Rockwell Medical Technologies, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011; unaudited. The company manufactures and distributes hemodialysis concentrates and related products and is developing renal drug therapies, principally SFP.
Financial results
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Sales | $12.0 million | $14.7 million | $37.1 million | $45.2 million |
| Gross profit / margin | $1.4 million / 11.5% | $2.4 million / 16.3% | $4.1 million / 11.1% | $7.5 million / 16.5% |
| Operating loss | $(5.1) million | $(0.8) million | $(12.7) million | $(1.0) million |
| Net loss | $(5.0) million | $(0.7) million | $(12.5) million | $(1.0) million |
| Research and product development | $4.2 million | $0.7 million | $9.9 million | $1.7 million |
| Loss per share, basic and diluted | $(0.28) | $(0.04) | $(0.71) | $(0.06) |
- Cash flow: Operating cash use was $7.2 million for the first nine months, versus cash provided of $1.3 million in 2010. Investing used $0.5 million; financing provided $3.9 million, primarily from share and warrant exercises. Cash and equivalents ended at $8.4 million.
- Liquidity and balance sheet: Cash plus available-for-sale investments totaled $20.2 million at September 30, compared with $24.2 million at December 31, 2010. Current assets were $28.1 million and current liabilities $9.6 million. Total assets were $34.6 million; shareholders’ equity was $25.0 million. Lease obligations totaled approximately $11,700; the filing reports no significant borrowings.
- Other notable items: The company advanced $2.5 million to clinical-trial service providers, recorded in other current and non-current assets. Common shares outstanding increased to 18.5 million from 17.5 million at year-end, largely reflecting warrant exercises.
Changes and management commentary
- Nine-month sales fell 18.0%; international sales declined 55.1%, mainly because one distributor’s purchases decreased. Domestic sales fell 6.3%, reflecting product mix, lost smaller-chain accounts, and some pricing pressure.
- Management attributed weaker gross profit and margins to lower volumes and product mix, plus higher fuel, material, and labor costs. Increased use of Dri-Sate dry acid concentrate reduces sales per treatment but can lower shipping costs and improve margins.
- Research spending rose sharply as Phase III clinical trials for SFP began. The filing reports no formal revenue or earnings guidance. Management said available and prospective resources were expected to fund SFP testing and the FDA approval process and ordinary operating needs in 2012; additional funding could be needed if trial costs or other assumptions differ.
- In July 2011, the company acquired U.S. rights to manufacture and market a generic injectable calcitriol product. It anticipated regulatory approval later in 2012 but could not assess potential sales impact.
Risks, contingencies, and controls
- SFP requires costly clinical trials and FDA approval, and approval would not ensure commercial success. The company depends on contract research organizations and consultants for trials.
- Sales are concentrated among large dialysis providers, including one significant customer. Competition, margin pressure, dependence on government healthcare funding, regulation, and inconsistent international orders are additional risks.
- Management warned that further testing, weaker core-business cash generation, or expansion plans could require equity or debt financing, a credit line, or development partners. Short-term bond funds expose the company to interest-rate-related market-value changes, though management did not expect a 100-basis-point move to materially affect the portfolio.
- The filing states risk factors were not materially changed from the 2010 Form 10-K. Management concluded disclosure controls were effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Progress, remaining cost, timing, and regulatory prospects for SFP Phase III trials and FDA approval.
- Whether operating cash generation, warrant proceeds, and the stated liquidity outlook are sufficient as research spending continues.
- Customer concentration, international distributor order recurrence, and the impact of product mix and input costs on gross margins.
- Calcitriol approval timing, remaining purchase-price obligations, and potential commercial contribution.