CorMedix: Finishing Out Of The Money

by Sonya Colberg, Senior Investigative Reporter - 3/19/2015 10:15:13 AM

CorMedix (CRMD) insiders are prancing in the post parade as they prepare to enter the race of a lifetime.

The apparent objective: Sell millions of shares of the New Jersey pharmaceutical company before word spreads about CorMedix’s wacky financial underpinnings, its primary product that a doctor termed of little more benefit than a good hand-washing, and auditors’ recently stated “substantial doubt” about its ability to continue operating.

Always out of the money, CorMedix is:

  1. Registering 2.45 million shares of stock for insiders who want to sell, diluting average stockholders’ shares.
  2. Ridden by an insider who has jockeyed at least six disastrous companies, including some devastated by unexpected negative U.S. trial results.
  3. Racing the same old tired horse – a U.S.-unapproved catheter lock system called Neutrolin, designed to cut dialysis patients’ infections. Competitors' clinical trials are already underway, some completed. 
  4. Trading up on the misconceived notion that the company could be bought out.

“All of a sudden CorMedix became this day trader chew toy that they’re buying and moving around,” said a doctor who also manages a fund. “But it’s just the same … company it was four months ago.”

The company did not respond to our requests for comment. But investors may check out other viewpoints on CorMedix here.

Bull arguments are: Neutrolin’s potential in dialysis and non-dialysis markets is undervalued. Belief that a partnership could soon develop to aid CorMedix as it approaches Phase III trials to determine efficacy and safety. A recent distribution deal in the Middle East, where Saudi Arabia reports roughly 13,000 dialysis patients with catheters. Also, another estimated 1.6 million intensive care unit patients with catheters.

Now, pull on your racing silks and ride along as we chase down a company that is racing at breakneck speed toward the glue factory. This treacherous racetrack is piled high with the following red flags:

*Insiders Do A Little Horse-Trading. Guess Who’ll Lose - By More Than A Nose?

CorMedix stock has galloped to a record-setting $8 and change in the past few days and weeks. Riding on misconceived rumors that it could be bought out, it’s continued to speed along at a decent clip, able to leap over earnings of a lost $0.09 per share (versus $0.12 expectations), almost nil revenue and an unbelievable price-to-sales ratio.

This blatant warning of March 12 must have breezed past people’s eyes:

“Our total cash on hand as of December 31, 2014 was approximately $4,340,000, compared to approximately $2,374,000 at December 31, 2013. Because our business to date does not generate positive operating cash flow, we will need to raise additional capital before we exhaust our current cash resources in order to continue to fund our research and development, as well as to fund operations generally.

Sure enough, the next day CorMedix held the earnings call and filed a registration statement clearing shareholders to sell $19 million worth of stock.

So, 75 stockholders can soon sell 2.45 million dilutive shares on the public market.

A stunning 47 have thrown up their hands and said “We’re outta here while the getting out is good.” They intend to sell every single share.

Selling shares were converted from warrants or notes related to loans given CorMedix. The company would receive about $13.5 million if all warrants are exercised.

Most of these sellers paid about $3.44 to convert those into common shares that they can now do some horse trading with – if they can find buyers.

So who can current shareholders thank for watering down their shares?

Well, check out the entire list here, beginning on page 24. It includes:

  1. Biggest seller, 12-percent loan maker Galenica, casting off over 165,000 shares. Stake reduced to 1.4 percent from 2.1.
  2. Former company director Gary Gelbfish and his entities buck off ~96,000 shares, pushing ownership from 6.6 percent down to 6.5.
  3. Current director and 4.1 percent owner Steven Lefkowitz left over 992,000 shares remaining, after offering over 19,000 shares.
  4. Current director Matthew Duffy holds percentage steady but offers nearly 5,000 shares for sale.

*One CorMedix selling shareholder has jockeyed a string of decimated companies – one promotes whipworm-egg cocktails.

One of CorMedix’ most notable selling shareholders grabbed a starring role in a recent article by TheStreetSweeper.

Dr. Lindsay Rosenwald, who directly and indirectly loaned ~$604,000 to CorMedix in 2009 apparently is running with the herd, too. Altogether he’s selling more than 138,000 shares.

TheStreetSweeper first warned shareholders in July 2013 about one of biotech’s best known horse traders, Dr. Rosenwald. We told about the curly-haired Dr. Rosenwald’s interesting alliances and his bizarre whipworm egg therapeutic company, Coronado Biosciences (CNDO then ~$8, now ~$3).

Dr. Rosenwald co-founded and financed Interneuron, maker of an anti-obesity drug. The drug was related to the “fen” in the “fen-phen” drug cocktail eventually beset by safety concerns that led to more than 3,000 lawsuits and withdrawal from the U.S. market in 1997.

Other biotech companies he founded or heavily supported have also dumped investors head-first.

These include:

Avax Technologies: deregistered in March 2009, now worth under a penny.

Biocryst: once traded at $34, now $10.

Genta: poster child for toxic financial deals, U.S. Food and Drug Administration rejections and horrible clinical trials. FDA ultimately ruled against Genta’s cancer drugs and the company lost a crucial $480 million deal with Aventis. Genta filed for chapter 7 bankruptcy.

Neose Technologies: filed a certificate of dissolution in March 2009. Under management’s final plan, liquidating distribution approved at $0.0121.

Ventrus Biosciences: founded and supported by Rosenwald, traded over $21 in 2011, now trading for ~$1.

Today, perhaps losing interest in CorMedix, Dr. Rosenwald and entities intend to cut back their stake to ~2.8 percent from ~3 percent as selling shareholders.

Meanwhile, still waiting to be issued and sold, without needing shareholder approval, are millions of other warrants and options that could be converted into shares for as little as $0.35 apiece.

Some selling shareholders’ warrants were set to expire the end of this month but an amendment allows for an extension to April 30. So, the buzzer that sends race horses storming out the gate is set to go off … the Securities and Exchange Commission could nod approval anytime within about the next three weeks.

*Why CorMedix Product Is Not Too Special

A medical doctor told TheStreetSweeper that most people don’t realize that the dialysis market isn’t as significant as CorMedix suggests – approximately 127 million catheter days.

Patients who’ve lost kidney function typically get a permanent shunt in an artery or a tubing that’s essentially a fake blood vessel that allows dialysis, the doctor explained. So there’s no catheter needed. Catheters are used in a much smaller population of one-time uses such as when a teen overdoses on, say, antidepressants.

He said an effective method of avoiding dialysis-related infections is decidedly low-tech.

“Soap and water,” the doctor said.

*Competition Jumps Out Ahead

Competition is heavy in this area, according to the physician. Indeed, at clinicaltrials.gov, investors can see that more than a dozen clinical studies are already underway to test the very drugs - taurolidine, citrate and heparin - used by the CorMedix product, Neutrolin.

Though some metrics are difficult to compare since key competitors are private, here are some comparisons between CorMedix and the industry:

Key Metric

CorMedix

Industry

Revenue Year 2014

$189 thousand

$13.7 million

Gross Margin (ttm)

  -0.62

 +0.54

Earnings/Share

  -0.96

  -0.31

Price/Sales (ttm)

1,038.05

 21.89

 

*Cash Raise Needed?

CorMedix is struggling beneath “going concern” issues that jeopardizes the company long-term. In the short-term, the issues jeopardize attempts at financial help, even as it faces massive additional expenses.

 In October, its FDA application put Phase III clinical trials within sight and given fast-track status. Executives said they hope to start Phase III in the third or fourth quarter.

But trying to determine efficacy and safety is an expensive, uncertain path and costs mount up as CorMedix contemplates trying to expand farther.

Neutrolin has been registered and may be sold in Austria, Germany, Italy, Malta, Saudi Arabia and The Netherlands, though revenues hit only $189,000 for the entire past year.

According to filings: “We believe that our cash resources as of December 31, 2014, without giving effect to the receipt of approximately $2 million from the exercises of warrants and stock options in January through March 9,  2015, will be sufficient to enable us to fund our projected operating requirements into the second quarter of 2015.  However, we may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect or if we choose to expand our research and development efforts more rapidly than we presently anticipate.”

The company likely needs money, somehow, someway.

*Buy Old Plug? Why We Think CorMedix Rumor Is Fantasy

Twitter and message boards contain comments about the possibility of a company buying out CorMedix.

And CEO Randy Milby has stated that CorMedix is looking for “strategic alternatives.” The market ran the stock up like crazy, under the interpretation that CorMedix is for sale.

But, along with other pressing financial issues, CorMedix is in the midst of suing German company TauraPharm in Germany District Court, alleging patent infringement and, in a second complaint, unfair competition related to the catheter lock solution. This ongoing litigation adds another layer of cost and uncertainty.

“If they are in current litigation on their main product, no one will step in to buy them,” an analyst assured TheStreetSweeper.

Conclusion:

CorMedix is losing ground over a hazardous track strewn with rising financial pressures, loss of insiders’ confidence, insider ties to the most desperate of companies, a risk that financial resources won’t become reality and a product that must be proven safe and effective before it can advance in the U.S.

It’s all particularly astonishing when you see that, on a fully diluted basis, CorMedix is valued by the market at about $396 million.

Stockholders will soon realize they’re in a race that they just can’t win.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in CRMD and stand to profit on any future declines in the stock price. 

Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to  [email protected].

 

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