Paul Arndt - Managing Director, LifeSci Advisors Robert Chioini - Founder, Chairman and Chief Executive Officer Thomas Klema - Vice President, Chief Financial Officer and Secretary.

Annabel Samimy - Stifel.

Good day, and welcome to the Rockwell Medical fourth quarter and full year 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Paul Arndt of LifeSci Advisors. Please go ahead..

Thank you, Angela, and good afternoon, everyone. Thank you for attending the Rockwell Medical fourth quarter and yearend 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; and Tom Klema, Chief Financial Officer.

Before we begin, I would 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 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, Monday, February 29, 2016, 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 in 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 on the call.

Today I will update you on our commercial progress with Triferic in the U.S., our license agreement with our partner Wanbang pharma for commercialization of Triferic and Calcitriol in China, our global business development progress, our Triferic IND submission to treat a rare orphan disease and commercial availability of Calcitriol in the U.S.

Then I will turn the call over to Tom, who will discuss the financials, after which we will take your questions. A summary of our financial result. Sales were $14.1 million in Q4, slightly lower compared with Q4 2014. For the year, 2015 sales were $55.4 million, up 2.1% or $1.2 million compared to 2014.

We anticipated sales for the year to be lower due to customer invoicing, shifting to Baxter, for our distribution agreement. But not all customer contracts have been assigned to Baxter and Rockwell is still doing some customer invoicing. Our loss in Q4 showed a $600,000 improvement over Q4 last year, $5.8 million versus $6.4 million.

Overall, our loss for 2015 showed a $7 million improvement or a reduction over 2014, $14.4 million versus $21.3 million. We improved our loss per share for the year $0.23, $0.29 in 2015 versus $0.52 in the prior year. Now, I will update on our Triferic commercial progress in the U.S.

We've been making solid progress and we continue to execute on the various tasks that are required for any new product to succeed. Marketing and education to customers is obviously a key component.

With Triferic, our four distinct target groups, doctors, nurse administrators, technicians, whoever see the bicarb mixing process and corporate purchasing personnel, each group has questions related to their area of work and all get their answers.

While the normal sales process is occurring, we have been working on two key initiatives and both are important to commercial rollout. These are packaging and reimbursement. Regarding packaging, prior to submitting our NDA to the FDA, for Triferic drug approval, we created a more efficient and more cost-effective way to package Triferic.

Instead of having the active pharmaceutical ingredient or API manufactured as a powder and packaged into a liquid solution in an ampoule, which is what was FDA approved, we determined we could take the manufactured API powder straight to finished packaging, with an additional process step in between.

So we are able to package Triferic as a powder in a packet, similar to a packet of sugar. This improvement enables the customer to reduce the storage space and number of orders needed to utilize the drug, and it greatly reduces Rockwell's cost of goods compared to the liquid ampoule.

This required a separate NDA and we filed that submission with the FDA last year, and we expect to have approval by the end of April. The powder packet will be commercially available immediately thereafter, and it will be the primary product offering. The other key initiative, which is extremely important for the commercial process, is reimbursement.

As you are aware, the Centers for Medicare and Medicaid Services or CMS, granted a unique product reimbursement J-Code for Triferic, which became effective on January 1 this year. In November of last year, CMS informed us that Triferic was going to be part of the ESRD reimbursement payment, the bundled payment.

We felt, however, that Triferic met the criteria to be granted a transitional add-on payment, which would place Triferic reimbursement outside of the bundle for a period of time. So we began discussions with CMS and those discussions with Medicare policymakers are ongoing.

Transitional add-on payment allows for reimbursement of a drug to be at approximately 106% of the average sales price for approximately two years. This reimbursement to dialysis providers covers the cost associated with acquiring and using the drug therapy and will help cover the cost of adopting a new innovative therapy into their clinics.

This two-year transitional period enable CMS to determine the average sales price and utilization rates over that time, while also collecting other clinical data. Then a computation is made based on the average sales price to arrive at $1 amount that is added on to the bundled payment to cover the drug's cost going forward.

For example, after two years some amount of money, such as $5, may be added to the bundled payment of $245 to cover reimbursement for Triferic. CMS has established a pathway that would allow drugs like Triferic to be reimbursed through the transitional add-on mechanism.

We believe that Triferic fall squarely within this pathway based on the information published by CMS in late-2015. In fact, CMS recently granted transitional add-on payment to another drug in the renal space, so there is clear precedent and a roadmap established.

We are in discussions with CMS and we are working though the process to obtain this form of reimbursement for Triferic. This process is fluid, there is no formal structure or sequence of events, it is a top priority of ours and we are working on it with a great sense of urgency.

And as you can imagine, it is very important for us to get clarity on Triferic's reimbursement. In the meantime, we continue to do the upfront educational and sales work required with the U.S. dialysis providers. We hope to have finality on Triferic's reimbursement very soon.

Patients receiving Triferic, we have seen data, showing a clear benefit to hemoglobin and ESA management. And although expected, this data gives us encouragement that once providers adopt Triferic, they will see compelling clinical and economic benefit.

On the business development front, we are very excited to announce, as we did on February 16, that we signed an exclusive licensing and manufacturing supply agreement with Wanbang Biopharma for the rights to commercialize Triferic and Calcitriol for end-stage renal disease in the People's Republic of China.

Future Triferic therapeutic indications are also included in the deal, and Wanbang is a subsidiary of Fosun Pharmaceutical Group. Securing a license partner in China became a top priority for us about two years. We ultimately chose Wanbang as the best partner for Rockwell and we got maximum value.

This arrangement gives our drugs access to what is projected to become the largest dialysis market in the world. This is an important deal for us strategically. To put the China market in perspective, the U.S. is currently the largest hemodialysis market in the world, with about 430,000 patients.

Europe, Japan and now China are each siting with about 300,000 patients. Of the four markets, all but China are growing 4% to 5% annually. China is growing 15% to 20% annually. There are nearly 2 million patients in China who need dialysis today, but only 300,000 receive it, because there are not enough clinics at least at this time.

The hemodialysis market in China is expected to double over the next few years, as the Chinese government together with the private sector with companies like Wanbang, establish the infrastructure to serve the nearly 2 million patients, who are presently in need of hemodialysis treatment.

China is working to build over 5,000 dialysis clinics and there are approximately 120 million CKD patients in China, 10 times more than in the U.S., which means their hemodialysis market will grow at an extra ordinary rate.

We could not be more thrilled with securing what we expect to be a significant future revenue stream for Rockwell in the fastest growing and soon to be become largest dialysis market in the world, of one of the top pharma companies in China. We'll go over few highlights.

Wanbang is now the exclusive distributor for Triferic and Calcitriol in China for initial commercial term of 10 years with a 10-year extension possible based on the achievement of annual minimum purchase requirements. Rockwell will receive revenue milestone payments totaling $39 million in aggregate. We receive $4 million last week.

Additionally, we will receive a cash payment on the regulatory approval for Triferic, the regulatory approval for Calcitriol, and Wanbang meeting two separate sales revenue targets.

The primary economic value to Rockwell, however, will come from ongoing earnings from the product purchases, Wanbang makes for Triferic, Calcitriol and other Triferic therapeutic indications. Rockwell manufactures the product and sells it at a healthy profit to Wanbang, and Wanbang sells the product in China.

We expect this revenue stream to be significant in this large and fast growing Chinese market. Wanbang will be responsible for our clinical regulatory and marketing cost related to Triferic and Calcitriol in China. Triferic is expected to become commercially available in two to four years and Calcitriol in two years.

This agreement further validates Triferic's potential for becoming a worldwide standard of care in iron maintenance therapy. With Wanbang as our partner, we now have access to a commercialization team with great experience and strong domestic infrastructure and knowledge in the renal space.

They currently market renal drugs and sell one of the leading biosimilar products for erythropoiesis-stimulating agents or ESA in China. The addition of Triferic and Calcitriol further strengthens their product arsenal in the renal space, in which they'll be able to leverage in the Chinese dialysis market.

Wanbang is a subsidiary of Fosun Group, which is one of the largest pharma companies in China and is also a major shareholder of China's largest drug distributor Sino Pharma. Both Wanbang and Fosun have established relationship with the public healthcare system, in addition to owning and operating a network of private Chinese hospitals.

Again, we could not be more thrilled to partner with one of the top pharma companies in China. Regarding our global business development, the partnership with Wanbang has implications for us beyond China. We expect it will benefit us as we negotiate terms for other territories, which we're in the process of doing now.

We expect that Wanbang will be the first in a series of deals that we have been working on, and our goal is to finalize more this year. Moving to our rare orphan disease. You maybe aware we filed an IND to investigate Triferic as a potential treatment for patients with a rare anemia condition called iron-refractory iron-deficiency anemia, IRIDA.

IRIDA is caused by an autosomal recessive mutation, in which patients are unresponsive to oral iron intake and only partially responsive to IV iron treatment.

Triferic, because of its unique mechanism of action and its ability to donate iron directly to transferrin and overcome functional iron efficiency has shown promise as an effective way to deliver iron to these patients. The prevalence of IRIDA is not known, but it is certainly been under diagnosed up to now.

FDA has reviewed our proposal and has indicated that we can start clinical investigations, which we have done. We will give you further updates as we move forward with the clinical program. Importantly, we expect this clinical work to provide knowledge and information for the application of Triferic to other indications.

Part of this effort is to help accelerate the development of additional indications. Regarding Calcitriol, based on the amount of drug manufactured and regulatory filings that are related, we expect Calcitriol to be commercially available around the end of April this year. We will let you know when that occurs.

The product will be sold though distributors. I'll now turn the call over to our Chief Financial Officer, Tom Klema, to discuss the financials in more depth..

Well, thank you, Rob, and good afternoon. I'll provide you with a review of our fourth quarter results and our yearend financials. On sales, our fourth quarter sales were $14.1 million, $315,000 or 2.2% lower than the fourth quarter last year.

Our fourth quarter domestic concentrate sales under our distribution agreement with Baxter increased 4.7% or approximately $600,000. International sales were at approximately the same level as last year, while contract manufacturing sales were $900,000 lower. Our drug sales were not material in the fourth quarter.

Total sales in 2015 were $55.4 million, a $1.2 million or 2.1% increase over 2014. Our domestic concentrate business sales increased 4.2% or $1.9 million in 2015 compared to 2014. Our international concentrate sales increased 1.3% in 2015 over 2014. Our net revenue from third-party contract manufacturing decreased $1 million in 2015 compared to 2014.

Our net sales of Triferic were immaterial for 2015. Our 2015 sales largely reflect a lower distributor prices paid by Baxter. We anticipated a greater sales decrease over 2015, as customer contracts were assigned to Baxter. However, not all contracts have been assigned as of yet.

Our 2015 sales were favorably impacted by the recognition of deferred license revenue under the distribution agreement of $2.1 million in 2015 compared to $500,000 last year. The gross profit; in the fourth quarter gross profit was $2.1 million compared to $2.6 million in the fourth quarter last year.

Fourth quarter gross profit was affected by a reduction in contract manufacturing. Additionally, investment was made to our quality system, including implementation of FDA mandated utilization of our concentrate products. Gross profit increased to $8.9 million in 2015, up $400,000 or 4.6% compared to 2014.

Gross profit margins were 16.1% compared to 15.8% last year. Gross profit was favorably impacted by recognition of deferred license revenue under the distribution agreement of $2.1 million compared to the $0.5 million last year. On SG&A, our selling, general and administrative expenses were $19 million in 2015 compared to the $18.3 million in 2014.

The increase of $700,000 was primarily due to an increase in marketing expenses related to Triferic of $1 million. Total compensation including direct pay and equity compensation decreased $400,000. During 2015, we put in place the administrative and support operations for our drug business operations.

We are continuing to round out and develop our internal operations in the support our expected growth. Our research and development, we incurred product development and research cost related to the commercial development, patent approval and regulatory approval of new products, primarily Triferic, aggregating approximately $5 million in 2015.

2015 cost were related to peritoneal dialysis and orphan indication for Triferic, pediatric indications of Triferic, additional presentations of Triferic, and other testing and development cost. Cost incurred in 2014 were $7.8 million, mostly related to regulatory approval of Triferic.

Net loss for the quarter was $5.8 million or $0.11 per share compared to $6.4 million or $0.14 per share in the fourth quarter of 2014. Non-cash charges for equity compensation aggregated $2.8 million or approximately half of the reported loss. Net loss for 2015 was $14.4 million compared to the $21.3 million in 2014, a $6.9 million reduction.

Non-cash charges for equity compensation were $8.9 million of the $14.4 million loss in 2015. Net loss per share was $0.29 compared to $0.52 in 2014. Capital resources and liquidity. We have adequate capital resources substantial liquidity to execute our business strategy.

As of December 31, we had current assets of $84.6 million and net working capital of $76.5 million. We have approximately $70.7 million in cash and investments as of December 31. Our uses of cash have primarily been for investments in inventory to support our product launches, for research and product development, and for operating expenses.

Cash flow from operations used $16.2 million in 2015, which included research and development expenses of $5 million and an increase in inventory of $4 million. Our capital expenditures were $800,000 in 2015 and were approximately equivalent to our depreciation and amortization costs.

Our research and product development expenses were reduced significantly following the completion of the clinical program for Triferic and FDA approval of the Triferic.

Future research and product development spending on Triferic platform is expected to include clinical testing in connection with peritoneal dialysis, total parenteral nutrition, and orphan drug indication, pediatric indications and certain other indications that we are working on.

Future spending on such indications is expected to be minor in relation to the company's cash resources. Our expected future cash investment for product launches is expected to be primarily related to inventory and accounts receivable in the near-term. We have no long-term debt as of December 31, and do not expect to incur interest expense for 2016.

Company is in discussions with multiple potential business development partners throughout license rights to Rockwell's products outside of the United States, but your licensing arrangements often include upfront fees, developmental, milestone payments and royalties. We received a $4 million milestone payment from Wanbang in February.

We are also considering other business development arrangements including joint ventures, partnerships and other transactions related to our products or other future products that we may develop a license. I'll now turn the call back to our operator for Q&A..

[Operator Instructions] And we will take our first question from Annabel Samimy with Stifel..

I just want to understand something.

If I heard you correctly, you're not really going to be launching Triferic, until you get approval of this powder, this new packaging, and it doesn't seem like you have any kind of agreement on reimbursement from CMS, so for this x bundle type of reimbursement, so are you also not going to be able to price Triferic, until you have agreement with CMS, because this is already a year plus after launch, and I guess, I'm little bit surprised that you can't seem to launch this product at all?.

So I'd spread off and I'd say, we launched the product in September. And at that time, the clarity that we had on the reimbursement was the bundle.

And then in November after CMS -- CMS was in a quiet period up till November, it became clear that we have an opportunity to secure a different type of reimbursement, which I explained on the call, was transitional. So the drug was launched. As far as the packaging goes, the ampules are what are being used currently.

The ampules will continue to be used until the powder packet is available. I'm limited on what I can share in terms of pricing, as we're in the midst of being in discussions with CMS on this transitional payment. I mentioned on the call that there's no formal process, there is nothing where you submit. You have to wait x number of days.

It's a fluid process and we're working on it as we speak. So we continue to do the work with customers both large and small. And at the same time, we continue to do the work on reimbursement. It's obviously important to have that reimbursement squared away sooner than later..

I guess, one, with your launch, we think there is some kind of arrangement that you have come to with some dialysis provider.

In fact last quarter, you had mentioned, or at some point in last quarter or so you had talked about having reached some or have supplied one of the top four dialysis providers with some drug for pilot work or for some kind of work.

Can you just detail what you've actually delivered -- if you've delivered any? If anyone has come to any kind of arrangement with you, has expressed interest? Is there anything or any kind of movement on this product at all, because we don't have any kind breakout from the earnings, I mean, from the revenue numbers.

And frankly, there's also seem to be [ph] acquired a little bit by the Baxter agreement with the dialysis concentrates, which I thought kind of should have been already adjusted in terms of the cost of sales.

So I guess I'm a little confused as to what is actually in the $14.1 million number that's gone down now?.

Well, all right, so you had a lot in there. Patients are receiving the drug. We have seen data. We see how the drug works. And with no surprise, it's working well. The pilot process that we talked about with the LDL on the last call is ongoing, as is the process with CMS.

And we keep moving forward, but as we do so, we're trying to get some finality to the reimbursement, because that obviously plays an important role into the commercial process. As far as Baxter sales go, the way that it works is Baxter is going to take over invoicing for customers on the concentrate business.

They started doing that, I think a quarter or maybe two after the deal was done. And so they're invoicing for a good portion of the customers and we're still invoicing for some of the customers as that process continue, so that's why you didn't see maybe a more significant drop in the concentrate sales. I mean that's just part of the business.

As we work through these things, we give you clarity on them. As we get more clarity on the sales and the Baxter invoicing, we'll see it in the numbers and we'll give you more clarity on it..

At this time, we are now going to go ahead and conclude today's question-and-answer session. I am now going to turn the call back over to Rob Chioini with closing remarks. End of Q&A.

Thank you for calling in today. And we appreciate your support..

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. And you may now disconnect..