Rockwell Medical, Inc. — FY 2013 Form 10-K
Business context and reporting period. This is the annual report for the year ended December 31, 2013, not a standalone quarterly filing. Rockwell manufactures and distributes hemodialysis concentrates and related supplies, while developing renal drugs. Dialysate concentrates generated more than 93% of revenue. Triferic was investigational at year-end; Calcitriol awaited FDA approval of a manufacturing-site change.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $52.4 million | $49.8 million |
| Gross profit / margin | $6.7 million / 12.7% | $6.7 million / 13.4% |
| Operating loss | $47.1 million | $54.3 million |
| Net loss | $48.8 million | $54.0 million |
| Basic and diluted loss per share | $1.48 | $2.65 |
| Cash used in operating activities | $50.7 million | $30.7 million |
- Sales rose 5.1%; domestic sales increased 4.0% to $46.0 million and international sales increased 14% to $6.4 million. Higher material, shipping and operating costs, lower-margin sales and regulatory costs reduced gross margin.
- Research and product development expense was $39.4 million, down from $48.3 million, principally reflecting completion of Triferic Phase 3 trials. SG&A increased to $14.3 million from $12.7 million.
- At year-end, cash and cash equivalents were $11.9 million and available-for-sale investments were $12.0 million, or $23.9 million combined. Working capital was $14.1 million; current assets were $31.9 million and current liabilities $17.8 million.
- Rockwell borrowed $20.0 million in June 2013. The loan’s stated rate is at least 12.5%, with a reported effective rate of 14.5%; principal repayment in 30 monthly installments was scheduled to begin September 2014. Total contractual debt payments were reported as $21.1 million, including related fees and interest. The loan is secured by substantially all company assets, restricts certain actions and prohibits dividends.
- Financing activities provided $70.5 million, including $51.6 million from share and warrant issuances and $20.0 million of loan proceeds. Year-end shareholders’ equity was $0.6 million, versus a $10.0 million deficit in 2012. Shares outstanding increased from 21.5 million to 40.1 million during 2013.
Fourth-quarter results
Q4 2013 sales were $14.0 million, versus $13.0 million in Q4 2012; gross profit was $2.1 million versus $1.7 million. Q4 2013 net loss was $8.3 million, compared with $13.7 million in Q4 2012; loss per share was $0.21 versus $0.66. Q4 2013 interest expense was $0.9 million, reflecting the new loan.
Material developments, outlook and risks
- Both pivotal Triferic Phase 3 trials met their primary endpoint. The company reported a statistically significant 35% reduction in ESA use in the PRIME study. A 718-patient long-term safety study was completed in January 2014; the filing reported no acute safety signal or anaphylactic reaction across the clinical program.
- Management planned to submit a Triferic NDA in Q1 2014 and expected limited future Triferic R&D spending. These were expectations, not assurances of regulatory approval or commercial success.
- Management anticipated FDA approval of the Calcitriol manufacturing-site change and a commercial launch in the first half of 2014. It expected positive operating cash flow in 2014 excluding R&D expenditures, and improved cash flow after Calcitriol launch if successful. No quantified revenue or earnings guidance was provided.
- Management stated it believed available resources were adequate for planned development and launch efforts. However, operating cash use was substantial, and future performance depended on regulatory decisions, commercialization and business development.
- Customer concentration is significant: DaVita accounted for 49% of 2013 sales. Rockwell extended its supply agreement with DaVita through 2018, but stated the expansion was not expected to materially increase gross profit.
- Key risks include FDA approval and launch delays, market adoption and reimbursement, competition and pricing pressure, dependence on contract manufacturers, volatile chemical and fuel costs, and customer concentration. The company also cited possible dilution from equity awards and warrants; at year-end, 6.2 million stock options and 983,071 warrants were outstanding.
- The company incurred $0.8 million in medical-device excise taxes in 2013. Ordinary-course legal proceedings were not expected to materially affect operations or financial statements. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Confirm subsequent Triferic NDA filing, FDA review status, approval requirements and any post-filing changes to expected launch costs or timing.
- Check whether the Calcitriol manufacturing-site change was approved and whether launch, uptake and margins met management’s expectations.
- Reconcile ongoing operating cash burn and available liquidity against scheduled debt service, including the loan’s effective cost, security and covenants.
- Assess gross-margin trends and the impact of input, fuel, freight and customer pricing pressures.
- Review DaVita contract performance and the consequences of the company’s 49% sales concentration.
- Track share-count changes and potential dilution from options, warrants and any further financing.