What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 155 added, 159 removed, 68 unchanged (82% of the section changed)

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our ability to raise additional capital;

our ability to regain compliance with Nasdaq Listing Rules and maintain our Nasdaq listing;

our ability to renegotiate certain terms of our supply contracts;

our ability to successfully implement certain cost containment and cost-cutting measures and statements regarding our anticipated future financial condition, operating results, cash flows and business plans.

While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which are based on information available to us on the date of this report or, if made elsewhere, as of the date made.

While we believe our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which are based on information available to us on the date of this report or, if made elsewhere, as of the date made.

Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different.

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Other factors not currently anticipated may also materially and adversely affect our results of operations, cash flow and financial position.

There can be no assurance that future results will meet expectations.

There can be no assurance future results will meet expectations.

Forward-looking statements speak only as of the date of this report and we expressly disclaim any intent to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Overview and Recent Developments

Rockwell Medical is a commercial-stage, biopharmaceutical company developing and commercializing our next-generation parenteral iron technology platform, Ferric Pyrophosphate Citrate ("FPC"), which we believe has the potential to lead to transformative treatments for iron deficiency in multiple disease states, reduce healthcare costs and improve patients’ lives.

We are also one of the two major suppliers of life-saving hemodialysis concentrate products to kidney dialysis clinics in the United States.

We have two novel, FDA approved therapies, Triferic and Triferic AVNU, which are the first two products developed from our FPC platform.

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

In late 2021, we filed an IND with the United States Food and Drug Administration ("FDA") with the goal to advance our FPC platform strategy by conducting a Phase II trial in the second half of 2022 for the treatment of iron deficiency anemia in patients outside of dialysis, who are receiving intravenous ("IV") medications in the home infusion setting.

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

We believe the home infusion setting is a natural path for expansion of our platform as many of the patients suffer from diseases 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.

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

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 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 in clinical trials.

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

We believe this reputation, which is based on over 25 years of service to the kidney dialysis centers, combined with approximately $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, provides us with a solid foundation on which to grow.

Rockwell Medical is a commercial healthcare company focused on providing life-sustaining products for patients suffering from blood disorders and diseases associated with the kidney.

Rockwell is a revenue-generating business and the second largest supplier of acid and bicarbonate concentrates for dialysis patients in the United States.

Hemodialysis is the most common form of end-stage renal disease treatment and is usually performed at a freestanding outpatient dialysis center, at a hospital-based outpatient center, or at the patient’s home.

We manufacture our hemodialysis concentrates under cGMP regulations at our three facilities in Michigan, Texas, and South Carolina totaling approximately 175,000 square feet, from which we deliver these products to dialysis clinics throughout the United States with our own delivery fleet as well as third parties.

We also manufacture mixers that are used by clinics in our Iowa facility.

Rockwell has developed a core expertise in manufacturing and delivering hemodialysis concentrates, and has built a longstanding reputation for reliability, quality, and excellent customer service.

Rockwell commercializes Triferic in the United States, an FDA-approved treatment indicated for the replacement of iron to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease.

Rockwell also has a number of partnerships with companies seeking to develop and commercialize Triferic outside the United States.

Rockwell is working closely with these partners to progress these programs.

We have an emerging portfolio of drug development candidates we are pursuing.

Rockwell is developing a next-generation, proprietary parenteral iron technology platform, Ferric Pyrophosphate Citrate (“FPC”).

We believe our FPC platform has several advantages over other parenteral iron therapies by immediately providing bioavailable iron for critical

body processes once it is administered.

Rockwell plans to move product candidates derived from this platform into the clinic to treat iron-deficiency anemia in the home infusion setting and for acute heart failure.

Together, with our dedicated employees and deep expertise in manufacturing and logistics and pharmaceutical development and commercialization, We believe Rockwell is well-positioned to realize sustainable business growth and support our mission to provide life-sustaining products for patients suffering from blood disorders and diseases associated with the kidney.

Strategy Overview and Portfolio Evolution

Rockwell’s strategy is to accelerate the Company’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 concentrates 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 outside of nephrology.

Concentrates Business:

Rockwell is the second largest supplier of life-sustaining hemodialysis concentrate products to dialysis clinics in the United States.

Our concentrate products are used to sustain patient lives by removing toxins and balancing electrolytes in a dialysis patient’s bloodstream.

A key element of our dialysis business strategy going forward is to improve the strength of our concentrates business.

We believe that we can achieve this by creating efficiencies, enhancing our manufacturing and transportation operations, and fully recouping manufacturing and shipping expenses to drive profitability.

To date, our concentrates business has operated at a loss.

This loss has accelerated due to inflation, which has increased our manufacturing and operating costs.

We undertook discussions with our largest customers to renegotiate our existing supply contracts to improve the profitability of this business line.

On April 6, 2022, we amended our agreement with our long-time partner, DaVita, Inc.

("DaVita"), a leading provider of kidney care, to enable us to stabilize our concentrates business.

The amended agreement provides a stronger financial arrangement which encompasses pricing, cost share, cost cutting, and joint efforts to improve supply chain, all of which is intended to drive Rockwell’s concentrates business to operate profitably in the future.

In addition to the amended agreement, DaVita invested $15 million in preferred stock in two equal tranches.

The first tranche of $7.5 million was funded on April 7, 2022.

The second tranche of $7.5 million was funded on June 16, 2022.

We are reviewing our entire supply chain to identify opportunities for improvement, prioritizing initiatives that will have the largest impact on long-term efficiency, profitability, and growth.

Our first two branded products from our FPC platform, TRIFERIC ® (dialysate) and TRIFERIC ® AVNU (intravenous, “IV”), are used to maintain hemoglobin in patients undergoing hemodialysis.

We began commercializing TRIFERIC ® and TRIFERIC ® AVNU in the United States in the second half of 2019 and in early 2021, respectively.

In April 2021, we received marketing approval for TRIFERIC ® AVNU from Health Canada for the replacement of iron to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease, which is the first international regulatory approval for our intravenous therapy.

In 2021, due to restrictions from the Covid pandemic and following our assessment of our strategic priorities and development strategy, we scaled back our commercial organization and began seeking a commercial partner for the United States market.

We are also seeking to partner with established local and regional pharmaceutical companies for regulatory approval and commercialization in markets outside of the United States.

Our strategy for growth includes the expansion of TRIFERIC® sales outside the United States by licensing it to key partners for development and/or commercialization.

Partnering in these regions allows us to better leverage the development, regulatory, commercial presence and expertise of business partners to increase sales of our products throughout the world.

To date, we have established partnerships in China, India, Korea, Turkey, Peru and Chile.

We continue to pursue international licensing opportunities in other countries and regions.

FPC Platform and Home Infusion:

Our strategy going forward is to go beyond our foundational business in dialysis by leveraging the pre-clinical and clinical data from the development of TRIFERIC ® in new therapeutic settings such as home infusion.

We believe the home infusion setting represents a natural pathway to expand our FPC platform as many of the patients suffer from chronic diseases associated with the development of iron deficiency and anemia.

The number of patients served by home infusion therapy grew from approximately 800,000 in 2010 to over 3,000,000 in 2019 and is projected to accelerate in the wake of COVID-19.

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

For example, it is estimated 40% to 55% of

all home parenteral nutrition patients are iron deficient at any time.

Based on pre-clinical data and clinical data in other therapeutic settings, we believe FPC may have distinct advantages over currently available iron replacement therapy options in the home infusion setting.

In late 2021, we filed an Investigational New Drug (“IND”) application with the United States Food and Drug Administration (“FDA”) for the treatment of iron deficiency anemia in patients, who are receiving medications in the home infusion setting.

Based on feedback received from the FDA, and subject to having sufficient working capital resources, we have made plans to launch a Phase II clinical trial in the first half of 2023 to confirm the dose and duration of FPC treatment.

We would expect to have top-line data from the trial approximately 12 to 18 months following commencement of the trial.

In the interim, we continue to assess our strategic priorities and rationalizing our development strategy based on risk profiles of each opportunity.

Pipeline Development:

In our research and development pipeline, Rockwell is exploring FPC’s impact on the treatment of hospitalized acute heart failure patients, which affects more than one million people in the United States annually Clinical improvement in heart failure has already been demonstrated in an outpatient [chronic] setting with large macromolecular forms of intravenous iron.

We believe FPC may improve cardiac energetics during hospitalization by delivering rapidly bioavailable iron to the heart.

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

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

Reverse Stock Split

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The reverse stock split resulted in an adjustment to the Series X convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion.

All share and per share data in these condensed consolidated financial statements and related notes hereto have been retroactively adjusted to the account for the effect of the reverse stock split for the three month periods ended March 31, 2022 and 2021, respectively, and the balance sheet at March 31, 2022 and December 31, 2021.

Strategy Evolution and Overview

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.

Home Infusion Program:

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

Subject to having sufficient capital resources, we are planning to develop an FPC-based therapeutic for iron deficiency to be delivered in the home infusion setting.

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

The home infusion setting is expected to continue this rapid expansion, which has been accelerated by the COVID-19 environment.

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

For example, it is estimated that 40%-55% of all home parenteral nutrition patients are iron deficient.

We believe, based on our data from 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 further feedback received in December 2021 from the FDA, we have made plans to initiate a Phase 2 clinical study in home infusion patients with iron deficient anemia to confirm the dose and duration of FPC treatment.

We expect to commence this study in 2022, subject to having sufficient working capital to fund this study, and would expect to have top-line data from the trial approximately 12-18 months following commencement of the study.

Pipeline Development:

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

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

Clinical improvement in heart failure has already been demonstrated with older first-generation forms of IV iron in clinical trials in the outpatient setting.

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.

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

Dialysis Business:

We are one of the two major suppliers of hemodialysis concentrates in the United States.

Over the past 25 years we developed a core expertise in manufacturing and delivering hemodialysis concentrates.

Because these concentrates are used to maintain human life by removing toxins and balancing electrolytes in the dialysis patient’s bloodstream, we manufacture them under cGMP regulations.

Our concentrates are manufactured in three facilities, totaling

159,000 square feet, located in Michigan, Texas and South Carolina, from which we deliver these products to dialysis clinics throughout most of the United States.

We utilize our own delivery fleet as well as third parties.

We employ approximately 300 people in the concentrates unit of our dialysis business.

We believe that the Company has earned a reputation for dependability, quality and service within our customer base.

This reputation was further strengthened during the recent challenges presented, not only by the COVID-19 pandemic, but also by supply chain disruptions due to recent natural disasters, in which our team has been challenged by hurricanes, flooding and freezing, while still meeting production demands.

During the recent shortage in dialysis concentrates, the Company was able to fill the supply gaps for many clinics because they had not received deliveries of certain products from other suppliers.

We believe our dialysis business in concentrates and our opportunities with FPC technology are synergistic.

Our first two branded products from our FPC platform, Triferic® (dialysate) and Triferic AVNU® (IV), are used to maintain hemoglobin in patients undergoing hemodialysis.

We began commercializing Triferic and Triferic AVNU in the United States in the second half of 2019 and in early 2021, respectively.

In April 2021, we received marketing approval for Triferic AVNU from Health Canada for the replacement of iron to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease, which is the first international regulatory approval for our intravenous therapy.

While we had identified a partner to commercialize the product in Canada, we terminated the distribution agreement with that partner and are seeking a new partner in Canada.

This may delay commercial availability of Triferic AVNU in Canada.

Our strategy for increasing Triferic adoption is to continue to generate data in clinics showing the benefits of Triferic in real world protocols We scaled back our commercial organization in 2021, but we are working to maintain our current customer base in the United States while we seek a commercialization partner.

We are also seeking to partner with established local and regional pharmaceutical companies for regulatory approval and commercialization in markets outside of the United States.

Despite our market position, we believe our growth opportunities for our concentrates business and Triferic in the U.S.

dialysis market are challenged by the consolidated ownership of dialysis clinics, a capitated reimbursement model and the demographics of the dialysis patient population.

The two largest dialysis organizations treat approximately 72% of the patients in the United States.

One manufactures its own concentrates and IV iron, and we have an existing agreement to supply concentrates to the other.

Through our partnership with Baxter Healthcare Corporation, a subsidiary of Baxter International, Inc.

("Baxter"), we currently supply concentrates to a significant percentage of the small and medium sized independent dialysis organizations.

In a sector like kidney dialysis, with capitated reimbursement for the dialysis procedure and all included inputs, new product success depends on compelling data demonstrating improved patient outcomes and/or pharmacoeconomics versus the current standard of care in practice in the clinics.

Once Medicare determined Triferic and Triferic AVNU would be reimbursed under the fixed bundled rate for dialysis treatment, market adoption became more dependent on the generation of these data, which were not required for the drug's approval by the FDA.

Notwithstanding the growth limitations mentioned above, we continue to believe Triferic has the potential to be an important option for the maintenance of hemoglobin in dialysis patients.

To this end, we have continued our efforts in generating real world data in clinics with current protocols, which we believe will help with the adoption of Triferic and Triferic AVNU as these results are developed and disseminated over time.

In addition, we are seeking a partner to help us further commercialize Triferic.

A key element of our dialysis business strategy is to also improve the strength of our concentrates business by creating efficiencies and enhancing our manufacturing and transportation operations and to fully recoup manufacturing and shipping expenses so this business has the potential to be profitable.

To date, our concentrates business has operated at a loss, with the loss accelerating recently as inflationary pressures have increased our manufacturing and operating costs, while we have limited ability to pass these costs along to certain customers.

We undertook discussions with our largest customers to renegotiate our existing supply contracts in an effort to improve the profitability of this business line.

On April 6, 2022, we entered into a strategic arrangement with our long-time partner, DaVita, Inc.

("DaVita"), a leading provider of kidney care, to enable the Company to stabilize its concentrates business.

The strategic intent of this agreement is to make sure Rockwell Medical is on stable financial footing because it is one of the two major suppliers of dialysis concentrates in the U.S.

The amended agreement provides a stronger financial arrangement, encompassing pricing, cost sharing and joint efforts in supply chain improvement and cost cutting, with the goal of having the Company’s concentrates business operate profitably in the future.

In addition to the amended agreement, DaVita entered into an agreement pursuant to which it will invest up to $15 million in preferred stock in two equal tranches.

The first tranche of $7.5 million was funded on April 7, 2022.

The second $7.5 million tranche is to be funded subject to the Company raising $15 million additional capital by June 30, 2022.

We are also in discussions with our other major customer to renegotiate certain terms of that agreement.

In addition, we are reviewing our entire supply chain to

identify opportunities for improvement, prioritizing initiatives that will have the largest impact on long-term efficiency, profitability and growth.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

All share and per share data in these condensed consolidated financial statements and related notes hereto have been retroactively adjusted to the account for the effect of the reverse stock split for the three- and six-month periods ended June 30, 2022 and 2021, respectively, and the balance sheet at June 30, 2022 and December 31, 2021.

Results of Operations for the Three Months Ended June 30, 2022 and 2021

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,

2022 % of Revenue 2021 % of Revenue % Change

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Operating Loss $ (4,482) (24.0) % $ (7,823) (51.7) % (42.7) %

During the three months ended March 31, 2022, our net sales were $16.1 million compared to net sales of $15.5 million during the three months ended March 31, 2021.

The increase of $0.7 million was primarily due to an increase in sales of dialysis concentrates products from Baxter and our international customers.

We expect our concentrate sales to continue to grow due to the restructuring of the supply contract with DaVita.

Cost of sales during the three months ended March 31, 2022 was $16.9 million, resulting in gross loss of $0.8 million during the three months ended March 31, 2022, compared to cost of sales of $15.1 million and a gross profit of $0.4 million during the three months ended March 31, 2021.

Gross profit decreased by $1.2 million due to significant inflationary pressures related to the concentrates segment.

As noted in Note 17 to the condensed consolidated financial statements included elsewhere in this Form 10-Q, the Company has renegotiated certain terms of its supply contract with DaVita Inc.

("DaVita"), one of the Company's largest customers, to be able to pass through a significant portion of inflationary costs and increases in pricing.

As a result of these changes, the Company expects an improvement in margins for the remainder of 2022.

During the three months ended June 30, 2022, our net sales were $18.7 million compared to net sales of $15.1 million during the three months ended June 30, 2021.

The increase of $3.5 million was primarily due to the restructuring of our supply contract with DaVita and increased pricing to other customers.

Gross Profit (Loss)

Cost of sales during the three months ended June 30, 2022 was $16.9 million, resulting in gross profit of $1.7 million during the three months ended June 30, 2022, compared to cost of sales of $15.4 million and a gross loss of $0.3 million during the three months ended June 30, 2021.

Gross profit increased by $2.0 million primarily due to the restructuring of our supply contract with DaVita, a slight reduction of transportation costs due to efficiency initiatives being implemented and increased pricing to other customers.

As a result, the Company expects an improvement in margins for the remainder of 2022.

Research and Product Development Expense

Research and product development expenses were $1.6 million and $1.8 million for the three months ended March 31, 2022 and 2021, respectively.

Research and product development expenses decreased by $0.2 million due to labor cost reductions.

The Company expects research and development costs will increase due to the Company's pipeline initiatives.

Research and product development expenses were $0.9 million and $2.4 million for the three months ended June 30, 2022 and 2021, respectively.

Research and product development expenses decreased by $1.5 million due to the resignation of our Chief Development Officer and shifting our project timelines.

Selling and Marketing Expense

Selling and marketing expenses were $0.5 million during the three months ended March 31, 2022, compared with $1.9 million during the three months ended March 31, 2021.

The decrease of $1.4 million is due to a decrease in marketing spent for our Triferic products and a headcount reduction.

Selling and marketing expenses were $0.5 million during the three months ended June 30, 2022, compared with $1.5 million during the three months ended June 30, 2021.

The decrease of $0.9 million is due to a decrease in marketing spend for our TRIFERIC ® products and previous headcount reduction.

General and Administrative Expense

General and administrative expenses were $3.8 million during the three months ended March 31, 2022, compared with $3.9 million during the three months ended March 31, 2021.

The decrease of $0.1 million is due primarily to a decrease in audit and other related accounting costs of $0.2 million and a decrease in outside consulting costs of $0.2 million, offset by an increase in legal expense of $0.3 million due to costs related to contract restructuring, annual meeting preparation and securities purchase agreement review.

General and administrative expenses were $4.8 million during the three months ended June 30, 2022, compared with $3.7 million during the three months ended June 30, 2021.

The increase of $1.1 million is due primarily to a one-time charge for the severance agreement for our former Chief Executive Officer and the accrual of estimated employee performance compensation.

Other Income (Expense)

Other income for the three months ended March 31, 2022 was nil.

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

Other expense for the three months ended March 31, 2022 was $0.5 million of interest expense related to our debt facility (see Note 14 to the condensed consolidated financial statements included

elsewhere in this Form 10-Q for more information on our debt facility).

Other expense for the three months ended March 31, 2021 was $0.6 million of interest expense related to our debt facility.

Other income for the three months ended June 30, 2022 was negligible.

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

Other expense for the three months ended June 30, 2022 was $0.5 million of interest expense related to our debt facility (see Note 14 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for more information on our debt facility).

Other expense for the three months ended June 30, 2021 was $0.6 million of interest expense related to our debt facility.

Results of Operations for the Six Months Ended June 30, 2022 and 2021

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

For the Six Months Ended June 30,

2022 % of Revenue 2021 % of Revenue % Change

Net Sales $ 34,806 $ 30,611 13.7 %

Cost of Sales 33,846 97.2 % 30,471 99.5 % 11.1

Gross Profit 960 2.8 140 0.5 585.7

Research and Product Development 2,494 7.2 4,224 13.8 (41.0)

Selling and Marketing 981 2.8 3,319 10.8 (70.4)

General and Administrative 8,592 24.7 7,602 24.8 13.0

Operating Loss $ (11,107) (31.9) % $ (15,005) (49.0) % (26.0) %

During the six months ended June 30, 2022, our net sales were $34.8 million compared to net sales of $30.6 million during the six months ended June 30, 2021.

The increase of $4.2 million wa s primarily due to the restructuring of our supply contract with DaVita and increased pricing to other customers.

Cost of sales during the six months ended June 30, 2022 was $33.8 million, resulting in gross profit of $1.0 million during the six months ended June 30, 2022, compared to cost of sales of a $30.5 million and a gross profit of $0.1 million during the six months ended June 30, 2021.

Gross profit increased by $0.8 million primarily due to the restructuring of our supply contract with DaVita, a slight reduction of transportation costs due to efficiency initiatives being implemented and increased pricing to other customers .

Research and Product Development Expense

Research and product development expenses were $2.5 million for the six months ended June 30, 2022, compared with $4.2 million during the six months ended June 30, 2021.

Th is decrease of $1.7 million is primarily due to the resignation of our Chief Development Officer and shifting our project timelines.

Selling and Marketing Expense

Selling and marketing expenses were $1.0 million during the six months ended June 30, 2022, compared with $3.3 million during the six months ended June 30, 2021.

The decrease of $2.3 million is primarily due to a decrease in marketing spend for our TRIFERIC ® products and previous headcount reductions.

General and Administrative Expense

General and administrative expenses were $8.6 million during the six months ended June 30, 2022, compared with $7.6 million during the six months ended June 30, 2021.

The increase of $1.0 million is due primarily t o a one-time charge related to the severance agreement for our former Chief Executive Officer and the accrual of estimated employee performance compensation.

Other Income (Expense)

Other income for the six months ended June 30, 2022 was $4,000, consisting primarily of interest income.

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

Other expense for the six months ended June 30, 2022 was $1.0 million of interest expense related to our debt facility (see Note 14 for more information on our debt facility).

Other expense for the six months ended June 30, 2021 was $1.2 million of interest expense related to our debt facility.

Liquidity and Capital Resources

Going Concern

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

At March 31, 2022, we had an accumulated deficit of approximately $377.2 million and stockholders' deficit of $4.8 million.

As of March 31, 2022, we had approximately $9.9 million of cash and cash equivalents, and working capital of $5.2 million.

Net cash used in operating activities for the three months ended March 31, 2022 was approximately $9.8 million.

The Company has experienced significant inflationary pressures in its dialysis concentrates business, particularly within the last six months, which have resulted in an accelerated operating loss associated with this business line.

These factors raise substantial doubt about the Company’s ability to continue as a going concern and depend, in part, on the degree of success in the Company's ability to address inflationary pressures affecting the concentrates business, as well as the Company’s ability to contain costs, raise additional working capital and remain in compliance with financial and operating covenants under the Company’s secured loan.

Management's plans are described below.

As of June 30, 2022, we had approximately $30.8 million of cash and cash equivalents, and working capital of $28.7 million.

Net cash used in operating activities for the six months ended June 30, 2022 was approximately $15.7 million.

On April 6, 2022, the Company and DaVita entered into an amendment (the "Amendment") to the Products Purchase Agreement, dated July 1, 2019, under which the Company supplies DaVita with certain dialysis concentrates.

Under the Amendment, the Company and DaVita agreed to a price increase, effective May 1, 2022, as well as the pass-through of certain inflationary costs, determined on a quarterly basis.

Certain costs are subject to a cap.

Under the Amendment, the Company and DaVita agreed to certain price increases, effective May 1, 2022, as well as the pass-through of certain inflationary costs, determined on a quarterly basis.

The Amendment also requires the Company to implement certain cost containment and cost-cutting measures.

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An event of default could result in termination of that agreement.

The Company also entered into an equity investment agreement with one of the contracting parties for up to $15 million of investment in two tranches of $7.5 million each.

The first tranche of $7.5 million was funded on April 7, 2022.

The second $7.5 million tranche is to be funded subject to the Company raising $15 million in additional capital by June 30, 2022.

In addition, any debt financing is limited by the terms of our Securities Purchase Agreement with DaVita.

Specifically, until DaVita owns less than 50% of its investment, the Company may only incur additional debt in the form of a purchase money loan, a working capital line of up to $5 million or to refinance existing debt, unless DaVita consents.

On April 8, 2022, the Company entered into a sales agreement with Cantor Fitzgerald & Co.

(the “Agent”), pursuant to which the Company may offer and sell from time to time shares up to $12,200,000 of Company’s common stock through the Agent.

The offering and sale of shares has been registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form S-3 (File No.

333-259923) (the “Registration Statement”), which was originally filed with the SEC on September 30, 2021 and declared effective by the SEC on October 8, 2021, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed with the SEC on April 8, 2022.

The Company has started to implement cost cutting measures as noted in previous filings focusing mainly within sales and marketing.

On April 6, 2022, the Company and DaVita entered into a Securities Purchase Agreement (the “SPA”), pursuant to which the Company issued $15 million of preferred stock to DaVita in two separate tranches.

The Company initially issued 7,500 shares of a newly designated series of preferred stock, which is designated “Series X Convertible Preferred Stock” (the “Series X Preferred Stock”) for gross proceeds of $7.5 million.

On June 15, 2022, the Company issued to DaVita an additional 7,500 shares of Series X Preferred Stock in a second closing (the “Second Tranche”) for an additional $7.5 million.

The Second Tranche was conditioned upon the Company raising an additional $15 million in capital within a certain timeline, which took place on June 2, 2022.

On April 8, 2022, the Company entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

(the “Agent”), pursuant to which the Company may offer and sell from time to time up to $12,200,000 of shares of Company’s common stock through the Agent.

The offering and sale of such shares has been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3 (File No.

333-259923) (the “Registration Statement”), which was originally filed with the Securities and Exchange Commission (“SEC”) on September 30, 2021 and declared effective by the SEC on October 8, 2021, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed with the SEC on April 8, 2022.

As of June 30, 2022, the Company sold 7,500 shares of its common stock pursuant to the Sales Agreement for gross proceeds of $15,135, at a weighted average selling price of approximately $2.02.

The Company paid $378 in commissions and offering fees.

Approximately $12.2 million remains available for sale under the ATM facility.

Under the RD Purchase Agreement and the PIPE Purchase Agreement discussed below, the Company has agreed not to make any sales under any at-the-market offering facility, including pursuant to the Sales Agreement, until at least January 1, 2023 (or until such later time when the Company is permitted to make additional sales under Instruction I.B.6 to Form S-3).

On May 30, 2022, the Company entered into a Securities Purchase Agreement (the “RD Purchase Agreement”) with the purchaser named therein (the “Purchaser”), pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Offering”), 844,613 shares of its common stock at price of $1.39 per share, and prefunded warrants to purchase up to an aggregate of 7,788,480 shares of common stock (the “Pre-Funded Warrants” and the shares of common stock underlying the Pre-Funded Warrants, the “Warrant Shares”).

The purchase price of each Pre-Funded Warrant was equal to the price at which a share of common stock was sold to the public in the Offering, minus $0.0001, and the exercise price of each Pre-Funded Warrant is $0.0001 per share.

Also on May 30, 2022, concurrently with the Offering, the Company entered into a Securities Purchase Agreement with the Purchaser (the “PIPE Purchase Agreement”) relating to the offering and sale (the “Private Placement”) of warrants to purchase up to a total of 9,900,990 shares of common stock and pre-funded warrants to purchase up to a total of 1,267,897 shares of common stock (the “PIPE Warrants”).

Each warrant was sold at a price of $0.125 per underlying warrant share and is exercisable at an exercise price of $1.39 per share.

The Offering and the Private Placement closed on June 2, 2022.

The net proceeds to the Company from the Offering and the Private Placement were approximately $14.9 million, after deducting fees and expenses.

The Offering and the Private Placement closed on June 2, 2022.

The net proceeds to the Company from the Offering and the Private Placement were approximately $14.9 million, after deducting fees and expenses.

Based on the currently available working capital, and capital raises described 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.

The Company expects it will require additional capital to sustain its operations and make the investments it needs to execute its strategic plan in developing FPC for iron deficiency anemia in patients undergoing home infusion therapy and for progressing our pipeline development program of new indications for our FPC platform.

If the Company is unable to generate sufficient cash flows from operations as described above or obtain additional equity or debt financing, the Company intends to implement further cost cutting measures which may include headcount reductions across multiple areas and reductions in general and administrative expenses.

Based on these plans, Management believes the substantial doubt about the Company’s ability to continue as a going concern has been alleviated.

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.

If the Company attempts to obtain additional debt or equity financing, the Company cannot assume 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 believes it will either be able to satisfy such covenants or, in the event of a breached covenant, exercise cure provisions to avoid an event of default.

If we are unable to avoid an event of default, any required repayments could have an adverse effect on our liquidity (See Note 14 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for more information on our debt facility).

The COVID-19 pandemic and resulting domestic and global disruptions have adversely affected our business and operations, including, but not limited to, our sales and marketing efforts and our research and development activities, and the

operations of third parties upon whom we rely.

Our international business development activities have also been negatively impacted by COVID-19.

The COVID-19 pandemic and the resulting inflation, surges in infections and resulting global disruptions have caused significant volatility in financial and credit markets.

We have utilized a range of financing methods to fund our operations in the past;

As of the date of this report, the Company is in compliance with all covenants (See Note 14 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for more information on our debt facility).

The COVID-19 pandemic and resulting domestic and global disruptions, particularly in the supply chain and labor market, among other areas, have adversely affected our business and operations, including, but not limited to, our sales and marketing efforts and our research and development activities, our plant and transportation operations and the operations of third parties upon whom we rely.

The Company's international business development activities may also continue to be negatively impacted by COVID-19.

The COVID-19 pandemic and the resulting global disruptions and recent inflationary pressures have caused significant volatility in financial and credit markets.

Rockwell has utilized a range of financing methods to fund its operations in the past;

however, current conditions in the financial and credit markets may limit the availability of funding, refinancing or increase the cost of funding.

Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect our liquidity and capital resources in the future.

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);

Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future.

The actual amount of cash 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);

the timing and magnitude of cash received from drug product sales;

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

(i) equity and debt raises through the equity and capital markets, though there can be no assurance that we will be able to secure additional capital or funding on acceptable terms, or if at all;

(i) equity and debt raises through the equity and capital markets, though there can be no assurance we will be able to secure additional capital or funding on acceptable terms, or if at all;

and (ii) strategic transactions, including potential alliances and collaborations focused on markets outside the United States, as well as potential combinations (including by merger or acquisition) or other corporate transactions.

We believe that our ability to fund our activities in the long term will be highly dependent upon 1) our ability to execute on the development of the FPC platform for new therapies, 2) our ability to restructure our other significant commercial contract within our concentrate business, and 3) our ability to find a commercial partner to commercialize and increase adaptation of Triferic (dialysate) and Triferic AVNU.

All of these strategies are subject to significant risks and uncertainties such that there can be no assurance that we will be successful is achieving approval of FPC in a new therapeutic area, that we will be successful in restructuring our commercial agreements in our concentrate business or that we will be able to find a commercial partner and have sustained commercial success with Triferic (dialysate) and Triferic AVNU.

We believe our ability to fund our activities in the long term will be highly dependent upon 1) our ability to execute on the development of the FPC platform for new therapies, 2) our ability to restructure our other significant commercial contract within our concentrate business, and 3) our ability to find a commercial partner to commercialize and increase adaptation of TRIFERIC ® (dialysate) and TRIFERIC ® AVNU.

All of these strategies are subject to significant risks and uncertainties such that there can be no assurance we will be successful is achieving approval of FPC in a new therapeutic area, we will be successful in restructuring our commercial agreements in our concentrate business or we will be able to find a commercial partner and have sustained commercial success with TRIFERIC ® (dialysate) and TRIFERIC ® AVNU.

If our planned clinical program is delayed or fails, if our other significant commercial contract in the concentrate business cannot be restructured in a way that is beneficial to Rockwell or if our ability to find a commercial partner for TRIFERIC ® (dialysate) and/or TRIFERIC ® AVNU fails, 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.

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Cash Used in Operating Activities

Net cash used in operating activities was $9.8 million for the three months ended March 31, 2022 compared to net cash used in operating activities of $12.5 million for the three months ended March 31, 2021.

The decrease 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 $2.7 million, including an increase in inventory of $1.5 million and an increase in net accounts receivable of $1.2 million.

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $9.1 million during the three months ended March 31, 2022 compared to net cash used in investing activities of $0.5 million for the three months ended March 31, 2021.

The net cash provided by investing activities during the three months ended March 31, 2022 was primarily due to sales and purchase of available-for-sale investments during the quarter.

All investments available-for-sale have been liquidated as of March 31, 2022.

Cash Used in Financing Activities

Net cash used in financing activities was $2.7 million during the three months ended March 31, 2022 compared to the net cash provided by financing activities of nil for the three months ended March 31, 2021.

The net cash used during the three months ended March 31, 2022 was primarily due to the payments on the Company's debt and short term note payable.

COVID-19 Impact

The COVID-19 pandemic and resulting global disruptions, particularly in the supply chain and labor market, among other areas, have adversely affected our business and operations, including, but not limited to, our sales and marketing efforts and our research and development activities, our plant and transportation operations and the operations of third parties upon whom we rely.

Further, any vaccine hesitancy among our labor force could also disrupt our business if workers become ill or need to quarantine due to illness or exposure to the virus.

The Company's international business development activities may also continue to be negatively impacted by COVID-19.

The COVID-19 pandemic and resulting global disruptions have caused and may continue to cause significant volatility in financial and credit markets.

We have utilized a range of financing methods to fund our operations in the past;

however, current conditions in the financial and credit markets may limit the availability of funding or increase the cost of funding.

Due to the evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect our liquidity and capital resources in the future.

Net cash used in operating activities was $15.7 million for the six months ended June 30, 2022 compared to net cash used in operating activities of $17.4 million for the six months ended June 30, 2021.

The decrease in cash used from operating

activities during the current period was primarily due to an increase in net income, offset by changes in current balance sheet accounts in the ordinary course of business of approximately $2.0 million, including a decrease of accounts payable of $1.6 million, an increase in net account receivable of $1.0 million and a decrease in other liabilities of $0.8 million.

Cash Provided by Investing Activities

Net cash provided by investing activities was $9.1 million during the six months ended June 30, 2022 compared to net cash used in investing activities of $1.1 million for the six months ended June 30, 2021.

The net cash provided by investing activities during the six months ended June 30, 2022 was primarily due to sales and purchase of available-for-sale investments during the quarter.

All investments available-for-sale have been liquidated as of June 30, 2022.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $24.1 million during the six months ended June 30, 2022 compared to the net cash provided by financing activities of nil for the six months ended June 30, 2021.

The net cash provided during the six months ended June 30, 2022 was primarily due to multiple equity raises (See Note 10), offset by payments on the Company's debt and short term note payable.

Contractual Obligations and Other Commitments

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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