Resonant Down 70%… Could CorMedix Inc. (CRMD) Be Next?

Resonant Down 70%… Could CorMedix Inc. (CRMD) Be Next?

Last February we warned about Resonant and since then the stock has fallen over 70%. We believe Coremedix has many of the same attributes that alarmed us about RESN. We believe CRMD is wildly overvalued, is poised for a big drop and suggest that investors avoid or consider shorting CRMD.

CorMedix has a market capitalization of $400 million, its stock is up 370% year to date, its trading at 2,000x 2014 revenue (yes 2,000 times), it has a going concern, it needs to raise capital, it recently filed an equity offering, it faces significant regulatory and commercial challenges, it has a heavily retail oriented investor base, it has only 5 full time employees, has had several CFOs and some of its backers have a questionable background.

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CorMedix’s primary product is Neutrolin, a catheter lock solution for the prevention of catheter-related infections and thrombosis. We encourage readers to review the company’s SEC filings and website for further information.

CRMD bulls are excited about the potential of its product to address what theoretically could be a large market. However, before CorMedix can tap this market it needs additional regulatory approval and commercial acceptance, neither of which we believe CorMedix will likely achieve in the near future, if ever. Bulls are also excited about some pending lawsuits in Germany, although it is unclear if the company will ultimately win any of the (appealable) verdicts. Some bulls are also excited about CRMD’s recent decision to engage investment bank Evercore to evaluate strategic alternatives, but it is unclear if this will ultimately result in a higher stock price for shareholders.

Concerns about CorMedix

Some of the numerous concerns we have about CorMedix include:

  • For all the hype and speculation surrounding CorMedix, the reality is the company generated revenue of only $190k last year, yes $190k. Its product is currently distributed only in Germany and Saudi Arabia.  The product faces competition from several significantly larger and better financed companies. It is unclear if the product will ever gain the regulatory approval and the commercial acceptance required to even begin justifying CorMedix’s current stock price.  While theoretically the USA could be a big market for the product, CRMD has stated that it does not have immediate plans to initiate a Phase 3 trial for Neutrolin since CRMD requires “one or more strategic partners or other sources of capital to start that trial.”
  • The company (assuming ~45 million fully diluted shares) trades at approximately 2,000x 2014 revenue, which seems rather high to us considering all the risks associated with the company.
  • The stock is up 370% year to date, we believe due to highly promotional activities and buying from misinformed retail investors in this heavily shorted name.
  • CorMedix apparently hasn’t attracted much interest from venture capital or strategic players. Currently CRMD’s investor base includes a few hedge funds (much of whose ownership is in the form of previously purchased preferred stock, not common stock) and many retail investors.
  • CorMedix needs capital as is poised to do an equity offering. The company recently filed a $40 million offering via MLV & Co (if you haven’t heard of MLV, we are not surprised!) as part of a larger $100 million shelf offering. The recent S3 notes that CorMedix’s current cash balance “will be sufficient to enable us to fund our projected operating requirements into the fourth 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 received a going concern from its auditors. CRMD further warned that “the proceeds received through March 31, 2015 have not alleviated the substantial doubt about our ability to continue as a going concern issued by our independent registered public accounting firm, which will be reassessed each reporting period. To alleviate such concern, we will need to have sufficient liquidity to fund our operations for 12 months from each reporting period.
  • The executives who held the top 3 positions at CorMedix combined made $1.7 million last year, which equates to 9x the company’s total revenue last year.
  • The company has had 3 CFOs since 2012…we find such turnover troubling considering CorMedix continues to need capital, has a going concern and has a material weakness.
  • We believe the company has engaged in questionable promotional activities. One such example is CorMedix’s April 9 press release which the company issued a press release announcing two items that we do not think are very important. However, what the company did not disclose in the press release was that it was filing a large shelf registration including a $40 million ATM offering via MLV. A $40 million offering is very large considering the company’s current market cap (based only on shares outstanding) is approximately $200 million. Management’s refusal to mention the offering in the press release makes us question their credibility and willingness to be honest and transparent with investors. The two items they did disclose in the press release were (a) they have a new program that will substantially reduce the cost of the Lock solution (but the CorMedix’s problem isn’t that its product costs too much but rather that it lacks significant regulatory approval and commercial acceptance, so who cares if you can reduce the cost of a product that few people can or will buy????). The second item was that “Evercore has completed the preparatory phase of the previously announced strategic review and will begin its outreach to potentially interested parties over the coming days.”  We’ve never seen a company make such an announcement since all it is essentially saying is that the investment bank is doing its job! Could it be that management issued a press release disclosing two minor pieces of information to distract investors from the bad news associated with the equity offering?
  • One of CorMedix’s largest shareholders is Lindsay Rosenwald who has been associated with several companies whose stocks have gone up significantly, only to crash at a later date. We encourage you to research Dr. Rosenwald, his former firm (D.H. Blair) and his family associations with that firm.
  • Material weakness – As disclosed in its SEC filings, CorMedix has identified material weaknesses in its internal control over financial reporting related to its limited finance staff and the resulting ineffective management review its financial reporting, coupled with increasingly complex accounting associated with our financing activities as well as the European commercialization and start up related activities. Considering the executives who held the top 3 positions at CorMedix combined made $1.7 million last year, I wonder why they can’t find some money to hire additional resources to remediate these weaknesses.
  • As of March 6, 2015, CRMD had only five full time employees, including a customer service representative and office manager in Germany. Its surprising that a company with such a large market cap, material weaknesses and supposedly such great growth opportunities would have so few employees.
  • CorMedix’s market cap is significantly larger than it may initially appear. We believe the company has a market capitalization of approximately $400 million, which is almost double what Yahoo Finance shows because our analysis assumes conversion/exercise of all the deeply in the money preferred and warrants.

We believe CorMedix’s stock is vastly overvalued and, while we caution that its heavily shorted, we believe the stock price is due for a fall. However, we could be wrong and thus encourage you to conduct your own research before making any investment decision.

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