(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes in "Item 1. Condensed Consolidated Financial Statements". References in this report to the "Company," "we," "our" and "us" are references to Rockwell Medical, Inc. and its subsidiaries. Forward-Looking Statements We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission, or SEC. We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our 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. Our forward looking statements also include, without limitation, statements about our liquidity and capital resources; our plans and ability to successfully commercialize our products; our ability to successfully launch FDA-approved Triferic AVNU; our ability to develop FPC for other indications; our ability to successfully execute on our business strategy and development of new indications; 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. 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. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed in this report, "Item 1A - Risk Factors" in our Form 10-K for the year ended December 31, 2019 and from time to time in our other reports filed with the SEC, including in this Form 10-Q. 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. 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, Inc. and subsidiaries (collectively, "we", "our", "us", or the "Company"), is a biopharmaceutical company dedicated to improving outcomes for patients with iron deficiency and iron-deficiency anemia, with an initial focus on patients with end-stage kidney disease (ESKD) and on dialysis. The Company is focused on developing its proprietary ferric pyrophosphate citrate ("FPC") therapeutic platform. The first product developed from this platform is Triferic, the first-FDA approved product for the replacement of iron and maintenance of hemoglobin in adult hemodialysis patients. We initiated commercial sales of Triferic Dialysate during the second quarter of 2019 and received approval by the U.S. Food and Drug Administration ("FDA") for the intravenous formulation of Triferic, Triferic AVNU, on March 27, 2020. We plan to leverage our experience with Triferic to develop our FPC platform for iron deficiency and iron deficiency anemia in other disease states. Our lead indication is developing FPC for the treatment of iron deficiency anemia in patients undergoing home infusion therapy. We are also a manufacturer of hemodialysis concentrates for dialysis providers and distributors in the United States and abroad. We supply the domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim.
Our mission is to transform anemia management in a wide variety of disease states across the globe, while improving patients' lives. Accordingly, we are building the foundation to become a leading medical and commercial organization in the field of iron deficiency.
Substantially all of our sales have been concentrate products and ancillary items, though we initiated commercial sales of our proprietary therapeutic, Triferic Dialysate, during the second quarter of 2019.
Triferic is the Company's first proprietary iron therapy from the FPC therapeutic platform that replaces iron and maintains hemoglobin in dialysis patients without increasing iron stores. Triferic Dialysate was the first FDA approved product indicated to replace iron and maintain hemoglobin concentration in adult HDD-CKD hemodialysis patients. On March 27, 2020, the FDA approved Triferic AVNU, a novel intravenous formulation of Triferic that would be used for the same indication. Descriptions of Triferic Dialysate and Triferic AVNU are set forth below.
While we intend to market and sell Triferic Dialysate and Triferic AVNU directly in the United States, our international strategy is to partner with and license these products to established companies in other regions of the world to assist in the further development (primarily clinical trials and regulatory activities), if necessary, and commercialize in those regions. We continue to pursue international licensing opportunities in a number of countries and specific regions.
up with the Indian regulatory authorities to determine the requirements for approval of Triferic in India. Lastly, pursuant to the licensing agreement with Jeil Pharmaceutical Co., Ltd ("Jeil Pharma"), our licensee in South Korea, meetings between Jeil Pharma and the regulatory authorities in South Korea will be initiated. Jeil Pharma has informed us they do not believe they would need to perform a clinical trial in advance of approval. We anticipate sales in South Korea to begin in early 2022. See "Item 1A - Risk Factors" below for a discussion of the potential impact of COVID-19 our overall business and such clinical studies.
Results of Operations for the three months ended September 30, 2020 and 2019 The following table summarizes our operating results for the periods presented below (dollars in thousands):
For the Three Months Ended September 30, 2020 % of Revenue 2019 % of Revenue % Change Net Sales $ 15,280 $ 15,407 (0.8) % Cost of Sales 14,934 97.7 % 15,424 100.1 % (3.2) Gross Profit (Loss) 346 2.3 (17) (0.1) (2,135.3) Selling and Marketing 1,669 10.9 1,827 11.9 (8.6) General and Administrative 3,622 23.7 4,623 30.0 (21.7) Research and Product Development 1,745 11.4 1,475 9.6 18.3
Operating Loss $ (6,690) (43.8) % $ (7,942) (51.5) % (15.8) %
to increase in costs relating to our scientific programs. The Company is continuing to invest in its medical and scientific programs to support the global launch of Triferic and the advancement of our FPC technology platform. Other Income (Expense)
Results of Operations for the nine months ended September 30, 2020 and 2019 The following table summarizes our operating results for the periods presented below (dollars in thousands):
For the Nine Months Ended September 30, 2020 % of Revenue 2019 % of Revenue % Change Net Sales $ 47,033 $ 45,812 2.7 % Cost of Sales 44,693 95.0 % 44,085 96.2 % 1.4 Gross Profit 2,340 5.0 1,727 3.8 35.5 Selling and Marketing 5,738 12.2 7,149 15.6 (19.7) General and Administrative 11,767 25.0 16,341 35.7 (28.0) Settlement Expense, net of Reimbursement - - 430 0.9 (100.0) Research and Product Development 5,183 11.0 4,930 10.8 5.1
Operating Loss $ (20,348) (43.3) % $ (27,123) (59.2) % (25.0) %
During the nine months ended September 30, 2020, our net sales were $47.0 million compared to net sales of $45.8 million during the nine months ended September 30, 2019. The increase of $1.2 million was primarily due to higher domestic dialysis concentrate sales of $0.8 million and an increase in Triferic Dialysate sales of approximately $0.4 million compared to the nine months ended September 30, 2019. Triferic was launched in the third quarter of 2019 via the sample evaluation program and there were nominal revenues for the same period in 2019.
Cost of sales during the nine months ended September 30, 2020 was $44.7 million, resulting in gross profit of $2.3 million during the nine months ended September 30, 2020, compared to cost of sales of $44.1 million and a gross profit of $1.7 million during the nine months ended September 30, 2019. Gross profit increased by $0.6 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was due primarily to a gross margin increase of $0.3 million in our Triferic Dialysate product in 2020. In comparison, the launch and sales of Triferic Dialysate occurred in the third quarter of 2019 and had no to minimal impact during the nine months ended September 30, 2019. Gross profits are primarily related to our concentrates business at this time. The Company anticipates that potential future sales of Triferic will impact the mix of future gross profits.
Selling and Marketing Expense
Selling and marketing expenses were $5.7 million during the nine months ended September 30, 2020, compared with $7.1 million during the nine months ended September 30, 2019. The decrease of $1.4 million is due primarily to the decrease in marketing costs of $2.2 million, partially offset by an increase in costs associated with hiring, training and educating new employees of $0.8 million. The fluctuation in these costs are mainly due to the timing of the Triferic Dialysate launch in the third quarter of 2019. We expect those costs to continue to level off quarter over quarter going forward.
General and Administrative Expense
General and administrative expenses were $11.8 million during the nine months ended September 30, 2020, compared with $16.3 million during the nine months ended September 30, 2019. The $4.5 million decrease was driven primarily by decreases to stock compensation, legal, recruiting and consulting fees, partially offset by an increase in labor costs. The decrease in stock compensation primarily relate to the resignation of our former President and Chief Executive Officer in April 2020 and former Chief Financial Officer effective July 2020.
Research and Product Development Expense
Research and product development expenses was $5.2 million for the nine months ended September 30, 2020, compared with $4.9 million during the nine months ended September 30, 2019, an increase of $0.3 million. Research and product development expenses for the nine months ended September 30, 2020 included clinical trials and other product development expenses of $1.8 million for Triferic, compared to $1.4 million during the nine months ended September 30, 2019. The Company is continuing to invest in its medical and scientific programs to support the global launch of Triferic and the advancement of our FPC technology platform.
Settlement Expense, net of Reimbursement
Settlement expense was nil for the nine months ended September 30, 2020, compared to $0.4 million in for the nine months ended September 30, 2019. Settlement expense for the nine months ended September 30, 2019 reflected the terms of the confidential settlement agreement and mutual release entered into in August 2018 relating to the Company's former Chief Executive Officer, Robert Chioini, former Chief Financial Officer, Thomas Klema, and a former and then current director.
Other Income (Expense)
Other income for the nine months ended September 30, 2020 was $247,682, consisting of interest income of $239,594 and $8,088 of realized gains on investments. Other income for the nine months ended September 30, 2019 was $313,393, consisting of $289,101 of interest income and $24,292 of realized gains on investments. Other expense for the nine months ended September 30, 2020 was $2.1 million, consisting of warrant modification expense of $0.8 million and interest expense of $1.3 million related to our debt facility (see Note 15 for more information on our debt facility). Other expense for the nine months ended September 30, 2019 was $16,365 of interest expense.
Liquidity and Capital Resources
Nov 09, 2020
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