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

Good day and welcome to the Rockwell Medical Fourth Quarter and Full-Year 2016 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Paul Arndt with LifeSci Advisors. Please go ahead..

Thank you, Mellisa, and good afternoon, everyone. Thank you for attending Rockwell Medical’s fourth quarter and year-end financial results conference call. I’m Paul Arndt with LifeSci Advisors. On the call this afternoon are Rob Chioini, Founder, Chairman and CEO of the company; and Tom Klema, Chief Financial Officer.

Before we begin, I’d like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for the 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 SEC.

Any forward-looking statements made on this conference call speak only as of today’s date, Wednesday, March 15, 2017, and the company does not intend to update any of these forward-looking statements to reflect events or circumstances that could 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’d now like to turn the call over to Rob Chioini, Founder, Chairman and CEO of Rockwell Medical. Rob, please go ahead..

Thanks, Paul. Good afternoon. Thank you for joining us. On the call with me today will be our CFO, Tom Klema; and Dr. Ray Pratt, our Chief Medical Officer. So let’s get started. Sales for the fourth quarter were $13.4 million, about $740,000 less than Q4 2015. Gross profit was $2 million versus $2.1 million same time last year.

Net loss was $5.1 million versus $5.8 million same time last year. Cash and investments were about $58 million as of December 31, 2016. Tom will provide greater detail on the financial shortly. So let’s talk about our progress with Triferic and transitional add-on reimbursement for the U.S. market.

This has been and continues to be a top priority of ours. It’s a very important issue for 470,000 ESRD patients in the U.S. who suffer from serious anemia symptoms of very low and no energy, which occur as a result of their ongoing dialysis treatment.

It’s important that these patients have access to new therapies like Triferic that can improve their lives. It’s also important that these patients don’t have their choice of therapies limited. Throughout 2016, we made it a priority to work towards getting add-on reimbursement with Triferic. I can tell you today, we feel we are close to this goal.

Along with patient advocacy groups and dialysis providers, Triferic continues to receive additional strong congressional support for add-on reimbursement.

We have growing support from several key members of Congress and focus on policy for the Medicare program and to have special interest in the ESRD population and then working to make this a priority.

All indications suggest that policymakers in Congress and the new administration are sensitive to the need to ensure that ESRD patients have access to innovative therapies like Triferic, which can improve quality cost and patient outcomes, and we feel very, very good about where we are right now.

As I have stated previously, I can’t predict exactly when we will secure add-on reimbursement for Triferic, but we believe we are close. We will continue to work to obtain it and we hope to have positive news to report to you very soon.

At the same time, we have made great progress in educating our customers about Triferic and the valuable benefits it delivers by improving patient outcomes and lowering costs.

We are very pleased with the favorable response and the positive clinical findings that are being reported from dialysis providers using Triferic through our drug sample program. Our marketing and selling efforts to nephrologists, nurses, as well as the patients are delivering excellent results.

We are very excited about Triferic’s commercial potential in the U.S. as well as globally. Now an update on our global clinical development and commercial efforts with Triferic. We’ve been very busy and we have made considerable progress on many fronts. First, in China, we anticipate our planned clinical trial will start in Q4 this year.

We estimate it will conclude in late 2019 and we anticipate CFDA approval and commercial market entry in the second-half of 2020. China has been projected to become the largest dialysis market in the world. Currently, there are about 300,000 dialysis patients there.

We have an excellent partner and we anticipate China will be a very strong market for Triferic. In Saudi Arabia, Egypt, and 12 other Middle Eastern countries, we are scheduled to present Triferic at the end of this month at a conference arranged by our partner to approximately 30 key nephrologists in the region.

We do not need a clinical study for market approval here only registration. And that process is expected to start in the next few months and should be complete by year-end. If things go as planned, we expect to enter the commercial market in the Middle East in the first-half of 2018.

This territory represents approximately 375,000 dialysis patients and is growing annually in the 15% to 20% range. In India, we have been very active. We’ve created a new wholly-owned Rockwell’s subsidiary. We should know in April, if we will need to conduct a clinical study for market approval.

If a study is required, we estimate commercial market entry is possible in late 2018. But if we don’t need a study, market entry could possibly happen late this year. We are working on several fronts preparing the most effective sales and marketing strategy for India.

This could be a partnership with a pharma company, a partnership with an existing manufacturer of dialysis products, a partnership with a sales company, or a combination of any of these. India is another dialysis market that is expected to grow to become one of the largest in the world. Currently, there are about 200,000 dialysis patients in India.

In Canada, we have secured a partner for distribution for Triferic. We have been working under the guidance of Health Canada and based on current information, we expect Triferic to enter the commercial market in the first-half of 2019. Canada has over 20,000 dialysis patients and represents a meaningful opportunity.

We’re also active in negotiations with potential partners in South America, Mexico, Korea, and Japan, all of these are substantial markets. In Europe, we are preparing to meet the fourth quarter of this year with the European Medicines Agency known as the EMA. We plan to come out of that meeting with a clear path for clinical study.

In the meantime, we have begun discussions with a handful of potential partners to license Triferic. So you can see, we’ve had a substantial amount of activity ongoing in these geographies and at various stages of development. We will update you as we continue to make progress.

Lastly, I want to bring up to speed on our clinical development work for other new indications for Triferic. These include peritoneal dialysis, or PD, total parenteral nutrition, TPN, and our orphan indication it’s called IRIDA. I will also include progress on our intravenous or IV product. I’ll start with our IV product.

We’ve been working toward an FDA approval for intravenous delivery of Triferic. This product when approved would have used in dialysis patients, PD patients, and cancer patients receiving chemotherapy. Dialysis, it will be used by clinics who currently use solid bicarbonate cartridges like we see mainly in Europe.

That enables Triferic to be delivered by IV directly into the blood stream. We should know shortly a further studies will be required for the IV product. If another study is required, we anticipate the IV product will be ready for commercial use mid-year 2018.

If another study is not required, we anticipate it will be ready for commercial use in early 2018. Regarding PD development, our Phase-1 clinical study has started. Once we determine the dosing required for PD, we plan to initiate a Phase-2/3 study, which we anticipate will start in Q1 of 2018.

This study will be in PD patients with iron deficiency and who need iron maintenance. Currently, we expect to file our NDA with the FDA in 2019, and gain approval one year later in 2020, with commercial use also in 2020. Regarding TPN development, we’ve asked the FDA for comments on the clinical path forward.

We believe there is a possibility that we may not need a clinical study since we already have an approval for iron replacement. We expect an answer from the FDA in June or July of this year, so we will know more shortly. Regarding IRIDA, our orphan drug, we will begin dosing patients in April this month, or next month.

We will know in a short period of time how effective Triferic is in this setting and assuming it works well, we plan to initiate our clinical development program for cancer patient. We will update you on our progress on these clinical programs at the appropriate time.

Before I turn the call over to Tom to discuss the financials in more depth, I want to tell you that we’re very enthusiastic and excited about the company’s prospects for the year ahead. I have made numerous trips to Washington D.C. over the past 12 months.

I have personally met with dozens of members of Congress and without exception, I have seen firsthand their genuine support for dialysis patients and their commitment in our effort to make Triferic available to those patients. We have made tremendous progress toward achieving our goal of obtaining transitional add-on reimbursement for Triferic.

I have also made many presentations to many clinics, nurses, doctors, and key personnel and the response has been excellent. Triferic is an eye opener. It’s a light-bulb moment for many.

And providers clearly see this as a therapy that benefits their patients and their bottom line and Triferic is an iron replacement product that has been needed for 30 years and now it’s here. The great majority of investors who own Rockwell stock and are long are invested primarily due to Triferic’s potential to generate sales and profit.

And you understand the potential positive impact Triferic success could have on our share price. I want to thank you for your patience and your commitment. And I want you to know that we feel, we’re almost there. We’re very excited about the months ahead.

We will continue making every possible effort to achieve our goal of making Triferic a commercial success. Now Tom will discuss the financials in more depth..

Okay. Thank you, Rob, and good afternoon. I’ll be covering the financial results for the fourth quarter and for all of 2016, also discuss our capital resources. Our sales in the fourth quarter of 2016 were $13.4 million, which was 5% below the fourth quarter last year, but up sequentially about $600,000 compared to the third quarter.

Compared to the fourth quarter 2015, domestic concentrate revenue was $600,000 lower and international concentrate revenue was down slightly. Sales volumes under the Baxter distribution agreement were below expectations. Our sales for all of 2016 were $53.3 million, $2.1 million lower than 2015.

$1.6 million of that was attributable to third-party manufacturing contracts that were completed in 2015, which did not recur in 2016. Our international concentrate sales were $600,000 lower, while our overall domestic concentrate revenue increased about a quarter of a point. Drug-related revenue was not significant in 2016.

Our gross profit in the fourth quarter of 2016 was $2 million, about the same level as the fourth quarter last year. Gross profit margins were 14.8% compared to 14.3% in the fourth quarter of last year.

Our gross profit was reduced by approximately 300,000 in the fourth quarter for costs related to our drug business, the regulatory manufacturing, inventory and other product costs. Gross profit for 2016 was $6.8 million, or $2.1 million less than 2015. Gross profit margins were 12.7% in 2016 compared to 16.1% in 2015.

The lower gross profit was due to cost related to our drug business and the completion of contract manufacturing volumes in 2015. For our drug business operations, gross profit decreased by $1.7 million, primarily due to approximately $1.5 million related to direct operating, regulatory, material inventory and finished product expenses.

We also expense 200,000 value-add taxes paid on the $4 million we collected in licensing payments from our Wanbang license agreement. The remainder of the decrease in gross profit was due to lower unit volumes on contract manufacturing sales and on international business.

Our SG&A in the fourth quarter was $6 million, about the same level as the fourth quarter last year.

Our SG&A expenses were $21.1 million in 2016 compared to $19.1 million in 2015, an increase of $2 million, and that was primarily due to an increase in non-cash equity compensation of $1.5 million related to equity grants in prior years as no equity compensation plan grants were made to Directors and Officers in 2016 other than to our new Director.

Other significant cost increases included increased legal fees and higher marketing costs. On our R&D, we incurred product development and research costs related to commercial development, patent approval, and regulatory approval of new products, primarily Triferic aggregating approximately $5.8 million and $5 million in 2016 and 2015, respectively.

Cost incurred in 2016 and 2015 were largely related to testing of Triferic and included pharmacokinetic testing of Triferic for use in other indications, pediatric indications of Triferic, peritoneal dialysis, and orphan indication Triferic and additional presentations of Triferic, as well as other testing in development costs.

On income tax expense, we did recognize approximately $400,000 in income tax expense in 2016 compared to none last year.

Our income tax expense pertained to foreign income taxes paid related to the license payments received from Wanbang, the amount of foreign income tax paid can be credited against future United States tax liabilities and carried forward. We also have substantial tax loss carry-forwards from our losses from previous years.

We have not gotten a federal income tax benefit from either our prior losses or current year losses, because we did not realize the carry-forward benefit of the remaining losses. The value of our tax assets is approximately $60 million in potential shareholder value.

We believe our NOL carry-forwards are a significant potential asset that the company should protect and utilize once we are profitable. Our net loss for the quarter was $5.1 million compared to $5.8 million in the fourth quarter of 2015. Reduction loss was primarily due to lower R&D expense.

Net loss was $0.10 per share compared to $0.12 per share in the fourth quarter last year. Our year-to-date loss was $19.8 million compared $14.4 million in 2015. Loss per share was $0.39 compared to $0.29 in 2015. Now on our liquidity and capital resources, our cash position is solid.

We have adequate cash resources to support development of our drug business operations and associated working capital. As of December 31, we had current assets of $78.5 million and net working capital of $68.4 million. We have approximately $58 million in cash and investments as of December 31.

Our uses of cash have been primarily for research and product development, investments and inventory to support our drug product launches, and for operating expenses. Operating activities used $12.5 million of cash in 2016, which included research and development expense of $5.8 million and an increase of $6.1 million in inventory levels.

We significantly increased our Triferic inventory and preparation of commercializing Triferic and believe – we believe we have adequate inventory to meet anticipated requirements. We received a net of $3.2 million in cash following the execution of the Wanbang agreement, and our capital expenditures last year were $400,000.

We anticipate that will – we will increase our accounts receivable as we increase our drug product sales, and we may also increase inventories to a more modest degree as we commercialize Triferic and Calcitriol. We also expect to invest in research and product development in 2017, as we work to expand the potential applications for Triferic.

We believe we have adequate capital resources to make these investments in accounts receivable, inventory, and research and product development. We expect to generate positive cash flow from operations upon increased sales of our drug products.

As we get closer to what we expect will be a healthy ramp up in commercial drug sales, it’s important to keep in mind that we have a significant deferred tax asset that can be utilized to offset future federal income tax liabilities.

We have a net operating loss carry-forwards of approximately $151 million and $9 million in research and foreign tax credits. With that, I will now turn the call back to our operator..

Thank you. [Operator Instructions] All right. That concludes the question-and-answer session. I will turn the call over to – back to Mr. Chioini for any closing remarks..

Thank you for joining us today. Thank you for your support, and we look forward to talking to you soon..

Thank you. That does conclude today’s conference. Thank you for your participation. You may now disconnect..

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