Rockwell Medical, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet figures are as of March 31, 2018. The company develops renal drug therapies and manufactures hemodialysis concentrates. Concentrate products and related items generated substantially all sales. Financial statements are unaudited.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Sales | $14.95 million | $14.59 million; up 2.4% |
| Gross profit (margin) | $0.03 million (0.2%) | $2.36 million (16.2%) |
| Operating loss | $6.70 million | $4.96 million |
| Net loss; diluted loss per share | $6.53 million; $0.13 | $4.74 million; $0.09 |
| Operating cash used | $4.60 million | $5.15 million |
| Cash and cash equivalents | $3.28 million | $8.41 million at Dec. 31, 2017 |
| Available-for-sale investments | $24.82 million | $24.65 million at Dec. 31, 2017 |
| Current assets; working capital | $44.25 million; $35.81 million | Current liabilities were $8.44 million |
| Total assets; shareholders’ equity | $51.96 million; $27.37 million | $58.78 million; $32.91 million at Dec. 31, 2017 |
No borrowings or debt balance are reported in the supplied filing text. Interest and investment income was $0.17 million; income tax expense was zero.
Changes and drivers
- Sales increased by $0.36 million, mainly from higher domestic concentrate sales, including increased pass-through delivery costs billed to Baxter; international sales also rose 1.6%.
- Gross profit fell sharply. Concentrate gross profit was approximately $1.7 million, down $0.7 million year over year, amid higher distribution costs and lower Baxter Agreement pricing, partly offset by volume growth. Drug-business costs included a $1.3 million increase in the Triferic inventory reserve.
- SG&A declined $1.0 million to $5.06 million, primarily due to lower equity compensation. Research and product development expense rose to $1.67 million from $1.21 million.
- Cash fell by $5.13 million during the quarter. Investing activities used $0.52 million; financing activities provided no cash.
Outlook, risks and unusual items
- Management said it believed available resources were adequate for its 2018 strategy and sufficient to fund operations for at least the next 12 months, while also stating that additional financing may be needed. It cited approximately $28.1 million in cash and investments at quarter-end.
- Rockwell said it did not expect significant Triferic revenue until CMS resolves the request for separate reimbursement; the timing and outcome are uncertain. It held $5.9 million of Triferic finished goods, with a $4.8 million reserve, and approximately $7.5 million of API. Further delays or insufficient sales could require additional inventory write-offs.
- Management expected near-term distribution cost pressure from trucking regulation and driver shortages, and significantly higher SG&A in the second half of 2018 to support anticipated Triferic commercialization.
- Calcitriol’s manufacturing update was pending FDA review, with a target response date no later than August 19, 2018. The company did not expect Calcitriol sales to materially affect 2018 results even if marketing began.
- The Baxter Agreement provides an exclusive U.S. distribution arrangement for concentrates through October 2, 2024 and restricts certain secured borrowing against concentrate-business assets without Baxter’s consent. Remaining performance obligations under the agreement were reported at $12.74 million.
- The company paid $428,000 to an activist investor group under a governance settlement. It also reported an SEC information request concerning CMS’s Triferic reimbursement decision and its marketing approach, and said it was cooperating. Management stated disclosure controls were effective; no material internal-control changes were reported.
Most important facts for investors to verify
- CMS’s decision and timetable on separate Triferic reimbursement, and the commercial-sales assumptions behind inventory values.
- Triferic inventory shelf life, reserve adequacy, and any additional write-downs; reconcile the reported inventory totals and classifications over subsequent filings.
- Cash burn, available liquidity, and whether additional financing is required, including the effect of Baxter-related borrowing restrictions.
- Whether concentrate margins recover despite pricing and distribution-cost pressures, and whether customer or Baxter-related sales concentration changes.
- Developments in the SEC inquiry, governance arrangements, and any related legal or financial consequences.