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Rockwell Medical, Inc. (NASDAQ:RMTI)

Q4 2013 Earnings Conference Call

February 26, 2014 04:30 PM ET

Executives

Rob Chioini - President and CEO

Tom Klema - VP and CFO

Ray Pratt - CMO

Paul Arndt - MD, LifeSci Advisors

Analysts

Annabel Samimy - Stifel, Nicolaus & Co.

Charles Haff - Craig-Hallum Capital Group

Operator

Good day ladies and gentlemen and welcome to the Rockwell Medical Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Paul Arndt. Sir, you may begin.

Paul Arndt

Thank you, Victoria, and good afternoon, everyone and thank you for attending the Rockwell Medical fourth quarter and year-end 2013 financial results conference call. I’m Paul Arndt, Managing Director of LifeSci Advisors.

On the call this afternoon are Rob Chioini, Founder, Chairman and Chief Executive Officer; Tom Klema, Chief Financial Officer and Ray Pratt, Chief Medical Officer.

Before we begin, I'd like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Rockwell cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated.

Among the factors that could cause actual results to differ materially include risks and uncertainties related to the regulatory process for Triferic including submission of the Triferic NDA, review of the Phase III study results and FDAs decision on whether to approve Triferic, the Company's ability to successfully commercialize Triferic, manufacturing capabilities and other risk factors identified from time-to-time and reports filed with the Securities and Exchange commission.

Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, February 26, 2014 and the Company does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today’s date. This conference call is being recorded for audio rebroadcast on Rockwell’s website at www.rockwellmed.com. All participants on this call will be listen-only mode. The call will be followed by a brief Q&A session.

I'll now turn the call over to Rob Chioini, Founder, Chairman and CEO of Rockwell Medical.

Rob Chioini

Good afternoon. Thank you for joining us today. Today I'll briefly cover our fourth quarter numbers and then provide an update on our strategic initiatives. Joining on the call today will be our Chief Financial Officer, Tom Klema, and Our Chief Medical Officer, Dr. Ray Pratt.

Starting with the fourth quarter numbers, sales for the quarter were $14 million, a 7.4% increase over a year-ago. Gross profit for the quarter increased 21% to $2.1 million. CitraPure sales continue to climb significantly. Fourth quarter CitraPure sales increased 415% and units shipped increased 560% over a year-ago. Sequentially from third quarter to fourth quarter 2013, CitraPure sales increased over 50%.

CitraPure now accounts for close to 70% of all Rockwell Dry Acid sales. So I’ve mentioned prior, we expect CitraPure will soon become the new standard of care in dialysis. Going forward, we expect our sales momentum to continue.

Regarding research and development expense, we spend $5.8 million in the fourth quarter, that’s a significant 51% reduction compared to last year’s quarter and 45% less than third quarter of 2013. We expect a similar reduction in R&D expense in the first two quarters of 2014 and then approximately $1 million of expense in Q3 and Q4, respectively in 2014.

Net loss for the quarter was $8.3 million, 39% less than reported a year-ago, as clinical studies have come to an end and as a result we expect net loss will continue to improve quarter-to-quarter. We are just under $24 million in cash at year-end. Our cash resources are sufficient to get Triferic to commercialization.

Now moving to our clinical progress and Triferic. As you know we reported successful study results from our pivotal CRUISE-1 and CRUISE-2 trials in the second half of 2013. Both pivotal Phase 3 studies met their primary efficacy end point and delivered exceptional safety results.

Since that time, we’ve completed all other outstanding studies, including the expansion safety studies. And we’ve been working diligently on putting together the strongest possible new drug application we filed with the FDA.

We are on track to submit the NDA in the next few weeks. Once that occurs, we anticipate the FDA’s decision in approximately 12 months. Given our successful Phase 3 clinical results, demonstrating efficacy and safety, the benefit, the risk ratio for Triferic appears favorable and we expect FDA approval.

Upon FDA approval we’re highly confident in our planned commercial launch for Triferic. Rockwell is ideally built to succeed in selling products in the US dialysis markets. During the last 18 years, we’ve built a successful business, infrastructure, and brand. We’ve launched several new products two of which have become the new Standard of Care in the market.

And importantly we have developed strong customer relationships during that time. Currently our operating business is annualized at $56 million in sales and we continue to drive market share. Our customer base is highly concentrated. Nine dialysis providers control 83% of the patients in the U.S market. Two control approximately 70% of the patients. We’re the largest providers participated in our clinical studies, dosing Triferic to the patients over the last two years.

At present in the compelling clinical data we shared last November at the American Society of Nephrology Conference provided further visibility and awareness of Triferic to the dialysis community. Additionally, the government's bundled reimbursement payment incentivize the dialysis providers, the used products that deliver quality patient outcomes, and that reduce their cost for treatment.

And this is exactly where Triferic is demonstrated. Triferic delivers iron to the bone marrow and maintains hemoglobin without increasing iron stores and Triferic significantly reduces expensive ESA use, along with a substantial reduction in nursing hours. Triferic is ideally suited to succeed in the bundled reimbursement system.

Our successful operating business and our strong relationships with highly concentrated customers, who are familiar with Rockwell and Triferic, coupled with an idea of bundled reimbursement system, puts us in a great position to capture the U.S dialysis market quickly upon commercial launch.

(Indiscernible) on Calcitriol, our FDA-approved generic vitamin D injection. You may recall, we submitted our chemistry data to the FDA in at April of last year, later in July we were granted expedited review status. The FDA will not provide us a hard date for chemistry approval, but we are hopeful that we will receive it shortly.

Commercial launch of Calcitriol should occur approximately 60 days after approval. We’ve solid market demand for Calcitriol and we expect a successful launch. As I stated in the past, our launch and marketing effort will require a minimal additional SG&A expense. We expect to gain sales from our existing customers as well as new customers. And again, the CMS bundled reimbursement offers great incentive to dialysis providers to purchase drugs like Calcitriol, which is the lowest cost vitamin E injection available.

To close, our business development efforts have been ongoing and continued to be productive. We are evaluating potential partnerships and license opportunities for Triferic as well as our entire product line, internationally and in the U.S. We are also evaluating the possibility of strengthening our current product offering with additional renal products. We will continue to look for the best value for Rockwell and our shareholders.

I will now turn the call over to Tom for his comments on the financial results.

Tom Klema

Thank you, Rob and good afternoon everyone. I'll provide you with the review of the fourth quarter and year-to-date results along with liquidity and capital resources.

I will start with sales. Sales in the fourth quarter of 2013 were $14 million, up 7.4% from last year’s fourth quarter. Sequentially fourth quarter sales were up $900,000 or 6.6% over the third quarter. For the year, sales were $52.4 million, a 5.1% increase over 2012, both domestic and international sales made notable gains in 2013.

As Rob mentioned, we continue to see significant increased growth in our CitraPure product line and primarily in our dry powder concentrate products. As we’ve mentioned in the past, conversion to dry powder is attracted to the customer as it offers a lower cost for treatment. The results in lower sales revenue for Rockwell will provides us with a lower distribution cost.

Our gross profit in the fourth quarter was $2.1 million, up 21% over the fourth quarter of last year. Gross profit margins in the fourth quarter were 14.8%, an increase of 1.7 margin points over the fourth quarter of 2012. Gross profit improved due to the increased sales inversion to our CitraPure product line, offsetting the negative impact of rising raw material and operating costs. All of 2013 gross profit was at about the same level as 2012.

SG&A expense during the fourth quarter of 2013 was $3.8 million compared to $3.6 million in the fourth quarter last year. The difference was the result of the mandated medical device tax of $200,000 for the quarter. Notably non-cash equity compensation was $1.8 million in the fourth quarter compared to $2.2 million in the fourth quarter of last year.

SG&A expense for 2013 was $14.3 million compared to $12.7 million for 2012. Increased SG&A costs were due to the mandated medical device tax of $800,000 and there was a $600,000 increase in non-cash charges related to the expansion of warrants and that $1.1 million charge related to those warrants will not recur in 2014.

On research and development, the cost was $5.8 million in the fourth quarter, down significantly compared to an $11.8 million in the fourth quarter of last year and sequentially to $10.6 million in the third quarter of 2013. This considerable decrease in R&D expense as a result of completing the Phase 3 clinical program for Triferic.

Research and development cost in 2013 was $39.4 million compared to $48.3 million in 2012. R&D expense will continue to drop. Q1, 2014 expense should be about half of the Q4, 2013 expense. And we expect to see second quarter 2014 drop about 50% from the first quarter level. At this time we expect second half 2014 R&D expense to be about $1 million per quarter. Net loss for the quarter was $8.3 million or $0.21 per share compared to $13.6 million or $0.66 per share in fourth quarter of last year. As R&D expense continues to drop net loss will continue to increase. While 2013 Rockwell’s loss was $48.8 million or $1.48 per share compared to a loss of $54.3 million or $2.65 per share 2012.

Now regarding our capital resources, we had $23.9 million in cash at the end of the fourth quarter. Our current cash resources are sufficient to commercially launch Triferic. Our future spending on Triferic is not expected to be material following NDA submission. We expect our business operations to continue to improve in the year ahead.

I will now turn the call back to our operator for some Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And the first question is from Annabel Samimy of Stifel. Your line is open.

Annabel Samimy - Stifel, Nicolaus & Co.

My questions are, just since you’re talking about I just want to make sure I heard correctly. The R&D is going to decline from fourth quarter into first quarter as well as second quarter and then $1 million each quarter thereafter, did I hear that correctly?

Rob Chioini

Yes, you did. That’s correct.

Tom Klema

Yes, that’s correct.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay, I just want to clarify that. And you said from the first quarter to second quarter is going to be a decline of about 50%?

Tom Klema

Yes. That’s correct.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. Now on the SG&A, I just want to understand with the potential launch of Calcitriol, what kind of additional sales or marketing support are you going to have to supply or is that something that can go straight into your infrastructure through client contracts?

Rob Chioini

Right, those are going to be minimal expense for SG&A for the launch of either drug, Calcitriol or Triferic.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. And then while we’re on the top of Calcitriol, I just have to ask again; do you have any sense of what the holdup is if they’ve expedited this program, why is it supposed to be at the FDA almost a year later?

Rob Chioini

Well, I think we received the expedited review that was granted to us in July. I don’t know if it's been a year, but your guess is good as ours. I don’t really look at it like there’s a holdup; I look like we’re just moving along and soon or later we’re going to get the approval.

Annabel Samimy - Stifel, Nicolaus & Co.

I mean because this is an approved product, so I mean is it -- I guess should we assume that it's going along just your standard ANDA timelines for approval because it's already an approved product, so does manufacturing sort of fall on the same lines of classic ANDA approval then?

Rob Chioini

Right, so what I can tell you is, had we not gotten the expedited review granted we would have been looking at three to four years, the FDA our understanding is with generic drugs they don’t get the authority that new drugs get. So, we’re actually in good shape. Certainly it's not happening as fast as we would like it to, but we’re in good shape.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. Let me ask you then about the upcoming filing, you’ve obviously been preparing your package since the data release. Do you have, I noted the prime study was not a pivotal study for approval purposes, but to what extend is the FDA going to want to see the prime data and how would it factor into their decision making?

Rob Chioini

Ray, why don’t you answer that question?

Ray Pratt

Yes, thanks. Well actually we know that the main decision maker for the agency with regard to this product will be the hemoglobin, the change from baseline in hemoglobin and the difference between the Triferic and the placebo group, definitely they will get the -- they will have the prime data included in the package. And we’re anticipating that all of the clinical study results will be part of the approved labeling should we, when we get approval. So again whether they -- whether that’s part of the indication or just as part of results in clinical pharmacology that would be opened in negotiation with the FDA.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. And can you just share with us if we’re going to see any kind of data releases from the open-label extension study because obviously that’s been going on, and it will be nice to see not just safety but any kind of I guess maintenance or a consistency in hemoglobin levels, and what exactly happened to these patients that move them into that open-label study. So is there any data release that we’re going to be seeing either in publications or additional medical forms that we can be looking forward to?

Ray Pratt

Yes, I mean we have just completed the enrollment in those studies and are locking all the data bases and haven't got the final analysis from those studies. Yes, so once we actually have those we anticipate that we will be releasing them through upcoming medical meetings in the 2014, 2015 calendar year.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. And I guess one last question; I can get back in the queue. In terms of patent protection on SFP I know that you have a couple of patents issued already one in 2016 and maybe another one after that, can you just go through your patent protection and how well you feel that you’re covered and if you’re filing for any additional patents?

Ray Pratt

All right. There’s an extensive, substantive list of patents where they’re been filed and where they have been issued, take a little bit of a time to go through all of them obviously. So, what we can tell you is we -- the ones that you know about obviously have been issued. We just had another one issued in Japan on the formulation. There’s other patents pending on both formulation, there’s been other patents filed. I don’t really want to say around what at this time, but we filed several other patents in many different countries and there’s a lot of IP around the drug.

Annabel Samimy - Stifel, Nicolaus & Co.

Can you tell us how broader now the claims are on some of the later patents?

Ray Pratt

No, I mean I can’t get into that on this call. We feel we’ve got very strong IP around the products.

Annabel Samimy - Stifel, Nicolaus & Co.

All right, thanks. I’ll get back in the queue.

Operator

Thank you. The next question is from Charles Haff of Craig-Hallum. Your line is open.

Charles Haff - Craig-Hallum Capital Group

Hi, thanks; most of my questions have been asked and answered. But I had a couple here, on the short-term debt for $2.3 million, is that a bank credit line or what is that?

Rob Chioini

Charles last year we entered into a financing arrangement and we borrowed $20 million and that’s repayment of the principal this year.

Charles Haff - Craig-Hallum Capital Group

Okay. And then for CapEx you’re running at about $600,000 annually. Once Triferic is launched do you have any idea to what CapEx may look like on an annual basis, you’re going to make that product yourselves, right?

Rob Chioini

This time we’ll probably use the contract manufacturing organization and so we do not have plans for any capital spending related to the production of Triferic. I would anticipate the capital spending to be much the same level it is today.

Charles Haff - Craig-Hallum Capital Group

Okay. And then you mentioned the manufacturing approval you hope for shortly. Has the FDA come in to inspect the facility of your contract manufacturer yet?

Rob Chioini

The manufacturer that we use has been inspected by the FDA.

Charles Haff - Craig-Hallum Capital Group

And could you share that date with us or approximately when that was?

Rob Chioini

Well, they don’t -- so they may not go inspect the manufacturer based strictly on our submission, but yes that date occurred at the end of last year.

Charles Haff - Craig-Hallum Capital Group

Okay, and when you say they wouldn’t go to for your submission, is this just kind of a general inspection or maybe you could elaborate about that a little bit, because I’m a little confused.

Rob Chioini

All right. So the way it works it the FDA has facilities they inspect regardless if we’re filing a submission on chemistry. In a particular facility they happened to inspect it right after we had submitted our filing, but I don’t believe it had to do with our filing, as a matter of fact I’m certain we didn’t.

Charles Haff - Craig-Hallum Capital Group

Okay. So is there a separate inspection that needs to be done in regards to your filing or is the inspection that they’ve already done could be adequate?

Rob Chioini

Right. The inspection they already did was ade is quate, there’s no extra inspection.

Charles Haff - Craig-Hallum Capital Group

Okay, great. And then you mentioned a comment about SFP substantially reduces nursing hours. I was just wondering if you guys have quantified that or any of your partners -- any of the dialysis providers that were included in the SFP studies if they’ve quantified the nurse savings.

Rob Chioini

Yes, there is some data out there that’s quantified the nursing hours and the reduction.

Charles Haff - Craig-Hallum Capital Group

And what kind of ranges or approximations would you say that vendor seem saving is?

Rob Chioini

I’d have to go pull that data again, but it's significant, it's a lot of hours. And you can just imagine today a nurse that’s delivering IV Iron has a lot more work and a lot more steps to complete as opposed to the way Triferic is added into the central bicarb mix.

Charles Haff - Craig-Hallum Capital Group

Sure. Okay, I’ll jump back in queue. Thank you.

Operator

Thank you. (Operator Instructions) Thank you, and at this time we do have a follow-up question from Annabel Samimy. Your line is open.

Annabel Samimy - Stifel, Nicolaus & Co.

Hi. I just had one other question. I think just back a couple of months ago you mentioned that ASN was conducting their own, I guess, special meeting to talk about the issue of ferritin I guess overall, the [C] [ph] change that has to have it in the phase. Is there any update from that meeting? Has it happened, is there anything that you can tell us from that that’s going on from a medical perspective?

Rob Chioini

Ray, do you want to address that?

Ray Pratt

Yes, sure. I mean, actually it's KDIGO.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay, KDIGO, it is okay.

Ray Pratt

Which is conducting the meeting and it is scheduled for the end of March, and that’s all we know right now.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. And then the basis of the meeting is to deal with the ferritin issue, can you just explain that, is it an overload issue, is it a lack of understanding what ferritin is. Can you just help us understand.

Ray Pratt

The basis of the meeting is to discuss the current status of iron and anemia management, and will cover all of the various different aspects of intravenous iron administration, ferritin some of the latest information coming out about infections that are in patients given large doses of intravenous iron. It's going to be a fairly comprehensive -- it's one of their controversies conferences which actually is the prelude to making new -- to convening a new guidelines conference sometime in the future. So, they are just now putting together the final agendas for that. And I think if you go to the KDIGO website you’ll actually be able to find some information about that meeting.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay. And just another broader question, I mean KDIGO has been putting out guidelines for quite some time, it doesn’t seem like the dialysis market really follows them very closely. So what is it that’s going to cause a greater [C] [ph] change in terms of physicians following guidelines because it doesn’t to seem to be in practice they love to do?

Ray Pratt

No, I actually disagree. I think that they actually do, they do try to follow the guidelines for the most -- for a lot of the different areas of nephrology. And KDIGO puts guidelines out not just because of the dialysis community. So they put them out for the -- for all the chronic kidney disease aspects. So again it's a very important aspect we believe in terms of an educational opportunity to begin to change the practice of nephrologists to a more evident basis. And I believe that KDIGO actually is a fairly important organization in terms of all of the impact that they have. And I think that nephrologists they actually well they do try to follow a lot of this, maybe they don’t do it perfectly. But they certainly are aware of them and when you ask them about it they certainly are aware of what the guidelines say.

Annabel Samimy - Stifel, Nicolaus & Co.

Okay, great. Thank you.

Operator

Thank you. And at this time I would like to turn the call back over for closing remarks.

Rob Chioini

Thank you for joining us today and we appreciate your time and your continued support.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.

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