Rockwell Medical Inc (RMTI) 2019 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Rockwell Medical 2019 Q4 Results Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Ms. Judy DiClemente. Ma'am?

Thank you, May. Welcome to Rockwell Medical's Fourth Quarter 2019 Earnings Results Call. This is Judy DiClemente of In-Site Communications, the Investor Relations representative for Rockwell Medical. With me on today's call are Stuart Paul, Chief Executive Officer of Rockwell Medical; and Angus Smith, Chief Financial Officer of Rockwell Medical.

Before we begin, I wanted to note that certain matters we will discuss may constitute forward-looking statements within the meaning of the federal securities laws. Words such as may, might, will, should, believe, expect, anticipate, estimate, continue, could, potential, predict, forecast, project, plan, intend or similar expressions or statements regarding intent, belief or current expectations are forward-looking statements. While Rockwell believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this release and which are subject to inherent uncertainty. These forward-looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including, without limitation, those set forth in Rockwell's SEC filings, many of which are beyond our control and subject to change. Actual results could be materially different.

Risks and uncertainties include statements about the unique J-code for the Triferic powder packet, timing and the success of our NDA submission for I.V. Triferic; timing and regulatory approval process for Dialysate Triferic in China; the potential market opportunity and commercialization of Dialysate Triferic in China upon regulatory approval; the timing and regulatory process for our NDA filing for I.V. Triferic as filed with the FDA; the potential market opportunity for I.V. Triferic and other Rockwell products; pricing and reimbursement status for I.V. Triferic, Dialysate Triferic and other Rockwell products; CMS' announced final rule relating to the eligibility criteria for TDAPA; liquidity and capital resources; expected duration of Rockwell's existing liquidity and working capital; success of our commercialization plans for Dialysate Triferic; and the success of our efforts to maintain, grow and improve the profit margin of our concentrates business; and the impact of our general economic, industrial, health care and political conditions in the United States and internationally as well as those risks more fully discussed in the company's SEC filings.

Accordingly, you should not place undue reliance on these forward-looking statements. Rockwell expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by law.

This conference call can be accessed on Rockwell Medical's Investor Relations web page. This call is being recorded on March 12, 2020, for audio rebroadcast and can also be accessed on the same web page.

At this time, I would like to turn the conference call over to Rockwell's Chief Executive Officer, Stuart Paul. Stuart?

Thank you, Judy. Good afternoon, everyone, and thank you for your time today. As we shared in our recent business update in our press release this afternoon, we're providing key updates today on our progress on numerous fronts, including: first, the continuing progress of our launch of Dialysate Triferic; second, the status of I.V. Triferic with a March 28 PDUFA date; third, an update on our medical platform and our real-world data program; next, an update on our international activities for Triferic; and finally, our initial focus on additional high-potential therapeutic indication outside of end-stage renal disease.

Before I get into the metrics, let me briefly reiterate our overarching goal at Rockwell Medical, which is to transform the way anemia is managed, not only in ESRD patients undergoing hemodialysis treatment but also across a wide variety of therapeutic indications. We're focused on changing the standard of care. And as we stated previously, this will not happen overnight but will take 3 to 5 years to achieve in ESRD. Our initial therapeutic focus in end-stage renal disease addresses the anemia that is a common side effect in this patient population.

Now Triferic is an important, new and exciting therapeutic that delivers the iron and maintains the hemoglobin that hemodialysis patients need without increasing ferritin levels and without the risks of chronic inflammation and other adverse events. And Triferic avoids the problem of iron overload and toxicity that we believe many patients experience with traditional IV irons.

To remind you of the size of the market opportunity, more than 2 million people receive hemodialysis annually worldwide, which translates into more than 250 million hemodialysis treatments each year. And with increasing rates of diabetes, obesity and hypertension, these numbers are likely to grow. Our Triferic platform, which includes Dialysate Triferic and I.V. Triferic, pending FDA approval, has the potential to disrupt the way health care providers, both in the U.S. and globally, treat anemia.

Let me start off with an overview of our first FDA-approved formulation, Dialysate Triferic, which we launched in the United States in May of last year. Our evaluation program, which we introduced as part of the launch last year, allows clinics to sample Dialysate Triferic for 3 months, and this has been a very successful program for us to date. 75% of clinics that completed an evaluation program during the fourth quarter have now converted to contracted customers. And this is consistent with the conversion rate we saw earlier in the year, and we believe it represents very important validation for the clinical benefits that dialysis clinics see when they initiate Triferic therapy in their patients. And as we stated in the past, the interactions that we have with clinics during the evaluation program allow for smooth implementation of Triferic and a dialogue regarding the benefits of Triferic, which we believe helps to reinforce the value of Triferic long term.

We're also pleased that last November, we signed our first contract with a medium-sized dialysis organization or MDO. And as we said from the outset of the launch of Dialysate Triferic, our initial targets were small and independent dialysis organizations with a plan to broaden our customer acquisition efforts to include medium and, ultimately, large-sized dialysis organizations. So this signing of this MDO is significant, and it gives us access to approximately 160 clinics within the system that are appropriate for Dialysate Triferic, representing an estimated 10,000 patients. We began our launch within this MDO by working with 3 leading KOLs within their system, targeting 5 key clinics to fully introduce Triferic.

As of year-end 2019, these 5 clinics fully converted to use of Dialysate Triferic and initiated purchasing of Dialysate Triferic. And during the first 2 months of 2020, we have been working closely with the MDO to expand the launch within their system and to ensure appropriate training, implementation measures are in place, and we're expecting to see continued acceleration of adoption in the first half of this year as a result. And importantly, as part of the contract, clinics have the option to provide us with data, which will add to the growing database that we're building to support the clinical and pharmacoeconomic benefits of Triferic.

Let me provide a snapshot of where we stood at December 31, 2019, in terms of clinics and patients. During the fourth quarter, we entered into 10 additional contracts, representing more than 650 patients for a 77% increase in clinics under contract compared to September 30, 2019. And that brings the number of contracts in place at December 31 to 23, representing more than 1,650 patients. In addition, as of December 31, 2019, we had more than 10 additional clinics, representing over 600 patients in various stages of an evaluation program. From Q3 to Q4, we saw a 67% increase in the number of annualized treatments under contract. That equates to an increase of 100,000 annualized treatments under contract compared to September 30, 2019.

Furthermore, more than 80% of customers order Triferic on an ongoing basis. We are gaining traction in the market and believe that these trends will accelerate as we go through 2020. If uptake continues as we believe it will, Rockwell Medical stands to make significant inroads into the large and growing anemia management market around ESRD in the United States.

Let me turn now to our IV formulation of Triferic. We're now just days from our PDUFA date of March 28, and we're looking forward to receiving approval and launching this innovative extension of our Triferic platform. As a reminder, I.V. Triferic is designed for intravenous administration to adult hemodialysis patients and was developed pursuant to a special protocol assessment, or SPA, through which the FDA agreed that an equivalence approach to our Dialysate Triferic would be acceptable for review. Now if approved, I.V. Triferic provides a great deal of flexibility for dialysis centers in that they can customize treatment to individuals at the bedside. It also allows dialysis centers to administer Triferic to patients regardless of the mode of bicarbonate delivery being used. The IV formulation is more appropriate in cases where the hemodialysis clinic is using dry bicarbonate.

In recent years, a number of U.S.-based hemodialysis clinics have been shifting toward reliance on dry bicarbonate and away from a central liquid bicarbonate loop. And as we've noted previously, many dialysis centers in the international markets already use the dry bicarbonate cartridges or bags that require the IV formulation. So we believe FDA approval should support the potential for expanding Triferic adoption, both domestically and internationally.

Together, our 2 formulations will offer dialysis clinics flexibility depending on their both bicarbonate delivery and preferred treatment approach, including offering the flexibility to treat certain subpopulation of the patients such as ESA hyporesponders or patients with high ferritin levels. And these are some of the considerations currently under discussion as we develop and finalize our positioning strategy for I.V. Triferic vis-à-vis Dialysate Triferic in the marketplace.

In terms of our commercialization plans for I.V. Triferic, if approved, we plan to leverage the launch infrastructure we've established for Dialysate Triferic and many of the learnings from the last 9 months. Initially, in Q2, we will apply the learnings from our Dialysate launch as we lay the groundwork for rolling out the IV version, and we'll invest time engaging with clinics, helping them understand the unique benefits and mechanism of action of Triferic.

In Q3, we plan to launch evaluation programs for I.V. Triferic. We would then plan to commence commercial sales of I.V. Triferic in the fourth quarter of this year as targeted clinics for early adoption reached the 3-month completion point in their I.V. Triferic evaluation program. As we stated on our last call, we anticipate that I.V. Triferic will be reimbursed within the ESRD bundle. But importantly, we believe the cost structure for Triferic enables us to make an attractive gross margin while ensuring that this transformational therapy is broadly accessible to the patients who need it most. We look forward to providing an update on the significant extension to the Triferic portfolio in the next few weeks.

Now during the fourth quarter of 2019, we also continue to strengthen and enhance our medical capabilities. Specifically, we hired Dr. Marc Hoffman as our new Chief Medical Officer; expanded our Medical Advisory Board with the addition of 3 world-renowned nephrologists: Steve Fishbane, MD, Jay Wish, MD, and Anatole Besarab, MD. And these are physicians with deep renal and anemia experience who have already had a positive impact on advising our strategy for Triferic.

We also added Russell Ellison, MD, to our Board of Directors. Dr. Ellison has held leadership positions in both emerging biotechnology and large pharmaceutical companies for more than 4 decades. His broad experience includes Board of Directors, Chief Executive and Medical Executive roles with expertise in medical strategy, clinical development, global medical affairs, regulatory affairs and public health policy in major markets in developing countries. Dr. Ellison has a deep understanding of the renal space based on experiences with companies developing therapeutic products that address kidney disease and renal anemia, including hypoxia-inducible factor, or HIF, prolyl hydroxylase inhibitors or PHIs. We have also continued to engage with key centers of excellence and expect to add a number of these influential centers to our customer base in 2020.

Finally, we expanded our real-world data program, ending the year with 8 clinics with over 700 patients in the program. And during the first quarter of 2020, we expect to more than double the number of clinics in our real-world data program. We now have data from the first 8 clinics in the program and external vendors to format the data for analysis and review key trends. Our dialogue with the physicians at these centers indicates that they are seeing very stable hemoglobin maintenance and reductions in the utilization of traditional IV irons and ESAs. And as we continue to refine our analysis and expand our database of real-world evidence, we will proactively pursue opportunities to have data published or presented at prestigious industry conferences.

Let me turn now to opportunities for Triferic outside of the United States. And as we've said all along, we see Triferic as a large global market opportunity. The opportunity for Triferic in hemodialysis alone is potentially in excess of $1 billion. We are working to establish partnerships and position ourselves to expand our footprint into these important markets.

In January, we announced that we entered into a license and supply agreements with a wholly owned subsidiary of Sun Pharmaceutical Industries Ltd., or Sun Pharma, for the rights to commercialize Triferic in India. We're very excited about this opportunity. Sun Pharma is the largest pharmaceutical company in India with more than $4 billion in annual sales globally. It has a market-leading nephrology franchise and experience with license and distribution partnerships that it will use to promote Triferic to nephrologists throughout India. We will supply Triferic, and Sun Pharma will be our exclusive development and commercialization partner. Together, we will map out the development and execution details for Triferic in India, and Sun Pharma will be responsible for all clinical, regulatory and commercialization activities. Rockwell Medical receives an upfront fee and will be eligible for milestone payments and royalties on net sales.

As you know, we're also working with our partner, Wanbang Biopharmaceuticals, to commercialize Triferic in China. In December 2019, we and Wanbang had a meeting with the NMPA, China's equivalent to the FDA, to discuss the PK studies we completed in 2019 and a potential regulatory submission. And while it was acknowledged that the PK studies met their objective, the NMPA indicated that an additional clinical trial would be needed to support a submission for approval in China. So since the December meeting, we've continued to engage with our partner, Wanbang, and the regulatory body as well to explore clinical development options to move forward. Options for the clinical study have been drafted, and Wanbang has selected a CRO with the goal of initiating the required clinical study in 2020.

And in Canada, our NDS submission for I.V. Triferic is ready for submission, and we're awaiting the FDA approval decision before moving forward with the submission later this year.

And finally, we're continuing to make progress in our discussions with potential licensing partners in other key geographies, including Europe and Japan.

Let me take a moment now to share some other initiatives underway at Rockwell. As I mentioned earlier, Triferic is a unique therapeutic that has the potential to transform the way anemia is managed in a wide variety of disease states. And to that end, we've launched a strategic initiative to identify and prioritize other therapeutic indications for future development. We've established a team comprised of internal and external resources to focus on this project, and we hope to have an update on our plans later this year. This is a very exciting project for us as we look to build out the technology platform and address other indications where iron plays a critical role such as in cardiovascular disease, total parenteral nutrition or oncology.

In summary, 2019 was a pivotal year for Rockwell Medical. We launched Dialysate Triferic in the U.S., we submitted the new drug application for I.V. Triferic, developed and expanded our medical and commercial infrastructure to position the company for future success, and we began to lay the groundwork for additional value-creating milestones in the years to come. Looking ahead, we believe 2020 will also be an exciting year for Rockwell as we build upon our early signs of success for Dialysate Triferic, seek approval for I.V. Triferic in the U.S., continue our progress for Triferic outside the U.S. and take more concrete steps to position Triferic for use outside of end-stage renal disease.

I'll now turn the call over to our CFO, Angus Smith, to review our fourth quarter financials. Angus?

Thank you, Stuart. Turning now to our fourth quarter results. Net sales for the fourth quarter of 2019 were $15.5 million compared to sales of $16.9 million during the 3 months ended December 31, 2018. Net sales of hemodialysis concentrates to dialysis providers and distributors in the U.S. and abroad were $15.3 million for the 3 months ended December 31, 2019, compared to $16.8 million for the 3 months ended December 31, 2018.

The decrease in net sales was due to a decrease in international concentrates sales of $1.1 million and a decrease related to true-ups under the Baxter agreement for cost of sales and transportation costs partially offset by increased concentrates sales to DaVita and an increase in Triferic sales.

Net sales of Triferic were approximately $228,000 for the 3 months ended December 31, 2019, compared to $68,000 for the 3 months ended December 31, 2018. For each of the 3 months ended December 31, 2019 and 2018, Triferic net sales included approximately $68,000 of deferred revenue, recognized under the company's license in the People's Republic of China with Wanbang Biopharmaceutical. Triferic net sales for the 3 months ended December 31, 2019, also included approximately $160,000 of Triferic product sales to U.S. customers.

Cost of sales during the fourth quarter of 2019 was $4.4 million compared to the cost of sales of $15.7 million during the fourth quarter of 2018. The decrease was due primarily to a decrease in distribution costs for our concentrates products due to reduced rates for third-party shipping and reduced costs for materials and overhead tied to the reduction in concentrates sales volume.

Gross profit for the fourth quarter of 2019 was $1.1 million compared to gross profit of $1.2 million during the fourth quarter of 2018. The decrease in gross profit was primarily due to a reduction in concentrates sales compared to the fourth quarter of 2018 partially offset by an increase in Triferic sales.

Operating loss for the fourth quarter of 2019 was $7.4 million compared to $9.4 million in the fourth quarter of 2018. The improvement in operating loss was due to a decrease in G&A expenditures and expenditures related to licenses acquired partially offset by an increase in R&D and selling and marketing expenses.

Selling and marketing expenses were $1.9 million during the fourth quarter of 2019, an increase of $1.6 million compared to the fourth quarter of 2018. The increase in sales and marketing expense reflects the investments we are making in developing a commercial platform to support the launch of Triferic.

General and administrative expenses were $4.7 million during the 3 months ended December 31, 2019, compared with $7.6 million during the 3 months ended December 31, 2018. The decrease of $2.9 million was primarily driven by reductions in compensation, legal, consulting and recruiting expenses partially offset by an increase in insurance and facility-related expenses.

Research and product development expenses were $2 million for the fourth quarter of 2019 compared to $1.6 million during the fourth quarter of 2018. The increase was due primarily to an increase in clinical trial and consulting expenses partially offset by a reduction due to our write-off of Calcitriol inventory that occurred in the fourth quarter of 2018. We expect our research and product development expenses will increase in the future due to additional clinical development of Dialysate and I.V. Triferic, including the pediatric clinical trial for Triferic, expenses associated with real-world data collection and analysis for Triferic, an increase in headcount to support medical education efforts for Triferic and potential investments in developing Triferic for new clinical indications.

Net loss for the fourth quarter of 2019 was $7.3 million or $0.11 per basic and diluted share compared to a net loss of $9.4 million or $0.17 per basic and diluted share in the fourth quarter of 2018.

As of December 31, 2019, the company had approximately $26 million of cash, cash equivalents and investments available for sale. Net cash used in operating activities for the fourth quarter of 2019 was approximately $5.3 million. In February 2020, we completed the public offering of common stock for gross proceeds of $8.1 million. This was the first step in our broader financing strategy for 2020. As we look forward, we continue to believe that our valuable assets provide us with financial flexibility, including nondilutive financing alternatives.

Finally, as many of you are aware, we received correspondence from Medical Resource Acquisition Group, or MRAG, recently regarding potential director nominations for our upcoming annual meeting. Our Board has determined that the director nominations failed to comply with our bylaws, and therefore, MRAG's directors will not stand for election at our annual meeting. We will not be taking any further questions on this matter today so that we can focus on our business update and quarterly earnings results.

I will now turn the call back to Stuart.

Thank you, Angus. We have a lot to look forward to in the next weeks and months. We'll continue to work to bring this innovative and much-needed therapeutic to the hemodialysis patients who can benefit today as well as to address anemia and a wider variety of disease states in the future. And our goal remains to establish a new standard of care for anemia management over the course of the next 3 to 5 years. We're proud of our 2 very valuable assets, our Triferic platform and our concentrates business, that we believe offer multiple opportunities to drive the long-term value of Rockwell Medical.

We'll now open the call to questions. Operator?

(Operator Instructions) We have our first question from the line of Raghuram Selvaraju.

This is Edward Marks on for Ram. I appreciate you guys taking the questions. A few questions on the MDOs. For those that have inked the purchase agreement, how many of the 160 clinics do you anticipate using Triferic by the end of this year? And how many more might sign purchase agreements over this year versus how many are you currently targeting?

Great to talk with you. Thanks for the questions. So I'm not going to give specific numbers of clinics. But I mean, I can tell you, we've got access to 160, where we have an evaluation program in place for most of the types of single or independent accounts that we pick up, which are more of like on a 1 by 1 basis. In an MDO setting, you have the ability to go after bigger chunks of clinics at a time and not necessarily with a need for the evaluation program. So there is a bit of a process to work through together to drive these forward successfully. We're in active dialogue with this MDO as well as other MDOs and large regional clusters of clinics regarding evaluation programs as well. And as you move into these chunkier types of accounts, things have a tendency to pick up faster. So our expectation is that we'll be able to significantly accelerate the pace that you've seen to date, but that's all I'll say on that.

Okay. Understood. And if you could provide a little more detail on the time line for conversion of these LDOs. And just wondering if any are likely to come online this year. Or is that more of a capture that you're expecting to take place next year?

What I can tell you is we're obviously engaged with the LDOs in discussions. And when we have more to report there, we'll let you know.

All right. Sounds good. Three more quick ones in here. Just wondering if there are any recent requests from the FDA regarding the NDA for I.V. Triferic.

I would just say we're very excited about the process and being so close to the PDUFA. We've had the normal correspondence you would expect ahead of the PDUFA date with the FDA over the last several weeks, and we're looking forward to their decision later this month.

So are we. So -- and then the 2 final questions. Just if you could provide any time line updates for regulatory approvals in Chile and just wondering whether the matter regarding the web page warning letter from the FDA has been addressed and officially closed.

Angus, do you want to take these ones?

Sure. Yes. So as it relates to Chile, we were originally expecting to get approval in Chile last year. There was some civil unrest down there that had delayed it. I think we're back on track there and expecting to have approval later this year. So we're pleased with that.

And then as it relates to the FDA untitled letter in the website, we've removed certain references on the website and had a dialogue with the FDA about some of their comments. So from our perspective, we've resolved some of them. And we look forward to continuing the dialogue with them as we go forward.

(Operator Instructions) At this time, I would like to turn it back to the speakers for any further comments.

Well, thank you again for joining us for this -- the fourth quarter earnings call, and we look forward to staying in touch with you with future business updates and earnings calls in the near future. Thanks so much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. Presenters, please stay for the post conference.