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Rockwell Medical (NASDAQ:RMTI) is a bio-pharmaceutical company that's focused on addressing end-stage renal disease and chronic kidney disease with innovative products and services for the treatment of iron deficiency, secondary hyperparathyroidism and hemodialysis.

Soluble Ferric Pyrophosphate (SFP) is the company's lead investigational product, currently approaching the end of its Phase III trial (CRUISE 1 & 2), with topline results of CRUISE 1 expected in July and CRUISE 2 in October. SFP is an iron delivery therapy, designed to replace the current method of iron delivery to dialysis patients.

The vast majority of the 430,000 US patients on dialysis and the estimated 2.2 million patients on dialysis worldwide suffer from anemia - a condition where the body's tissues and organs cannot get enough oxygen due to a lack of red blood cell production caused primarily by iron deficiency.

There is an unmet need to deliver iron to patients on dialysis in a manner more like how a healthy person takes in iron through their food intake, a manner the company describes as "physiological". The current standard of care involves administering iron through an intra-venous drip (IV).

Current Standard of Care Problems

Dialysis patients kidneys do not produce erythropoietin, which is a hormone our bodies naturally make in order to produce red blood cells. To address this problem an erythropoiesis stimulating agent (ESA) is administered. The first ESA drug was approved in 1989 and revolutionized the treatment of anemia and has become the standard of care for boosting red blood cell production. However it is not without its problems.

It increases the demand for iron to produce red blood cells and by doing so can induce functional iron deficiency. To treat this deficiency, dialysis patients are given IV iron compounds which must be given at the same time as the ESA, otherwise ESA isn't as effective, therefore requiring higher ESA dosages.

However the body recognizes these 'alien' IV iron compounds. In response our reticuloendothelial system isolates this iron in the liver and a peptide called hepcidin is released which then blocks the release of this iron. The buildup of iron in the liver while potentially deadly, also interferes with the body's production of red blood cells (as little to no iron gets to the bone marrow where it's needed), requiring more ESA - this problematic cycle continues.

SFP Solves This Vicious Cycle

From the company's website:

SFP has been designed to effectively address the current challenges in anemia management by:

  • Maintaining haemoglobin (Hgb) levels within a safe range using moderate ESA doses

  • Improving response to ESA therapy, while avoiding excessively high doses and potential risks

  • Preventing iron from being stored in the liver thereby avoiding liver toxicity

  • Reducing current drug administration costs

SFP is designed to compete against the IV iron that is currently used to treat dialysis patient's iron needs with ESA. SFP is an iron salt, while IV iron compounds are coated in carbohydrate which is what gives the game away when the body recognizes it as a foreign particle. An SFP salt can be anywhere from 35 to 700 times smaller than an IV iron compound and is administered through dialysate replacing the 5-7mg of iron lost with every dialysis treatment rather than by IV with every ESA dose.

SFP is taken directly to the bone marrow (where red blood cells are created), completely by-passing the liver, which is exactly how normal dietary iron is treated by the body. Red blood cell production is more effective as a result and consequently so is ESA in achieving positive haemoglobin levels. Continuous iron therapy with SFP instead of IV iron is designed to provide a more physiologic iron uptake and positive iron balance in patients. The risks of toxicity and anaphalactic reactions that can occur when IV iron builds up in the liver are believed to be avoided with SFP administration. The dose of ESA required is also reduced while it's response is improved.

Costs are reduced as the needles and syringes needed for IV dosing and the nursing time needed to use them are eliminated by SFP being delivered via dialysate. Furthermore, the reduced dose of ESA required will also bring down the patients costs.

Management Concerns

RMTI 52 week chart
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A quick look at RMTI's 52 week chart shows the miserable year they've had on the market. A poor Q3 report shocked investors with management announcing a much faster burn rate than previously thought, and this concern regarding the company's cash has plagued RMTI for the 6 months since. Concerns regarding the launch of their FDA approved Vitamin D injection Calcitriol haven't been assuaged by a management that hasn't racked up a lot of support or confidence from the biotech investment community.

However two recent offerings look to have given RMTI enough cash to get through the crucial months ahead. They raised $12.9 million in March and a further $40 million last week. The company's CEO Robert Chioini said at the close of the latest offering on 5/20/13:

"We expect this financing will fund us through our NDA submission. We look forward to announcing top-line Phase 3 data from our CRUISE-1 efficacy study in July.''

In clinical trials to date, SFP has been shown to safely deliver iron while maintaining haemoglobin levels and decreasing the dosage of ESA required, at the same time ensuring no toxic build up of iron occurs as is the norm with the current standard of care. Results from the PRIME clinical study in February showed a 37% reduction in the ESA dosage of patients on SFP, while a positive iron balance was maintained. There were no safety issues.

While conscious of the management, biotech investors should not shy away from a company with such a promising treatment. The stock surged briefly to $8 after positive Phase II results last February and these Phase III results in July and October (primarily the former) provide a major catalyst to RMTI. The U.S. iron market is estimated at $600 million and RMTI already has 27% of the dialysis concentrate market as one of the top suppliers of dialysis products in the U.S.

With a current revenue of $50 million and a market cap of $100 million, positive Phase III results could be a game changer for Rockwell. One analyst has prescribed an 80% chance of success in these trials with the stock potentially seeing $8 if so, representing more than a 100% increase from the current price. Investors should keep Keryx Pharmaceuticals (NASDAQ:KERX) in mind when considering what could happen with positive Phase III results for RMTI. KERX more than tripled when their iron based phosphate binder had positive Phase III results last January.

Chart Analysis and Technicals

RMTI 3 month chart
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From a technical viewpoint, the 3 month chart looks bullish at this moment. With a double bottom after the 2 recent offerings, RMTI stock has had a strong bounce and with the latter, volume has continued to be strong, buoyed no doubt by recent bullish articles on RMTI from subscription sites (biorunup.com & biostocks.com) as well as biotech focused websites. The stock crossed over and closed above the 20MA and the 50MA on 5/21 and there is a gap to fill up to $4.10. If it can clear $4.20 with sustained volume a breakout would be beckoning.

There are almost 30,000 open interest calls for August while less than 3,000 puts indicating bullish investor sentiment for the coming months. Short interest is very high at 27%, understandably so with the stock's performance over the last year and could account for the high open interest in the calls as traders look to hedge. But realistically this is no bad thing for a RMTI bull as any hint of a breakout could easily trigger a massive short squeeze as bears look to exit positions before Phase III results are released.

Looking Past July's Catalyst

Rockwell's other main product in development is Calcitriol, an active Vitamin D injection. On 4/1/13, the company announced it had submitted data to the FDA for approval to manufacture Calcitriol, with an expected review period of 4-6 months providing an autumn catalyst. Calcitriol will be used to treat secondary hyper-parathyroidism; a condition common in chronic renal failure patients. This is a $350 million market that would significantly boost Rockwell's revenue if the FDA come up trumps.

Rockwell have their own transportation and delivery infrastructure which is rare for a small biotech company. This should take care of worries about effective distribution and delivery of SFP and Calcitriol if and when they hit the market.

Conclusion

Investors should bear in mind that as with all micro cap stocks, particularly biotechs, a certain degree of risk comes with trading them. Rockwell have a horrendous balance sheet and management have been very poor of late. They've been developing SFP since before 2006 and I get the impression that the heart of the company lies with this treatment, they've poured everything they have into getting it this far and were it to be register negative Phase III results I don't see how the company could survive given its cash burn, operating costs and miniscule revenue.

Having said that, all signs point that SFP could easily have positive Phase III results and if so, the sky is the limit for Rockwell. SFP is a non-invasive method of delivering iron to the body that mimics normal dietary consumption, meaning no storage of iron in the liver occurs and less ESA is required. This is not only healthier and safer but cheaper than the current IV iron delivery system.

Should SFP pay for the sins of its managing fathers? I don't think so. I'm long August $2.50 calls and depending on how lucky I'm feeling come the first week of July, I might just hold through the event.

Disclosure: I am long RMTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Rockwell Steadies Itself For A Phase III Run-Up