Rockwell Medical, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The interim financial statements are unaudited. Rockwell Medical is a commercial-stage biopharmaceutical company and a major U.S. supplier of hemodialysis concentrates; it is also developing ferric pyrophosphate citrate (FPC) therapies, including Triferic and Triferic AVNU.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $15.5 million | $15.9 million |
| Gross profit / margin | $0.4 million / 2.6% | $1.1 million / 7.0% |
| Operating loss | $7.2 million | $8.1 million |
| Net loss | $7.8 million | $8.0 million |
| Net loss per share | $0.08 | $0.12 |
| Cash used in operating activities | $12.5 million | $6.5 million |
At March 31, cash and cash equivalents were $35.7 million and available-for-sale investments were $10.5 million, or $46.1 million combined. Working capital was $48.0 million. Total assets were $69.4 million, total liabilities $43.3 million, and stockholders’ equity $26.2 million. The company reported $21.0 million of term-loan debt, net of issuance costs; the loan’s initial interest rate was 8.75%, and it matures in March 2025. The company was in compliance with loan covenants at quarter-end.
Changes and operating drivers
- Sales declined 2.4%, primarily because of lower dialysis concentrate sales. Concentrate products generated $15.2 million of revenue; drug products generated $0.3 million.
- Gross profit fell 64%, with management citing lower concentrate sales and higher costs from COVID-19 protocols. Cost of sales rose 2.2% despite lower revenue, reducing gross margin to 2.6% from 7.0%.
- Operating loss improved 10.8%, mainly as general and administrative expense declined 25.6%, including lower stock-based compensation and legal and insurance costs.
- Net loss improved modestly, but interest expense increased to $0.6 million from $0.1 million, reflecting the debt facility.
- Operating cash use increased year over year, driven in part by a $2.4 million increase in receivables and lower payables and accrued expenses. Management said Q1 cash burn was in line with expectations and reflected annual payments and timing of customer receipts.
Outlook, risks and notable items
- Management believes available working capital is sufficient for at least 12 months from the filing date, but expects additional capital will be needed to sustain operations and execute its strategy. Future financing may be unavailable, costly, or dilutive.
- The company expects aggregate 2021 cash burn to be lower than 2020; no specific revenue or earnings guidance was provided.
- Rockwell plans to initiate a Phase 2 home-infusion study of FPC in iron-deficiency anemia patients in the second half of 2021, with trial data expected in the second half of 2022. It planned to discuss the acute-heart-failure development pathway with the FDA in 2021 and identified a possible Phase 2 trial in 2022.
- After quarter-end, Triferic AVNU received Health Canada marketing approval in April 2021; commercial availability in Canada was expected during 2022.
- COVID-19 has affected sales and marketing, research and development, and third-party operations; it may also constrain access to financing. Adoption of Triferic products faces a concentrated dialysis market and bundled reimbursement, making uptake dependent in part on additional clinical and economic evidence.
- An SEC investigation remains ongoing concerning, among other matters, Triferic reimbursement status, inventory reserves, and former executive terminations; the company said it is cooperating.
- A Baxter agreement provision could require repayment of 25% of its upfront fee if a specified “Refund Trigger Event” occurs before December 31, 2021. The filing does not indicate that such an event occurred.
- Stock-based compensation was a net benefit of $0.2 million in Q1 2021, including reversals associated with forfeited performance awards and performance criteria becoming non-probable.
Important facts for investors to verify
- Whether concentrate sales and gross margins stabilize, and whether Triferic and Triferic AVNU achieve broader adoption.
- Actual cash burn, customer collection timing, and progress toward any additional financing needs.
- Continued compliance with Innovatus loan covenants and the terms or availability of any future financing.
- FDA feedback, initiation, timing, and results of the planned clinical programs; and the commercial timing of Triferic AVNU in Canada.
- Any developments in the SEC investigation or the Baxter agreement’s refund-trigger conditions.
- Potential dilution: at March 31, 2021, 32.9 million securities were excluded from diluted loss-per-share calculations, including 26.4 million warrants.