Rockwell Medical, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Rockwell Medical is a specialty pharmaceutical company and manufacturer of hemodialysis concentrates. Concentrates and ancillary products generated substantially all sales.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $15.56 million | $14.95 million |
| Gross profit (loss) | $1.01 million | $(0.72) million |
| Operating loss | $(8.81) million | $(5.72) million |
| Net loss | $(8.68) million | $(5.55) million |
| Basic and diluted loss per share | $(0.15) | $(0.11) |
| Cash used in operating activities | $5.42 million | $4.61 million |
- Gross margin was approximately 6.5%, versus negative 4.8% a year earlier. The improvement largely reflected a $2.2 million Triferic inventory-reserve charge in Q1 2018; concentrate-product gross profit declined by approximately $0.7 million in Q1 2019.
- Sales increased approximately 4.1%, reflecting higher domestic Baxter concentrate sales and international sales. Dialysis concentrates accounted for approximately 97% of Q1 2019 revenue.
- Selling and marketing expense rose to $3.10 million from $0.22 million, mainly for Triferic launch preparation and added headcount. General and administrative expense rose to $6.22 million from $3.12 million, including higher stock compensation, staffing, reporting and consulting costs. Research and product development expense declined to $0.50 million from $1.67 million.
- At March 31, cash and equivalents were $20.92 million, short-term available-for-sale investments were $6.88 million, and working capital was approximately $24.5 million. Cash and cash equivalents fell by $1.79 million during the quarter.
- Total liabilities were $28.58 million, including $3.02 million of operating lease liabilities and $13.77 million of deferred license revenue. The filing does not report conventional borrowings.
Changes, outlook and risks
- Management states existing liquidity is insufficient to fund operations and anticipated capital expenditures for the next 12 months. Recurring losses and operating cash deficits raise substantial doubt about the company’s ability to continue as a going concern. Additional financing is needed; no further financing commitments were in place.
- A March 2019 at-the-market facility permits up to $40 million of common-stock sales. No shares had been sold under it by March 31; after quarter-end, 437,043 shares were sold for gross proceeds of approximately $2.30 million.
- Commercial sales of Dialysate Triferic began May 6, 2019; the company did not expect material sales in Q2. CMS had issued a preliminary recommendation for a separate J-code for the powder-packet formulation, expected to take effect July 1, 2019, subject to the process. Management expected to submit an IV Triferic NDA in Q2 2019; the FDA filing fee was estimated at approximately $1.3 million. No quantified financial guidance was provided.
- Triferic inventory remains exposed to further write-downs if launch uptake is slow or inventory expires. The company reported $2.1 million net Triferic inventory after reserves and cautioned that additional write-offs could materially affect reported results.
- The company faces an SEC investigation relating to Triferic reimbursement, inventory reserves and former executive terminations; consolidated securities class actions and a shareholder derivative action are also pending. Outcomes and potential costs are uncertain; the company reported a $1.0 million D&O insurance self-insured retention.
- Disclosure controls were deemed ineffective due to material weaknesses in internal control over financial reporting. Management described remediation efforts but gave no assurance they would succeed. The filing also discusses the prior-period financial-statement restatement.
- Other business risks include Triferic commercialization and reimbursement uncertainty, financing and dilution risk, and limits on secured borrowing because of the Baxter agreement. Calcitriol commercialization was deemed uneconomic at current market prices, and its inventory remained fully reserved at $0.7 million.
Important facts for investors to verify
- Availability, timing and dilution impact of financing, including subsequent ATM sales, against the stated 12-month funding shortfall.
- Dialysate Triferic launch uptake, CMS J-code status, and potential inventory write-downs.
- IV Triferic NDA submission and FDA/CMS approval and reimbursement prospects.
- Developments and potential financial exposure from the SEC investigation and shareholder litigation.
- Progress in remediating material weaknesses in internal controls.