Paul Arndt - MD, LifeSci Advisors Rob Chioini - Founder and CEO Tom Klema - CFO Ben Wolin - Chairman Ray Pratt - CMO.

David Bouchey - IFS Securities.

Good day and welcome to the Rockwell Medical First Quarter 2018 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Paul Arndt, Managing Director, LifeSci Advisors. Please go ahead sir..

Thank you, operator and thank you everyone. Apologize for the delay, there is some technical difficulty. Thank you for attending Rockwell Medical's first quarter 2018 financial results conference call. My name is 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’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 will speak only as of today's date, Thursday, May 10, 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 Chief Executive Officer of Rockwell Medical. Rob, please go ahead..

Thanks Paul. Good afternoon. Thank you for joining us today. On the call with me today is Ben Wolin, our new Chairman of the Board, Tom Klema, our Vice President and Chief Financial Officer and Dr. Ray Pratt, our Chief Medical Officer. As many of you know, our business is poised for significant growth.

As an organization, we’ve been evolving to ensure we have the right executive team and Board in place to assist the company in executing against these opportunities. I’m pleased that Ben could be here with us this afternoon to provide his thoughts on the company and our focus on creating value for shareholders.

Ben?.

Thanks Rob. I’m pleased to be joining today’s call. Since many of you have not met me, I thought it would be nice to start with a brief bio. I’m a successful CEO, entrepreneur and Board Director.

In 2002, I founded Everyday Health, a leading digital health company that I grew from an idea to approximately 300 million in revenue, took public and eventually sold for nearly $500 million.

Currently I am the Chairman of Diplomat Specialty Pharmacy, a public company and the nation’s largest independent provider of specialty pharmacy services with over 5 billion in sales. I’m also a Director at Dance Biopharma, a life sciences company focused on the development of inhaled insulin products to treat diabetes patients worldwide.

I joined the Rockwell Board because I believe this company has great potential. I know that with the right focus and commitment, we can change the lives of millions of patients across the world with innovative products like Triferic and at the same time generate significant value for our customers, employees and shareholders.

Today, two months in to my tenure as Chairman, I remain very enthusiastic about our collective opportunity. Our products are excellent and we can have an immense impact on patients across the globe.

During this initial two months period, our newly augmented Board has been working hard alongside the entire management team to conduct a top to bottom review of all aspects of the company. We are pushing hard on every area of the business and are looking at the best way to accelerate our growth.

If and when the Board and management find new opportunities or new avenues of growth to pursue, we will be sure to share them, which brings me to my last point before turning it back to Rob.

The Rockwell management team and the Board appreciate our shareholders desire for a positive working relationship with the company, one that is built on the basis of transparency and partnership.

While we do not have definitive answers to all of your questions, I assure you that we are completely committed to growth, efficiency, transparency, and partnering with our shareholders.

We look forward to a long and successful relationship with our shareholders, as we focus on our collective goal of helping patients and driving value for all of our constituents. Now I’d like to hand it back over to Rob. .

Thanks Ben. Tom Klema will follow my remarks with details on the financials. I’ll start with an update on our progress in obtaining separate reimbursement for Triferic.

As you know from our last update, the federal policy makers in Washington had our proposal highlighting the improved clinical results for patients and cost saving benefits to Medicare that Triferic can provide. This proposal is to be considered as a demonstration project, which would fall under the centers for Medicare and Medicaid innovation.

The demonstration project, as proposed, would be implemented with reimbursement for Triferic paid for by ASP plus 6% and would remain in effect for two to three years if approved. The demonstration project is similar to transitional add-on reimbursement. In either case, renal patients have widespread access to Triferic.

This proposed demonstration project would cover any new innovative therapy in the renal space that includes clinical outcomes, enhancing lives and reduces Medicare expenditures. It is difficult for us to estimate the timing for receiving approval on the demonstration project. We are hopeful that we will hear news soon.

We continue to have frequent and current communications with key policy makers for working on behalf of implementing the reimbursement pathway for Triferic or any new innovative therapy entering the renal space. We’ve not been given a hard date for response nor can we guarantee the outcome. But we will update you once we have new information.

I want to take a moment, and express my understanding regarding shareholder frustration with not having a hard date for a decision, as well as with the length of time it has taken to gain separate reimbursement for Triferic. We share the same frustration right along with you.

I also know it’s been difficult when you feel like you’re not getting every detail of the progress been made along the way. However, everyone at Rockwell is working hard to achieve the best possible outcome as we go through this process. We want to be sure that we put the company in the best position to succeed.

I sincerely thank you for you continued patience and you support. Should we receive separate reimbursement, Triferic already has a reimbursement (inaudible) code in place. So we should be in a position to move relatively quickly to invoice customers for Triferic.

Our best estimate is that there could be a 45 to 90 day lead time, until we would begin invoicing customers post approval. To that effect, we have maintained adequate inventory so that we will have sufficient product available if and when separate reimbursement is received.

As you may know, our commercial strategy to sell Triferic is to demonstrate the improved patient benefits both in safety and clinical outcome, coupled with the time saving convenience of administration and the cost savings that will flow to the dialysis provider.

Triferic gives the nephrologist and the nurse a new therapy to better manage their patient’s anemia. We have data from our clinical program and our sample program that shows improved patient benefits. Our sample program has been a valuable tool and showing the improved patient benefits.

We’re continuing to expand the programs number of clinics and its data collection. The data reported shows stable hemoglobin levels, ESA and IVI reduction and lower ferritin over time.

We’ve also seen a reduction in typical patient hospitalizations and we will continue to monitor this topic as it was not a data point we collected through our initial clinical studies.

We will continue to expand our sample program, utilizing current inventory to ensure patients have access to Triferic, while we work with CMS to gain separate reimbursement. We have sufficient API and finished packaging and distribution place.

We can supply the US market which is about 75 million treatments annually, and we are working hard with our team in Washington and CMS to secure reimbursement for Triferic as fast as possible. Now I’d like to turn the call to Tom. You may have seen our update from Tuesday; we are waiting final manufacturing approval from the FDA.

The target date for a response from the FDA to our submission is August 19, this year. The FDA has also confirmed our submission is under expedited review and we view this as a positive, and we expect to hear news sometime in the near future, but hopefully no later than the target date of August 19.

Once we receive manufacturing approval, we expect to have limited supply initially, with anticipated increased supply starting in 2019. We do not currently expect Calcitriol sales to have a material impact on our sales revenue for 2018.

Regarding our business development progress, we are actively working through the registration process in Peru and Chile, since we signed distribution agreements in each territory. Neither region requires additional clinical studies only a registration process.

There are approximately 33,000 hemodialysis patients combined in both territories, with both markets growing 6% annually. We anticipate market entry in both regions in 2019 after registration approval, should be the first half. Both Peru and Chile represent a new revenue opportunity for Rockwell.

As we make our way through the registration process, we will update you with significant developments when we have information to share. In Canada, we remain on track entering the commercial market in mid-2019. With 40,000 patients in Canada, and it represents a meaningful opportunity.

In China we are making solid progress, the Triferic clinical study is anticipated to start in the second half this year and this may enable our partner to enter the commercial market before the second half of 2020.

We just recently introduced Triferic to the Chinese renal market as well as other countries as we participated at the Asia-Pacific Congress of Nephrology in Beijing sponsored by the Chinese Nephrology Association, where we presented Triferic to wide audience with three posters and one-on-one presentation.

We believe that China will be a significant revenue opportunity. It has approximately the same number of dialysis patients that the US has now and is growing at double-digit rates. With our clinical development, we continue to make progress especially on our packaging presentations for Triferic.

Regarding Triferic IV Infusions, we are expected submission guidance from the FDA by the end of June, based on results from our clinical equivalent study. We hope to receive FDA approval for Triferic IV Infusion in Q1 or Q2 of 2019.

IV infusion enables Triferic to be delivered directly in to the blood via the arterial or venous line from the dialysis machine. Despite it passes the dialysis and accommodates clinics using bicarbonate cartridges. We anticipate that our premixed Sterlite liquid bicarbonate containing Triferic will receive FDA approval by the end of 2018.

This product will be used mostly by smaller clinics and hospital based acute units in the US. Once approved in the US, it should also be helpful when commercializing Triferic in other countries that use pre-mixed liquid bicarbonate.

Regarding our Triferic PD study, we plan to initiate further studies to clarify the correct dosing of Triferic in PD fluid this year. In Europe, we received scientific advice from the EMA and now are designing the clinical program for Triferic in Europe. We hope to start clinical studies later this year.

With that said, I’ll turn the call over to Tom for financials. .

Thank you and good afternoon. I will be covering the financial results for the first quarter of 2018. I’d like to start off by noting that the first quarter of 2018 is the first quarter that the new revenue recognition standard became effective and we adopted that standard this quarter.

We adopted the modified retrospective method and the adoption of the standard did not significantly impact our revenue recognition as the majority of our revenue is recognized when a customer takes control of our products. It did not result in an opening adjustment to retain earnings either.

You will see that there will be an expanded footnote disclosures regarding revenue recognition in our footnotes to the financial statements including details on sales by product type and geographic area. Our first quarter sales were 14.9 million; this was 2.4% higher than the first quarter of 2017.

The increase was primarily due to higher domestic concentrate sales. Our international sales were 1.9 million and increased 1.6% over the first quarter last year.

Gross profit in the first quarter was slightly positive, the gross profit from our concentrate business was approximately 1.7 million which was $700,000 compared to the first quarter of 2017. This decrease in concentrate gross profit was largely due to higher concentrate distribution cost, which was partially offset by increased unit volume growth.

Recent government regulation in the trucking industry has further exacerbated the nationwide truck driver shortage, resulting in an increased cost for both incoming materials and shipments within the United States. We would expect those trends to continue to increase cost in the near term.

Concentrate gross profit was offset by 1.6 million expense related to our drug business cost of goods which included 1.3 million to our Triferic inventory reserve. We have built considerable inventory of Triferic in anticipation of obtaining separate reimbursement.

As of March 31, we had 5.9 million of Triferic finished goods inventory and we reserved 4.8 million of that total 5.9 million. And of that 4.8 million reserve, 1.3 million was reserved in the first quarter, resulting in a remaining net book value of 1.1 million as of the end of March.

And reserve for this inventory and taking an accounting charge, much of the product has not expired and is available for use. We also have approximately 7.5 million of Triferic active pharmaceutical ingredient and a classified 3.7 million of this API is non-current inventory.

We believe we have produced sufficient supplies of Triferic to meet perspective demand. On the SG&A front, SG&A expense during the first quarter of 2018 was 5.1 million compared to 6.1 million last year. The $1 million decrease in SG&A was primarily due to lower equity compensation expense of 1.1 million.

We also incurred a 428,000 expense for a settlement payment to an activist investor group. Our SG&A expense may increase significantly in the second half of the year to help support our anticipated commercialization efforts.

On research and development, we incurred product development and research cost related to commercial development and a regulatory approval of new products, primarily Triferic aggregating approximately 1.7 million compared to 1.2 million in the first quarter last year.

Research and product development cost incurred in the first quarter were related to Triferic testing and development cost for use in other clinical indications and delivery presentations. Our net loss for the quarter was 6.5 million compared to 4.7 million in the first quarter of last year.

The increase in loss was mainly due to lower gross profit of 2.3 million, higher R&D cost of 0.5 million, a 420,000 payment to the activist investor group offset by 1.1 million in lower non-cash equity compensation. Our net loss was $0.13 per share compared to $0.09 in last years’ first quarter.

Now on liquidity and capital resources, as of March 31, we had working capital of 35.8 million and we have approximately 28.1 million in cash and investments as of March 31. Our uses of cash had been primarily for operating expenses and R&D.

Cash used in operating activity in the first quarter was 4.6 million which included R&D expenses of 1.7 million and approximately 0.5 million related to the activist shareholder settlement. We fund our operations using our cash resources. We have no debt and we believe we have sufficient cash to fund our operations for at least a year ahead.

That was pretty brief. If you have any questions during Q&A I’ll be happy to address those. I’ll now turn the call back to our operator for some Q&A..

[Operator Instructions] And our first question will come from David Bouchey with IFS Securities. Please go ahead..

First up I’d like to say hello to Ben. I’m very glad that you are on the call today. Thank you very much for taking time out to do that, I appreciate it. I’m sure that the investors appreciated it as well.

Some quick questions for you Tom, the Triferic inventory that was written down last quarter, is any of that that has not yet expired, as well as any that maybe with the expiration date maybe approaching.

Is it possible to use that to increase the free sample program?.

Well we are certainly using the inventory for the sample program and as we increase the clinics, we will be using that. And your answer to that is yes.

We’ve certainly built a lot of inventory in anticipation of reimbursement and to some extent that’s an insurance policy because we certainly want to have the product available once we have the green light to start selling under separate reimbursement. .

So it’s kind of a balance, you want to use that to increase your free sample program and potentially increase your uptick, but you also want to have some available in case you get good news sooner rather than later, is that a good way of looking at it?.

That’s a good way to look at it and there is approximately just 1.1 million of inventory that’s not been reserved for of the finished goods, and that would expire mostly in the fourth quarter and first quarter next year. So we think of near term decision, we probably would be able to reserve some of what we had reserved for possibly.

If it takes a longer period of time to get a decision, let’s say it was near the end of the year, then a lot of 1.1 million would probably be reserved for and written off. .

I know you’ve made some pretty good progress in terms of Canada and Peru and Chile, are you planning on expanding or looking for people who can help you get to some of the international markets that hasn’t been accessed yet, keeping in mind that a lot of these markets are very different from the US and China and requires some kind of specialized knowledge.

Are you planning on looking for people who can help you fill those roles?.

David this is Rob.

Yes, certainly we’ve been actually very active looking for partners in places all over the world outside the US for licensing, and we have a handful of places where we’re working and now a different phases of progress, some are just signing CDAs, some are us reviewing term sheets and a couple of us trying to work through a couple of those term sheets and get something done.

So, the plan is to continue to do that and license the product and get it out in to all the areas outside the US whether it’s hemodialysis patients. .

Well I know that currently you do not have the authorization to use stock as an incentive to hire employees, at least until the shareholders meeting.

Is that something that’s kind of holding you back until that time gets rolled on?.

No, that hasn’t had any effect on our ability to out-license Triferic. .

Well I’m not talking out-license, I’m talking about recruiting people to help you? How important is getting that plan in place?.

Well, yes, I think it’s always important for a public company to have equity to entice, to attract, to retain, to reward top talent. So we’ve had like any business there’s always some challenges. We pursue folks and some of them we get and some of them we don’t.

As far as related directly to the personnel in the BD area, we haven’t run in to a problem with the equity, but it’s always important to have equity. .

And I know it’s impossible to tell what’s going on in the minds of the people at CMS and CMMI.

But is there a date beyond which you would not wait any longer for CMS to act or have you or the Board of Directors even considered that?.

Well certainly we consider it, but we haven’t determined a final cutoff date for seeking separate reimbursement.

We believe it’s in the best interest of the company and the shareholders to move forward and work to get that reimbursement, but we’re continually assessing the status or the request and the option is on the table, and as we go forward, we’ll certainly let shareholders know. .

And one question, I don’t know if Ben wants to take questions or not, but how involved has the Board or at least the Chairman of the Board been in any of the negotiations or communications that you’ve had with your lawyers, your lobbyist and with officials from CMMI?.

I’m happy to answer that question. So the Board has been working hand-in-hand with management to determine the best path forward for the company. All direct communications with CMMI or other parts of Washington DC are handled by management and the associated individuals outside of management who are working on our behalf. .

I’ve got one last question for Tom.

If you guys do decided to use some of the Triferic you’ve got on reserve to increase the free sample program, would you make an adjustment to the cost of goods sold line in upcoming quarters to reflect that use?.

Yes, I think the shorter answer would be a reclassification from cost of goods to selling, general and administrative and the expense would be about the same amount, be a push on the P&L..

And maybe one last question for Rob again, I hate to harp on the free sample program, but there are like 1700 in the United States, and you haven’t publicly disclosed how many are involved in the free sample policy, but it can’t be a very large percentage.

Do you have any guidance that you can offer us on how much you might want to increase that between now and any kind of decision from CMS..

Well on the answer on do we want to increase it is yes, and we’re increasing it. We’re increasing the size and the scope of that program really every week. I think the more important thing to think about with the sample program isn’t so much the number of clinics in the US and how many, but the actual makeup, right. So it’s a very consolidated market.

As you know five, six, seven clinics or companies make up the bulk of that market and because they are large companies, some of them are public, we haven’t given out their names, but certainly some of the in that five, six, seven number, some of those folks are certainly participating and we continue to expand the program. .

We’ll take our next question from Greg [Sibentin], a private investor. Please go ahead..

A couple of questions, first on the liquidity, Tom you mentioned you did not see any additional capital needs for at least 12 months, was that correct?.

Yes, that’s correct.

Based on our current cash usage which has been pretty consistent over the last year, we have 28 million in cash as of the end of March and we used 4.6 million in our operating cash for the quarter, and that would translate in to at least a year to six quarters of cash available, not to say that we’re going to wait or do something but we certainly would.

We have enough cash right now and if we get reimbursement based on the number of clinics that we’ve got on board, we think we would be cash flow neutral relatively quickly. .

With regards to Calcitriol I got in to the stock four years ago based on the Calcitriol launch, and we’ve been patiently waiting. On the call last year in November we were told it would be roughly a four month expedited process. Now on the last update that we received Rob, looks like it’s going to be August.

Is there something that caused a delay in the four month process?.

Well without taking a shot at the FDA that’s the result. I mean that’s why there is a delay. The generic drug division runs a little bit different than the new drug approvals and there’s no hard timelines on generic drugs, they go through ebbs and flows of being backed up and then being up to speed.

We’re generic drug division with Calcitriol, the way generally those reviews work is there’s parts to them, there’s the CMC section, there’s some other section and the FDA always takes a look to see down the manufacturing line if these companies have been audited in the last or inspected in the last two years, and with just kind of where we are there’s been no issue that they’ve directed our attention to on why this has taken so long.

.

Got it.

So it could be before August or worst case it’s that August deadline that they gave, correct?.

Well, yes, they’ve given us a deadline to give us our response, August 19, they’ve let us know that we do have expedited approval or review which sometimes helps, maybe it will be before August 19, but I think we’re all better off just thinking August 19 and hoping they hit their number. .

And hypothetically if it is approved, you mentioned earlier on the call that you don’t anticipate any sales revenue this year, correct?.

Yeah most likely we expect to be anything material this year. .

Okay, so safe to say without Triferic bundle being approved, without Calcitriol being sold, the only revenues you can see the rest of the year are from the existing businesses that we currently have?.

That’s correct. .

And our cash position is --. Sorry, go ahead..

There could be a potential for some cash to come in through the licensing deal but I can’t guarantee you that. .

Understood. So our worst case is existing business for the rest of this year.

We have enough cash on hand to weather the storm until potentially selling Calcitriol on the market next year and then if Triferic doesn’t get the approval we’re looking for then the Board and the company might consider selling it as is, is that pretty much summing up, if I’m understanding it correctly?.

No, I wouldn’t say that. As far as Triferic goes like I said, we don’t have a hard day right now, we’re saying by this date if this does happens or doesn’t happen we’re doing X. We don’t have something like that right now for Triferic.

And so certainly the timing of the Triferic separate reimbursement if it becomes approved that plays a role and what we’ll do going forward. And we’re just evaluating all those options and hopefully we’ll have some more information that help us come to some conclusions here soon. .

Just a last question for clarification, and you may or may not want to be able to answer this.

What is the rough difference in terms of revenue per dosage for Triferic based on selling it as is or waiting for the bundle package? Is that big enough difference why we’re so persistent on waiting and waiting for the FDA and CMS to give us the approval? Is that big of a gap?.

Well there’s a few issues. There’s certainly a significant – there’s significantly more value with having separate reimbursement. But the Triferic, the separate reimbursement the reason we’re going after separate reimbursement is for a couple of reasons or a few reasons, one is that certainly for patients feeling they have widespread access.

Separate reimbursement will incentivize providers to use the therapy quickly and just really cross all their clinics. It’s a cost saving measure not only for providers, but for Medicare. That’s certainly an important issue for the renal space as far as this problem they have with CMS reimbursement versus new innovative therapies and innovation.

And just all the way around it brings significantly more value to everybody including the shareholders. .

Got it. So hopefully soon rather than later because it seems like we’re going through or writing off inventory because we can’t sell it yet.

And my main concern at this point being an individual investor like, I’m sure there’s a lot of frustrated investors that we have a great product, but it looks like we just haven’t been able to not only bring Calcitriol to the market, but bring Triferic to the market after three and four years of getting the necessary approvals.

So with that I thank you guys for your time and wish everybody good luck. .

Ladies and gentlemen, this does conclude today’s question-and-answer session. I’d like to turn the conference back over to Rob Chioini for additional or closing remarks. .

We just want to thank all our shareholders for supporting Rockwell and we’ll continue to work hard and look forward to talk to you on the next call or updating you in advance of that. Thank you..

This concludes today’s conference. Thank you for participation. You may now disconnect..