What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-17 · 101 added, 58 removed, 152 unchanged (51% of the section changed)

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We are marketing both products to kidney dialysis centers for their patients receiving dialysis.

In 2021, we intend to advance our FPC platform strategy by starting a Phase 2 trial for the treatment of iron deficiency anemia in patients outside of dialysis, who are receiving intravenous ("IV") medications in the home infusion setting.

In 2021, we intend to advance our FPC platform strategy outside of dialysis by starting a Phase 2 trial for the treatment of iron deficiency anemia in patients who are receiving long-term and or chronic intravenous (“IV”) medications for various therapeutic needs in the home infusion setting..

The trend toward providing medical care, including the delivery of medicines, at home make the home infusion market a rapidly growing area of healthcare.

We believe that the home infusion setting is a natural path for expansion of our platform as many of the patients suffer from diseases that are associated with iron deficiency and anemia.

In our R&D pipeline, we are also investigating FPC’s impact in the treatment of hospitalized patients with acute heart failure, with the potential to begin another Phase 2 trial in these patients in 2022.

We believe that the home infusion setting is a natural path for expansion of our platform as many of the patients suffer from chronic diseases that are associated with iron deficiency and anemia.

We are currently seeking additional FDA feedback and clarification regarding the clinical development plan for FPC in the home-infusion setting.

Our expectations regarding the commencement of a Phase 2 trial in 2021 is based on the assumption that the FDA agrees with the development plan as we have proposed.

In our R&D pipeline, we are also investigating FPC’s impact on iron deficiency in the treatment of hospitalized patients with acute heart failure, with the potential to begin another Phase 2 trial in these patients in 2022.

We are the second largest supplier of hemodialysis concentrates in the United States, with a reputation for excellent service, quality, and reliability.

We believe that this reputation, which is based on over 25 years of service to the kidney dialysis centers, combined with about $60 million in annual revenue, approximately 300 dedicated employees, expertise in manufacturing and logistics and the added expertise in pharmaceutical development and commercialization brought to the Company by recent additions to our management team, gives us a solid foundation on which to grow.

We believe that this reputation, which is based on over 25 years of service to the kidney

dialysis centers, combined with about $60 million in annual revenue, approximately 300 dedicated employees, expertise in manufacturing and logistics and the added expertise in pharmaceutical development and commercialization brought to the Company by recent additions to our management team, gives us a solid foundation on which to grow.

At Rockwell Medical, we are dedicated to replacing the currently inadequate standard of care for treatment of iron deficiency in acute and chronic disease by leveraging our proprietary FPC platform technology.

We believe that our proprietary drug platform, FPC, is a next-generation parenteral iron therapeutic.

We believe our FPC platform has several advantages over other parenteral iron therapies.

Importantly, it provides iron that is immediately available for critical body processes once it is administered.

We believe that our proprietary drug platform, FPC, is a next-generation parenteral iron therapeutic that has several advantages over other parenteral iron therapies.

Importantly, it provides iron that is immediately bioavailable for critical body processes once it is administered.

It has been demonstrated to be safe and well-tolerated, with a safety profile similar to placebo.

Iron deficiency can develop into a serious medical condition that is often overlooked and undertreated in several illnesses because it is hard to treat.

Iron deficiency, which is often overlooked and undertreated in several illnesses because of the difficulty in treating them, can develop into a serious medical condition when left untreated.

It is a common comorbidity in many disease states, such as end-stage kidney disease, chronic kidney disease, acute heart failure, cancer and multiple chronic gastrointestinal conditions.

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We believe these changes support an improved execution of our strategy to generate data that will support future commercial growth, fair reimbursement and regulatory approvals.

Our strategy is to accelerate Rockwell’s growth by creating and developing pharmaceutical products based on our FPC technology for disease states where patients can benefit the most from an effective treatment for iron deficiency, while concurrently refining our dialysis business to drive incremental growth and efficiencies.

We plan to leverage and build on the foundation provided by our current dialysis business serving kidney dialysis centers by developing a pipeline of additional potential drug therapies in multiple disease states.

Our strategy is to accelerate Rockwell’s growth by creating and developing pharmaceutical products based on our FPC technology for disease states where patients can benefit the most from an effective treatment for iron deficiency or iron deficiency anemia, while concurrently refining our dialysis business to drive incremental growth and efficiencies.

We have preliminarily identified three disease states where we believe FPC may have the biggest impact.

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In addition, we expect to study Triferic use with the innovations that we believe have the potential to change future medical practices (e.g.

introduction and adoption of HIF-PHIs).

introduction and adoption of HIF-PHIs), subject to FDA approval.

We believe that positive data from these studies would better position Triferic for long-term growth.

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Home Infusion Program:

We are initiating a clinical trial program of FPC for the treatment of iron deficiency anemia in the home-infusion setting.

Many patient groups requiring home infusion therapies suffer from chronic diseases that are associated with a high incidence of iron deficiency and anemia.

We plan to initiate a clinical trial program of FPC for the treatment of iron deficiency anemia in the home-infusion setting.

Many patient groups requiring home infusion therapies suffer from chronic diseases that

are associated with a high incidence of iron deficiency and anemia.

Home infusion represents a large and rapidly-growing segment of healthcare where we believe FPC may have distinct advantages over currently available iron replacement therapy options.

Pipeline Development:

We are investigating the use of our FPC platform for the treatment of hospitalized patients with acute heart failure.

We are investigating the use of our FPC platform for the treatment of iron deficiency in hospitalized patients with acute heart failure.

We believe that FPC may deliver rapidly bioavailable iron to the heart and improve cardiac energetics.

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In addition, we believe the hemodialysis industry may experience a great deal of change over the next several years.

We plan to take the steps necessary to generate the data necessary to potentially allow Triferic and Triferic AVNU to benefit from these new innovations, such as the potential approval of a class of drugs, known as hypoxia-inducible factor prolyl hydroxylase inhibitors ("HIF-PHIs"), as well as the new, solid-state dialysis equipment in development.

We plan to take the steps necessary to

generate the data necessary to potentially allow Triferic and Triferic AVNU to benefit from these new innovations, such as the potential approval of a class of drugs, known as hypoxia-inducible factor prolyl hydroxylase inhibitors ("HIF-PHIs"), as well as the new, solid-state dialysis equipment in development.

We are planning to study Triferic in combination with these potential new innovations as they become available.

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Home Infusion

Our growth strategy is to go beyond our foundational business in dialysis by leveraging the efficacy and safety data from Triferic.

Our growth strategy is to go beyond our foundational business in dialysis by leveraging the pre-clinical, clinical pharmacology and safety data from Triferic.

We are planning to develop an FPC-based therapeutic for iron deficiency to be given in the home infusion setting.

The number of patients served by home infusion therapy has grown from approximately 800,000 in 2010 to over 3,000,000 in 2019.

The home infusion setting is expected to continue to expand, which has been further supported with the COVID-19 environment.

According to the National Home Infusion Association, the number of patients served by home infusion therapy has grown from approximately 800,000 in 2010 to over 3,000,000 in 2019.

The home infusion setting is expected to continue to expand, which has been further accelerated by the COVID-19 pandemic and the desire to reduce or eliminate hospital and or clinic exposure.

Many patient groups requiring home infusion therapies suffer from diseases that are associated with an incidence of iron deficiency and anemia.

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We believe, based on our data with hemodialysis patients, FPC as a home infusion therapy for iron deficiency anemia may have distinct advantages over currently available iron replacement therapy options.

Based on feedback received in March 2021 from the FDA, we plan on initiating a Phase 2 clinical study in home infusion patients with iron deficient anemia during the second half of 2021 to confirm the dose and duration of FPC treatment.

We plan on initiating a Phase 2 clinical study in home infusion patients with iron deficient anemia during the second half of 2021 to confirm the dose and duration of FPC treatment.

We expect data from the trial in the second half of 2022.

The company is planning to review this clinical plan in a meeting with the FDA in 2021.

After reviewing with the FDA, apply feedback, initiate the trial and, if necessary, update our clinical plan and related timelines.

Prior to commencing this study, the company is planning to further review and discuss this clinical plan with the FDA.

After reviewing the development plan with the FDA, and subject to clarifying expected clinical development requirements, we expect to initiate the trial in the second half of 2021.

Pipeline Development

In our R&D pipeline, we are also exploring FPC’s impact in the treatment of hospitalized heart failure patients.

In our R&D pipeline, we are also exploring FPC’s impact in the treatment of iron deficiency in hospitalized heart failure patients.

More than one million people in the United States are hospitalized each year for acute heart failure.

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We believe that FPC may deliver rapidly bioavailable iron to the heart and improve cardiac energetics during hospitalization.

This effect could help patients recover faster resulting in shorter hospital stays and fewer 30-day re-admissions.

This effect could help patients recover faster resulting in improved function, shorter hospital stays and fewer 30-day re-admissions.

If so, these outcomes would translate into a meaningful reduction in healthcare costs and human suffering.

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We are considering disease states where patients can benefit the most from an effective treatment for iron deficiency, and where the development path, cost estimates and reimbursement are the most favorable.

Results of Operations for the Three Months Ended March 31, 2021 and 2020

Results of Operations for the Three Months Ended June 30, 2021 and 2020

The following table summarizes our operating results for the periods presented below (dollars in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30,

2021 % of Revenue 2020 % of Revenue % Change

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Cost of Sales 15,399 101.7 % 15,015 94.5 % 2.6

Gross (Loss) Profit (262) (1.7) 881 5.5 (129.7)

Research and Product Development 2,416 16.0 1,616 10.2 49.5

Selling and Marketing 1,468 9.7 1,997 12.6 (26.5)

General and Administrative 3,677 24.3 2,871 18.1 28.1

Operating Loss $ (7,823) (51.7) % $ (5,603) (35.2) % 39.6 %

During the three months ended June 30, 2021, our net sales were $15.1 million compared to net sales of $15.9 million during the three months ended June 30, 2020.

The decrease of $0.8 million was primarily due to a decrease in sales of dialysis concentrates products.

Cost of sales during the three months ended June 30, 2021 was $15.4 million, resulting in gross loss of $0.3 million during the three months ended June 30, 2021, compared to cost of sales of a $15.0 million and a gross profit of $0.9 million during the three months ended June 30, 2020.

Gross profit decreased by $1.2 million mainly due to a decrease in concentrate sales and an increase in costs related to protocols implemented because of the ongoing COVID-19 pandemic, shipping, fuel and labor.

Research and Product Development Expense

Research and product development expenses were $2.4 million for the three months ended June 30, 2021, compared with $1.6 million during the three months ended June 30, 2020.

The increase of $0.8 million was primarily due to the Company continuing to invest in its medical and scientific programs to support the continued advancement of our FPC technology platform.

Selling and Marketing Expense

Selling and marketing expenses were $1.5 million during the three months ended June 30, 2021, compared with $2.0 million during the three months ended June 30, 2020.

The decrease of $0.5 million is primarily due to a decrease in marketing costs related to Triferic (dialysate) partially offset by a slight increase in costs associated with the launch of Triferic AVNU.

General and Administrative Expense

General and administrative expenses were $3.7 million during the three months ended June 30, 2021, compared with $2.9 million during the three months ended June 30, 2020.

The increase of $0.8 million is due primarily to an increase in stock compensation of $1.9 million, which was a decrease in incentive compensation in Q2 2020 of $1.5 million from forfeited equity awards of the former President and Chief Executive Officer;

partially offset by a decrease of $0.8 million for the reduction of severance costs related to our former President and Chief Executive Officer.

Other Income (Expense)

Other income for the three months ended June 30, 2021 was $7,000, consisting primarily of interest income.

Other income for the three months ended June 30, 2020 was $0.1 million, consisting primarily of interest income.

Other expense for the three months ended June 30, 2021 was $0.6 million of interest expense related to our debt facility (see Note 15 for more

information on our debt facility).

Other expense for the three months ended June 30, 2020 was $1.4 million, consisting of interest expense of $0.5 million related to our debt facility and warrant modification expense of $0.8 million.

Results of Operations for the Six Months Ended June 30, 2021 and 2020

The following table summarizes our operating results for the periods presented below (dollars in thousands):

For the Six Months Ended June 30,

2021 % of Revenue 2020 % of Revenue % Change

Net Sales $ 30,611 $ 31,753 (3.6) %

Cost of Sales 30,471 99.5 % 29,759 93.7 % 2.4

Gross Profit 140 0.5 1,994 6.3 (93.0)

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Operating Loss $ (15,005) (49.0) % $ (13,658) (43.0) % 9.9 %

During the three months ended March 31, 2021, our net sales were $15.5 million compared to net sales of $15.9 million during the three months ended March 31, 2020.

During the six months ended June 30, 2021, our net sales were $30.6 million compared to net sales of $31.8 million during the six months ended June 30, 2020.

The decrease of $1.2 million was primarily due to a decrease in sales of dialysis concentrates products.

Cost of sales during the three months ended March 31, 2021 was $15.1 million, resulting in gross profit of $0.4 million during the three months ended March 31, 2021, compared to cost of sales of a $14.7 million and a gross profit of $1.1 million during the three months ended March 31, 2020.

Gross profit decreased by $0.7 million mainly due to a decrease in concentrate sales and an increase in costs related to protocols implemented because of the ongoing COVID-19 pandemic.

Cost of sales during the six months ended June 30, 2021 was $30.5 million, resulting in gross profit of $0.1 million during the six months ended June 30, 2021, compared to cost of sales of a $29.8 million and a gross profit of $2.0 million during the six months ended June 30, 2020.

Gross profit decreased by $1.9 million mainly due to a decrease in concentrate sales and an increase in costs related to protocols implemented because of the ongoing COVID-19 pandemic, shipping and fuel costs and labor.

Research and Product Development Expense

Research and product development expenses were $1.8 million for the three months ended March 31, 2021 and 2020.

The Company is continuing to invest in its medical and scientific programs to support the continued data and phase 4 clinical programs for Triferic in dialysis and the advancement of our FPC technology platform.

Research and product development expenses were $4.2 million for the six months ended June 30, 2021, compared with $3.4 million during the six months ended June 30, 2020.

This increase of $0.8 million is primarily due to continued investments the Company is making in its medical and scientific programs to support the continued advancement of our FPC technology platform.

Selling and Marketing Expense

Selling and marketing expenses were $1.9 million during the three months ended March 31, 2021, compared with $2.1 million during the three months ended March 31, 2020.

Selling and marketing expenses were $3.3 million during the six months ended June 30, 2021, compared with $4.1 million during the six months ended June 30, 2020.

The decrease of $0.8 million is primarily due to a decrease in marketing costs related to Triferic (dialysate) partially offset by a slight increase in costs associated with the launch of Triferic AVNU.

General and Administrative Expense

General and administrative expenses were $3.9 million during the three months ended March 31, 2021, compared with $5.3 million during the three months ended March 31, 2020.

The decrease of $1.4 million is due primarily to a decrease in stock compensation of $1.2 million, relating to a decrease in incentive compensation from forfeited equity awards and the change in probability relating to performance award achievement;

General and administrative expenses were $7.6 million during the six months ended June 30, 2021, compared with $8.1 million during the six months ended June 30, 2020.

The decrease of $0.5 million is due primarily to a decrease of $0.8 million from the completion of severance pay related to our former President and Chief Executive Officer (CEO);

a decrease in legal costs of $0.3 million, relating to previous litigation that has since been resolved;

and a decrease in insurance costs of $0.1 million, relating to reduced premiums;

partially offset by an increase of $0.1 million for increased headcount and severance pay related to our former President and Chief Executive Officer.

and a decrease in insurance and accounting costs of $0.2 million, relating to reduced premiums;

partially offset by an increase of $0.7 million for stock compensation, relating to a decrease in Q2 2020 incentive compensation from forfeited equity awards related to our former President and CEO.

Other Income (Expense)

Other income for the three months ended March 31, 2021 was $11,000, consisting primarily of interest income.

Other income for the three months ended March 31, 2020 was $0.2 million, consisting primarily of interest income.

Other expense for the three months ended March 31, 2021 was $0.6 million of interest expense related to our debt facility (see Note 15 for more

information on our debt facility).

Other expense for the three months ended March 31, 2020 was $0.1 million of interest expense.

Other income for the six months ended June 30, 2021 was $18,000, consisting primarily of interest income.

Other income for the six months ended June 30, 2020 was $0.2 million, consisting primarily of interest income.

Other expense for the six months ended June 30, 2021 was $1.2 million of interest expense related to our debt facility (see Note 15 for more information on our debt facility).

Other expense for the six months ended June 30, 2020 was $1.5 million, consisting of warrant modification expense of $0.8 million and interest expense of $0.6 million related to our debt facility.

Liquidity and Capital Resources

Since inception, Rockwell has incurred significant net losses and has funded its operations primarily through revenue from commercial products, proceeds from the issuance of debt and equity securities and payments from partnerships.

At March 31, 2021, Rockwell had an accumulated deficit of approximately $345.2 million and stockholders' equity of $26.2 million.

As of March 31, 2021, Rockwell had approximately $46.1 million of cash, cash equivalents and investments available-for-sale, and working capital of $48.0 million.

Net cash used in operating activities for the three months ended March 31, 2021 was approximately $12.5 million.

Based on the currently available working capital, capital raise and debt financing noted above, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report.

At June 30, 2021, Rockwell had an accumulated deficit of approximately $353.6 million and stockholders' equity of $18.2 million.

As of June 30, 2021, Rockwell had approximately $41.0 million of cash, cash equivalents and investments available-for-sale, and working capital of $18.4 million.

Net cash used in operating activities for the six months ended June 30, 2021 was approximately $17.4 million.

The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus.

As of the date of this report, the Company is in compliance with all covenants.

As a result of the ongoing COVID-19 pandemic and its effect on the Company's sales activities, among other factors, the Company may not be able to satisfy such covenants over the next 12 months.

However, based on the foregoing, the Company has classified amounts payable under the Loan Agreement as a current liability.

If and when the Company reaches an agreement with Innovatus to avoid an event of default, the amounts payable under the Loan Agreement will be reclassified.

The financial statements for June 30, 2021, have been prepared with the assumption that the Company will be able to agree to an appropriate remedy during the applicable cure period for any future breaches of operating covenants.

If the Company is unable to comply with the covenants under the Loan Agreement, it would pursue all available cure options in order to regain compliance (See Note 15 for further detail).

The Company expects it will require additional capital to sustain its operations and make the investments it needs to execute its strategic plan, including the commercialization of Triferic (dialysate) and Triferic AVNU in dialysis, generating additional data for Triferic in dialysis, developing FPC for iron deficiency anemia in patients undergoing home infusion and for progressing our pipeline development program of new indications for its FPC platform.

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If the Company attempts to obtain additional debt or equity financing, the Company cannot assume that such financing will be available on favorable terms, if at all.

In addition, the Company is subject to certain covenants and cure provisions under our Loan Agreement with Innovatus.

As of the date of this report, the Company is in compliance with all covenants.(See Note 15 for further detail).

Based on the currently available working capital and managements assumption that the Company will be able to agree to an appropriate remedy, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report.

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 expenses and revenue associated with the commercial operations in the United States and internationally (with partners);

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the timing and expenditures associated with the development programs including our FPC technology for home infusion and potentially acute heart failure;

and the costs associated with our manufacturing and transportation operations related to our concentrate business.

the costs associated with our manufacturing and transportation operations related to our concentrate business;

any potential accelerated amortization under the Loan Agreement in the event of a failure to satisfy operating covenants..

We may elect to raise capital in the future through one or more of the following:

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If our planned clinical program is delayed or fails or if our commercialization of Triferic (dialysate) and/or Triferic AVNU should fail to increase sales, we may be forced to implement cost-saving measures that may potentially have a negative impact on our activities and potentially the results of our research and development programs.

Even though we began commercialization of Triferic (dialysate) and Triferic AVNU as planned, if the results are unsuccessful, we may be unable to secure the additional capital that we will require to continue our research and development activities and operations, which could have a material adverse effect on our business.

research and development activities and operations, which could have a material adverse effect on our business.

If we are unable to raise the required capital, we may be forced to curtail all of our activities and, ultimately, cease operations.

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Cash Used in Operating Activities

Net cash used in operating activities was $12.5 million for the three months ended March 31, 2021 compared to net cash used in operating activities of $6.5 million for the three months ended March 31, 2020.

Net cash used in operating activities was $17.4 million for the six months ended June 30, 2021 compared to net cash used in operating activities of $16.2 million for the six months ended June 30, 2020.

The increase in cash used from operating activities during the current period was primarily due to changes in current balance sheet accounts in the ordinary course of business of approximately $3.0 million, including an increase in net accounts receivable of $1.2 million and a reduction in accounts payable and accrued expense of approximately $0.4 million.

Our cash used in Q1 is normally higher due to one-time annualized payments and further affected by some timing issues related to the receipt of payments for product sales and reimbursements from one of our large customers, which was received in early April.

Overall, our cash burn for the first quarter was in line with our expectations, and we continue to expect, in aggregate, 2021 cash burn to be lower than 2020 cash burn.

Cash (Used In) Provided by Investing Activities

Net cash used in investing activities was $0.5 million during the three months ended March 31, 2021 compared to net cash provided by investing activities of $2.6 million for the three months ended March 31, 2020.

The net cash used in investing activities during the three months ended March 31, 2021 was primarily due to sales and purchase of available-for-sale investments during the quarter.

Cash Provided by Financing Activities

Net cash provided by financing activities was nil during the three months ended March 31, 2021 compared to the net cash provided by financing activities of $29.6 million for the three months ended March 31, 2020.

The net cash provided during the three months ended March 31, 2020 was primarily due to net proceeds of $22.1 million related to proceeds from the debt facility and $8.0 million from the sale of our common stock, related to our public offering, offset by $0.6 million for payments on short term notes.

Overall, our cash burn for the six months ended June 30, 2021 was in line with our expectations, and we continue to expect, in aggregate, 2021 cash burn to be lower than 2020 cash burn.

Cash Provided by Investing Activities

Net cash provided by investing activities was $1.1 million during the six months ended June 30, 2021 compared to net cash provided by investing activities of $0.7 million for the six months ended June 30, 2020.

The net cash provided by investing activities during the six months ended June 30, 2021 was primarily due to sales and purchase of available-for-sale investments during the quarter.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $6,000 during the six months ended June 30, 2021 compared to the net cash provided by financing activities of $30.4 million for the six months ended June 30, 2020.

The net cash provided during the six months ended June 30, 2020 was primarily due to net proceeds of $21.2 million related to proceeds from the debt facility and $8.0 million from the sale of our common stock, related to our public offering, offset by $0.8 million for payments on short term notes.

COVID-19 Impact

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We have evaluated all recently issued accounting pronouncements and believe such pronouncements do not have a material effect our financial statements.

See Note 3 of the condensed consolidated financial statements at March 31, 2021.

See Note 3 of the condensed consolidated financial statements at June 30, 2021.

ROCKWELL MEDICAL, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis