Rockwell Medical, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Financial statements are unaudited. Rockwell Medical manufactures hemodialysis concentrates and is developing anemia therapies, including Triferic.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $15.4 million | $16.7 million | $45.8 million | $46.5 million |
| Gross profit (loss) | $(16,000) | $2.0 million | $1.7 million | $(2.8) million |
| Operating loss | $(7.9) million | $(5.0) million | $(27.1) million | $(23.0) million |
| Net loss | $(7.9) million | $(5.0) million | $(26.8) million | $(22.7) million |
| Basic and diluted loss per share | $(0.12) | $(0.10) | $(0.45) | $(0.44) |
| Cash used in operating activities | Not provided separately | Not provided separately | $(22.0) million | $(14.6) million |
At September 30, 2019, cash and cash equivalents were $14.4 million and available-for-sale investments were $14.6 million, totaling approximately $29.0 million. Working capital was $28.2 million; total assets were $48.1 million and total liabilities were $24.4 million. The company reported $1.15 million of insurance financing notes payable and $3.07 million of operating lease liabilities. No other material borrowing is identified in the provided filing text.
Changes versus comparable periods
- Q3 sales declined about 7.6% year over year, mainly due to lower international concentrate sales, partly offset by higher sales under the DaVita contract. Concentrates represented approximately 97% of Q3 revenue.
- Q3 gross result moved from $2.0 million profit to a small loss. The company cited lower sales, $1.1 million of Triferic inventory reserve and product costs, and higher labor, maintenance and recruiting costs, partly offset by lower distribution, materials and overhead costs.
- Nine-month sales declined about 1.6%. Gross result improved by $4.5 million year over year, primarily because 2018 included an $8.3 million Triferic inventory reserve charge; concentrate product gross profit was lower.
- Nine-month operating and net losses widened. Selling and marketing costs rose substantially to support Triferic commercialization, and research and development costs also increased. Nine-month selling and marketing expense was $7.1 million versus $0.7 million; R&D was $4.9 million versus $4.0 million.
- Shares issued and outstanding increased to 63.9 million from 57.0 million at year-end 2018, mainly due to public and at-the-market offerings. The public offering and over-allotment generated approximately $17.3 million net; the at-the-market offering generated approximately $2.1 million net.
Outlook, risks and unusual items
- Going concern and funding: Management states existing liquidity is insufficient to fund operations and anticipated capital expenditures for one year from issuance of the statements. Recurring losses, operating cash outflows and the accumulated deficit of $299.2 million raise substantial doubt about the company’s ability to continue as a going concern. Additional financing may be needed and may be unavailable or dilutive.
- Triferic commercialization: U.S. Dialysate Triferic sales were $98,000 in Q3 and $112,000 for the nine months, excluding deferred license revenue. The company increased Triferic inventory reserves during the quarter; additional write-offs could adversely affect reported results. Management expects R&D expense to rise, including for a pediatric study, for which patient enrollment was expected in the first half of 2020.
- CMS reimbursement: After quarter-end, CMS issued its 2020 Final Rule. The FDA classified the I.V. Triferic NDA as Type 3, which the company believes makes I.V. Triferic ineligible for TDAPA add-on reimbursement from January 1, 2020. The NDA had a PDUFA date of March 28, 2020; FDA approval and commercial prospects remained uncertain.
- Commercial agreements: A new DaVita products agreement took effect July 1, 2019 through December 31, 2023 and provides for higher product prices than the prior agreement. The Baxter agreement includes $9.6 million of remaining product-sales obligations through October 2024 and potential refund obligations under specified events.
- Legal and regulatory: A securities class-action settlement requires a $3.7 million payment, of which the company expects to contribute approximately $0.4 million; court approval was scheduled for February 2020. Derivative lawsuits remained at an early stage. The company is cooperating with an SEC investigation related to Triferic reimbursement, inventory reserves and former executives.
- Controls: Management concluded disclosure controls were ineffective due to previously reported material weaknesses in internal control over financial reporting. Remediation efforts were underway, with no assurance they would be successful.
- Other items: The company determined U.S. commercialization of Calcitriol was not viable at that time and maintained a $0.7 million inventory reserve. A $0.7 million reduction in performance-based stock compensation expense reflected a change in the probability of vesting after the CMS rule.
Important facts for investors to verify
- Whether the company can secure enough additional capital to fund operations and planned development, and the timing and terms of any financing.
- Subsequent cash burn, liquidity runway, and progress against management’s stated going-concern assessment.
- Triferic sales, adoption, inventory levels and reserve assumptions, including the commercial impact of bundled reimbursement.
- The status and outcome of the I.V. Triferic FDA application and the effect of TDAPA ineligibility.
- DaVita and Baxter sales, margins, commitments and any events that could trigger Baxter refunds.
- Approval and payment of the class-action settlement, derivative litigation developments and the SEC investigation.
- Progress in remediating internal-control material weaknesses and whether disclosure controls become effective.