Rockwell Medical, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. Rockwell develops, manufactures, and distributes hemodialysis products, principally dialysis concentrates.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $18.1 million | $18.7 million | $37.7 million | $34.8 million |
| Gross profit / margin | $1.0 million / 5.7% | $1.7 million / 9.3% | $3.6 million / 9.6% | $1.0 million / 2.8% |
| Operating loss | $3.0 million | $4.5 million | $4.4 million | $11.1 million |
| Net loss | $3.3 million | $5.0 million | $5.1 million | $12.1 million |
| Net loss per share | $0.18 | $0.43 | $0.27 | $1.20 |
Q2 sales declined about 3%, primarily reflecting lower deferred revenue after the Baxter distribution agreement ended; product revenue increased approximately $0.4 million. Six-month sales rose about 8%, reflecting the amended DaVita supply arrangement, regained direct distribution rights, new customers, and pricing changes. Six-month gross profit improved mainly for those reasons, including recognition of the remaining Baxter-related deferred revenue in Q1.
Q2 operating expenses declined year over year: research and product development fell to $0.2 million from $0.9 million, and general and administrative expense fell to $3.3 million from $4.8 million. For the first six months, R&D was $0.4 million versus $2.5 million and G&A was $6.5 million versus $8.6 million. Management cited expense controls, lower headcount, and pausing home-infusion development. Q2 interest expense was $0.4 million; six-month interest expense was $0.8 million.
Cash, liquidity, and debt
- At June 30, cash and cash equivalents were $9.0 million and available-for-sale investments were $5.9 million, totaling approximately $14.9 million. Working capital was $10.1 million.
- Six-month operating cash use was $5.6 million, compared with $15.7 million in the prior-year period. Investing activities provided $5.2 million, largely from net sales of investments; financing activities used $0.8 million. Cash declined $1.1 million during the half.
- Term-loan principal was $10.0 million, reported net of issuance costs and discount at $9.4 million. The loan bears an initial 8.75% stated rate (10.9% effective rate), is secured by company assets, and matures March 2025. Scheduled principal payments resume in September 2023. The company reported covenant compliance at filing.
- Management said available working capital was sufficient for at least 12 months from the filing date, but also cautioned that additional capital may be needed and may not be available on favorable terms.
Material developments, outlook, and risks
- Evoqua acquisition: Completed July 10, 2023, after quarter-end. Rockwell paid $11.0 million cash at closing, with $2.5 million due on each of the first two anniversaries, and purchased approximately $1.2 million of inventory. The acquired business adds customers, geographic reach, products, and manufacturing capacity; anticipated cost efficiencies are not assured. Manufacturing is being performed under a contract manufacturer arrangement.
- Post-quarter financing and dilution: On July 10, Armistice exercised warrants for 9,900,990 shares at $1.39, generating approximately $13.8 million gross proceeds. It also received a reload warrant for 3.75 million shares at $5.13. The company reported 28,489,663 shares outstanding as of August 11. Remaining pre-funded warrants for 1,793,000 shares were exercised July 5.
- Customer and supplier concentration: DaVita represented approximately 50% of six-month sales and 33% of receivables at June 30. Its principal purchase agreement expires December 31, 2023; failure to agree on new terms could materially reduce volumes. A DaVita contract associated with the acquired business also expires then. The acquired products rely on a single contract manufacturer under an agreement expiring in mid-2024.
- Triferic and development: U.S. Triferic commercialization and related NDAs were discontinued in 2022. Home-infusion development is on hold, and India, Peru, and Chile development work is also on hold. On August 7, the China partner Wanbang reported that the main efficacy results in its Triferic dialysate trial versus placebo were not obtained; next steps remain under discussion. Rockwell reported anticipated Turkish approval for Triferic AVNU in 2024, subject to regulatory review.
- Other risks and outlook: Management is focused on growing concentrates revenue, integration, cost containment, and reaching profitability; the filing provides no numerical earnings or revenue guidance. Risks include acquisition integration and assumed or undisclosed liabilities, customer concentration, supply continuity, financing availability, covenant compliance, inflation and broader market uncertainty. The company reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification points
- Confirm progress and economics of the Evoqua integration, including acquisition payments, inventory, contract-manufacturer performance, and realized cost savings.
- Track DaVita contract negotiations and renewal outcomes before the December 31, 2023 expirations, as well as customer retention and volume trends.
- Monitor cash burn, post-acquisition liquidity, debt principal payments, interest costs, and covenant headroom; the stated 12-month liquidity assessment is management’s estimate.
- Assess share dilution from warrant exercises and the reload warrant, alongside any future ATM or other financing.
- Follow Wanbang’s next steps after the trial results and the status of other international Triferic programs.
- Note that 2022 comparative loss-per-share amounts were restated to include pre-funded warrants in weighted-average shares; reported 2022 loss per share is $0.43 for Q2 and $1.20 for six months.