as compared to $5,169,000 for the same
period in 2020. In addition, the decrease was also offset by a decrease in
prepaid expenses and other current assets for the year ended December 31, 2021
of $667,000, primarily due to a deposit on the equipment, compared to a $992,000
increase for the same period in 2020.
Net Cash (Used in) Provided by Investing Activities
Cash used in investing activities for the year ended December 31, 2021 was
$9,135,000 as compared to $7,426,000 of cash provided in the same period in
2020. The net cash used during the year ended December 31, 2021 was mainly
driven by the higher amount invested in short-term investments in addition to an
increase in purchases of equipment offset by the lower amount of matured
investments as compared to the same period in 2020.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021
was $41,758,000 as compared to $40,100,000 for the same period in 2020. During
the year ended December 31, 2021, we generated net proceeds of $41,456,000 from
the sale of our common stock in our at-the-market, or ATM program, $165,000 from
the exercise of warrants and $137,000 from the exercise of stock options. In the
same period in 2020, we generated net proceeds of $21,255,000 from the
underwritten public offering of our common stock, $18,433,000 from the sale of
our common stock in our ATM program, and $412,000 from the exercise of warrants.
Funding Requirements and Liquidity
Our total cash and cash equivalents and short-term investments as of December
31, 2021 and 2020, excluding restricted cash of $234,000 and $191,000,
respectively, was $65,466,000 and $46,350,000, respectively. During the year
ended December 31, 2021, we realized net proceeds of $41,456,000 from the sale
of 3,737,862 shares of common stock under our ATM program. At December 31, 2021,
we have $150,000,000 available under our shelf registration statement filed on
August 12, 2021 for the issuance of equity, debt or equity-linked securities and
$50,000,000 under our ATM program, filed on August 12, 2021.
Because our business has not generated positive operating cash flow, we will
need to raise additional capital in order to continue to fund our research and
development activities, as well as to fund operations generally. Our continued
operations are focused primarily in activities leading to the pre-launch and
commercialization for DefenCath and will depend on our ability to raise
sufficient funds through various potential sources, such as equity, debt
financings, and/or strategic relationships and potential strategic transactions.
We can provide no assurances that financing or strategic relationships will be
available on acceptable terms, or at all.
53
We expect to continue to fund operations from cash on hand and through capital
raising sources as previously described, which may be dilutive to existing
stockholders, through revenues from the licensing of our products, or through
strategic alliances. We expect to continue to utilize our ATM program, if
conditions allow, to support our ongoing funding requirements. Additionally, we
may seek to sell additional equity or debt securities through one or more
discrete transactions, or enter into a strategic alliance arrangement, but can
provide no assurances that any such financing or strategic alliance arrangement
will be available on acceptable terms, or at all. Moreover, the incurrence of
indebtedness would result in increased fixed obligations and could contain
covenants that would restrict our operations. Raising additional funds through
strategic alliance arrangements with third parties may require significant time
to complete and could force us to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates,
or to grant licenses on terms that may not be favorable to us or our
stockholders. Our actual cash requirements may vary materially from those now
planned due to a number of factors, any change in the focus and direction of our
research and development programs, any acquisition or pursuit of development of
new product candidates, competitive and technical advances, the costs of
commercializing any of our product candidates, and costs of filing, prosecuting,
defending and enforcing any patent claims and any other intellectual property
rights.
Sales of Neutrolin outside the U.S. are not expected to generate significant
product revenues for the foreseeable future, and we expect to grow product sales
for DefenCath in the U.S., should we receive FDA approval. In the absence of
significant revenue, we are likely to continue generating operating cash flow
deficits. We will continue to use cash as we increase other activities leading
to the commercialization of DefenCath upon approval, pursue business development
activities, and incur additional legal costs to defend our intellectual
property.
We currently estimate that as of December 31, 2021, we have sufficient cash on
hand to fund operations at least through the first half of 2023, after taking
into consideration the costs for resubmission of the NDA and initial
preparations for the commercial launch for DefenCath. Additional financing may
be required to build out our commercial infrastructure following FDA approval
and to continue our operations should we decide to market and sell DefenCath in
the U.S. on our own. If we are unable to raise additional funds when needed, we
may be forced to slow or discontinue our preparations for the commercial launch
of DefenCath. We may also be required to delay, scale back or eliminate some or
all of our research and development programs. Each of these alternatives would
likely have a material adverse effect on our business.
Contractual Obligations
We entered into a seven-year operating lease agreement in March 2020 for an
office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease
agreement, with a monthly average cost of approximately $17,000, commenced on
September 16, 2020. Our sublease on our previous premises at 400 Connell Drive,
Berkeley Heights, New Jersey 07922 terminated on November 30, 2020.
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate
these estimates and judgments, including those described below. We base our
estimates on our historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates and
assumptions form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results and experiences may differ materially from these estimates.
While our significant accounting policies are more fully described in Note 3 to
our financial statements included with this report, we believe that the
following accounting policies are the most critical to aid you in fully
understanding and evaluating our reported financial results and affect the more
significant judgments and estimates that we use in the preparation of our
financial statements.
54
Stock-Based Compensation
We account for stock options according to the Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC") No. 718, "Compensation
- Stock Compensation" ("ASC 718"). Share-based compensation cost is measured at
grant date, based on the estimated fair value of the award using a Black-Scholes
option pricing model for options with service or performance-based conditions.
Stock-based compensation cost is recognized as expense, over the requisite
service period on a straight-line basis.
Valuations incorporate several variables, including expected term, expected
volatility, expected dividend yield and a risk-free interest rate. We estimate
the expected term of the options granted based on anticipated exercises in
future periods. The expected stock price volatility for the Company's stock
options is calculated based on the historical volatility of the Company's common
stock. The expected dividend yield reflects our current and expected future
policy for dividends on our common stock. To determine the risk-free interest
rate, we utilize the U.S. Treasury yield curve in effect at the time of grant
with a term consistent with the expected term of our awards which is 5 years for
employees and 10 years for non-employees.
Recently Adopted Authoritative Pronouncements:
In December 2019, the FASB issued ASU 2019-12 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 was effective for us beginning in the first quarter
of fiscal year 2021. Early adoption was permitted. This adoption on January 1,
2021 did not have a material impact on our consolidated financial statements.
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