Paul Arndt - LifeSci Advisors, IR Rob Chioini - Founder and CEO Tom Klema - CFO Ray Pratt - CMO.

David Bouchey - IFS Securities.

Good day and welcome to the Rockwell Medical Fourth Quarter and Full Year 2017 Earnings Conference Call. Today's call is being recorded. And at this time, I would like to turn the conference over to Paul Arndt, LifeSci Advisors. Please go ahead..

Thank you, Matt, good afternoon everyone. Thank you for attending Rockwell Medical's year-end 2017 financial results conference call. I'm Paul Arndt with LifeSci Advisors. On the call this afternoon are Rob Chioini, Founder and CEO of the Company; 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 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 will speak only as of today's date, Thursday, March 15, 2018, 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'd now like to turn the call over to Rob Chioini, Founder and CEO of Rockwell Medical. Rob, please go ahead..

Thank you, Paul. Good afternoon. Thank you for joining us. On the call with me today is Tom Klema, our Vice President and Chief Financial Officer and Dr. Ray Pratt, our Chief Medical Officer. We had a productive 2017. We also have a number of important updates for you today.

A few highlights from the year’s financial performance; sales for the year were $57.3 million up 7.5%, gross profit was $3.1 million lower, this was due to increased drug product costs and lower concentrate profit. Net loss was $25.9 million versus $19.8 million. So let's talk Triferic.

As you know from our last update, we had productive meetings with the Centers for Medicare and Medicaid Services, CMS, and also with the Center for Medicare and Medicaid Innovation, CMMI.

And at their request, we prepared and submitted a proposal to the Innovation Center at CMS that highlighted the improved clinical benefits Triferic provides to patients, as well as the significant cost savings Triferic delivers to Medicare and dialysis providers.

You'll recall that our analysis concluded that if 100% of the hemodialysis patients that Medicare is responsible for were given Triferic as part of their treatment protocol, Medicare would reduce their cost by well over $1 billion per year.

The clinical evidence shows that these cost savings would come from significant reductions in intravenous iron, infection related in patient hospitalizations, and medications and blood transfusions among other things which also suggests clinical outcomes will be improved and patient will have a better quality of life when receiving Triferic.

Clinical data has shown that Triferic delivers sufficient iron to the bone marrow and maintains hemoglobin levels in HD patients. In fact Triferic is the only FDA approved therapy with the clinical indication that states to replace iron and maintain hemoglobin. There is no other therapy that has this FDA clinical indication.

Triferic was approved to specifically treat the debilitating anemia that hemodialysis patients suffer from and the clinical data and the data from facilities that are administering Triferic indicate that many patients experience improvements in fatigue symptoms and have increased energy and improved cognition.

The results are not been a single adverse reaction reported to date. Our goal has been to make Triferic available to all patients in the U.S. and position it for broad adoption. It is a key initiative of our company.

It is one of the main reasons we have pursued separate reimbursement for Triferic and we have significant support in this initiative from Congress and other influential agencies. Since my last update we have continued to have further productive meetings and dialogue with key agency personnel.

We have provided follow-on information that has been requested and while there can be no assurances of success, we believe we have moved into position to obtain a positive outcome. Our understanding is CMS is working on our request for approval of separate reimbursement for Triferic at this time. We are now anticipating a timely response.

I wish I could provide you with the date that we will get a response but we simply don't have it. When we hear more we will update you. In the meantime, our promotion to patients and providers for Triferic remains very active.

We continue to introduce and educate nurses, nephrologist and key personnel and dialysis providers on Triferic’s benefits and its ease-of-use in the clinic. Our Triferic drug sample program is expanded and feedback on the clinical and cost-saving benefits continues to be very positive.

We anticipate that if and when Triferic receives separate reimbursement, broad adoption by U.S. dialysis providers will occur driven by Triferic’s demonstrated clinical benefits and its economic incentive. We have redundant API manufacturing and finished packaging in place and distribution is set. We are prepared to supply the entire U.S.

market which is about 75 million treatments annually. Regarding Calcitriol as you may recall on our last update, this past November 2017 the FDA requested extra time to review our post-approval drug manufacturing submission. We re-filed our submission and have since worked with the FDA on typical submission requests during this review.

We do not have the sense that the FDA has any outstanding concerns or issues. Our understanding from the agency that they have all the information they need and that we should have their decision shortly. We're excited about the market opportunity Calcitriol presents. We know that we have demand for the market.

In fact, within the last two weeks we've had two sizable customers let us know that they want to order it when it becomes available. Once we can produce sufficient quantities, we expect to gain considerable sales and will provide further updates when we have them.

Updating our business development progress, we continue to be active with commercializing Triferic globally. Since our last update, we have signed an exclusive license and manufacturing supply agreement in Peru for the company called Quimica Europea.

Quimica is a distributor of drugs and devices for hemodialysis and maintains nearly 40% market share of all dialysis products distributed in Peru and in some categories they control nearly 90% market share. There are approximately 13,000 patients receiving hemodialysis in Peru and the market grows 6% annually.

The regulatory process for Triferic does not require additional clinical studies, only registration process is required and it’s ongoing and we anticipate approval first part of 2019. We also signed an exclusive license and manufacturing supply agreement in Chile for the company called BioRenal.

BioRenal is a distributor focused exclusively on drugs and devices for the HD market and is the leading distributor for ESA and IV iron products. There are approximately 20,000 patients receiving hemodialysis in Chile with market growth at 6% annually.

The regulatory process for selling Triferic in Chile also does not require additional clinical studies only drug registration is needed. We estimate approval in Chile first part of 2019. Both Peru and Chile represent a new revenue opportunity for Rockwell. We remain active in due diligence and preliminary deal discussions.

[PDAs] [ph] have been executed with counterparties and active discussions are ongoing for India, Saudi Arabia and GCC nations South Korea, Japan, Malaysia, Pakistan, Russia, and Europe. The company has also been approached by interested parties representing Mexico, Brazil, Turkey, France and Germany.

[PDAs] [ph] are in process and discussions are expected to commence within the next eight weeks. In China we have accelerated our timeline to begin the Triferic clinical study. We had guided to start Q1 2019 but we will now be starting second half this year.

This may enable our Chinese partner to enter the commercial market before the second half of 2020 which has been our current guidance.

We're also participating in the upcoming Asia-Pacific Congress of Nephrology which is sponsored by the Chinese Nephrology Association where we'll present three posters and one oral presentation on Triferic clinical benefits in dialysis patients.

We believe China is going to be a significant revenue opportunity as the HD market there continues to grow at double-digit rates. We remain on track in Canada and expect Triferic to enter the commercial market in mid-2019. Canada has more than 40,000 patients and represents a meaningful opportunity.

Regarding our clinical development and our pipeline progress, we have completed the clinical portion of the clinical equivalency study for Triferic IV infusion and we're on track for submission to the FDA in the second quarter of this year.

We anticipate FDA approval of this new presentation in mid-2019, however could be late 2018 depending on the reviewed time we receive from the FDA.

Triferic IV infusion will be the product of choice for those clinics currently using solid bicarbonate cartridges which is widespread in Europe and some other regions and the IV infusion enables Triferic to be delivered directly into the blood stream by passing a dialysate that's also compatible with patients receiving hemodiafiltration.

We've also been in discussions with the FDA, [SEDAR H] centers for devices and radiological health for approval of a combination product of Triferic premixed with our sterilized liquid bicarbonate which we market in 1 gallon containers.

This product is a premixed solution and will make Triferic available to smaller clinics and hospital-based acute units that rely on premixed products to treat patients. We anticipate filing the product as the drug device combination product in the second quarter of this year. We expect to review an approval by year-end.

Our Triferic pediatric program is a postmarketing commitment in the U.S. and the requirement for a marketing application in Europe. We've submitted detailed clinical plans to both the FDA and the European Medicines Agency known as the EMA and we expect to obtain agreement for the proposed clinical study in the next 6 to 8 weeks.

Once the plans are accepted by both regulatory agencies, we plan to initiate the clinical study later this year. Regarding our Triferic peritoneal dialysis or PD study, the initial results from the first patient in showed good transfer of iron from PD fluid to blood.

We plan to initiate further studies to clarify the correct dosing of Triferic and PD fluid in Q2 this year. Regarding our ex-U.S. activities, we anticipate approval of our clinical trial application in China in late March or early April.

Following CTA approval, we plan to initiate two clinical pharmacological studies to confirm the pharmacokinetics of Triferic in Chinese patients. In Europe, we have filed scientific advice with EMA and we met with them just a week ago to discuss the proposed Triferic clinical program.

We're expecting final comments from the EMA by the end of this month. We will update our plans for Europe once we have reviewed the agency's comments and recommendations.

Regarding our orphan drug IRIDA program, the data from the oral administration of Triferic a Shohl solution suggested additional formulation work will be required to find a bioavailable form of Triferic suitable for oral administration. We have no plans in the immediate future to do that work.

We thank the clinicians, the patient and her parents for participating in the exploratory study. Lastly this past week, we enhanced the Board of Directors which is a positive development for the shareholders in a natural progression for our Board and of our practices as we become a larger commercial enterprise.

We’d like to welcome both Ben Wolin and Lisa Colleran to our Board. I think both will be welcome additions will take the responsibility of building value for our shareholders very seriously. Shareholder value will remain the primary driver for every decision we make as a company.

We have terrific opportunities in front of us with the broader commercialization of Triferic and scale manufacturing of Calcitriol. We believe the back half of 2018 will be a time of great progress at Rockwell and a value creation for our shareholders. Now I’ll turn the call over to Tom to discuss the financials..

Thank you Rob, and good afternoon. I’ll be covering the financial results for the fourth quarter and for all of 2017. Our sales in the fourth quarter were $14.8 million and were $1.4 million or 10.8% higher than the fourth quarter of last year. The increase was largely due to higher domestic concentrate sales of $1.3 million and increase of 11.2%.

Our international sales were up approximately 200,000 and also up 11.2% from last year. Sequentially fourth quarter sales increased by 200,000 or 1.4% over the third quarter of this year. Sales for 2017 were $57.3 million compared to $53.3 million in 2016 an increase of $4 million or 7.5%.

Our domestic concentrate sales increased $3.6 million or 7.8% and our international sales increased 400,000 or 5.8%. Our domestic concentrate sales increased $3.6 million due to increased unit volumes including new business that resulted from our agreement with Baxter.

Our drug business revenue aggregated approximately 200,000 in both 2017 and 2016 which was related to recognition of license fees. The gross profit in the fourth quarter was a $1.2 million loss compared to a gross profit of $2 million in the fourth quarter last year.

The $3.2 million swing in gross profit was due to inventory reserves related to our Triferic drug inventory.

Drug product expenses increased $2.5 million over last year's fourth quarter and in the fourth quarter of 2017 we reserved $3.3 million of Triferic finished goods inventories that may not be sold before the respective expiration dates during 2018. Other drug costs were lower than in the fourth quarter last year.

On our concentrate business gross profit was 700,000 lower than the fourth quarter of 2016. We incurred cost increases for freight that were not able to be recovered. Gross profit for 2017 in total was $3.7 million and was $3 million less compared to 2016. Gross profit margins were 6.5% compared to 12.7% last year.

Our drug gross profit was a $3.6 million loss in 2017 compared to a $1.7 million loss in 2016. This is a $1.9 million increase in overall drug product expense. Our inventory reserves and write offs of Triferic finished goods inventory aggregated $3.5 million in 2017.

Other expenses associated with our drug products decreased approximately $1 million in 2017 over 2016 and those included direct operating expenses, material cost and finished product expenses associated with our drug products.

Our concentrate business gross profit decreased $1 million in 2017 compared to 2016 largely due to pricing concessions on business through Baxter. In addition a significant portion of the revenue increase has been in the form of a pass-through or freight cost related to delivery of products under the new contracts.

And selling, general and administrative expense in the fourth quarter was $5.9 million compared to about $6.1 million in the fourth quarter of last year.

The $200,000 expense reduction was primarily due to lower equity compensation expenses of $1.4 million which was partially offset by legal cost and settlement expenses related to activist shareholder matters of 900,000. SG&A expense for all of 2017 was $23.3 million compared to $21.1 million last year.

The increase was primarily due to an increase in legal and professional cost related to litigation, settlement with Baxter and our contested 2017 election annual meeting of the shareholders and the contested election. Equity compensation cost increased by $3.2 million, marketing cost related to Triferic increased by 600,000 last year.

We also recognize uncollectible accounts receivable of 400,000 in our settlement with Baxter.

We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products including new indications and presentations of Triferic of approximately $2.1 million in the fourth quarter compared to $1.2 million in the fourth quarter last year.

For the year in total, R&D total approximately $6.3 million compared to $5.8 million in 2016. Our net loss in the quarter was $9 million compared to $5.1 million in the fourth quarter 2016 the increase in loss was mainly due to lower gross profit of $3.2 million and higher R&D cost of 900,000.

The net loss was $0.18 per share compared to $0.10 per share in the fourth quarter last year. The net loss for 2017 was $25.9 million compared to $19.8 million in 2016. Increase in net operating loss was mainly due to lower gross profit of $3.1 million and $2.2 million and higher SG&A expenses.

The net loss per share in 2017 was $0.51 per share compared to $0.39 per share last year. On liquidity and capital resources as of December 31, we had $33.1 million in cash and investments and $39.7 million in working capital. Our uses of cash have primarily been for funding our operating activities.

Cash used in operating activities during 2017 was $21.1 million which included R&D cost of $6.3 million. Our 2017 operating expenses include substantial amounts for legal and professional fees related to litigation, settlement with Baxter and the contested 2017 Director election total of which for all of that was $2.7 million higher than in 2016.

We have built significant inventory of Triferic in anticipation of receiving separately reimbursement status and based on our progress towards gaining that reimbursement.

As of December 31, we had invested approximately $10 million in Triferic inventory including $1.5 million for finish products and $8.5 million in active pharmaceutical ingredient of Triferic.

We have built adequate inventory of Triferic API which we believe will meet our perspective product demand and we've classified a significant amount of our Triferic API as noncurrent which we believe will supply a portion of our future API requirements after 2018.

1.5 million of Triferic finished product inventory will expire during the second half of 2018. If separate reimbursement for Triferic is delayed or does not occur we may need to write-off some or all of our investment in Triferic finished product inventory which could have a negative impact on our reported results of operations for 2018.

We believe we have currently adequate capital resources and liquidity to pursue our business strategy in 2018. In addition to operating our concentrate business, our business strategy is centered on developing, marketing and licensing high potential drug products in particular Triferic.

The actual amount of cash that we will need to execute our business strategy is subject to many factors including, but not limited to the timing and magnitude of cash received from drug product sales. The timing and expenditures associated with commercializing Triferic and Calcitriol.

The timing and expenditures associated with the buildup of related inventory and whether and to what extent separate reimbursement for Triferic is approved by CMS.

With CMS reimbursement, we anticipate that our accounts receivable will increase as we increase our drug product sales and our inventories will increase to more modest degree when we commercialize Triferic and Calcitriol. We also expect to continue investing in research and product development.

We are monitoring our progress closely and managing our cash resources prudently and we believe that we have adequate cash and capital resources to make these investments and accounts receivable, inventory and research and product development in 2018. With that I will turn the call back over to our operator Matt for some Q&A..

[Operator Instructions] At this time, we'll take a question from David Bouchey with IFS Securities..

I actually have several. I want to start with Tom some questions for you. You just mentioned that there is some Triferic inventory that is expected to expire in 2018.

Can you tell me again how much that write-down might be and when would that happen, first quarter, second quarter or third quarter?.

So David what we have is approximately 5 million of Triferic finished goods inventory.

We evaluated that inventory at the end of the year and without having clear understanding of if and when CMS may give us separate reimbursement and when we could begin selling Triferic, we took a reserve at the end of the year of $3.5 million for inventory that would expire during 2018.

There is approximately $1.5 million of inventory that is not reserved for that would expire in the back half of 2018. So the full amount that we're exposed to would be $1.5 million of finished goods inventory and we probably would not make that determination until later - and probably in the second quarter if were to write that off..

Got you, okay..

That's the expense. So just $1.5 million that's at risk at this point..

And Rob maybe you could explain a little bit more about the clinical trials in the U.S. for IV and IV formulation of Triferic. I’m assuming that this is an abbreviated new drug application, not a new drug application. So what you just need to show is bioequivalency and perhaps a little safety.

So you're talking about some pharmacokinetic studies being done, can you tell us a little bit more about the size and scope of those trials?.

I'll let Dr. Pratt give you some detail back on your question..

Yes, we conducted two pharmacokinetic studies to demonstrate how much iron is transferred with each hemodialysis to patients. And then we've made a new presentation of Triferic intravenously to match that amount.

We've done a formal bioequivalence study, I shouldn’t call it a bioequivalence it’s not a true bioequivalence, but it's an equivalence study. That was adequately powered - to demonstrate the equivalence of the two formulations and we will be filing that with the FDA probably in the second quarter this year.

We’re hoping to meet with the FDA to determine if this will require a full NDA review which would be a 10-month timeframe or a prior approval supplement and we don't know which way it will go. We believe it should be a prior approval supplement, but we will need to discuss that with the FDA and will hopefully have that meeting in the second quarter..

And you’re facing a similar situation in Europe where the practices are different and you have to have an IV formulation of Triferic in order to penetrate most of those markets.

So I'm assuming, I believe you did meet with the EMEA this past quarter?.

Yes we’ve….

And what did you learn from them?.

Well we have submitted scientific advice. We had a very productive meeting to discuss some of the questions that they had and we’re still waiting for the final summary of the scientific advice. We expect that by the end of the month and once we get that and review it, we’ll be able to update on our plans for Europe..

But it's basically the same kind of issues that you're dealing with the FDA with?.

I can't really say that for sure, I think that Europe is going to require a clinical trial. They've always had that and we're just in the process of discussing what the nature of that trial may be..

And so my understanding that you were in China recently. There was some news from the Chinese government very recently just the other day stating that the Chinese FDA - is now going to be incorporated into a newly created state market regulatory administration supposedly to make it more efficient in regulating the drug market in China.

And it's your understanding from meeting with your Chinese partners that they will be able to get the clinical trial started a little earlier and that this may advance the launch timeline that we have now by maybe about three months?.

Possibly, yes, you know we’ll know more as we get through it..

One last question for you Ray.

Is it true that Rockwell has been taking ads in Nephrology Medical Journal saying basically coming soon Triferic and Calcitriol?.

No, it isn't accurate. I mean what is accurate is as far as Triferic goes our marketing has been extensive for many, many months now. And we do advertise in all the trade journals as well as via the web. I think there are some advertisements for Calcitriol that say coming soon..

And those that - they're not in the medical journals but in the trade journals..

Well combination of both I believe..

And are some of these ads full page ads, they recently become full page ads?.

I think most of them have been full page ad David but in general I mean if there is one specific you're interested on that, you have to point it out to me. But in general we have full page ads in the sense of marketing..

There are no more questions in the queue. I’ll now hand the call back over to Mr. Chioini for closing remarks..

Thank you for your support, and we’ll look forward to giving you an update either on the next earnings call or when we have something sooner. Thanks..

Once again this does conclude today's call. Thank you all for your participation..