Rockwell Medical, Inc. (RMTI) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Rockwell Medical 2020 Second Quarter Results Call. [Operator Instructions]. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Claudia Styslinger, Investor Relations. Please go ahead.

Welcome to Rockwell Medical's Second Quarter 2020 Earnings Results Call. This is Claudia Styslinger of Argo Partners, the Investor Relations representative for Rockwell Medical. Joining me from Rockwell Medical on today's call are Dr. Russell Ellison, President and Chief Executive Officer; Tim Chole, Vice President of Marketing; and Paul McGarry, Vice President, and Corporate Controller and Principal Accounting Officer; Dr. Marc Hoffman, Chief Medical Officer, who will also be joining us for Q&A is on the line. Before we begin, I wanted to note that certain matters we will discuss may constitute forward-looking statements within the meaning of the federal securities laws, including, but not limited to, Rockwell Medical's intention to commercialize Triferic Dialysate and Triferic AVNU. Words such as may, might, will, should, believe, expect, anticipate, estimate, continue, could, potential, predict, forecast, project, plan, intend or similar expressions or statements regarding intent, belief or current expectations are forward-looking statements. While Rockwell medical believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this release and which are subject to inherent uncertainty. These forward-looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including, without limitation, those set forth in Rockwell Medical's SEC filings, many of which are beyond our control and subject to change. Actual results could be materially different. Accordingly, you should not place undue reliance on these forward-looking statements. Rockwell medical expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by law. This conference call can be accessed on Rockwell Medical's Investor Relations web page. This call is being recorded on August 10, 2020, for audio rebroadcast and can also be accessed on the same web page. At this time, I would like to turn the conference call over to Rockwell Medical's Chief Executive Officer, Dr. Russell Ellison. Russell?

Thank you, Claudia. Good afternoon, everyone, and thank you for your time today. On today's call, we will address our commitment to the hemodialysis community, particularly in light of the COVID-19 pandemic. The progress on the commercialization of our first approved product, Triferic Dialysate, including updated hospitalization data from our ongoing real-world data retrospective analysis. Progress on our preparation for the launch of our second FDA approved product, Triferic AVNU, leading opportunities for new indications for our FPC platform, other pertinent corporate updates and a review of our financials, and then we'll open it up to Q&A. I've said before, and I'd like to take this opportunity to say again that I'm particularly excited about the potentially transformational attributes of our ferric pyrophosphate citrate, or FPC, technology platform. Triferic is the first commercial product from our FPC platform, unlike any other iron product on the market today. It delivers 100% immediately bioavailable iron to patients unimpeded by inflammation. By virtue of this mechanism of action, I believe our FPC platform has the potential to deliver meaningful clinical and pharmacoeconomic benefits for patients and health care providers, thereby transforming the way iron deficiency is managed across the globe in multiple therapeutic indications. My charge as CEO is to actualize the potential of our FPC technology for patients and for shareholder. And I see opportunity in 2 areas. The first is the ability to transform the way anemia is managed for hemodialysis patients. The second is through the development of the ferric pyrophosphate citrate molecule or FPC to treat other medical conditions with unmet clinical needs. To help accelerate the adoption of Triferic in the hemodialysis setting, we continue to build and leverage the medical capabilities that Rockwell Medical is establishing because decision-making in dialysis is underpinned by medical, scientific and pharmacoeconomic data. To this end, we continue to generate additional clinical and pharmacoeconomic data, including data from our real-world data program. I'm pleased to be sharing some additional information from that program about the impact of Triferic on hospitalizations on our call today. Also relevant to the hemodialysis setting is the anticipated introduction of HIF-PHIs in the next 12 to 24 months, which are expected to change the management of anemia in hemodialysis. We plan to strategically position Triferic alongside HIF-PHIs to provide a reliable and physiologic treatment of anemia in hemodialysis patients. We anticipate that the HIF-PHI innovations, which we expect to come to market next year, present an important opportunity for Triferic. Regarding the development of the FPC platform to treat other medical conditions with unmet clinical needs and the subsequent potential value creation for the company, I believe that the same attributes that make the FPC molecule attractive in the hemodialysis setting has the potential to transform the way iron deficiency is managed in a variety of disease states. In a few moments, I'll be addressing the leading opportunities for new therapeutic areas outside the dialysis setting. Underpinning our commitment to the hemodialysis community is our dialysis concentrates business. As a reminder, we are the #2 supplier of these products in the U.S., in which we generate more than $60 million in annual revenue. While Triferic is clearly the growth and profit driver for our business going forward, the concentrates business allows us to develop and harvest relationships with key customers in the industry and is paving the way for discussions we are having with customers on Triferic. The other innovative part of our commitment to dialysis is Triferic, the only FDA-approved therapy in the U.S. indicated to replace iron and maintain hemoglobin in hemodialysis patients during each dialysis treatment. It has a unique and differentiated mechanism of action, which has the potential to benefit patients and the health care system. Triferic delivers iron immediately and maintains hemoglobin in hemodialysis patients without increasing ferritin levels with a safety profile comparable to placebo and is not associated with iron overload and toxicity. We now have 2 unique formulations of Triferic that are FDA approved. Triferic Dialysate, which we launched in May 2019 and Triferic AVNU, our IV formulation, which we plan to launch in the fourth quarter of 2020. Triferic AVNU enhances the Triferic platform in that it provides patients with greater access to our innovative therapeutic by expanding administrative options for clinicians. And it is an excellent formulation for the development of new indications. We plan to introduce Triferic AVNU in the United States in the fourth quarter of 2020. I'm proud of the way our company continues to respond to the COVID-19 pandemic. The dialysis industry faces unique challenges because many patients are already carrying multiple comorbidities and patients' lives are quite literally dependent on the treatment that they receive 3 times a week. Furthermore, one of the downstream impacts of COVID-19 can be multiple organ failure, including kidney failure, and this has put further stress on both acute and outpatient dialysis clinics. At times like this, our role in supporting health care providers and patients is absolutely critical. While we are still in the middle of the crisis, and it's hard for us to predict the timing of when the world returns to a new normal, I am pleased to share that we have seen no disruption to our supply chain for either concentrate or Triferic. In addition, because of the fragile nature of dialysis patients, clinics have restricted access to facilities by nonessential workers, including our sales representatives and nurse educators, and they paused any significant change in protocols to focus on managing the crisis. This has impacted our ability to continue the promotion of and medical educations for Triferic though we have been working to continue our efforts virtually where possible. However, in certain U.S. geographies that have started to slowly reopen, we have taken careful steps to review in-person clinic visits where safe, subject to any further adverse developments. We are also closely evaluating the potential impact of the COVID-19 outbreak across the globe on our regulatory clinical development time lines, particularly in China and India, and on the commercialization time lines in Chile, where Triferic Dialysate was recently approved. Finally, I'd like to applaud the efforts of all essential workers and those on the front lines working in dialysis clinics to ensure patients receive their life-saving therapies. In particular, I'm proud of the extraordinary efforts of our manufacturing and distribution employees who come to work every day to make sure that we are following through on our commitment to the dialysis industry and patients. And standing with the industry in the face of this crisis. Now turning to some of the highlights of the second quarter. Net sales were $15.9 million, Triferic net sales were $0.2 million and $0.5 million for the 3 and 6 months ended June 30, 2020. For Triferic Dialysate, we ended the quarter with nearly 2,800 patients on therapy, representing more than 400,000 annualized treatments. We signed contracts with 12 additional clinics, a 44% increase in contracted clinics compared to Q1 2020. An additional 8 clinics affiliated with an MDO were trained and approved for adoption in Q2. And subsequently, all clinics we contracted during Q2 converted in June. Our active or committed evaluation programs for Triferic Dialysate represent 26 independent and small and medium dialysis organization clinic. Tim will provide additional details on the launch metrics later in the call. We made progress expanding the reach of our real-world data program, adding additional clinics in the second quarter. And we were thrilled to appoint Dr. Allen Nissenson to our Board of Directors. Allen is a renowned authority in kidney disease and his clinical, regulatory and public policy expertise, combined with his senior executive experience at a large dialysis organization, will make him a valuable adviser as we seek to expand the reach and impact of Triferic. Finally, the second quarter saw 2 important regulatory milestones for Rockwell Medical, the acceptance of the new drug submission of Triferic AVNU by Health Canada and the regulatory approval of Triferic Dialysate in Chile. With that, I'll hand the call over to Tim Chole to discuss commercial metrics and the Triferic AVNU launch plan. Tim?

Thanks, Russell. In the second quarter, we continued to make important progress in the commercialization of Triferic Dialysate, despite the challenges of the COVID-19 pandemic. So as Russell mentioned, we had nearly 2,800 contracted patients on therapy at the end of June, representing more than 400,000 annualized treatments. The increase was attributable to the signing of commercial contracts with clinics that had started their 90-day evaluation programs in the first quarter. We continued to see a high success rate with our no-cost evaluation program approach as the majority of participants see positive results with Triferic in their own patients and subsequently transition to paying customers. In the second quarter, we signed 12 new contracts with dialysis clinics to adopt Triferic Dialysate. An additional 8 clinics affiliated with an MDO were trained and approved for adoption as of June 30, 2020. And substantially all clinics contracted within Q2 converted in June. The overall growth in Triferic sales was lower-than-expected in the quarter, primarily due to the restrictions dialysis clinics have levied on in person visits from field staff. However, we are pleased with the results our sales and our clinical nurse educator teams have produced by leveraging virtual engagement tactics to complete training programs,and close contracts. Late in the quarter, we saw a relaxing of restrictions in certain U.S. geographies, which has allowed us to reengage with more clinics and get back on track with planned in-person training programs. The 12 new clinics we added in the second quarter took our total number of clinics under contract up to 39. 26 clinics participated in evaluation programs during the quarter a decrease versus the previous period. The decrease was directly due to a number of clinics delaying Triferic evaluations while they focused on managing through the COVID-19 crisis. Evaluation programs have now been active for 4 full quarters since the product launch and allow clinics to sample Triferic Dialysate for a 3-month period. Our clear observation to date is that a significant majority of the clinics who gain experience with Triferic, tend to stay with our product, as evidenced by the steady 75% conversion rate from evaluation programs to commercial contracts. And while COVID-19 has presented challenges to commercial companies throughout our industry, including our company, we have equipped our field force with tools to continue to communicate virtually with customers until such time when more U.S. geographies reopen, allowing face-to-face visits. We expect to see a reacceleration of adoption of Triferic as the COVID-19 pandemic begins to resolve and more U.S. states reopen for business. This is particularly important for Triferic and the evaluation and sales process since a high touch, high support hands-on approach by our field personnel yields the best results. Next, I'll turn to Triferic AVNU, our IV formulation of Triferic. With the FDA approval of Triferic AVNU in March, Triferic AVNU joins Triferic Dialysate as the only FDA-approved products indicated to replace iron and maintain hemoglobin in adult patients with hemodialysis dependent chronic kidney disease. Triferic AVNU is designed for intravenous administration to adult hemodialysis patients and enhances the Triferic platform by providing patients with greater access to our innovative therapeutic by expanding administration options for clinics. The therapy allows dialysis centers to administer Triferic to patients regardless of the mode of bicarbonate delivery being used. And thus is more appropriate in cases where the hemodialysis clinic is using a dry bicarbonate technology. Regarding the launch plan for Triferic AVNU, our outreach to prospective customers to increase the awareness of the impending launch started in the second quarter and is ongoing. Currently, this includes reaching out to customers who have already expressed interest in Triferic in the past but have been unable to adopt it due to their use of dry bicarbonate technology. We're also engaging with dialysis organizations that we have established contracts with for Triferic Dialysate to set the stage for adding Triferic AVNU to those agreements, so that their customers who utilize dry bicarbonate systems can have access to Triferic. At the same time, we're preparing integrated marketing communications and educational programs that we will launch to signal commercial availability of the product later this year. In parallel, we are manufacturing both sample and commercial product with the final FDA-approved label and brand name. Applying learnings from our launch of Triferic Dialysate, we expect to initiate evaluation programs for our prospective customers later in the third quarter in advance of the commercial launch. Participating clinics will have access to free samples to treat patients and measure results. During the evaluation period, we schedule regular lab reviews with the clinics to help them evaluate the impact of Triferic, while also assuring proper training and education of the clinic staff. In parallel, we will begin to negotiate commercial contracts with the clinics so that we are ready to onboard them as paying customers once the evaluation is complete. Accordingly, we plan to commence commercial sales of Triferic AVNU in the fourth quarter of 2020 as the targeted clinics for early adoption reached the completion point in their evaluation programs. In terms of reimbursement, we continue to anticipate that Triferic AVNU will be reimbursed within the ESRD bundle payment that has been established by CMS for Medicare patients and is increasingly prevalent for Medicaid patients. But importantly, we believe the cost structure for Triferic AVNU enables us to make an attractive gross margin while still ensuring that this transformational therapy is broadly accessible to the patients who need it most. We look forward to providing more detail on our commercial launch plans and progress in the coming months. With that, I'll turn the call back to Russell to provide an update on our real-world data program. Russell?

Thanks, Tim. We accessed the United States Renal Disease System, or USRDS, to compare important measures of hospitalization and mortality in the center we analyzed and presented on our last quarterly call. And we compared this with all other dialysis centers during the same time period, which was the first year that clinic use Triferic Dialysate as part of the sample program in 2017. As you can see from the slide in that center, hospitalizations per year declined substantially as did in-patient days, infectious hospitalization, infectious in-patient days and even death, while in all other U.S. dialysis centers taken together, these parameters changed very little during this period. We have continued to add new centers to our real-world data program. And once each site is completed a year of use, we will start the analysis of IV iron use, hemoglobin and EPO use. In addition, we have commenced an analysis of multiple clinics using the USRDS database and expect to have these results towards the end of this year. Now turning to our new indications. As I mentioned earlier in the call, I believe that there is potential for important value creation through the development of the FPC platform for new indications outside of the hemodialysis setting where there are a significant needs to transform the way iron deficiency is managed. In the past few months, we've been evaluating multiple potential opportunities for our FPC platform to treat iron deficiency or anemia in new indications. Based on our analysis of factors such as development considerations, economics and pricing and regimen ergonomics, we have identified 2 leading opportunities. The top priority is FPC for patients receiving drugs or nutrients through an IV at home as we believe that this is an attractive market opportunity and the cost of the clinical program is likely to be relatively low. This area is experiencing substantial growth from 830,000 patients in 2010 to 3.2 million patients in 2019. In a large subset of patients treated with home infusion, the incidence of iron deficiency and/or iron deficiency anemia is estimated to be as high as 60%. We estimate the market opportunity for FPC as a home infusion therapy to be greater than $600 million. Currently, iron requirements can only be met with an in-office IV iron infusion business due to the hypersensitivity risk of these products, whereas we believe FPC could be safely administered through an IV at home. We estimate that market access for FPC will be favorable, largely because payers want to reduce costly hospital and office visits for the administration of these drugs and nutrients. With approximately 50% of patients covered by commercial payers, and Medicare coverage currently through a specific part B home infusion benefit. We intend to have a Type C meeting with FDA by the end of this year to discuss this program. And pending this discussion, we currently estimate that Phase II studies could be initiated in 2021 for a total cost of $1.5 million to $2.5 million and be completed in 13 to 18 months, while we estimate that the Phase III program could cost $5 million to $8 million and be completed in approximately 2 years. The second priority under consideration is FPC to improve cardiac function in hospitalized acute congestive heart failure patients. Studies with older forms of parenteral iron have consistently demonstrated meaningful benefit in heart failure patients in the outpatient setting. However, with these products, the release of iron from the liver is likely to be too slow to produce a benefit in the hospital setting. However, because FPC provides immediate bioavailability of iron, it could improve cardiac function in hospitalized patients with the goal of reducing length of stay and/or 30-day readmission. And their associated clinical problems and costs. We estimate that a Phase II clinical proof-of-concept study examining an improvement in cardiac bioenergetics in function would enable a Phase III program. The Rockwell management team, along with relevant thought leaders will hold a conference call on the 24th of September to provide more depth and detail on the new indications and their associated clinical programs. The call will include such details as the commercial potential of each new indication, the rationale on clinical feasibility and more details on the clinical program. We encourage you to join the call, and we'll provide information on accessing the conference call and webcast in the near future. With that, I will turn it over to Paul McGarry for a review of our second quarter financials. Paul?

Thanks, Russell. Turning now to our second quarter results. A more fulsome description of our results can be accessed in both the press release we issued this afternoon as well as our 10-Q filing for the quarter. And I would encourage investors to read our detailed disclosures for a more complete understanding of our financial results. I'd like to start by highlighting our strong liquidity position as of the end of the second quarter. We ended the quarter with cash, cash equivalents and investments available for sale of $40 million compared to approximately $48.9 million on March 31, 2020. Cash used in operating activities was $16.2 million for the 6 months ended June 30, 2020. The balance sheet was strengthened by the sale of 987,716 shares of our common stock through our at the market equity offering facility for proceeds of $2 million, net of issuance costs. We have approximately $32.6 million remaining under this facility. Turning to the income statement. Net sales for the second quarter of 2020 were $15.9 million, an increase of 7.1% compared to net sales of $14.8 million from the second quarter of 2019. The increase was primarily due to the increased sales in our dialysis concentrates products. Triferic net sales for the second quarter of 2020 were approximately $0.2 million compared to net sales of approximately $0.1 million for the second quarter of 2019. The increase was mainly due to an increase in product sales as our international licensing fees remained constant. Cost of sales for the second quarter of 2020 was $15 million, resulting in a gross profit of $0.9 million compared to cost of sales of $14.1 million and a gross profit of $0.7 million during the second quarter of 2019. Gross profit increased by $0.2 million in the second quarter of 2020 compared to the second quarter of 2019, due primarily to an increase in sales of our dialysis concentrate products, offset by an increase in labor and material costs to sustain the increased demand resulting from the ongoing COVID-19 pandemic. Operating losses for the second quarter of 2020 improved to $5.6 million from $10.4 million in the second quarter of 2019. The improvement in operating loss was driven primarily by a reduction in operating expenses, which included a $0.2 million reduction in selling and marketing expenses, a $2.6 million reduction in G&A expenses and a $1.4 million reduction in R&D expenses. The decline in our sales and marketing expenses year-over-year is largely a result of the upfront investments we made during the second quarter of 2019 to support the launch of Triferic Dialysate and were partially offset by our continued investments in our sales and marketing infrastructure for Triferic. The decline in G&A expenses were driven primarily by a reduction in incentive compensation related to our former President and CEO; a decline in legal costs associated with various litigation matters that have now been settled and lower consulting costs. Finally, the decline in R&D expenses year-over-year are largely due to timing of certain costs and the upfront investments we made in our medical platform during the second quarter of 2019 to support the development in the global launch of Triferic, which included investments we've made and continue to make to enhance our medical platform and generate data to support our Triferic and FPC platform, including the data we presented earlier on this call. We expect our research and product development expenses to increase in the future due to additional clinical development of our FPC technology platform, innovations in administration of Triferic, the continuation of the pediatric clinical trial and an increase in headcount to support medical education efforts for Triferic. Net loss for the second quarter of 2020 was $6.9 million or $0.10 per basic and diluted share compared to a net loss for the second quarter of 2019 of $10.3 million or $0.18 per basic and diluted share. An additional area that is important to our company going forward is our international and business development activities for Triferic. A significant objective for the company is to increase access to triferic in international markets. And as we do this, we see an opportunity to create value for our shareholders. Importantly, we believe the real-world data that we are generating for Triferic has the potential to help us accelerate some of the business development discussions we are having around the globe. Earlier this year, we entered into exclusive license and supply agreements with Sun Pharma for the rights to commercialize Triferic in India. India has a potentially attractive market for Triferic with over 120,000 hemodialysis patients. In the second quarter, meetings between Sun Pharma and the regulatory authorities in India have been initiated. Sun Pharma continues to follow with the India regulatory authorities to determine a pathway to regulatory approval. In China, we are working diligently with our partner, Wanbang Biopharmaceutical to initiate a trial for Triferic to support a filing for regulatory approval. We expect that this study will be initiated later this year. Access to hemodialysis in China has continued to increase at a rapid rate in recent years. With over 600,000 hemodialysis patients in China, making it the largest single market in the world. We remain excited about the potential for Triferic in China. And we expect to participate meaningfully in the commercial opportunity if Triferic is approved with an effective royalty in the low to mid-20% range of product sales. We filed our new drug submission for Triferic AVNU in Canada, which Health Canada accepted in May and anticipate a regulatory decision late Q2 or early Q3 2021. In South America, we seek regulatory approval for Triferic Dialysate in Chile and are progressing towards the commercial launch of Triferic Dialysate in Peru with our distribution partner there. In both of these markets, we received a transfer price on Triferic sold to the distributor. We are also continuing discussions for licensing Triferic in other geographies, such as Europe and Japan, and we expect to leverage some of the real-world data that is presented on this call and on our Q1 2020 earnings call in discussions with prospective partners to highlight potential pharmacoeconomic and health economic benefits that may be observed with Triferic. We believe that both of these markets will require clinical studies for Triferic to facilitate regulatory approval. And accordingly, the due diligence and discussions we are having are inherently more complex in some of the markets where we are already partnered. I'll now turn the call back to Russell.

Thank you, Paul. With that, I would like to open up the call to others to ask questions. Operator?

[Operator Instructions]. And our first question comes from the line of Ram Selvaraju from H.C. Wainwright.

This is Blair Cohen on for Ram. A couple of questions for me. Can you give us a little bit of update on how the early stage commercial efforts are progressing for AVNU? What is the reception -- the reception been like from the initial customer outreach? And how many evaluation programs are you targeting for the third quarter?

Thanks, Ram. Tim, I think, you can best reply to this.

Yes, thank you for the question. So we actually have just started the evaluation programs here in the third quarter for Triferic AVNU. Again, we had to wait until we had ramped up sample inventory enough to support those programs. We'll officially launch them in September. Initial response has been good. Customers that have expressed interest in Triferic in the past were excited to see that this new IV formulation is coming. And so we expect to be some enthusiasm amongst those customers. And early indication is that, that there will be many customers interested in starting evaluations as soon as the product is available. And we are targeting a minimum of 100 sites for the evaluation programs before the end of the year and as a goal for us. Though, we certainly are excited about the product and have had good responses to date.

Okay. Great. And if you could just provide an update on partnership discussions in Europe, Japan and Korea. That's it for me.

Yes, I'll take that. So in Europe, we're engaged in partnership discussions, particularly supported by our real-world data. And the same goes for Korea. And the same also goes for Japan. And in Japan, a key issue is, of course, pricing because of the pricing regime there, but discussions are active and ongoing in those markets.

Our next question comes from the line of Brandon Folkes from Cantor Fitzgerald.

Congratulations on all the progress in the quarter. It's kind of a 2-part question. So can you just elaborate on the drivers of patient growth in the quarter? I found this to be very impressive. So just, were these small, midsize or large facilities? And then was this patient growth driven by new facilities or facilities you had already contracted within the past and actually saw increased usage within those facilities? And then secondly, the second part of my question is just how long does it take from the signed contracts up until sort of a conversion of significant revenue pull-through. Is it as the evaluation program ends, they convert the whole clinic? Or how should we think about that sort of ramp-up to a solid run rate for these clinics after you signed these contracts?

Those are great questions. Tim?

Yes. Thank you for the questions. So to your first question, when clinics finished the evaluation program and transfer over to purchasing customers on contract, they're ready right away to have all patients in the clinic on Triferic Dialysate at one time. So there really isn't a ramp-up period with that product. Because the product is mixed in the central loop and all patients that are on the central loop received the product. So that's a nice feature of Triferic Dialysate is that there isn't a ramp-up once the evaluation is done, the contract is signed and the customer's purchasing. So really, the growth that we've had in patients and sort of our new milestone of 400,000 annualized contracted treatments is due to the new clinics coming on board. And the majority of those that were in the second quarter were clinics that had finished the evaluation period that they had started in the first quarter. So hopefully, that gives you a sense of how that growth occurs. And we expect, again, a high rate of conversion for the evaluation programs that we have ongoing today.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dr. Ellison for any further remarks.

Well, thank you all very much for participating in this quarterly call. I appreciate your attention and your support, and we look forward to communicating with you again. Thank you so much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.