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Rockwell Medical (NASDAQ:RMTI) reported results for Q3 ending September 30, 2012, on November 8th. Aside from the 6% revenue growth, financial results were significantly worse than we had expected. Comments on the conference call and in the 10-Q also implied that the Calcitriol launch will again be pushed back, further reinforcing our concerns related to consistent and ongoing delays in product development and commercialization. And although maybe only a nuance, management's language on the call relative to the expected completion dates of the CRUISE studies suggest this is also being pushed back again.

In summary, there was nothing in the earnings release, in the 10-Q (filed last night) or on the conference call that allayed any of our concerns that we first outlined in our September 14, 2012, initiation report or sways our Sell recommendation. While the shares are down about 25% since we initiated coverage about two months ago, we feel the stock still trades richer than warranted given the various and significant risks. We are maintaining our Sell recommendation and $4.00/share target price.

Q3 Financials

Revenue of $12.7 million was up 6% yoy, up 5% sequentially and about 4% ahead of our $12.2 million estimate. Despite the slight beat on revenue, gross profit was about 2% lower than our number as a result of softer than estimated gross margin (13% A vs. 13.9% E). SG&A expense jumped in the quarter to $3.3 million, up $1MM (+46%) from Q3 2011, up $500k (+18%) from Q2 2012 and significantly higher than our $2.8 million estimate. R&D expense skyrocketed to $16.3 million, up $5.3 million sequentially and almost $6.5 million higher than our $9.8 million estimate. Management pointed out that they had previously guided that R&D expense would peak in Q3 and attributed the relatively large spend to faster enrollment in their long-term safety study. As such and conceding the benefit of any doubt, we have significantly trimmed our R&D expense for Q4 (from $9.7MM previously to $4.6MM currently). If, however R&D expense does not come down well below $6 million in Q4 our questions and concerns would be further piqued.

Net loss and EPS came in at $17.9 million and ($0.84), well below our $10.8 million and ($0.51) estimates.

Cash

Rockwell exited Q3 with $11.3 million in cash and equivalents, down from $20.4 million at the end of Q2. Given the $17.9 million loss, the $8.8 million cash burn was relatively moderate and benefited from Rockwell accruing about $3.9 million in R&D liabilities, A/P increasing by $1.7 million and $2.0 million of non-cash share based compensation in the quarter. The $8.1 million and $14.7 million in current A/P and accrued liabilities, respectively, will presumably come due in the very near term and combined with an average quarterly operating cash burn of ~$9 million, Rockwell's $11.3 million cash balance (as of 9/30/12, which may be closer to $6 million today) will not get them very far.

Management again did not provide specifics relative to their plans for raising additional capital but did again allude to the possibility of licensing ex-U.S. rights to SFP. And they also noted that they are working on other potential business development activities and other alternatives to address their cash needs. Clearly they need to raise cash very soon.

Product Development Update

As we noted, we think the language on the conference call (and in the 10-Q) indicates the Calcitriol launch is again delayed as well as the expected completion of the SFP CRUISE studies.

Relative to Calcitriol, management's most recent launch guidance prior to the Q3 call was for a launch (per the Q2 call) "in the first quarter of 2013." Yesterday's Q3 conference call management noted that they now expect to be manufacturing their stability batch next week, submit that data to the FDA 30 days later, hope to have manufacturing approval by the end of Q1 2013 and expect to launch immediately afterwards (i.e. - not until Q2). The 10-Q language (which changed from "early 2013" previously to "first half of 2013" with the current 10-Q) also clearly leans towards another delay.

Relative to completion of the CRUISE studies, management had most recently (prior to the Q3 call) guided towards completion in "mid-2013," the Q3 call they point towards August 2013. Again, maybe a nuance but maybe not. Management still guides toward an NDA filing for SFP by year-end 2013 which we maintain is a best-case scenario, particularly if the trials' completion dates are being pushed back again from prior expectations.

Source: Rockwell Medical: Q3 Expenses Jump, Calcitriol Launch Pushed Back Again