Rockwell Medical, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Rockwell Medical manufactures hemodialysis concentrates and is developing renal drug products, including Triferic and Calcitriol.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Sales | $12.96 million | $12.34 million |
| Gross profit / margin | $1.68 million / 13.0% | $1.28 million / 10.4% |
| Operating loss | $7.03 million | $15.39 million |
| Net loss | $7.81 million | $15.38 million |
| Basic and diluted loss per share | $0.20 | $0.72 |
| Cash used in operating activities | $10.37 million | $11.31 million |
Sales increased 5.1%, primarily on higher international sales. Gross profit rose 31%, with management citing stronger CitraPure sales; gross margin improved 2.6 percentage points. Research and product development expense fell to $4.62 million from $12.75 million, largely reflecting the prior-year Triferic Phase 3 program; Q1 2014 included a $2.2 million FDA NDA review fee. SG&A was $4.09 million versus $3.92 million. Interest expense rose to $854,000 from $75,000, mainly due to the secured loan.
Liquidity, debt, and balance sheet
- At March 31, cash was $661,000 and available-for-sale investments were $14.07 million, or about $14.7 million combined. Cash and investments declined from $23.92 million at year-end; current assets exceeded current liabilities by $8.25 million.
- Operating activities used $10.37 million; investing activities used $2.33 million, including $2.0 million to purchase investments and $330,000 for equipment. Financing activities provided $1.47 million from share and warrant issuances. Cash declined $11.22 million during the quarter.
- Total loan principal was $20.0 million, secured by substantially all company assets, with a 14.5% effective interest rate. Interest-only payments were scheduled through August 2014, followed by monthly principal and interest payments beginning September 2014. The company reported compliance with loan terms and no default at quarter-end.
- Shareholders’ equity moved from a $596,000 surplus at year-end to a $3.53 million deficit, primarily reflecting the quarterly loss. Outstanding common shares were 40.76 million at March 31.
Outlook, developments, and risks
- Rockwell submitted the Triferic New Drug Application in Q1; it was under FDA review. Management expected Triferic development spending to decline substantially and forecast $4.0–$4.5 million of product development expense for the remaining three quarters of 2014.
- Calcitriol was awaiting FDA manufacturing approval before commercial launch. Management said current cash resources were adequate for expected needs and a Triferic launch, and expected positive 2014 operating cash flow excluding research and development expenditures.
- Management was discussing potential licensing and business-development arrangements, including partnerships for international product rights and the dialysis business; completion and resulting cash benefits were uncertain.
- Key risks include FDA approval and launch uncertainty, dependence on a few dialysis customers, competition, margin variability, reliance on third-party drug suppliers and manufacturers, regulation, and interest-rate exposure. A 100-basis-point increase above the loan’s 3.25% prime-rate threshold would increase annual interest expense by approximately $200,000. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent FDA decisions and the timing, costs, and commercial prospects for Triferic and Calcitriol.
- Cash burn and whether management’s lower R&D spending and positive operating cash-flow expectations are achieved.
- Ability to meet scheduled debt payments, including the substantial interest cost and secured-loan covenants.
- Customer concentration, sales mix, gross-margin sustainability, and progress or proceeds from proposed partnerships.