Rockwell Medical's Potential for Exponential Gains

 |  Includes: AMAG, RMTI
by: Mike Havrilla

Rockwell Medical (NASDAQ:RMTI) has the potential for significant stock price gains by 2012 based on the enhanced earnings power of at least $4/share at that time for its lead clinical compound Soluble Ferric Pyrophosphate [SFP] with just a 20% share of the estimated $600 million U.S. market for iron replacements in 2012. The stock appreciation potential for RMTI is similar to the exponential gains experienced by AMAG Pharma (NASDAQ:AMAG) from the earlier part of this decade, culminating in approval of its IV iron replacement drug Feraheme earlier this year.

However, Rockwell is unique because it is not merely a development-stage operation, as its core dialysate business already generates significant revenue exceeding $50 million, which also serves as a built-in distribution channel for a differentiated form (compared to existing IV iron therapies) of dialysate iron replacement, SFP, upon successful clinical development and FDA approval. In addition, there is a very low clinical risk for SFP based on its excellent safety record and well-established mode of action as an add-on to the Company’s core business as a dialysate iron replacement therapy that has the potential for additional applications and indications beyond the use for the treatment of anemia in patients undergoing dialysis.

The low outstanding number of shares of common stock (about 14 million) and estimated cost of $15 million to fund Phase 3 development for SFP allow RMTI to retain U.S. rights to the treatment while seeking a partnership deal for ex-U.S. markets such as Europe and Asia-Pacific. The current share price around $8 provides RMTI an opportunity to fund Phase 3 U.S. development for SFP with minimal dilution to existing shareholders and have 18-20 million fully diluted shares outstanding by the estimated market launch of SFP in 2012. Upcoming milestones for RMTI include:

1.) Report Phase 2b FDA clinical trial results for SFP during 4Q09-1Q10

2.) Initiate pivotal Phase 3 clinical trial for SFP during 2Q10

3.) Report results from a NIH safety study (non-FDA) during 2010

4.) File NDA for SFP with the FDA during 2011 for 2012 U.S. market launch

Rockwell Medical is an emerging small-cap bio-pharmaceutical company with a core, growing business which manufactures, sells, and distributes dialysate (which remove toxins and wastes from the blood while replacing nutrients) products to patients with chronic kidney disease [CKD] and end-stage renal disease [ESRD] receiving dialysis (which is typically conducted three times per week).

The Company has a 27% share of the U.S. dialysate market with three manufacturing plants and over 16.6 million treatments provided last year. RMTI also provides ancillary products to hemodialysis [HD] providers such as blood tubing, fistula needles, dressings, cleansing agents, filtration salts, and other supplies.

The Company's current line-up of dialysate products is designed to be the delivery vehicle for SFP, which provides an opportunity for RMTI to expand upon its current market share by offering a value-added, high margin dialysate iron replacement therapy option for its customers while improving the clinical outcomes for anemic dialysis patients. The Company's core business includes the following: RenalPure (Liquid Acid and Powder Bicarbonate Concentrates), Dri-Sate (Dry Acid Concentrate and Mixing System), SteriLyte (Liquid Bicarbonate Concentrate), blood tubing sets, and fistula needles.

On 8/10/09, RMTI reported its 2Q09 results, which included the financial highlights below and the following corporate developments: completed SFP Phase 2b study enrollment in April 2009 and the Data Safety Monitoring Board [DSMB] review noted no safety concerns with SFP and recommended continuation of the study; appointed Richard Yocum, M.D. to VP of Drug Development & Medical Affairs in February 2009; and appointed Ajay Gupta, M.D. to Chief Scientific Officer in June 2009.

1.) Sales of $13.0 million increased 6.8% compared to the year-ago period

2.) Gross profit margins increased to 14.3% compared to 8.0% during 2Q08 and 9.3% during 1Q09

3.) Gross profit increased to $1.8 million compared to $1.0 million in the year-ago period

4.) SFP related R&D expense was $2.0 million compared to $0.8 million during 2Q08

5.) The net loss for 2Q09 was ($1.7 million) versus ($1.1 million) in the year-ago period

RMTI is now focused on obtaining approval for its lead drug candidate, Soluble Ferric Pyrophosphate [SFP], for delivery through dialysate, but are also evaluating SFP extensions into other applications as well as other technologies with the help of two new positions mentioned earlier for VP of Clinical Development/Medical Affairs and Chief Scientific Officer. RMTI expects to spend about $2.5-$3.5 million during 2H09 to complete the ongoing Phase 2b trial of SFP in order to obtain FDA approval for a pivotal Phase 3 trial. The Company expects to begin the Phase 3 trial by mid-2010 at an estimated cost of $15 million, depending on the details of the trial design such as duration and number of subjects being evaluated.

At the end of 2Q09, Rockwell’s current assets exceeded current liabilities by about $5 million, including $3.3 million in cash. The Company used $2.2 million in cash during 1H09, compared to $1.4 million in the year-ago period – reflecting the increased R&D expense to fund the ongoing Phase 2b trial for SFP. A similar trend occurred in cash used to fund operations, which increased to $1.7 million during 1H09 versus $0.6 million in the year-ago period. RMTI expects to generate positive cash flow from operations through year-end, excluding R&D expenses, based on improved operating results/margins due to stability in the markets for key commodity materials.

The stock research section of has been updated to include my 9-page report for RMTI, which was published on 9/1/09 and includes an earnings model through 2012 to reflect the first expected year of sales for SFP. Click here for Rockwell Medical’s Pro-Active News Room website landing page for a compilation of reports, articles, and social media/investing links for the Company.

Disclosure: Long RMTI