Micro-cap Nephros secures up to $10M to back its alternative to hemodialysis

How the Mid-Dilution Hemodiafiltration (HDF) technology works--Courtesy of Nephros (click to enlarge)

OTC-traded Nephros has secured an agreement for Lincoln Park Capital to purchase up to $10 million of its shares over the next three years. That's roughly half of its minuscule $20 million market valuation.

The financing will go to back its FDA-cleared hemodiafiltration system that works with hemodialysis machines for the treatment of chronic renal failure patients. Major dialysis provider DaVita HealthCare Partners was conducting a product evaluation of the Nephros hemodiafiltration system, which the pair said in February would require additional validation for an undisclosed period.

Nephros argues that its hemodiafiltration system is better at removing larger molecular weight uremic toxins, like beta-2-microglobulin, than standard hemodialysis, which it said is most effective for small uremic toxins like urea. The Nephros system can both offer ultrafiltered water in hospital and clinical settings for use in hemodialysis and other applications, as well as itself offer an alternative to hemodialysis.

The Nephros-DaVita research paused in February and this was the response at the time from DaVita: "It was incorrect to say that the hemodiafiltration evaluation at DaVita was stopped because we did not see it as promising. It was interrupted for technical reasons, and Nephros and DaVita are working to address those issues with the intent that the evaluation can resume," said DaVita ($DVA) VP of Clinical Operations Shaun Collard in a statement.

Nephros is also evaluating hemodiafiltration in conjunction with the other hemodialysis services giant, Fresenius Medical Care, which the company said in March was evaluating hemodiafiltration via its Renal Research Institute. The Nephros hemodiafiltration system is FDA-cleared for use in producing ultrapure water for a healthcare setting, as well as an alternative to hemodialysis.

In fiscal 2014, Nephros had only $1.7 million in revenues but has said it expects "significantly increased product revenue" in 2015, driven primarily by increased sales of our hospital infection control filters. The company has said previously that it's looking for a U.S. commercialization partner.

Under the deal with Chicago, IL-based Lincoln Park Capital, which was already an existing investor, the share sales are triggered by Nephros. In May, it also raised $1.2 million via a private placement of about 1.8 million shares, 5-year warrants to purchase about 920,000 shares at $0.85 per share.

"This commitment provides us with a vehicle for accessing capital as we target profitability through growth in our filter business," said Nephros CEO Daron Evans in a statement. "Additionally, we will be able to continue to work with our strategic partners to treat patients with our HDF system, growing our experience in the commercial setting."

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