Rockwell Medical, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated financial statements. Rockwell supplies dialysis concentrates and commercializes Triferic; it is also developing its ferric pyrophosphate citrate (FPC) platform for additional indications.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $18.7 million | $15.1 million | $34.8 million | $30.6 million |
| Gross profit (loss) | $1.7 million | $(0.3) million | $1.0 million | $0.1 million |
| Gross margin | 9.3% | (1.7)% | 2.8% | 0.5% |
| Operating loss | $(4.5) million | $(7.8) million | $(11.1) million | $(15.0) million |
| Net loss | $(5.0) million | $(8.4) million | $(12.1) million | $(16.2) million |
| Loss per share | $(0.56) | $(0.99) | $(1.40) | $(1.90) |
- Sales increased 23% in Q2 and 14% for the first half, primarily from the DaVita contract amendment and higher pricing to other customers.
- Gross profit improved, also reflecting lower transportation costs from efficiency initiatives. R&D and selling and marketing costs declined, while G&A increased, mainly due to former-CEO severance and estimated employee performance compensation.
- Six-month cash used in operations was $15.7 million, compared with $17.4 million a year earlier. Investing activities provided $9.1 million, principally from liquidating available-for-sale investments; financing activities provided $24.1 million.
Balance sheet, liquidity and capital
- At June 30, cash and cash equivalents were $30.8 million, working capital was $28.7 million, and total assets were $59.1 million. Available-for-sale investments had been liquidated.
- Term-loan carrying value was approximately $15.5 million, net of issuance costs and discount; scheduled principal payments totaled $16.5 million, with maturity in March 2025. The loan is secured by company assets and bears an initial stated rate of 8.75% (effective rate 10.9%). The company reported compliance with loan covenants at June 30.
- Rockwell raised $15 million gross from DaVita through Series X convertible preferred stock and approximately $14.9 million net from a registered direct offering and private placement. The preferred stock accretes at 1% annually and is initially convertible at $11 per common share, subject to terms and ownership limits.
- Warrants and preferred-stock conversion rights create substantial potential dilution: 23.3 million common-equivalent securities were excluded from diluted loss per share as antidilutive, including 21.4 million warrant shares. Common shares outstanding were 9.4 million at June 30.
- Management said available working capital and capital raises were expected to fund operations for at least 12 months from the report filing date. The company nevertheless expects to need additional capital; availability and terms are uncertain, and it warned that inability to raise funds could force curtailment of activities or cessation of operations.
Outlook, material developments and risks
- The April DaVita amendment introduced price increases effective May 1, quarterly pass-through of certain inflationary costs subject to a cap, and required cost-cutting measures. It also imposes a $10 million minimum-cash covenant; breach could constitute default and potentially lead to termination of the supply agreement. Management expects improved margins for the remainder of 2022.
- Rockwell plans a Phase II home-infusion FPC trial in the first half of 2023, subject to sufficient working capital; top-line results were expected 12–18 months after trial commencement. No specific revenue or earnings guidance was provided.
- Key execution risks include inflation, supply-chain and labor disruption, COVID-19 impacts, and reliance on suppliers. The filing describes Triferic API supplier disputes, repeated manufacturing batch failures, and a packaging supplier ending supply. A recent FDA inspection produced four Form 483 observations, classified Voluntary Action Indicated; the company expected to submit a corrective action plan by August 24, 2022. Rockwell also reported a Class III recall in its concentrates business related to bottle-seal degradation.
- On May 13, the company effected a one-for-eleven reverse stock split; Nasdaq notified it on May 31 that it had regained compliance with the minimum bid-price requirement.
- On July 14 and August 10, 2022, holders exercised pre-funded warrants for 952,897 and 315,000 shares, respectively, for nominal gross proceeds. These are subsequent events after quarter-end.
Important facts for investors to verify
- Whether DaVita pricing, inflation pass-throughs and cost reductions sustainably improve concentrate gross margins, and whether the $10 million cash covenant remains satisfied.
- Cash burn, financing needs and the assumptions underlying management’s stated 12-month liquidity outlook, including constraints on future equity and debt issuance.
- Potential dilution from the preferred stock and large warrant package, including actual warrant exercises and the resulting common share count.
- Progress on supplier remediation, Triferic supply continuity, FDA inspection responses and the corrective-action plan.
- Whether the planned FPC clinical program proceeds on schedule and with adequate funding.