Rockwell Medical, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet figures are as of March 31, 2013, compared with December 31, 2012. The company develops renal-disease therapies and manufactures hemodialysis products. Financial statements are unaudited.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Sales | $12.34 million | $12.03 million |
| Gross profit | $1.28 million | $1.63 million |
| Gross margin | 10.4% | 13.5% |
| SG&A | $3.92 million | $2.90 million |
| Research and product development | $12.75 million | $9.41 million |
| Operating loss | $15.39 million | $10.68 million |
| Net loss | $15.38 million | $10.57 million |
| Basic and diluted loss per share | $0.72 | $0.54 |
| Cash used in operating activities | $11.31 million | $8.30 million |
Financial position and liquidity
- Cash and cash equivalents were $5.77 million, up from $4.71 million at year-end. Current assets were $14.19 million versus current liabilities of $28.47 million, a working-capital deficit of approximately $14.29 million.
- Total assets were $17.97 million; shareholders’ equity was a deficit of $10.51 million. Accounts payable were $16.10 million. Reported capitalized lease obligations were approximately $1,451; the filing shows no material conventional debt balance.
- Cash increased by $1.06 million during the quarter, supported by $12.52 million of cash proceeds from share and warrant issuance, despite operating and investing cash outflows. Management reports the March offering generated approximately $12.1 million in net proceeds on $12.9 million gross proceeds.
Changes and management commentary
- Sales rose 2.6% year over year: domestic sales increased $0.6 million (5.5%), while international sales declined $0.3 million due to order timing.
- Gross margin fell 3.1 percentage points, attributed primarily to higher material and operating costs, including inflation and regulatory costs.
- R&D spending increased 36% as Phase 3 testing of lead candidate soluble ferric pyrophosphate (SFP) expanded. SG&A rose partly due to a $0.9 million noncash charge for extending warrants, increased equity compensation, and a $0.2 million medical-device tax cost.
- Management said SFP was nearing completion of its Phase 3 CRUISE-1 and CRUISE-2 studies. Calcitriol, an FDA-approved generic drug, was awaiting FDA approval of manufacturing changes; the company expected to begin marketing it after approval, which it anticipated later in 2013.
Outlook, risks and contingencies
- Management expected operating losses in 2013 and substantial development costs over the next two years. It anticipated that Calcitriol revenue could improve gross margins, subject to FDA approval.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern because of recurring losses and the need for additional working capital. Continued operations depend on raising capital through financing, licensing, partnering or other transactions. Without substantial additional capital in the near term, the company may have to delay, reduce or cease development or operations.
- Key risks include dependence on a small number of dialysis-provider customers, competition from larger companies, clinical-trial and FDA-approval uncertainty, financing needs and potential shareholder dilution, margin volatility, and reliance on healthcare funding. The filing provides no quantified financial guidance.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Cash runway and timing, terms, and availability of additional financing or strategic partnerships.
- Progress and results of SFP Phase 3 trials and the regulatory path to approval.
- FDA approval status for Calcitriol manufacturing changes and the timing and commercial prospects of a launch.
- Whether sales growth can offset cost pressure and restore gross margins, particularly as customer and international order mix changes.
- The going-concern disclosure and the company’s ability to meet current liabilities and fund planned operations.