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Edited Transcript of CRMD earnings conference call or presentation 14-Nov-19 9:30pm GMT

Q3 2019 CorMedix Inc Earnings Call

Summit Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of CorMedix Inc earnings conference call or presentation Thursday, November 14, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John L. Armstrong

CorMedix, Inc. - EVP for Technical Operations

* Khoso Baluch

CorMedix, Inc. - CEO & Director

* Phoebe Mounts

CorMedix, Inc. - Executive VP, General Counsel, Secretary & Head of Regulatory, Compliance and Legal

* Robert W. Cook

CorMedix, Inc. - CFO

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Conference Call Participants

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* Daniel Ferry

LifeSci Advisors, LLC - MD & Relationship Manager

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Presentation

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Operator [1]

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Greetings, welcome to CorMedix, Inc. Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Dan Ferry from -- Managing Director from LifeSci Advisors. Mr. Ferry, you may begin.

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Daniel Ferry, LifeSci Advisors, LLC - MD & Relationship Manager [2]

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Thanks, operator. Good afternoon, and welcome to the CorMedix Third Quarter 2019 Investors Conference Call. Leading the call today is Khoso Baluch, Chief Executive Officer of CorMedix. He's joined by Bob Cook, Chief Financial Officer of CorMedix; Phoebe Mounts, Executive Vice President and General Counsel; and Jack Armstrong, Executive Vice President, Technical Operations.

Before we begin I would like to remind everyone that during the call, management may make what are known as forward-looking statements within the meaning set forth in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties and include, but are not limited to, any of the following: any statements other than statements of historical fact regarding management's expectations, beliefs, goals and plans about the company's prospects, including its clinical development program from Neutrolin in the U.S. and other product candidates; future financial position; future revenues and projected costs; and potential market acceptance of Neutrolin and other product candidates. More specifically, forward-looking statements include any statements about our clinical development plans and the timing, cost, results and interpretations thereof; projections as to the company's future capital raising and spending and cash position; expectations as to the timing and nature of anticipated regulatory actions; possible product licensing or other business development transactions; any commercial plans and expectations; market projections for our product candidates; and expectations as to manufacturing and product component costs. Actual results may differ materially from these projections or estimates due to a variety of important factors including, but not limited to, uncertainties related to clinical development, regulatory approvals and commercialization. These risks are described in greater detail in CorMedix' filings with the SEC, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from CorMedix.

CorMedix may not actually achieve the goals or plans described in these forward-looking statements, and investors should not place undue reliance on these statements. Please note that CorMedix does not intend to update these forward-looking statements, except as required by law.

At this time, it is now my pleasure to turn the call over to Mr. Khoso Baluch, Chief Executive Officer of CorMedix. Khoso, please go ahead.

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Khoso Baluch, CorMedix, Inc. - CEO & Director [3]

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Thank you, Dan. Good afternoon, everyone, and thank you for joining us on this call. On today's earnings call, we will cover with you our continuing efforts to bring Neutrolin to the U.S. market as a catalog solution for hemodialysis patients first and then other market segments. For this call, Bob, Phoebe and Jack will participate.

We'll be covering 4 topics: first, an update on the significant progress we've made on the regulatory pathway for Neutrolin. I'm delighted to report that we have completed the discussions with the FDA on both the pre-NDA and the CMC interactions that we stated during our last earnings call we would do. Phoebe will get into further details. But overall, the FDA was supportive on several items that we had covered previously. For example, the priority review, the rolling submission and LPAD. As you may recall during our quarter 2 earnings call in August, we stated that we had planned to have both the pre-NDA and the CMC interactions with the FDA in quarter 4, 2019. We have achieved those goals. We will also cover with you the progress we've made to establish the supply chain for CorMedix and what we will use to manufacture and distribute Neutrolin in the U.S. market. We will also discuss how the care of hemodialysis patients has evolved over the recent past and the steps we are taking to meet those needs from a product perspective.

In addition, we will also cover with you further work we're undertaking to expand Neutrolin's product offering that may better facilitate the clinical practice in the different setting. And finally, we will update you on the progress we've made in improving our balance sheet. We will not go into as much details as we've done in the past. The information is available for you to review in the 10-Q that we plan to file today.

So let's get started with Phoebe first. Phoebe?

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Phoebe Mounts, CorMedix, Inc. - Executive VP, General Counsel, Secretary & Head of Regulatory, Compliance and Legal [4]

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Thank you, Khoso. It is a pleasure to be back here again and report on the continuing progress we have made on the regulatory activities required to secure marketing authorization for Neutrolin in the U.S. During the last earnings call, I emphasized that it is important to keep in mind that in addition to the clinical evidence, the NDA requires extensive manufacturing information including methods used in manufacturing of the drug and the controls used to maintain the drug's quality to ensure the drug's identity, strength and purity. The manufacturing information is closely scrutinized by FDA prior to drug approval to ensure that there are no safety or efficacy concerns. FDA's regulations do not prescribe in detail how a manufacturer must proceed as it designs and manufactures a specific drug product, which will obviously be dependent on the chemistry and formulation of the drug.

Just as we have been engaged with FDA on clinical data to support safety and effectiveness of Neutrolin, we have been engaged with the agency in discussions on CMC information. Manufacturing of the drug product must be shown to be reproducible and reliable through validation studies. Stability of the product needs to be demonstrated with extensive data and subjective to conditions likely to be encountered in commercial distribution to ensure the quality of the product. As manufacturing experience expands, data on drug substance and drug product are generated. And we saw a feedback from the FDA in quarter 4 to discuss the data that had been developed to support the NDA. We believe that it is important to obtain guidance from FDA to ensure that we have all of the CMC information that the agency is expecting and can proactively address any questions FDA may have. As we announced via press release on October 16, FDA provided guidance on the CorMedix CMC program and indicated data that will need to be available in the NDA for its review.

Jack will now provide some further color on the outcome of that meeting and what it means for securing marketing authorization for Neutrolin. Jack?

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John L. Armstrong, CorMedix, Inc. - EVP for Technical Operations [5]

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Thank you, Phoebe. The interaction with the FDA on the CMC, known as the chemistry manufacturing controls, as Phoebe has indicated, is important and critical for the NDA. And depending on what is requested, CorMedix needs to assure it completes the work in time to not delay the NDA filing. As our press release of 16 October indicated, the outcome of our interaction with the FDA was very positive. FDA was supportive of the core manufacturing processes for the drug product and the active pharmaceutical ingredients for the inclusion as part of the NDA submission. FDA did request some additional data, which we are working to complete. So we are optimistic that the CMC module will be completed as planned for filing with FDA. FDA did indicate that it will conduct a thorough review of all of the CMC information as well as assess the commercial readiness of the various manufacturing facilities at the time of the NDA review. No further CMC meetings with FDA are planned prior to the NDA's submission.

With that summary, let me pass the floor back Phoebe to cover the other regulatory milestones we achieved this quarter. Phoebe?

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Phoebe Mounts, CorMedix, Inc. - Executive VP, General Counsel, Secretary & Head of Regulatory, Compliance and Legal [6]

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Thanks, Jack. As I mentioned on our last earnings call, in addition to the CMC meeting, we've planned to have a pre-NDA meeting with the FDA in the fourth quarter. The purpose of the pre-NDA meeting is to finalize agreements with FDA on the administrative details for the actual submission of the NDA, ensuring the appropriate content and format of the information required in the NDA is critical to have FDA accept the NDA for filing. When the NDA is submitted to FDA, the agency conducts an assessment in its initial 60-day review period. If FDA deems the NDA to not be complete, FDA will refuse to file the submission. A refuse to file determination can cause significant delays for the NDA and for securing marketing authorization for the product.

We received positive responses from FDA to our pre-NDA meeting questions on preparation of the NDA. First, FDA has agreed that Neutrolin is eligible for priority review. Accordingly, CorMedix intends to include a request for priority review designation with the NDA. FDA will notify CorMedix within 60 calendar days of receipt of the NDA, if priority review is granted. If the FDA agrees to priority review, then the goal for the review period by FDA is 6 months instead of the standard review period of 10 months. But just to be clear, the review periods are goals for the FDA and not absolute in time line. Secondly, FDA agreed that the Neutrolin NDA is eligible for rolling review and that the proposed submission plan is reasonable. CorMedix now needs to file a formal request for rolling review to the existing investigational new drug application.

Next, FDA agreed that it is appropriate to submit a request for approval of Neutrolin under LPAD, or Limited Population Pathways for Antibacterial and Antifungal Drugs. You may recall from previous earnings calls that this is a relatively new pathway for FDA, and it provides the FDA with additional flexibility in its determination of whether the clinical data submitted in the NDA adequately demonstrates the safety and effectiveness for the limited population. LPAD takes into account the severity and prevalence of the infection the drug is intended to treat and the lack of alternative treatment in the limited population for whom the drug is intended for use. FDA will make a determination of whether a drug meets the criteria for the LPAD pathway at the time of Neutrolin's approval.

Next, we are grateful that FDA provided some additional guidance on its expectation for specific datasets, analysis and narratives that will be used to support safety and efficacy in the NDA. The agency has assured us that the electronic submission system for the Center for Drug Evaluation and Research is able to handle terabyte submissions, so there are no issues with handling data submissions of a large size, which this NDA will be. FDA reminded us that until it performs a thorough review of the data for LOCK-IT-100, it cannot determine that this single trial will be adequate to support an indication.

As we have noted previously, 2 adequate and well-controlled trials are usually required to provide substantial evidence of safety and effectiveness of the product. CorMedix believes that the robust data from LOCK-IT-100 demonstrates that Neutrolin provides a highly reliable and persuasive clinical benefit. CorMedix is working diligently to provide the analysis and information required for the NDA. Since receiving the unwinded top line data from LOCK-IT-100 at the end of January 2019, we have moved very quickly over the past 10 months to interact frequently with FDA to prepare the information required to submit the NDA based on a single study. Therefore, based on our current estimates that we have covered during the last earnings call, we remained on schedule for NDA submission and a potential for approval during the second half of 2020. I am excited about our progress in developing the information needed to secure marketing authorization for Neutrolin in the U.S. and remain confident that internally we have the team and capabilities to be successful.

Finally, in addition to continuing with the preparation of the NDA for the hemodialysis indication for use, we are working on developing the regulatory pathways for additional indications for use in oncology patients and for patients requiring total parenteral nutrition or TPN. We are focusing on securing the indications for use in hemodialysis patients first with the data from LOCK-IT-100 because we believe it will provide more options for generating the clinical data for additional indications for use. As part of the program planning to develop new indications for use through Neutrolin as a catheter lock solution, we have been using the experience gained with LOCK-IT-100 as will be discussed in a few minutes.

With that, I would like to turn the call back to Jack, who will provide you an update on the supply chain for the U.S. Jack?

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John L. Armstrong, CorMedix, Inc. - EVP for Technical Operations [7]

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Thank you again, Phoebe. During the last call, I noted that CorMedix has been manufacturing and selling Neutrolin outside the U.S. for the last 5 years. We have successfully carried out technical transfer and validation of the manufacturing process, which has enabled the successful production of product at 3 different manufacturing sites. As mentioned previously, I have working with me a very experienced and confident team. They have the needed breadth and depth in the requirements for sourcing, manufacturing, distribution and quality assurance that is necessary for both the U.S. and foreign markets.

During the last earning call, I covered with you that we are now in the process of finalizing the supply chain and distribution network for the initial product that will be used for launch in the U.S. The initial finished product will be manufactured in Europe. Further, we plan to qualify a second third-party manufacturing site in North America. Longer term, based on our preliminary forecast, we expect to be manufacturing at 2 or more contract manufacturing sites in order to supply the volume of product needed to meet our forecast for the U.S. market.

So with that background, I would like to make several additional comments with regard to the establishment of the U.S. supply chain. I use the word "establishment" because CorMedix literally started with nothing in place since we had no sales in the U.S. before. Hence, no established supply distribution network in place for the U.S. With that in mind, there are several key things I'd like to address about the U.S. supply chain.

First, we began working on the U.S. supply chain, in some cases several years ago, to ensure that the critical elements are in place as early as practical and necessary.

Secondly, we have set up the supply chain for the active drug substances, also known as active pharmaceutical ingredients, APIs. CorMedix will have 2 sources for the purchased API heparin, neither of which will be sourced from Chinese pig mucosa. This is important in light of the recent shortages due to the outbreak of the swine virus in China. We're continuing to track that development.

Thirdly, CorMedix has validated our taurolidine source and has its own drug master file for taurolidine, which is manufactured in the U.S.

Fourth, the drug product manufacturer, that's the vial, is in place and processes have been established and appropriate validation tested -- testing completed to enable manufacture of launch quantities.

Fifth, CorMedix has established the logistics network to move the various needed items. For the U.S. distribution network, we have selected our 3PL, third-party logistics partner. Our 3PL will assist in setting up the customer database, will take orders, ship to customers, do order to cash and integrate to our financial and planning systems.

Just one last comment on the supply chain. We are in the process of installing an ERP system to integrate our forecasting planning systems with the financial and quality data systems internally and as appropriate with external partners.

So in summary, with regard to the supply chain, a significant portion is ready and the remaining items are on schedule.

I will now turn the call back over to Khoso.

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Khoso Baluch, CorMedix, Inc. - CEO & Director [8]

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Thanks, Phoebe and Jack for describing clearly the important work you are responsible for at CorMedix, as we continue to move forward into the next phase for Neutrolin.

Now let's turn our attention further downstream and look at the market via an updated lens. For some time now, we've been carefully looking at the most optimal delivery option for Neutrolin in the hemodialysis patient. As we closely examine the data from LOCK-IT-100, we saw a growing trend how Neutrolin was administrated. Shortly after LOCK-IT-100 started, we noted that many sites began using 2 vials of Neutrolin per patient, per dialysis session, 1 for each catheter lumen instead of the 1 vial. Despite the fact that there was enough solution for both lumens in 1 vial. As the study progressed, we recognized that this practice was being adopted by more and more sites. We began speaking with many of the sites and our nurse educators and learned more about the one needle, one syringe practice, where each vial is only penetrated once. Dialysis units are always looking for ways to be more vigilant about infection control. By only drawing from each vial once, the potential risk of infection is lessened, which is why this practice is being adopted.

So with this in mind, upon Neutrolin's approval, we will present to the market a package that will have a vial with a 3ML fill that should be sufficient for any 1 lumen. Therefore, 2 vials would be used per hemodialysis session for each patient to ensure that we help maintain the higher compliance standards economically.

In addition, during the last earnings call, it was stated that the estimated size of the market for catheter lock solutions in the hemodialysis segment to be around 40 million catheter lock solution doses per year and growing. For clarity's sake, given that the central venous catheter used in hemodialysis have 2 lumens each, our annual estimate of 40 million catheter lock solutions actually represent 80 million vials, 2 vials for each session.

I would now like to discuss product delivery need for additional therapeutic markets in which Neutrolin is being developed. Based on the extensive work that CorMedix has undertaken, we see that the product delivery systems for the hemodialysis and the oncology segments are very different. We therefore, plan to introduce a vial for the hemodialysis market. And once we launch into the oncology segment, we will have a prefilled, needle-free syringe. Our market research support that a prefilled, needle-free syringe would support adoption in the oncology segment and provide value to the medical community.

Now let me ask Bob to cover, at a macro level, the steps we've taken during the quarter to improve our balance sheet. Bob?

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Robert W. Cook, CorMedix, Inc. - CFO [9]

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Thanks very much, Khoso.

The company has filed today its quarterly report on Form 10-Q for the third quarter and 9-month ended September 30, 2019. I urge you to read the information contained in the report for a more complete discussion of our financial results.

In September 2019, the company closed an exchange agreement with funds managed by Elliott Management Corporation, its largest investor. In connection with the exchange agreement, Elliott agreed to make a cash payment of $2 million and to exchange all of its outstanding warrants, the 10% senior secured convertible notes and the Series C-2, D and F convertible preferred stock for a new Series G convertible preferred stock. The new Series G convertible preferred stock is convertible into an aggregate of about 5.6 million shares of common stock, subject to a clawback depending upon the occurrence of certain stock price-related conditions.

With the completion of this exchange, the company raised additional capital and substantially reduced the amount of outstanding warrants as well as its classes of outstanding preferred stock. By eliminating the debt, we put CorMedix in a stronger position for negotiating whatever strategic arrangement we may prefer, as we move closer to bringing Neutrolin to the U.S. market. As a result of the exchange agreement, the company recognized a deemed dividend of $26.7 million. The deemed dividend was comprised of 4 elements: first, the remaining beneficial conversion related to the convertible note recognized at extinguishment; second, the difference between the allocated fair value of the Series G Preferred Stock issued and the carrying values of the convertible note, the Series C-2 Preferred Stock, Series D and the Series F Preferred Stock; third, the difference between the fair value of the exchange warrants before and after the exchange agreement; and fourth, the difference between the fair value and the carrying value of Series E Preferred Stock, less the fair value of the Series E warrants that were canceled as part of the exchange agreement.

As you can appreciate, the accounting for this transaction was complex and required significant work to estimate the fair value of each of the old and new instruments and in the case of the old instrument to compare those values against the carrying value on our books. The amount of the deemed dividend is significant because of the carrying value of the old instrument. It is not an indication of the amount of incremental market value given to the Series G investor, which on a fair value basis, was essentially equivalent to the fair value of the old instrument plus the $2 million in cash. The deemed dividend had no effect on cash.

Also, in September of this year, as part of our continuing efforts to simplify the company's capital structure, the company agreed to reduce the exercise price on $1.2 million of warrants expiring in August 2022 in return for their immediate exercise, which generated cash of $4.9 million.

In completing this transaction, the company recognized another deemed dividend of approximately $370,000. The exchange agreement and the warrant strike price reductions along with exercises of warrants held by other investors during the third quarter of this year resulted in the company receiving gross proceeds of approximately $10 million during the quarter and reducing its warrant overhang by approximately 2.9 million shares. Warrants to purchase approximately 345,000 shares are currently outstanding.

Total cash on hand and short-term investments as of September 30, amounted to $32.4 million, excluding restricted cash of $0.2 million. The company believes that based on the company's cash resources at September 30, 2019, it has sufficient resources to fund operations into 2021, including the submission of the NDA for Neutrolin and initial preparations for commercial launch.

As I covered earlier, our spend this quarter was relatively low. So we finished with approximately $32.4 million in cash on hand at September 30 compared with $26.4 million at June 30, 2019. We expect our burn rate to increase starting in early 2020, as we begin building inventory for launch and hire key personnel to prepare for commercialization.

The other topic on which I would like to update you relates to the continuing evolution of the company's shareholder base. As the company continued along its path towards receiving marketing approval for Neutrolin in the U.S, executed a reverse stock split and was placed into the Russell Index. We have seen a significant increase in the number of shares held by institutional shareholders, including several BlackRock funds. Based on recent investor filings and other analysis we have undertaken, we believe that institutional ownership of outstanding CorMedix stock is currently approaching 30%. On a fully diluted basis, institutional ownership is approximately 40% of outstanding common and common equivalent shares and warrants. While several of the institutions are index funds, which added CorMedix shares along with their reentry into the Russell Index, we are also seeing investment by actively managed funds and have engaged with more institutions who appear ready to take positions as we move toward NDA filing and hopefully approval. We continue to focus our messaging and effort with institutions with a particular emphasis on health care institutional investors.

And with that, I would like to now hand the call back to Khoso for his closing remarks. Khoso?

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Khoso Baluch, CorMedix, Inc. - CEO & Director [10]

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Thank you, Bob.

What Phoebe, Jack and Bob covered with you, hopefully provides you insight into the work effort on which we are focused that have occurred over the last 3 months. I'm pleased about the progress we are making, and I'd like to re-emphasize a couple of key points.

We are extremely pleased to report that our -- to our shareholders that the effort to move the regulatory process forward with the FDA is on track. Both the CMC and the pre-NDA interactions were positive, and CorMedix hopefully will have Neutrolin NDA approved during the second half of 2020.

The progress to prepare the Neutrolin supply chain to the U.S. market is moving along as planned. Jack and his team are planning to have this completed before CorMedix received marketing approval for Neutrolin from the FDA. The product presentations with the introduction of a user-friendly prefilled needle-free syringe into the portfolio will help health care providers transition away from today's standard of care to making Neutrolin their new standard of care, easier and quicker.

We believe reducing the complexity of the equity section of our balance sheet increases our attractiveness to potential partners and bringing in additional cash without increasing fully diluted common stock was important.

Finally, we have received questions since we announced our upcoming Annual General Meeting and issued the proxy. It appears, based on the questions, that there is some misunderstanding amongst some of what proxy item 2 is trying to achieve. The adoption of a new stock plan with additional shares available for issuance is intended to help address the company growing needs to attract, reward and retain top talent as we move the company programs forward. The allocation is meant to cover the needs of the company over the next several years. The new stock plan was designed by well-known independent compensation expert, who proposed a minimum allocation of shares that fall well within the acceptable guidelines for companies of our size and stage of development. We were pleased to see that the plan received IFS recommendation for approval.

In terms of the update you have been receiving, all are connected to LOCK-IT-100 study for specifically the hemodialysis segment. Please note that this is just step #1. At CorMedix, we're determined to seek additional indications for Neutrolin use in oncology and TPN. We've had discussions with the FDA on clinical trial design for Neutrolin's use as a catheter lock solution in oncology and TPN and are working to develop the protocol with a goal of finalizing the regulatory pathway for these patient groups after the NDA for hemodialysis is filed.

Our goal is to maximize shareholders' value because hemodialysis is a very concentrated payer-provider market, we are continuing to prepare CorMedix to launch Neutrolin in the hemodialysis segment while at the same time, being open to potential partnership. All options are on the table. We continue to build awareness for Neutrolin. And just last week, at the American Society of Nephrology in D.C., we met with major dialysis providers to provide updates on Neutrolin and ensure that awareness for Neutrolin is at all levels of their organization.

We also acknowledged particularly that the areas of oncology, TPN and critical care are very broad, and therefore, may be more appropriate that a larger, more strategic player who is already in place in such a play may be best able to maximize shareholders' value.

I continue to believe that if Neutrolin is approved, it will become the standard of care for preventing catheter-related bloodstream infections in the hemodialysis patients. As Phoebe covered, the last 10 months have been very productive in moving Neutrolin to the required regulatory process. I'm very pleased with the strength of our management team, and we will continue to evolve by augmenting our team over the coming quarters in the areas of strategic need. As I stated in our press release some 10 days ago, we have begun a search for a new CFO with a top search firm.

This concludes our presentations, so I'm going to hand the call back to the operator to open it up for calls -- for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from [John Ledon, Novel Consulting Group].

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Unidentified Analyst, [2]

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In terms of the other products in the pipeline, it has been mentioned in the past, meshes, sutures, other type of products, can you speak to that, the previous work that has been done on that and how that will help establish you in the future?

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Khoso Baluch, CorMedix, Inc. - CEO & Director [3]

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Thank you very much for your question. In terms of what is rest in our pipeline, at present, over the last few quarters, we've really not put much effort to bear. Our -- all our resources and bandwidth has been spent on moving Neutrolin to the regulatory pathway. We're delighted of the progress we've made with Neutrolin, and our goal is to now beeline it to get the NDA filing and ensure that we've got the NDA submitted to the FDA before we begin to turn our attention back on the pipeline.

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Unidentified Analyst, [4]

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But I am under the understanding that you have had prior studies or prior experience with that in terms of some level of development in early stage?

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Khoso Baluch, CorMedix, Inc. - CEO & Director [5]

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Correct. We did work in late 2017 and into 2018, particularly with neuroblastoma, and that was presented in ASCO already and that is available on our website.

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Operator [6]

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We have reached the end of the question-and-answer session. I will now turn the call back over to Khoso Baluch for your closing remarks.

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Khoso Baluch, CorMedix, Inc. - CEO & Director [7]

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Thank you very much, Dan.

I guess I -- the only conclusion I'd like to make is the strategy we embarked on in early 2007 will continue to move forward. We look forward to providing you with updates, both on the development via our website, press release and conference call. I also want to take this opportunity to thank Bob Cook, our CFO, for his services over the last nearly 3 years. I very much appreciated his effort and his services. I wish him the best of luck in the next chapter of his life and want to thank all our investors and support -- supporters for CorMedix. So thank you very much. Thank you, Bob.

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Robert W. Cook, CorMedix, Inc. - CFO [8]

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Thank you.

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Operator [9]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.