What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 89 added, 53 removed, 119 unchanged (54% of the section changed)

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Our forward-looking statements are subject to risks and uncertainties and include information about our current expectations and possible or assumed future results of our operations.

When we use words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “could,” “plan,” “potential,” “predict,” “forecast,” “project,” “intend,” or similar expressions, or make statements regarding our intent, belief, or current expectations, we are making forward-looking statements.

When we use words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “could,” “plan,” “potential,” “predict,” “forecast,” “project,” “intend,” “is focused on” or similar expressions, or make statements regarding our intent, belief, or current expectations, we are making forward-looking statements.

Our forward looking statements also include, without limitation, statements about our liquidity and capital resources;

our ability to continue as a going concern;

our ability to successfully integrate and acquisitions:

our ability to develop Ferric Pyrophosphate Citrate (“FPC”) for other indications;

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Rockwell Medical is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide.

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 kidney disease treatment and is usually performed at a freestanding outpatient dialysis center, at hospital-based outpatient center, at skilled nursing facilities, or in a patient’s home.

This represents a large market opportunity for which Rockwell's products are well-positioned to meet the needs of patients.

Rockwell manufactures hemodialysis concentrates under Current Good Manufacturing Practices ("cGMP") regulations at its three facilities in Michigan, Texas, and South Carolina totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa.

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

Hemodialysis is the most common form of end-stage kidney disease treatment and is typically performed at freestanding outpatient dialysis center, hospital-based outpatient centers, skilled nursing facilities, or in a patient’s home.

This represents a large market opportunity for which we believe Rockwell's products are well-positioned to meet the needs of patients.

Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S.

Food and Drug Administration ("FDA").

Rockwell is ISO 13485 Certified and adheres to current Good Manufacturing Practices ("cGMP") and Association for Advancement of Medical Instrumentation ("AAMI") standards.

Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa.

Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers.

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.

On July 10, 2023, Rockwell acquired the hemodialysis concentrates business (the “Evoqua Acquisition”) from Evoqua Water Technologies LLC (" Evoqua ").

The Evoqua Acquisition expands the Company's geographic footprint, customer base, and product offerings.

In addition, the Evoqua Acquisition provides fully automated processing that potentially has a lower cost to manufacture.

As part of this acquisition, the Company manufactures hemodialysis concentrates in Minnesota under a contract manufacturing agreement with a contract manufacturing organization.

(See Note 16 for further detail).

In addition to its primary focus on hemodialysis concentrates, Rockwell also has a proprietary parenteral iron product, Triferic (ferric pyrophosphate citrate, ("FPC")), which is indicated to maintain hemoglobin in adult patients with hemodialysis-dependent chronic kidney disease.

outside the United States and is working closely with these international partners to develop and commercialize Triferic in their respective regions.

While Rockwell has discontinued commercialization of Triferic in the United States, the Company has established several international partnerships with companies seeking to develop and commercialize Triferic outside the United States and is working closely with these international partners to develop and commercialize Triferic in their respective regions.

Additionally, Rockwell continues to evaluate the viability of its FPC platform and FPC's potential to treat iron deficiency, iron deficiency anemia, and acute heart failure.

Rockwell’s strategy is focused on growing the Company's revenue-generating business, which currently includes hemodialysis concentrates and international partnerships for Triferic and achieving profitability in 2024 to put the Company in a stronger and more stable financial position.

Rockwell’s strategy is focused on growing the Company's revenue-generating business, which currently includes hemodialysis concentrates and international partnerships for Triferic and achieving profitability to put the Company in a stronger and more stable financial position.

Hemodialysis Concentrates Business :

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

We believe we can achieve this by growing our business through the addition of new customers, expanding our territory coverage, increasing the efficiency by which Rockwell produces its products, and pricing our products appropriately to drive profitability.

We believe we can achieve this by growing our business through the addition of new customers, expanding our territory coverage, increasing the efficiency of our production, and pricing our products appropriately to drive profitability.

Prior to the second quarter of 2022, Rockwell's concentrates business operated at a loss.

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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.

We are currently in discussions with DaVita on an extension to the agreement.

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

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Rockwell manufactured all hemodialysis concentrates products and provided customer service and order delivery to nearly all U.S.

Following the reacquisition of these rights, Rockwell will now be able to sell its hemodialysis concentrates products directly to dialysis clinics throughout the United States and around the world.

Additionally, Rockwell will now be able to independently price its products, eliminate costs associated with manufacturing covenants, improve manufacturing efficiencies, realize the full benefits from those improvements, and develop, in-license, or acquire new products to develop a broader kidney care products portfolio.

Following the reacquisition of these rights, Rockwell is now able to sell its hemodialysis concentrates products directly to dialysis clinics throughout the United States and around the world.

Additionally, Rockwell is now able to independently price its products, eliminate costs associated with manufacturing covenants, improve manufacturing efficiencies, realize the full benefits from those improvements, and develop, in-license, or acquire new products to develop a broader kidney care products portfolio.

This is expected to improve Rockwell's overall profitability and set the Company on a positive growth trajectory.

Collectively, this affords Rockwell the opportunity to expand its leadership position within a large market opportunity.

Collectively, we believe this affords Rockwell the opportunity to expand its leadership position within a large market opportunity.

According to an independent research report from L.E.K.

Consulting LLC, which was commissioned by Rockwell in 2022, the hemodialysis concentrates market in the United States alone was valued at $380 million in 2022 and is anticipated to grow to approximately $500 million by 2026.

Rockwell agreed to pay Baxter a fee for the reacquisition of its distribution rights.

This fee is payable in two equal installments on January 1, 2023 and April 1, 2023.

To ensure that customer needs continue to be met after January 1, 2023, Baxter and Rockwell worked closely together to transition customers’ purchases of Rockwell’s hemodialysis concentrates from Baxter to Rockwell.

Our first two branded products from our FPC platform, Triferic (dialysate) and Triferic AVNU, are indicated 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.

We began commercializing Triferic and Triferic AVNU in the

United States in the second half of 2019 and in early 2021, respectively.

In addition, Rockwell established six international partnerships to develop and commercialize Triferic in China, India, Korea, Turkey, Peru and Chile.

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Triferic was launched into a very competitive marketplace with well-entrenched products and a lack of consensus regarding unmet medical needs for dialysis patients with anemia.

Due to its limited market adoption, unfavorable reimbursement, and absence of interest from

other companies to license or acquire Triferic despite Rockwell's significant effort to partner the program, the Company discontinued its NDAs for Triferic and Triferic AVNU in the United States in the fourth quarter of 2022.

Due to its limited market adoption, unfavorable reimbursement, and absence of interest from other companies to license or acquire Triferic despite Rockwell's significant effort to partner the program, the Company discontinued its NDAs for Triferic and Triferic AVNU in the United States in the fourth quarter of 2022.

Sustaining Triferic commercially in the United States resulted in annual losses to Rockwell.

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However, we believe there is still potential opportunity for Triferic internationally and will work diligently to support our partners, which requires minimal financial commitment from Rockwell and provides us with potential for near- and long-term revenue.

On August 7, 2023, Rockwell was informed by Wanbang, the Company’s commercialization partner in China for Triferic, that the main efficacy results of Wanbang’s clinical trial for Triferic (dialysate) compared with placebo were not obtained.

The Company is working with Wanbang to determine next steps.

Research and Development Pipeline :

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Rockwell conducted a pre-IND meeting with the FDA in 2022 and will determine the path forward for FPC in acute heart failure as the Company works toward profitability.

Reverse Stock Split

On May 9, 2022, the Company's stockholders authorized the Company's Board of Directors to effect a reverse stock split of all outstanding shares of common stock, warrants and options.

The Board of Directors subsequently approved the implementation of a reverse stock split at a ratio of one-for-eleven shares, which became effective on May 13, 2022.

The Company’s outstanding stock options were also adjusted to reflect the one-for-eleven reverse stock split of the Company’s common stock.

Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased.

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 this Form 10-Q hereto have been retroactively adjusted to the account for the effect of the reverse stock split.

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Results of Operations for the Three Months Ended June 30, 2023 and 2022

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,

2023 % of Revenue 2022 % of Revenue % Change

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Cost of Sales 17,047 94 % 16,937 91 % 1

Gross Profit (Loss) 2,599 13.2 (786) (4.9) (430.7)

Gross Profit 1,033 6 1,745 9 (41)

Research and Product Development 167 1 926 5 (82)

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Operating Loss $ (2,959) (16) % $ (4,482) (24) % (34) %

During the three months ended March 31, 2023, our net sales were $19.7 million compared to net sales of $16.1 million during the three months ended March 31, 2022.

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

Gross Profit (Loss)

Cost of sales during the three months ended March 31, 2023 was $17.1 million, resulting in gross profit of $2.6 million during the three months ended March 31, 2023, compared to cost of sales of $16.9 million and a gross loss of $0.8 million during the three months ended March 31, 2022.

During the three months ended June 30, 2023, our net sales were $18.1 million compared to net sales of $18.7 million during the three months ended June 30, 2022.

The decrease of $0.6 million was primarily due to the reduction of deferred revenue related to Rockwell reacquiring its distribution rights and terminating the Baxter distribution agreement.

Overall, product revenue for the three months ended June 30, 2023 was $18.0 million compared to product revenue of $17.6 million during the three months ended June 30, 2022, an increase of $0.4 million.

Rockwell expects this trend to continue as we work to integrate the Evoqua Acquisition (See Note 16).

Cost of sales during the three months ended June 30, 2023 was $17.0 million, resulting in gross profit of $1.0 million during the three months ended June 30, 2023, compared to cost of sales of $16.9 million and a gross profit of $1.7 million during the three months ended June 30, 2022.

Gross profit decreased by $0.7 million primarily due to the reduction of the recognition of the deferred revenue related to the termination of the Baxter distribution agreement (See Note 9).

Research and Product Development Expense

Research and product development expenses were $0.2 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively.

Research and product development expenses decreased by $0.7 million due to greater expense management over project costs, a reduction in headcount and the decision to put all research related to our FPC for home infusion program on hold due to the significant capital expenditure and resources to support additional re-formulation work and conduct a Phase 2 trial.

Selling and Marketing Expense

Selling and marketing expenses were unchanged at $0.5 million for both the three months ended June 30, 2023, and 2022.

We continue to evaluate marketing spend and focus on target opportunities for greater return on investments.

General and Administrative Expense

General and administrative expenses were $3.3 million during the three months ended June 30, 2023, compared with $4.8 million during the three months ended June 30, 2022.

The decrease of $1.5 million is primarily due to improved expense management and the reduced usage of outside consultants and government agencies.

Other Income (Expense)

Other income for the three months ended June 30, 2023 and 2022 was $49,000 and nil, respectively.

Other expense for the three months ended June 30, 2023 and 2022 was $0.4 million and $0.5 million, respectively, primarily due to interest expense related to our debt facility (See Note 14).

Results of Operations for the Six Months Ended June 30, 2023 and 2022

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

For the Six Months Ended June 30,

2023 % of Revenue 2022 % of Revenue % Change

Net Sales $ 37,748 $ 34,806 8 %

Cost of Sales 34,116 90 % 33,846 97 % 1

Gross Profit 3,632 10 960 3 278

Research and Product Development 445 1 2,494 7 (82)

Selling and Marketing 1,028 3 981 3 5

General and Administrative 6,545 17 8,592 25 (24)

Operating Loss $ (4,386) (12) % $ (11,107) (32) % (61) %

During the six months ended June 30, 2023, our net sales were $37.7 million compared to net sales of $34.8 million during the six months ended June 30, 2022.

The increase of $2.9 million was primarily due to the restructuring of our supply contract with DaVita, the reacquired rights to commercialize and distribute our products, onboarding of new customers and increased pricing to other customers.

Overall, product revenue for the six months ended June 30, 2023 was $36.1 million compared to product revenue of $33.1 million during the three months ended June 30, 2022, an increase of $3.0 million.

Cost of sales during the six months ended June 30, 2023 was $34.1 million, resulting in gross profit of $3.6 million during the six months ended June 30, 2023, compared to cost of sales of $33.8 million and a gross profit of $1.0 million during the six months ended June 30, 2022.

Gross profit increased by $2.6 million primarily due to the restructuring of our supply contract with DaVita, recognition of the remaining deferred revenue related to the termination of the Baxter distribution agreement (See Note 9), onboarding of new customers and increased pricing to other customers.

As a result, the Company expects an improvement in margins for the remainder of 2023.

In addition, Rockwell completed the Evoqua Acquisition in July 2023, which is expected to expand our capabilities (See Note 16).

Research and Product Development Expense

Research and product development expenses were $0.3 million and $1.6 million for the three months ended March 31, 2023 and 2022, respectively.

Research and product development expenses were $0.4 million and $2.5 million for the six months ended June 30, 2023 and 2022, respectively.

Research and product development expenses decreased by $2.1 million due to greater cash management over project costs, a reduction in headcount and the decision to put all research related to our FPC for Home Infusion program on hold due to the significant capital expenditure and resources to support additional re-formulation work and conduct a Phase 2 trial.

Selling and Marketing Expense

Selling and marketing expenses were unchanged at $0.5 million for both the three months ended March 31, 2023, and 2022.

Selling and marketing expenses were unchanged at $1.0 million for both the six months ended June 30, 2023, and 2022.

We continue to evaluate marketing spend and focus on target opportunities for greater return on investments.

General and Administrative Expense

General and administrative expenses were $3.3 million during the three months ended March 31, 2023, compared with $3.8 million during the three months ended March 31, 2022.

The decrease of $0.5 million is primarily due to improved expense management and the reduced usage of outside agencies.

General and administrative expenses were $6.5 million during the six months ended June 30, 2023, compared with $8.6 million during the six months ended June 30, 2022.

The decrease of $2.1 million is primarily due to the reduced usage of outside consultants and government agencies.

Other Income (Expense)

Other income for the three months ended March 31, 2023 and 2022 was negligible.

Other expense for the three months ended March 31, 2023 was $0.4 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, 2022 was $0.5 million of interest expense related to our debt facility.

Other income for the six months ended June 30, 2023 and 2022 was $0.1 million related to cash equivalents and nil, respectively.

Other expense for the six months ended June 30, 2023 and 2022 was $0.8 million and $1.0 million of interest expense related to our debt facility, respectively (See Note 14).

Liquidity and Capital Resources

As of March 31, 2023, we had approximately $16.8 million of cash, cash equivalents and investments available-for-sale, and working capital of $14.6 million.

Net cash used in operating activities for the three months ended March 31, 2023 was approximately $3.9 million.

As of June 30, 2023, we had approximately $14.9 million of cash, cash equivalents and investments available-for-sale, and working capital of $10.1 million.

Net cash used in operating activities for the six months ended June 30, 2023 was approximately $5.6 million.

Based on the currently available working capital, 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.

On July 10, 2023, Armistice Capital Master Fund Ltd.

(“Armistice”) exercised its warrant to purchase 9,900,990 shares of common stock with an exercise price of $1.39 per share and the Company received gross proceeds of approximately $13.8 million (See Note 16).

Also on July 10, 2023, Rockwell completed the Evoqua Acquisition for an aggregate purchase price, subject to certain adjustments pursuant to the terms of the Purchase Agreement, of $11.0 million in cash paid at closing and equal annual installments of $2,500,000 payable on each of the first and second anniversaries of the closing.

In addition, the Company also purchased approximately $1.2 million of inventory.

The Evoqua Acquisition expands the Company's geographic footprint, customer base, and product offerings.

In addition, the Evoqua Acquisition provides fully automated processing that potentially results in a lower cost to manufacture.

As part of the Evoqua Acquisition, the Company manufactures hemodialysis concentrates under a contract manufacturing agreement with a contract manufacturing organization.

(See Note 16).

The Company continues to review its operational plans and executing on the acquisition of new customers and cost containment activities.

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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.

Currently, because the Company's public float is less than $75 million, it is subject to the baby shelf limitations under Form S-3, which limit the amount the Company may offer pursuant to its registration statement on Form S-3.

In addition, 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 (See Note 14 for further detail).

As of June 30, 2023, the Company is no longer subject to the baby shelf limitations under Form S-3, which limit the amount the Company may offer pursuant to its registration statement on Form S-3.

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 (See Note 14).

In addition, the global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S.

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Cash Used in Operating Activities

Net cash used in operating activities was $3.9 million for the three months ended March 31, 2023 compared to net cash used in operating activities of $9.8 million for the three months ended March 31, 2022.

The decrease in cash used from

operating activities during the current period was primarily due to a decrease in net loss, offset by changes in current balance sheet accounts in the ordinary course of business of approximately $3.1 million, including an increase in accounts payable of $1.1 million, a decrease in other liabilities of $3.3 million, a decrease in deferred revenue of $1.5 million for recognition of the remaining deferred revenue related to the termination of the Baxter distribution agreement and a decrease in prepaid and other assets of $0.5 million.

Net cash used in operating activities was $5.6 million for the six months ended June 30, 2023 compared to net cash used in operating activities of $15.7 million for the six months ended June 30, 2022.

The decrease in cash used from operating activities during the current period was primarily due to a decrease in net loss, offset by changes in current balance sheet accounts in the ordinary course of business of approximately $2.6 million, including an increase in accounts payable of $1.9 million, a decrease in other liabilities of $4.0 million, a decrease in deferred revenue of $1.6 million for recognition of the remaining deferred revenue related to the termination of the Baxter distribution agreement and a decrease in prepaid and other assets of $1.0 million.

Cash Provided by Investing Activities

Net cash provided by investing activities was $5.3 million during the three months ended March 31, 2023 compared to net cash used in investing activities of $9.1 million for the three months ended March 31, 2022.

The net cash provided by investing activities during the three months ended March 31, 2023 was primarily due to sales and purchase of available-for-sale investments during the period.

Cash Used in Financing Activities

Net cash used in financing activities was $0.6 million during the three months ended March 31, 2023 compared to the net cash used in financing activities of $2.7 million for the three months ended March 31, 2022.

The net cash used in financing activities during the three months ended March 31, 2023 was primarily due to the Company making interest only payments on the Company's debt and short term insurance note payable.

Net cash provided by investing activities was $5.2 million during the six months ended June 30, 2023 compared to net cash provided by investing activities of $9.1 million for the six months ended June 30, 2022.

The net cash provided by investing activities during the six months ended June 30, 2023 was primarily due to sales and purchase of available-for-sale investments during the period.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $0.8 million during the six months ended June 30, 2023 compared to the net cash provided by financing activities of $24.1 million for the six months ended June 30, 2022.

The net cash used in financing activities during the six months ended June 30, 2023 was primarily due to the Company making interest only payments on the Company's debt and short term insurance 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