Rockwell Medical, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Rockwell is a commercial-stage biopharmaceutical company and a major U.S. hemodialysis concentrate supplier.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $15.1m | $15.9m | $30.6m | $31.8m |
| Gross profit (loss) | ($0.3m) | $0.9m | $0.1m | $2.0m |
| Gross margin | (1.7%) | 5.5% | 0.5% | 6.3% |
| Operating loss | ($7.8m) | ($5.6m) | ($15.0m) | ($13.7m) |
| Net loss | ($8.4m) | ($6.9m) | ($16.2m) | ($14.9m) |
| Net loss per share | ($0.09) | ($0.10) | ($0.17) | ($0.22) |
- Q2 sales declined 4.8% year over year; first-half sales fell 3.6%, mainly from lower dialysis concentrate sales. In the first half, cost of sales rose 2.4% despite lower revenue.
- Management attributed weaker gross profit to lower concentrate sales and higher pandemic-related protocols, shipping, fuel, and labor costs. R&D expense increased as the company invested in its FPC platform.
- At June 30, cash and equivalents were $32.4m and available-for-sale investments were $8.6m, totaling approximately $41.0m. Working capital was $18.4m. Cash declined $16.3m from year-end 2020.
- Net cash used in operating activities was $17.4m in the first half, versus $16.2m in the prior-year period. Management said first-half cash burn was in line with expectations and expected aggregate 2021 cash burn to be lower than 2020.
- Term-loan carrying value was $21.1m, net of issuance costs and discount. The loan is secured by company assets, bears an initial stated rate of 8.75% (effective rate 10.9%), and matures in March 2025. The company classified the loan as current because future covenant compliance and a cure agreement were uncertain.
Material changes and unusual items
- Q2 gross margin moved from 5.5% to negative 1.7%; first-half gross margin fell from 6.3% to 0.5%. Operating and net losses widened in both comparison periods.
- Q2 R&D rose to $2.4m from $1.6m. Selling and marketing fell to $1.5m from $2.0m. First-half G&A declined to $7.6m from $8.1m, partly reflecting lower severance, legal, and insurance costs.
- Q2 2020 included $0.8m of warrant modification expense; the first half of 2020 also included this charge. This nonrecurring item contributed to the year-over-year comparison of other expenses.
- A July 3, 2021 subsequent event: the company entered a $2.0m, 3.925% insurance-premium financing note, payable over nine months.
Outlook, risks, and contingencies
- Management said available working capital, assuming an appropriate remedy for any future loan-covenant breach, should fund operations for at least 12 months from the filing date. The company expects additional capital will be needed to sustain operations and execute its strategy; financing may not be available on favorable terms, or at all.
- The company was in compliance with loan covenants as of the report date, but said COVID-19 and sales performance could make compliance difficult over the next 12 months. It had previously failed a revenue covenant for the period ended December 31, 2020 and agreed to a remedy during the cure period. A future breach without an agreed remedy could trigger default and repayment demands.
- COVID-19 continued to affect sales and marketing access, R&D activities, international business development, and financing-market conditions. No numerical full-year revenue or earnings guidance was provided.
- Rockwell planned a Phase 2 home-infusion study of FPC in the second half of 2021, subject to further FDA feedback and clarification; it expected data in the second half of 2022. A Phase 2 acute-heart-failure study was a potential 2022 initiative, with FDA pathway discussions expected in 2021.
- Triferic and Triferic AVNU adoption faces a consolidated dialysis market and bundled reimbursement environment; management emphasized the need for clinical and economic data. Triferic AVNU received Canadian marketing approval in April 2021, with commercial availability expected during 2022.
- The company is cooperating with an SEC investigation relating to Triferic reimbursement status, inventory-reserving methodology, and the 2018 termination of former executives. The filing does not state an outcome.
- Under the Baxter agreement, a defined “Refund Trigger Event” before December 31, 2021 could require repayment of 25% of the upfront fee. The filing does not indicate that such an event had occurred.
Important facts for investors to verify
- Whether Rockwell maintains Innovatus covenant compliance or secures remedies, and whether the loan’s current classification changes.
- Actual cash burn, concentrate gross margins, product sales trends, and the assumptions supporting the stated 12-month liquidity outlook.
- FDA feedback, timing, funding, and results for planned FPC trials, alongside Triferic and Triferic AVNU adoption and reimbursement evidence.
- Any developments in the SEC investigation or occurrence of a Baxter refund trigger.
- Potential dilution: 32.9m shares from options, restricted awards, and warrants were excluded from diluted loss per share as anti-dilutive; common shares outstanding were 93.8m at June 30, 2021.