Rockwell Medical, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 15, 2021. Financial statements are unaudited. Dollar amounts below are in millions unless otherwise stated.
Business context
Rockwell is a commercial-stage biopharmaceutical company developing its ferric pyrophosphate citrate (FPC) platform and a major U.S. supplier of hemodialysis concentrates. Its FDA-approved Triferic and Triferic AVNU products are being marketed to dialysis centers. The company is also pursuing FPC development for home infusion and potentially acute heart failure.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $15.99 | $15.28 | $46.60 | $47.03 |
| Gross profit (loss) | $(0.33) | $0.35 | $(0.19) | $2.34 |
| Gross margin | (2.1)% | 2.3% | (0.4)% | 5.0% |
| Operating loss | $(6.97) | $(6.69) | $(21.98) | $(20.35) |
| Net loss | $(7.58) | $(7.35) | $(23.73) | $(22.23) |
| Net loss per share | $(0.08) | $(0.10) | $(0.26) | $(0.32) |
- Q3 sales increased 4.6%, primarily on higher international concentrate sales. Nine-month sales declined 0.9%, mainly due to lower U.S. concentrate sales.
- Gross profit weakened to a loss in both 2021 periods. Management cited COVID-related operating protocols and rising shipping, fuel, and labor costs; it warned that these costs could continue to pressure margins and may be difficult to recover under customer agreements.
- Cash used in operations was $24.51 million for the first nine months, versus $21.07 million in 2020. Cash and cash equivalents were $23.39 million; available-for-sale investments were $9.81 million. Management reported $33.2 million of combined cash and investments and $24.3 million of working capital.
- At September 30, total assets were $58.70 million, total liabilities $47.61 million, and stockholders’ equity $11.09 million. Accumulated deficit was $361.14 million.
- Term-loan principal was $22.5 million; carrying value, net of unamortized costs and discount, was approximately $21.2 million. The loan bears an initial stated rate of 8.75% and matures in March 2025. Insurance-financing debt was $1.31 million. Lease liabilities totaled approximately $7.1 million.
Material changes versus prior comparable periods
- Q3 operating loss widened by $0.28 million and net loss by $0.23 million year over year. For the nine months, operating loss widened by $1.63 million and net loss by $1.51 million.
- Nine-month cost of sales increased 4.7% despite slightly lower sales, turning a $2.34 million gross profit in 2020 into a $0.19 million gross loss in 2021.
- Nine-month operating cash use rose by $3.44 million. Financing cash flow shifted from $63.32 million provided in 2020, including debt and equity proceeds, to $0.56 million used in 2021.
- Cash and equivalents declined from $48.68 million at year-end 2020 to $23.39 million at September 30, 2021. Shares outstanding were 93.97 million, versus 93.57 million at year-end 2020.
Outlook, risks, and unusual items
- Management said available working capital, revised Triferic sales and marketing efforts, and concentrate-business efficiency initiatives were expected to fund operations for at least 12 months from the filing date. It also expects to need additional capital to execute its strategy; financing may be limited, dilutive, or unavailable on acceptable terms. Form S-3 “baby shelf” limits and Nasdaq listing status may constrain fundraising.
- The company filed an IND in November 2021 for an FPC Phase II home-infusion study and planned to begin the trial by year-end, subject to FDA clearance; it expected data in Q2 2023. It anticipated discussing an acute-heart-failure development pathway with FDA in the first half of 2022, with a potential Phase II trial in 2022.
- On September 24, 2021, Rockwell amended its Innovatus loan after Triferic sales fell short of the covenant threshold at the September 30 measurement date. The amendment requires $7.5 million of principal prepayments in ten monthly installments and a minimum $5 million liquidity level while loan principal exceeds $15 million. The company reported covenant compliance as of the report date. The filing gives different installment start dates in two places—December 1 in the loan note and December 31 in the risk discussion.
- Nasdaq had notified the company of a minimum-bid-price deficiency, with a December 8, 2021 deadline to regain compliance by maintaining a $1.00 closing bid for at least 10 consecutive business days.
- COVID-19-related manufacturing and labor disruptions, supply-chain issues, and higher raw-material, fuel, and transportation costs could harm production, deliveries, sales, and margins. Failure to deliver could also create risks under customer agreements.
- A “Refund Trigger Event” under the Baxter agreement before December 31, 2021 could require repayment of 25% of its upfront fee. The company also disclosed an ongoing SEC investigation concerning Triferic reimbursement status, inventory reserves, and former executive terminations; it is cooperating with the SEC.
- The filing describes substantial dilution potential: 32.72 million potentially dilutive securities were excluded from diluted loss per share, including 26.43 million warrants.
Most important facts for investors to verify
- Whether Rockwell regained Nasdaq’s minimum-bid-price compliance by the stated deadline and what that meant for its listing and financing access.
- The Innovatus repayment schedule, covenant status, and ability to maintain the required liquidity; confirm the installment start date given the filing’s inconsistent dates.
- Whether operating cash burn and gross-margin pressure improve, particularly as labor, fuel, shipping, and COVID-related costs evolve.
- FDA clearance and actual timing of the home-infusion Phase II trial, as well as progress on the acute-heart-failure program.
- Progress in finding U.S. and Canadian commercial partners for Triferic products, and any effect of the Baxter refund-trigger provisions or customer commitments.
- Potential outcomes of the SEC investigation and the company’s capacity to fund operations and development without materially dilutive or otherwise unfavorable financing.