Rockwell Medical, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Rockwell Medical first quarter 2022 results call. At this time, all participants are in a list-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at that time, please press star 1 on your telephone. As a reminder, this conference call is being recorded. At this time, I would like to introduce Jason Fekelstein. In special relations, please go ahead.

Good afternoon. This is Jason Finkelstein of Argo Partners, the investor relations representative for Rockwell Medical. Joining me from Rockwell Medical on today's call are Dr. Russell Ellison, President and Chief Executive Officer, and Russell Skipsed, Executive Vice President, Chief Financial Officer, and Chief Business Officer. Dr. Mark Hoffman, Chief Medical Officer, and Tim Cole, Senior Vice President of Sales and Marketing, will be available for Q&A. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward-looking statements about the company within the meaning of the federal securities laws including, but not limited to, the types of statements identified as forward-looking in our annual report on Form 10-K and our subsequent periodic reports filed with the SEC, which are all available on our website in the investor relations section. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions and expectations only as of today. Except as required by law, we specifically disclaim any obligation to update or revise these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our periodic reports filed with the SEC. This conference call could be accessed on Rockwell Medical's Investor Relations webpage. The call is being recorded for audio rebroadcast and also be accessed on the same webpage. At this time, I would like to turn the conference call over to Rockwell Medical's President and Chief Executive Officer, Dr. Russell Ellison. Russell?

Thank you, Jason. Good afternoon, and thank you for joining us. Rockwell Medical is a biotech company. but with revenue, and that makes us fairly unique. We have a proprietary drug technology called ferric pyrophosphate citrate, or FPC, which is a next-generation therapy for iron deficiency. Iron deficiency is a significant problem in many different patient populations. We believe we have a significant opportunity with FPC in the rapidly growing area of home infusion therapy, where we are confident that there's a large unmet need for effective ion therapy, that FPC can effectively address that unmet need, that FPC can be safety administered at the home setting, and based on our prior experience, we can efficiently navigate the clinical and regulatory process. Finally, we are reengineering our dialysis products business. which will generate a gross profit for the first time in several years. This is a business that Rockwell was originally founded on. This is a business that we believe may be able to generate a modest amount of cash flow to help fuel our growth opportunities for FPC. We have made meaningful progress to improve this business, which we expect will reduce our cash burn in dialysis by about 15 million dollars on an annualized basis. With respect to home infusion therapy, we are pleased to be soon beginning our Phase II clinical trial with FPC in patients receiving infusion therapy in the home setting. Healthcare is increasingly shifting to the home. It was recently reported that Medicare is providing funding for states to expand home and community-based healthcare services and to increase access McKinsey & Company reported in February that up to $265 billion worth of care services for Medicare beneficiaries could shift to the home by 2025. This rapid growth is driven by a lower cost of care and a higher patient satisfaction. Home infusion therapy, in which various medications are given via IV infusion at home rather than an infusion center, is a rapidly growing segment of home health care. Many patients that are receiving infusion therapy at home suffer from diseases like GI disorders, heart disease, and cancer that are associated with iron deficiency, which is extremely difficult to treat with the traditional forms of iron. Iron deficiency is serious because iron is critically important for the body. It's a necessary building block for red blood cells, and it serves as a fuel for muscle energetics, both for organs like the heart, as well as skeletal muscle. Mild iron deficiency may sometimes be treated with oral supplements or dietary changes, but moderate to severe iron deficiency is typically accompanied by inflammation, which blocks the absorption of oral iron. Untreated iron deficiency anemia is associated with serious health complications, including organ dysfunction, infection, extended hospital stays, severe fatigue, and depression. Prescription IV iron is the most common treatment for addressing more severe cases, but the current products have limitations. They require an outpatient visit for administration and are associated with the risk of rare but severe reactions. Because of inflammation, the iron can be stored in the liver and not be readily accessible to tissues, so high doses are required. However, even with the limitations of current iron therapy, the global IV iron market exceeds one billion annually. In December, we received feedback from the FDA regarding our investigational new drug application in support of our proposed phase two trial of FPC as home infusion therapy. The study proposal includes a novel dosing regimen one that is fine-tuned to match the preferences of caregivers and patients receiving health care at home. FDA requested additional preclinical data related to the chemical stability and the microbiology of the administration materials that we proposed for the study. We have successfully completed these lab experiments, and on May 6, we provided FDA with the requested supplemental data. Rockwell must wait 30 calendar days from the date of submission before initiating any clinical trials as the FDA reviews the submission. We do remain confident in the potential of FPC and are prepared to move forward with the initiation of the Phase II trial in June, pending the review and clearance of our application by the FDA. Our planned Phase II trial in home infusion will be the first randomized controlled trial of IV iron ever done in the home setting. a true blue water opportunity. For the development of FPC in this indication, we plan to leverage the predictable kinetics of the drug along with its excellent safety profile, which has been established in randomized trials and subsequently in more than 1.5 million doses administered in hemodialysis patients in clinical practice. This trial will be our first step towards bringing FPC to a broader group of patients. separate and distinct from the dialysis population. We estimate the total addressable market for FPC in the home infusion setting to be over $600 million in the U.S. alone. Now turning to dialysis, we are reengineering our dialysis concentrate business, which in the second half of this year is expected to generate a gross profit for the first time in several years. This is a business that we believe may be able to generate a modest amount of cash flow in the future to help fuel our growth opportunities for FPC. We have made meaningful progress to improve this business, which we expect will reduce our cash burn from these activities by about $15 million on an annualized basis. In addition, going forward, we have some protection against inflationary price increases in certain key supply costs. The supply chain problems that the U.S. has experienced over the past couple of years have had a severe impact on the supply of concentrates to dialysis clinics, causing some clinics to encounter serious shortages. However, Rockwell Medical has been working to revise certain terms of its supply contracts with customers in an effort to stabilize its concentrates business. And last month, we announced an amended and expanded agreement to supply our concentrate products to our longtime customer, and partner, Davida, Inc., which is a leading provider of kidney care in the U.S. with a market capitalization of approximately $10 billion. The amended supply agreement is designed to enable Rockwell Medical's concentrate business to potentially operate profitably in the future with the aim of building a steady, reliable supply of life-saving concentrates in the U.S. With Dialysis Concentrates accounting for approximately 98% of our 2021 revenue and with approximately 90% of our 2021 sales coming from distributors and customers for use in the U.S., this new agreement is a significant milestone for Rockwell. In addition to the revised agreement, DaVita will also invest up to $15 million in Rockwell. $7.5 million has already been funded. and is convertible at $1 per share. DaVita may potentially invest another $7.5 million. Next, I'll turn to our pharmaceutical products, Triferic and Triferic Avenue, which is ferric pyrophosphate citrate for use in dialysis patients. Since the commercial launch of Triferic in 2019 and the launch of Triferic Avenue in 2021, market adoption has been limited. Despite our sustained efforts to market the products, sales in the U.S. have not met our expectations, especially considering what we believe is a differentiated product profile. Dialysis is paid for under Medicare's bundled and capitated reimbursement scheme, which discourages clinics from adopting innovative products. We also face significant competition from other forms of IV iron, which have been well established in the market. Due to these headwinds, we have curtailed our investment in the promotion of Triferic and Triferic Avenue in the U.S., and instead have been seeking a commercial partner for these products that has a more diverse portfolio and with the commercial horsepower that can drive Triferic adoption. For the right company, we believe that Triferic and Triferic Avenue have strong potential to grow. In the meantime, Triferic and Triferic Avenue continue to be supported by Rockwell Medical, and are commercially available to clinics and patients. Despite our challenges with these products domestically, we believe that international sales of Triferic can ultimately be a strong source of revenue and value in the coming years, as dialysis payer models in many countries outside the US are more accommodating for innovative products. Our international partners continue to make solid progress with Triferic. In South Korea, Jail Pharmaceutical received regulatory approval in January from the Korean Regulatory Authority and is preparing for commercial launch. In Turkey, our partner Drogasan has initiated the process required to gain regulatory approval from the Turkish authorities. In China, our partner Wanbang Pharmaceuticals completed patient enrollment ahead of schedule in its phase three study. And our partner in India, Sun Pharma, has a clear path forward with guidance from the regulatory authority and anticipates launching the required clinical trial in this quarter. I'm pleased with all the progress we have made in a short period of time. We will continue to work to bring value to the healthcare community, to patients, and to our shareholders. With that, I'll turn the call over to Russell Skivsted, our Chief Financial Officer and Chief Business Officer, for a brief financial overview. Russell?

Thanks, Russell. We ended the first quarter of 2022 with cash and cash equivalents of approximately $9.9 million. Of course, this figure does not include the $7.5 million investment from DaVita, which closed in April. Revenues were $16.1 million in the first quarter of 2022, compared to $15.5 million for the same period last year. The increase of $1.7 million was primarily due to an increase in sales of dialysis concentrate products from Baxter and our international customers. We expect our concentrate sales to continue to grow due to our new arrangement with the VITA. Our cost of sales during the first quarter of 2022 was $16.9 million, resulting in a gross loss of $800,000 during the and that was compared to cost of sales of $15.1 million and a gross profit of $400,000 during the same period last year. Gross profit decreased by $1.2 million due to significant supply chain-related inflationary pressures related to the concentrate segment. As Russell mentioned earlier, our agreements allow us to be able to pass through certain inflationary costs which help us at this unusual time. As a result of these changes, the company expects an improvement in margins for the remainder of 2022 and 2023. Our cash used in operating activities was about $9.8 million in the first quarter, which included some seasonal items. As I mentioned last year, like some of these seasonal items are like annual cash bonus payments, for our key employees, and these are the employees that produce and deliver our products day in and day out through pandemics, supply chain breaks, and ice storms. An increase in accounts receivable due to our annual true-up billing with Baxter and our seasonal reductions in certain payables and prepaid items. Due to the updated pricing with Baxter, our updated arrangement with the VITA, our cost-cutting efforts related to our supply chain and seasonal factors, We expect this figure to drop significantly over the rest of the year. Overall, we expect $11 million reduction in our 2022 cash burn due to our efforts in the concentrate business, which is about a $15 million impact on an annualized basis. I'll now turn the call back to Russell Ellison for his closing remarks. Russell?

Russell Ellison Thanks, Russell. I'll close by saying that Rockwell Medical as a development-stage biopharmaceutical company, is fortunate to have a steady and ultimately improving revenue stream from our dialysis products, which is an important differentiator compared to many development-stage biopharma companies with no product revenue. In a sense, we're a biotech company, but with revenue. We have a proprietary drug technology, ferric pyrophosphate citrate, or FPC, which is a next-generation therapy for iron deficiency, a major problem in many different patient populations. We expect to soon begin a Phase II study where we believe we have significant opportunity with FPC in the rapidly growing area of home infusion therapy, where we are confident there's a large unmet need for an effective iron therapy, that FPC will effectively address that need, that FPC can be safely administered, and based on our prior experience, that we can efficiently navigate the clinical and regulatory process. Finally, we are reengineering our dialysis products business, which will generate a gross profit for the first time in several years. We've recently taken big steps to improve this business. This is a business that we believe may be able to generate a modest amount of cash flow to help fuel our growth opportunities for FPC and ultimately reduce our need for capital. We have made meaningful progress to improve this business, which we expect will reduce our cash burn in dialysis by about $15 million on an annualized basis. We are making progress at Rockwell. So thank you for joining our call today and for your interest in Rockwell Medical. I want to thank our shareholders for their patience and belief in our efforts to unlock the value of this company. With that, I'll turn the line over to the operator for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Brandon Folks with Cantor Fitzgerald. Your line is open.

Hi, thanks for having me. taking my questions and congratulations on all the progress. Can you talk about the implications of the DeVito agreement and how this could drive others to follow suit and maybe just give you some more pricing power with other customers? And then similarly, how do you think about the impact on your P&L going forward? Can you just elaborate on the statement of that business operating profitably in the future? How should we think about timing of achieving that?

Thanks very much, Brandon. I think Russell Skidstead, the other Russell, is well-positioned to answer your question. Russell?

Thank you. Thanks for the question, Brandon. I think, you know, rather than focus specifically on the DeVita agreement, really, I think it makes more sense to focus on the impacts to our dialysis business of overall everything we're doing. You know, looking at these, the agreements we have with our customers, looking at the supply chain and creating efficiencies as we've been talking about for the last year, and then importantly also, you know, kicking off the joint cost-cutting efforts that we talked about with DaVita in terms of how we're going to be operating in the future. you know, we've been doing a lot of supply chain analysis for a while, and we're starting to see some of that pay fruit. But at the same time, the global supply chain issues have affected us, as Russell mentioned in the prepared comments, affected us just like everybody else, and had a big impact on our costs. So what we've done with respect to the new agreement, the joint cost-cutting, the efforts of our efficiency efforts, which we call a whiteboard process, is that we expect, as Russell mentioned, on a go-forward basis, so to answer your question, as we think forward, we should be reducing about $15 million or having a a $15 million improvement in the economics of our dialysis business, if you think about it on an annualized basis. Recall that although the quarter we just reported, we showed a small increase in sales already in the first quarter, that the updated agreement with the VITA didn't take effect until May 1st. So we are expecting to see improvement both on the top line and the bottom line as we proceed throughout the rest of the year. All of this clearly is also subject to all of the other issues that we're seeing from a macroeconomic basis. So, all of this, I do refer you back to the forward-looking statements because, you know, as we're seeing globally, things are changing quite frequently. But based on our efforts and what we're doing, we're seeing that those kind of effects moving forward and yet still we think that they're going to have a pretty significant effect on our 2022. I expect that we'll be reporting, you know, additional top line and margin improvement as early as our next quarterly filings and as we proceed. The key also, I think, as you're thinking about Rockwell and looking in the future, is really understanding that a lot of the future growth in this business is going to be driven, interestingly also, by these cost-cutting efforts and the efficiency measures that we want to put in place. Because I think what that does is just makes our products all the more competitive and allows us to grow not only on the top line from a pricing perspective, but also from a volume perspective. And these are all things that we're looking forward to achieving in the upcoming months, quarters, and years. So I don't know if that answered your question. Hopefully with as much guidance as I could get.

That was very helpful. Thanks so much. And you did sort of answer my next question because I was going to talk about the OPEX line and the discipline there. So maybe if I just hop across and ask another question, if I may. On the home infusion trial, you talked about waiting for feedback from the FDA. Any other gating factors before beginning that trial? And then once the trial begins, how should we think about news flow from where we sit? Thank you.

That's a great question.

So, uh, uh, no, really the, uh, great limiting step right now is, uh, um, the clearance of the IND. That is to say, uh, the FDA doesn't have any further requirements, uh, by June 6th. Uh, in the meantime, we've been, uh, working on study startup activities and, uh, we expect to have the first patient in, assuming this would clear, in August. And that would give us, and also we anticipate, and this is still early days because we haven't started recruitment, but according to our plan, we would have the last patient out in July 2023. But that's all contingent. everything going well. But that's how it's looking now.

Thank you. That's very helpful. And congrats again on the progress. Sure.

Thank you. Our next question comes from Ram Savaraju with HC Wainwright. Your line is open.

Hi, this is Mazan for Ron. Thanks for taking our questions. Uh, so just to follow up on the FPC phase two trial, um, do you anticipate any impacts from COVID-19 on the recruitment process?

Uh, that's a, that's a really great question because, uh, actually, uh, if anything really put home infusion on the map and its utility, it was COVID. Uh, and, uh, I can tell you that, uh, in the home parental nutrition space, uh, that is really increased to the point where they're just barely keeping up with supplying the nutrient bags. Uh, so we really, they think that the trend has been clearly to giving medicines that IV medicines at home more frequently than even before. And our, you know, initial round of, uh, talking to investigators, um, We really, we're pretty comfortable with this. Actually, our chief medical officer, Mark Hoffman, is on the call. So, Mark, do you want to add any more color to this?

The only thing I would add to that, Russell, is that because it is a home setting study, everything has been designed to be remote. So whereas in a traditional clinical trial, patients would have to come into the office frequently for visits and assessments, This study has been specifically designed to emulate the use of the product in the home, which, as Russell mentioned, has the advantages of not going into an office, not being exposed to other patients, not being exposed to other diseases. Specifically with respect to COVID, we know that COVID is not gone forever. But COVID is one of those things, if you look at clinical trials over the past 18 months, a COVID positive test is generally one of those things. where you can rescreen somebody if that is the only criteria by which a patient misses eligibility. And we've factored that into our study design.

Great color. Thank you. And we read your post-presentation with interest, revealing deficiencies in the management of IDA, and then in particular the consensus among HCPs. to the hemoglobin level that should trigger therapeutic intervention. So the question is, are you planning on any campaigns to communicate this data to HCPs?

That's a great question. So right now, with respect to launching the Phase II trial, recruiting investigators, patients, the answer is beyond that, no. I think the time for that is probably going to be in parallel with phase three in the sense of a lot of peer-to-peer communication to get the awareness of iron deficiency anemia in the heads of physicians who are prescribing home infusion treatments. This is obviously the obvious clear ones are the gastroenterologists who will do home parenteral nutrition for short bowel syndrome, ulcerative colitis, that kind of thing. But There's also, you know, many other specialties where this is important. Patients who have inflammation and are treated at home, patients who have oncology drugs at home, all of those have a high prevalence of anemia and incidence of anemia, and that's largely due to the inflammation induced because that inflammation reduces the absorption of iron. So I think that awareness amongst physicians, that, A, that this is a problem, that, B, for your home infusion patients, this is a potential solution that is really quite well suited to the home. I think all of that is pretty much in parallel as we, you know, recruit for the Phase III program at that time.

Okay, thanks for that, Kala. That's excellent. And just finally, we were wondering, from a strategic perspective, do you plan to follow the ongoing XUS clinical trials of Triferic with FPC? Has there been any interest from your partners in Canada and Asia in doing so? You mean at home infusion?

Is that your question? That's right. Not yet. Our partner in Korea is just starting. Our partner in India is still involved in the regulatory process for dialysis and have to do a trial. Those are two fairly large ones. They're right now focused on dialysis. The good news is that Korea is going to be certainly first, but we're very happy to you know, keep them apprised of the home infusion situation so that they can jump onto that with whatever they have to do locally. Same would apply to India, although I expect in India there probably is a market we haven't really looked at it very carefully. So I don't really see in the near term the international side is going to be very active. I think by the time we get into phase three, Once we've got our clinical proof of concept data, that's when I would expect our partners to start working in this.

Okay, great. Thanks for taking our questions, and congrats on your progress.

Sure, thanks a lot.

Thank you. This concludes the Q&A session. Now I'll turn it back to Dr. Ellison for closing remarks.

I want to thank you all for joining us, and I'd like to thank you for the excellent questions and, as I said, your patience with us and your support of the company. And I look forward to our next quarterly call and any individual discussions you may want to have. So thanks very much.

this concludes today's conference call thank you for participating you may now disconnect