Rockwell Medical, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The company manufactures dialysis concentrates and is developing renal drug therapies, including Triferic and Calcitriol. Nearly all reported revenue was from dialysis concentrates and related products. Financial statements are unaudited.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Sales | $13.45m | $12.96m | $27.08m | $26.84m |
| Gross profit | $1.49m | $2.07m | $3.18m | $4.38m |
| Gross margin | 11.1% | 15.9% | 11.8% | 16.3% |
| Operating loss | $(5.59)m | $(2.65)m | $(10.19)m | $(6.47)m |
| Net loss | $(5.36)m | $(2.54)m | $(10.19)m | $(6.24)m |
| Loss per share, basic and diluted | $(0.11) | $(0.05) | $(0.20) | $(0.12) |
- For the first half, operating cash use was $6.29m, compared with $9.70m in 2015. Capital expenditures were $0.23m. Cash and cash equivalents declined to $23.82m from $31.20m at year-end 2015.
- At June 30, cash and available-for-sale investments totaled $64.43m; current assets were $83.98m and working capital was $74.80m. The company reported no long-term debt.
- Total assets were $87.14m and shareholders’ equity was $57.63m. Deferred license revenue was $20.33m, versus $17.41m at year-end 2015.
Changes versus comparable periods
- Sales increased 3.8% in Q2 and 0.9% in the first half. Domestic concentrate revenue rose, while international concentrate revenue declined; first-half contract manufacturing sales also fell after work for one customer ended in Q2 2015.
- Gross profit fell $0.58m in Q2 and $1.19m in the first half. Management attributed the decline mainly to higher drug-product manufacturing and direct costs, including $0.3m of value-added taxes on China license payments, and lower international orders.
- First-half SG&A increased to $10.00m from $9.16m, and R&D increased to $3.38m from $1.68m, reflecting higher legal, personnel, equity-compensation and Triferic marketing costs, as well as additional clinical research.
Outlook, commentary and risks
- Management said Triferic sales were not material in the first half and expects sales activity to remain insignificant until transitional add-on reimbursement is obtained or the company stops pursuing it. The filing does not provide a clear timetable or quantified financial guidance.
- FDA approval for Triferic Powder Packet was received April 25, 2016; management expects the format to reduce production and distribution costs. Calcitriol commercialization was delayed after a contract manufacturer found a stability issue with an inactive ingredient; the company said it was working to resolve the issue.
- The February 2016 Wanbang agreement covers China rights for Triferic and Calcitriol. Rockwell received a $4m upfront payment, recognized about $0.1m of related deferred license revenue in the first half, and may receive up to an additional $35m in regulatory and revenue milestones plus ongoing earnings, contingent on approvals and sales.
- Management considered liquidity adequate for its strategy and expects increased inventory, receivables and R&D spending. It expects positive operating cash flow when drug sales become significant. The company had no long-term debt and did not expect interest expense in 2016.
- Key risks include commercial adoption and reimbursement for Triferic, Calcitriol manufacturing and stability, regulatory approvals, dependence on Baxter’s exclusive concentrate distribution arrangement and customer concentration, raw-material costs, and investment-portfolio exposure to interest-rate changes. The company said no material changes had occurred to the risk factors in its 2015 Form 10-K.
Important facts for investors to verify
- Whether Triferic obtains transitional add-on reimbursement and whether adoption and sales improve.
- When the Calcitriol stability issue is resolved and commercial supply begins.
- Progress toward Wanbang regulatory approvals, milestones and commercial sales, and the timing of deferred revenue recognition.
- Whether gross margins and operating cash use improve as drug-related costs, inventory and receivables change.
- Performance and terms of the Baxter distribution relationship, including exclusivity and any potential repayment obligations.