Rockwell Medical, Inc. (RMTI) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Rockwell Medical First Quarter 2015 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 is being recorded. I would now like to introduce your host for today’s conference, Paul Arndt, Managing Director for LifeSci Advisors. Please go ahead, sir.

Thank you, Amanda, and good afternoon, everyone. Thank you for attending the Rockwell Medical first quarter 2015 financial results conference call. I am Paul Arndt, Managing Director of LifeSci Advisors. On the call this afternoon are Rob Chioini, Founder, Chairman and CEO; Tom Klema, Chief Financial Officer; and Ray Pratt, Chief Medical Officer. Before we begin, I would like to remind everyone that various remarks about future expectations, plans and prospects continue -- 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 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 Triferic, including the company's ability to successfully commercialize Triferic; manufacturing capabilities and other risk factors identified from time-to-time in reports filed with the Securities and Exchange Commission. Any forward-looking statements made on this conference call speak only as of today's date, Thursday, May 7, 2015, 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. The call will be followed by a brief question-and-answer session. I will now turn the call over to Rob Chioini, Founder, Chairman and CEO of Rockwell Medical.

Thank you, Paul. Good afternoon to everyone joining us today. On the call with me is our Chief Financial Officer, Tom Klema; and our Chief Medical Officer, Ray Pratt. The most significant event for us in Q1 was the FDA approval of Triferic on January 26. It became the first ever drug approved as an iron replacement product that maintain hemoglobin in dialysis patients. This significant achievement for Rockwell is an important benefit for dialysis patients and their providers. We believe the Triferic is going to be transformative in treating anemia and dialysis patients and the Triferic is the most significant advancement in dialysis in 25 years. I will provide an update on our continued progress with Trifericm. But first I will highlight our Q1 financial results. We continue to achieve positive topline growth. Sales in the quarter were $13.9 million, a 7.1% increase over the first quarter of 2014. Gross profit continue to improve, we reported $2.3 million in gross profit, an increase of 37.6% over Q1 2014. Our balance sheet is solid, strengthened from our successful secondary offering and the upfront payment in equity investment received from our partner Baxter Healthcare, both completed in the fall of last year. At the end of March, cash and investments were over $83 million with no debt. Our strong financial position provides us with ample resources to launch two drugs this year, Triferic and Calcitriol. Both require spending for manufacturing API, packaging finished product, inventory, marketing and sales. Based on our prelaunch activity to-date, we estimate both drugs are on track for commercial launch in the July-August timeframe. For Triferic, we continue to work diligently on numerous prelaunch initiatives. Our activities at the moment are focused on the manufacturing and marketing aspects of the launch, which involves the making of API and the scale-up in CMO redundancy required as well as our communication with customers and our efforts to educate and to establish brand awareness around Triferic. We continue to have a presence at the major medical conferences. During the first quarter, we present clinical data at the National Kidney Foundation Spring Meeting in Dallas and the Annual Dialysis Conference in New Orleans. In addition to presenting clinical data, we will spend time interacting with and educating physicians and providers and their feedback continues to be very positive. We are excited about the commercial potential for Triferic. Our confidence in our commercial launch is based on the strong efficacy and safety profile the drug has demonstrated as well as our own considerable experience and success in launching products into the renal market, a market where we have excellent long-standing relationships and the market that is very concentrated, where just nine customers control 85% of it. Triferic is a game changer. It’s a game changer for patients and providers. We continue to receive very encouraging feedback and high interest from providers who are interested in using the drug. We expect solid commercial success upon entering the market. We will continue to work hard to launch Triferic and Calcitriol as fast as possible. As you might imagine, there is enormous amount of work required securing at least two suppliers to produce the estimated demand for the market is a must. This redundancy is critical and we've achieved it with both drugs and we are moving closer to market launch. With Triferic and Calcitriol, Rockwell will be able to offer customers two of the three primary injectable drugs used in dialysis. And we believe this will be a benefit, providers will take advantage of. Triferic offers improved patient outcomes and lower costs. And we expect the entire market to shift to it in a short timeframe. Calcitriol is a pure play on lower cost and we expect it will be gain a majority of sales in the market. Regarding our business development efforts, we continue to have discussions with multiple potential licensing partners. These negotiations are ongoing. They include not only Triferic for iron delivery in hemodialysis patients outside of the U.S., but also indications beyond the hemodialysis setting both in the U.S. and globally. Our goal is to secure the highest value partner and most favorable economics in each partner territory for each indication. We're moving forward on clinical programs for Triferic delivery via TPN solution and PD solution, as well as an orphan indication for patients who are iron resistant. We also intend to use the Triferic technology and other indications such as cancer and oral delivery. Lastly, we are also pursuing regulatory approval for Triferic in several countries outside of the U.S. I will now turn the call over to our Chief Financial Officer, Tom Klema to discuss the financials in more depth.

Thank you, Rob and good afternoon. I will provide you with the review of the first quarter results, along with a brief review of the key financial metrics. Let’s start with sales. Our sales in the first quarter of 2015 were $13.9 million, an increase of 7.1% compared to the first quarter of 2014. Domestic sales represented 85.2% of our total in the first quarter and increased $800,000, or 6.6%, compared to the first quarter of last year. International sales represented 14.8% of our total or $2.1 million and increased 7.2% over the first quarter last year. Our overall domestic concentrate business revenue increased 6.1%, compared to the first quarter last year and included amortization of deferred license revenue of a $0.5 million. Increases in sales of our CitraPure product line was the primary driver behind increased sales volumes in the first quarter of 2015, compared to last year. Our gross profit in the first quarter, gross profit was $2.3 million, an increase of 37.6% over the first quarter last year. Gross profit margins increased by 3.7 percentage points to 16.7%. Gross profit increased largely due to higher sales compared to the first quarter last year and was favorably impacted by recognition of the deferred license revenue under the Baxter agreement. Selling, general and administrative expense for the first quarter was $5.3 million, compared to $4.1 million in the first quarter last year. Non-cash equity compensation was $3.3 million in the first quarter 2015, compared to $2.2 million in the first quarter last year, which accounted for majority of the increase in SG&A costs. Increased costs for personnel, marketing and intellectual property expenses related to preparation of our anticipated drug product launches also increased approximately 200,000, compared to first quarter last year. On research and product development, R&D decreased to $800,000 in the first quarter, compared to $4.6 million in the first quarter of last year. Future R&D spending in 2015 is expected to be primarily related to other Triferic indications. Net loss for the quarter was $3.7 million or $0.07 per share, compared to $7.8 million or $0.20 per share in the first quarter last year. This reduction was primarily due to the conclusion of our work around obtaining FDA approval for Triferic. The $0.07 loss per share for the first quarter was reduced in half compared to the fourth quarter 2014 loss of $0.14 per share. The $2.7 million reduction was largely due to the elimination of interest expense, $1.5 million and reduced R&D costs, $900,000 which together aggregated $2.4 million of the $2.7 million reduction of loss. On capital resources and liquidity, we have adequate capital resources and substantial liquidity to commercially launch our drugs and pursue our business strategies. As of March 31st, we had $94 million in current assets and net working capital of $83.7 million. We had $83.3 million in cash and investments, with $63.3 million in cash at the end of March. We have no debt. In the first quarter of 2015, we incurred $800,000 in research and product development costs and we increased our inventory by $1.3 million. We are using contract manufacturing organizations to produce our drugs. Capital expenditures on our current facilities are not expected to materially exceed depreciation expense. Future R&D spending on Triferic technology is expected to include a clinical study in pediatric patients as well as some work in TPN and PD indication. Costs are expected to be minor relative to our cash resources. Cash investments for our drug product launches will be primarily related to working capital for inventory and accounts receivable. We expect cash flow from operations to be positive following the launch of our drug products in 2015. With that, I'll now turn the call back to our operator, Amanda for some Q&A.

[Operator Instructions] And our first question comes from Charles Haff with Craig-Hallum. Your line is now open. Please go ahead.

Hi. Thanks for taking my questions and congratulations on a good quarter. I had a question for you on the dialysate facility outwest. How is that progressing and were you at in the process there?

This is Rob, Charles. And we’ve narrowed down sites to three and we’re actually touring those facilities next week.

Okay. So these would be existing facilities that you purchase than as opposed to building a de novo?

These are Shelf’s. So…

Okay.

So we’ll go to Shelf and then we’ll outfit it.

How long does that process usually take from our Shelf to get to a facility?

Right now our estimate is that we should have that plan to up and running before the end of the year.

Okay. Great. And then secondly, on the timing of the Calcitriol and Triferic approval or -- sorry, a rollout, you mentioned July-August timeframe for both. I think you thought before that Calcitriol was going to launch at the end of 2Q, was there a reason for the push out or could you just kind of explain that a little bit?

So I think what I said in the last call was that we estimate Calcitriol will launch near the end of the second quarter or possibly at the same time we estimate launching Triferic. We estimated Triferic to launch four to five months after that call. Could we launch -- could calcitriol launch possibly in June? Certainly. So end of June, early July, the reality is we’re going to launch both drugs right about the same time.

Okay. And then in terms of your sales and marketing for those products, I know you don’t require a lot of new sales and marketing because you have some distribution channels already. But could you kind of just sketch out a little bit about what the plans are for the sales and marketing of those drugs?

Well, I’m not go on a great detail but as you know, we've said all along for many, many years here as we've gone through this process, you don't need a lot of salespeople in this industry. Generally, when I see a company hire a lot of salespeople, tells me they might not know what they’re doing. There is nine customers you need to secure. We’ve got relationships with all. You don’t need a big sales force to close nine customers. Now you do need some folks to go out and educate some of the caregivers. As far as the negotiations go for selling the product, those would be handled by me for the most part with the nine providers we’re talking about. And we've got some internal salespeople that will handle most of the other customers.

Okay. And then my last question is you talked about some further indications for Triferic in the future and one of them you mentioned was cancer. I’m wondering if you could just kind of describe that a little bit about the method of action or the marker that you're looking for there and if you've done any animal work or any help there would be helpful?

So let me just say this and I’m going to let Ray answer that question. The functional iron deficiency between that we find in dialysis patients is the same type we find in cancer patients. Ray, are you online?

Yes. I’m online.

So go ahead with that one, Ray.

Yeah. Sure. I mean, Triferic has the unique mode of action. In that, it donates this iron directly to transparent once it hits the blood stream. And as Rob was beginning to mention, the anaemia disease in cancer and other chronic inflammatory diseases like rheumatoid arthritis is another good example, is very much similar to what we see in the renal patients for the simple reason that it’s based on elevations of Hepcidin, which blocks the ability of iron to be mobilized from the stores in the body. And by the fact that Triferic actually can bypass that is certainly very unique. And we are working on methods to actually administer Triferic to these patients the longer way. So it’s early in our development program right now, so I really can’t share much of anything else. But we believe that the unique mechanism of action will again be able to take the -- and help these patients with the anaemia because they can’t actually mobilize any iron that they are administered intravenously.

So would this be for leukaemia patient then or?

No. I mean, chronic can’t -- chronic long-term probably solid tumour patients is what it would be. Again, these patients are all inflamed and again, remember that there’s been waxing and waning of the use of erythropoetin in this patient population to correct the anaemia. Lot of oncologists don’t like that because they believe that the EPO being a stimulator of proliferation may actually proliferate stimulate proliferation of cells. But all these patients do have a functional iron deficiency. So if you can get iron into them that’s utilizable, it will be beneficial to them in the long-term.

Okay. Thanks. So, I’ll get back in the queue.

Thank you. Our next question comes from Ling Wang with Oppenheimer. Your line is now open.

Sure. Thank you for taking my questions. So could you please talk about the main parameters that’s impacting the timing for launch, whether you can get out June versus July, August?

Well, I don’t know if I can point any specific parameters that will make the difference. There’s a lot of activity. I think the best way to describe it is there's multiple things that are going on and they are all related and they all need to get done at one point and once they’re all done then you can launch. So as we look at -- as we try to estimate the launch, which is always difficult, we take all those factors into consideration. And really they are the ones that I mentioned in the call. The manufacturing of APIs, there is a lot of lab work involved, making sure that your suppliers are setup and their schedule -- they’ve scheduled in your product beyond post-launch. There's just a lot to it. Most of it’s on the manufacturing CMC side.

Okay. And also can you talk about the strategy to develop Triferic in the other indications that at what point you might be thinking about out licensing those to potential partners?

Sure. So to answer your question at what point do we start thinking about out licensing, we’ve already done that. We are actually in discussions with a handful of companies for some of the other indications and really specifically, TPN and PD. The cancer that Ray just spoke to you about there is some work that's begun there and there is some interest from some potential partners there. I would say those aren’t as far along as the TPN and the PD discussions.

Okay. Great. Thank you.

Thank you. Our next question comes from Annabel Samimy with Stifel. Your line is now open.

Hi. This is Andrew in for Annabel. Thank you for taking my question. I had a few. So to start, during your discussions with the dialysis providers, what data are they currently purview to? And is that above and beyond just what we’ve seen from the data you provided publicly from the CRUISE and PRIME studies? Like for example, do they have -- do they receive any post binate open stage data or data from any expansion studies or any -- if there is any other data that they receive?

So they’ve got information on all the data that remain public. They’ve got all the posters. They’ve got all the clinical data that’s been released over the years. And then most recently, the AdCom, the advisory committee in November which was just full-blown every bit of data that was -- I would say pertinent to the study and the outcome, the FDA outcome. So that’s all out there. And they can get that themselves or they can ask us for copies of it, it’s just all out there.

Okay. And it’s a follow-up to that. Do they have sufficient data to reason we discussed pricing review and the matter that you think is fair for both sides?

So the pricing doesn’t based just squarely on the data, but they certainly have the data and the discussions we’re having about price are in my opinion fair to both sides. And our goal is to price the product in a way where the provider can gain some savings and improve the patient outcome while we can maximize the price.

Great. And just one more question. If you can provide any more color on the -- around the cost regarding the marketing and launch for the Calcitriol and Triferic products?

Color specifically for…?

The incremental marketing cost.

The marketing cost, is that what you’re saying?

Yes.

I mean, we’ve always guided that the SG&A will -- the minimal additional SG&A for marketing and to launch the products, I mean we’re certainly spending money. We will continue to do so. But I would anticipate you won't see us spending money in the millions and millions of dollars.

Got it. Perfect. Thank you.

Thank you. That’s all the time we have for today’s call. I’ll now turn the call back to Rob Chioini for closing remarks.

So thank you for joining us today. We appreciate your continued support.