Orlando, FL 6/5/12 (StreetBeat) -- Rockwell Medical's (Nasdaq: RMTI) Highlights from the Road
We recently had management on the road, who provided a broad overview of its business as well as several notable updates to its base business as well as development programs. The focus remains the development of Soluble Ferrous Pyrophosphate (SFP), its lead candidate for “physiological” iron maintenance therapy in patients with end-stage renal disease. But the remaining concentrate business remains on track, with upcoming Calcitriol set to generate near term revenue growth while clinical development continues with SFP. We continue to rate Rockwell a Buy with a $15 target price.
SFP clinical enrollment on track: Rockwell completed enrollment of its first Phase III study of SFP (CRUISE-1), which should report out by mid-2013 following a 12-month study period. The second study (CRUISE-2) should also be complete within weeks. Management remains optimistic on the trials’ potential success through 1) increased statistical powering, 2) lengthened study duration (from 6- to 12-months) allowing washout of iron stores in control arm, and 3) use of FDA’s typically accepted endpoint of 0.5g/dL HgB change over baseline (rather than 1.0g/dL in Phase IIb). Separately, Rockwell’s PRIME study designed to demonstrate SFP’s ESA sparing potential, remains on track for data release in 1Q13. Prospects for trial success are high given the 10%+ ESA sparing seen in the Phase IIb study, despite the fact that these were protocol violations.
Cost savings argument should resonate with dialysis centers: Taking a cue from past experience when Rockwell rapidly converted its client base to a lower cost dialysate through cost savings of just pennies on each treatment, Rockwell stands by its unique execution capabilities for rapid SFP adoption. Rockwell already holds captive audience via 40% market share of concentrates among dialysis centers (x-Fresenius), and maintains that dialysate competitor, Fresenius, could also be an adopter through cost savings enticements. We note, every 1% ESA sparing equates to ~$10mn in Rockwell profit/dialysis savings potential at today’s ESA cost (~$7,500/yr) and prevalence (135k patients).
Calcitriol launch 4Q12/1Q13: Rockwell continues stability testing of Calcitriol to finalize FDA approval of its manufacturing plant. Depending on whether FDA requires 30 or 90-days of stability, Rockwell intends to launch late 2012 or early 2013.
Dialysis concentrates could see boost: An FDA warning letter and continued investigations into increased risk of cardiac arrest/death in dialysis patients using sodium diacetate, an ingredient in Fresenius’ Granuflo, is starting to generate significant concern among dialysis centers. Rockwell’s concentrates, CitraPure and Renal Pure, are 100% citric-based and present a safe alternative. As news of a potential downplaying of the cardiac risk by Fresenius percolates, Rockwell is starting to see increased ordering of its products, though the impact cannot yet be quantified.
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Target Price Methodology/Risks
We rate Rockwell Medical Technologies with a Buy and a $15 target price, derived through a DCF (WACC 20%, terminal growth 2.0%). Risks to our target price include delays to SFP development, failure to achieve sufficient efficacy, safety or tolerability, failure to gain approval, difficulty executing in the iron-replacement marketplace, competitive pricing pressure, reimbursement risk, and financial risk.
Rockwell Medical (RMTI) is a commercial-stage biopharmaceutical company focused on renal (kidney) indications, including end-stage renal disease (ESRD), chronic kidney disease (CKD), and iron deficiency anemia. The company’s lead development product, soluble ferric pyrophosphate (SFP), is a novel, proprietary iron salt in Phase III clinical trials to study its utility in providing continuous iron maintenance therapy for treatment or prevention of dialysis-associated anemia. Another important asset is Calcitriol, an active Vitamin D product used to counteract low blood calcium in ESRD patients, which Rockwell plans to launch in 2H12. Rockwell’s marketed products include hemodialysis concentrates that are used to treat patients with end-stage renal disease, and other dialysis solutions to remove toxins and replace nutrients in the dialysis patient’s bloodstream. Based in Wixom, Michigan, Rockwell was founded in 1996 and went public on the NASDAQ exchange in 1998. The company has approximately 300 employees and an established distribution infrastructure that includes three manufacturing facilities, company-owned distribution, and 55 tractor-trailers that make deliveries across the U.S.
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