Rockwell Medical, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Rockwell Medical supplies hemodialysis concentrates and develops ferric pyrophosphate citrate (FPC) therapies, including Triferic and Triferic AVNU. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Net sales | $16.1 million | $15.5 million; up 4.2% |
| Gross profit (loss) | ($0.8) million; (4.9)% margin | $0.4 million; 2.6% margin |
| Operating loss | ($6.6) million | ($7.2) million |
| Net loss | ($7.2) million | ($7.8) million |
| Net loss per share | ($0.84) | ($0.91) |
| Cash used in operations | $9.8 million | $12.5 million |
| Cash and cash equivalents | $9.9 million at March 31 | $13.3 million at December 31, 2021 |
| Working capital | $5.2 million at March 31 | Not stated for the comparable date |
| Term loan | $18.4 million outstanding, net of unamortized costs and discount | Scheduled principal payments total $19.5 million |
Cost of sales increased 12.2% to $16.9 million, exceeding revenue. The company attributed the gross-profit decline to inflationary pressure in its concentrates business. The operating loss narrowed as research and development, selling and marketing, and general and administrative expenses declined. Sales growth primarily reflected higher concentrate sales to Baxter and international customers; drug-product revenue declined to $0.2 million from $0.3 million.
Cash used in operations improved year over year. Investing activities provided $9.1 million, mainly from net sales of available-for-sale investments, all of which had been liquidated by quarter-end. Financing activities used $2.7 million, primarily for debt and insurance-note payments. The company reported $42.2 million in total liabilities and a $4.8 million stockholders’ deficit at March 31.
Material changes, outlook and risks
- Concentrate supply agreement: On April 6, 2022, Rockwell and DaVita amended their supply agreement. Price increases and pass-through of certain inflationary costs took effect May 1, subject to caps. The company expects improved margins for the remainder of 2022; this is management’s expectation, not a guarantee. The agreement also requires cost-cutting measures and includes a $10 million minimum-cash covenant and a requirement to raise $15 million in additional capital by June 30, 2022.
- Post-quarter financing: DaVita funded a $7.5 million preferred-stock investment on April 7. A second $7.5 million tranche is conditional on Rockwell raising $15 million of additional capital by June 30. On April 8, Rockwell also entered an at-the-market agreement allowing up to $12.2 million of common-stock sales. The preferred financing restricts certain additional debt without DaVita’s consent.
- Going concern and funding: The filing cites substantial doubt arising from accumulated losses, operating cash use, inflation-related concentrate losses, and dependence on cost control, financing, and covenant compliance. Management states its plans alleviate that doubt, but says additional capital is expected to be needed and may not be available on favorable terms, or at all. Failure to secure funding or improve cash generation could lead to further cuts or curtailment of operations.
- Development plans: Management expected to begin a Phase 2 home-infusion study in 2022, subject to sufficient working capital, with top-line data expected approximately 12–18 months after trial commencement. Research and development expense is expected to increase as pipeline initiatives advance.
- Debt and other risks: The company reported compliance with Innovatus loan covenants at March 31, but future compliance is uncertain; default could accelerate repayment and harm liquidity. Inflation, supply-chain and labor disruption, COVID-19 effects, customer concentration, and the ability to renegotiate another major customer contract are material risks.
- Listing: To address Nasdaq’s minimum-bid-price requirement, the company effected a 1-for-11 reverse stock split on May 13, 2022. It had received an extension to regain compliance by June 6, 2022.
Investor facts to verify
- Whether the DaVita price and cost-sharing changes improve concentrate gross margins, and how caps affect inflation recovery.
- Whether Rockwell met the $10 million minimum-cash covenant and raised the required $15 million by June 30, 2022, including the conditions and dilution associated with financing.
- Current cash runway, operating cash burn, and compliance with both DaVita agreement covenants and Innovatus loan covenants.
- Whether Rockwell regained Nasdaq bid-price compliance after the reverse split.
- Whether the planned Phase 2 study began, received adequate funding, and remains on schedule.