Cormedix: An Interesting Speculation in the Dialysis Space
Current Share Price: .84
Primary Shares Outstanding: Approximately 12 Million
Market Capitalization: $9.58 million
I have been long Comedix for 3 years and until recently, believed the company to be DOA. A number of positive events over the last several months have caused me to reconsider my dire outlook. Before we get into what has changed for the better, let me provide some background information on this interesting micro-cap speculation.
Cormedix is NJ based company that was formed tomarket Neutrolin (also referred to a CRMD003), a drug that is intended for use in the kidney dialysis space. Neutrolin is a combination catheter lock solution that is placed into central venous catheters (CVCs) between hemodialysis sessions. The drug 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 could likely be expanded into both the chemotherapy and parenteral nutrition settings.
The Ugly 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. Here are six positives that have recently occurred. :
1) 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.
2) Recent private placements 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 management team and/or BOD. In my experience nothing speaks louder than insiders putting their own money on the table to participate in a recapitalization.
3) CRMD has been on an endless quest to obtain a CE Mark in Europe to begin selling its catheter lock product. I believe that CRMD is very close to finally attaining the long coveted European Mark Approval. CE marking would permit Cormedix to market Neutrolin in 27 EU and EFTA countries. I estimate that the total size of the European market in all applications is approx. $200MM.
The recent 8-K release (March 6, 2013) likely has more import than many realize. I believe the 8-K translates into "they are very close" since the clinical aspect of the review process has already been cleared by the European regulators. The approval delay likely boils down to CRMD needing to create acceptable packaging in order to obtain final European regulatory approval. Again, we are not talking about a binary data driven FDA trial with rigorous P values, curve separation etc., but rather the cleaning up some relatively minor administrative/technical matters.
4) CRMD seems to be laying the groundwork for a European launch. They have hired Joachim Petrak (who led the German launch of Renagel (Sevelamer)) to act as sales regional sales manager in Europe. 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. Hopefully Mr. Perrak is able to gain traction quickly once the product is launched.
5) The company has generated significant net operating losses (NOLs) over its life. This accumulated NOL represents a hidden asset. If Cormedix is successful in launching Neutrolin, its effective tax rate will be dramatically lightened over the next few years.
6) 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. Disclosure: Since I am neither an attorney not a scientist, please see CRMD’s S-1 Filing for details re: potential IP issues and draw your own conclusions.
Let’s not kid ourselves-there is a reason that Cormedix stock is trading sub $1.00. Historically, management has had no track record of success and has routinely missed deadlines. While the company has recently raised funds, CRMD’s balance sheet remains very thin. Even if European Mark Approval is finally granted, the company will need to raise additional capital in 2013 to finance both the manufacturing of product and European marketing efforts.
Potential investors should also note that the issue is illiquid and trades by appointment on most days. Wall Street sponsorship is non-existent. I do not believe there is a single analyst currently covering the issue. This anonymity is a double-edged sword for those seeking to accumulate shares at these depressed levels, but a risk nonetheless.
As you can see, CRMD is not for the faint of heart but likely offers a compelling risk to reward opportunity. In my opinion, most of the hard work re: the CE Mark has been done—I suspect Neutrolin will be granted approval sometime this quarter. Additionally, there is significant further upside potential if the company ever decides to run FDA trials for eventual expansion into the United States which is likely a $ 200MM plus sales opportunity. I don’t believe the current market cap of $9.58 million in any way reflects fair value for either the shorter term prospects in Europe or longer term global potential of this issue. Ask yourself a simple question: what is a company with an approved product in a potentially multi hundred million dollar European dialysis market worth? What could it be worth one day if the company attains a global reach?
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.
Time will tell if Cormedix finally lives up to its as yet, unmet potential.
Disclosure: Long and Hopeful Here