PART I
Overview
1996, and re-domiciled to the state of Delaware in 2019. Our headquarters is located at 30142 Wixom Road, Wixom Michigan 48393. Our telephone number is (248) 960-9009 and our website is
http://www.rockwellmed.com. The information contained on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K. We have included our website in this Annual Report on Form 10-K solely as an inactive textual reference.$15 million in preferred stock in two equal tranches.
The first tranche of $7.5 million was funded on April 7, 2022. The second $7.5 million tranche is to be funded subject to the Company raising $15 million additional capital by June 30, 2022. We are also in discussions with our other major customer to renegotiate certain terms of that agreement. In addition, we are reviewing our entire supply chain to identify opportunities for improvement, prioritizing initiatives that will have the largest impact on long-term efficiency, profitability and growth.
We are regulated by the United States Food and Drug Administration (“FDA”) under the Federal Drug and Cosmetics Act, as well as by other federal, state and local agencies. We hold several FDA product approvals including both drugs and medical devices.
Our Market Opportunity – Hemodialysis
Hemodialysis is the primary treatment modality employed in the United States with over 90% of all dialysis patients receiving hemodialysis. The Company does not currently compete in the peritoneal or home dialysis segments. Hemodialysis treatments are primarily performed in freestanding clinics, as well as in some hospitals. The majority of dialysis services are performed by national and regional for profit dialysis chains. Based on data published by the United States Renal Data Systems (“USRDS”) we estimate that there are approximately 7,000 Medicare-certified treatment clinics in the United States. The two largest national for-profit dialysis chains service approximately 70% of the domestic hemodialysis market. According to the most recent statistics published by USRDS, there were approximately 479,000 dialysis patients in the United States as of the end of 2015.
Based on a global market study published by a major dialysis products manufacturer, the global ESRD population receiving some form of treatment was estimated to be over 3.2 million patients at the end of 2017 with the overall global patient population growing approximately 7-8% annually. According to the National Kidney Foundation, 10% of the worldwide population is affected by chronic kidney disease and millions die each year because they do not have access to affordable treatments. We have observed that the ESRD patient population in the United States has grown steadily over the past several decades and, coupled with data provided in that report, we expect the United States dialysis population to grow approximately 3-4% annually over the next several years. The Asia-Pacific market is projected to experience rapid growth in both the incidence of kidney disease and by total treatment in the ESRD population over the decade ahead. One common side-effect of dialysis treatments is iron deficiency anemia for chronic patients.
The great majority of hemodialysis patients receive dialysis treatment three times per week, or approximately 156 times per year. Most patients have their dialysis treatment performed at a free-standing clinic for permanent loss of kidney function; these are called “chronic” patients. Some have their treatment performed at hospitals for temporary loss of kidney function; these are called “acute” patients. A small percent of chronic patients receive their treatment at home; these are called “home” patients. In each setting, a dialysis machine dilutes concentrated solution, such as Rockwell’s concentrate products, with purified water. The resulting solution is called dialysate. Dialysate is pumped through an artificial kidney or filter (called a dialyzer) while the patient’s blood is pumped through a semi-permeable membrane
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inside the dialyzer in the opposite direction the dialysate is flowing. The dialysate infuses calcium, magnesium and potassium into the patient’s blood while removing fluid and waste. Dialysate generally contains dextrose, sodium chloride, calcium, potassium, magnesium, sodium bicarbonate and citric acid or acetic acid. The patient’s physician chooses the proper concentrations required for each patient based on each particular patient’s needs.
In addition to using concentrate products every treatment, a dialysis provider also uses other products such as blood tubing, fistula needles, dialyzers, drugs, specialized component kits, dressings, cleaning agents, filtration salts and other supplies, many of which we sell.
Our Solution
We are primarily focused on developing unique, proprietary renal drug therapies that we can commercialize or out-license, while also expanding our dialysis products business. These novel renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy, while decreasing drug administration costs and improving patient convenience and outcome.
The Only FDA-Approved Therapy to Replace Iron and Maintain Hemoglobin. As of now, Triferic is the only FDA-approved therapy indicated to replace iron and maintain hemoglobin in adult hemodialysis patients. We believe Triferic has the potential to capture significant market share due to its improved clinical and cost-saving benefits. Triferic is an innovative iron therapy that replaces the ongoing iron loss that occurs to patients during every hemodialysis treatment, via dialysate. If Triferic receives separate reimbursement from Centers for Medicare and Medicaid Services (“CMS”) we anticipate dialysis providers will have greater incentive to adopt this new, innovative therapy and provide their patients wide-spread access to it. Effective January 1, 2016, Triferic received a CMS reimbursement code, commonly referred to as a J-Code.
Separate Reimbursement. While we cannot predict the outcome or timing of the CMS review, we anticipate that Triferic will receive separate reimbursement as a resultAll of our extensive efforts in working with policy makers, Congress and stakeholders within the dialysis industry. We have had in-depth discussions with senior officials within the current administration, key members of Congress, patient advocacy groups and other industry stakeholders regarding the merits of Triferic and why this innovative therapy should receive separate reimbursement. Our efforts have received strong support. We have submitted information to CMS that highlights the improved clinical benefits that Triferic provides to patients, as well as the significant cost savings Triferic delivers to both Medicare and dialysis providers.
Develop Additional Clinical Indications and Product Presentations of Triferic. We are continuing development work on other clinical indications related to iron deficiency that address unmet patient needs and we are evaluating opportunities to in-license other products that will complement our product portfolio. We are also developing other presentations of Triferic.
International Opportunities. Our global strategy is to license Triferic to key partners to commercialize it internationally. We are actively pursuing international licensing opportunities in a number of countries and regions.
Enter into Generic Market. We are also working to begin marketing Calcitriol, a generic injectable vitamin-D, which is manufactured through contract manufacturing organizations (“CMOs”). In 2017, we engaged a new CMO in order to improve the manufacturing process of Calcitriol to ensure that Calcitriol is manufactured consistently and within specifications. We are awaiting FDA approval of a Prior Approval Supplement (“PAS”) in order to market and commercialize Calcitriol. We received written notice from the FDA in October 2017 that the FDA needed additional time to review the data submitted by us. The notice contained no indication by the FDA of any deficiency with the data submitted. While we cannot predict the timing of the FDA’s review of such data, we anticipate the FDA’s review of such data to be completed during the second quarter of 2018. Following FDA approval, we plan to accelerate our commercial production volumes and to begin selling Calcitriol to hemodialysis providers in the United States.
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Our Growth Strategies
Domestic Commercialization of Triferic. We are actively marketing Triferic in the United States hemodialysis market through our efforts to educate and to work together with clinics to evaluate their implementation of Triferic under our drug sample program. Feedback from clinics using Triferic in connection with our drug sample program has been positive and consistent with our clinical study results, which demonstrated stable maintenance of hemoglobin concentration and significant reduction in erythropoiesis stimulating agent (“ESA”) and intravenous (IV) iron use. Until Triferic receives separate reimbursement from CMS, Triferic will be available through our drug sample program. The United States hemodialysis market is currently the largest market in the world for dialysis products. There are an estimated 470,000 dialysis patients in the United States or approximately 75 million treatments annually.
Domestic Commercialization of Calcitriol. Our generic injectable vitamin-D drug, Calcitriol, is indicated for treating secondary hyperparathyroidism in dialysis patients. Calcitriol (active vitamin D) injection is indicated in the management of hypocalcemia in patients undergoing chronic renal dialysis. Calcitriol (active vitamin D) injection is indicated in the management of hypocalcemia in patients undergoing chronic renal dialysis. Based on our analysis of information provided by industry sources, we estimate that there are currently over 52,000,000 vitamin D treatments per year in the ESRD market in the United States. We are awaiting FDA approval of a Prior Approval Supplement (“PAS”) in order to market and commercialize Calcitriol. We received written notice from the FDA in October 2017 that the FDA needed additional time to review the data submitted by us. The notice contained no indication by the FDA of any deficiency with the data submitted. While we cannot predict the timing of the FDA’s review of such data, we anticipate the FDA’s review of such data to be completed during the second quarter of 2018. Following FDA approval, we plan to ramp up commercial production volumes and to begin marketing and selling Calcitriol to hemodialysis providers in the United States.
International Commercialization of Triferic and Calcitriol. We are working to commercialize both Triferic and Calcitriol globally. In 2016, we licensed the commercialization rights for Triferic for the Chinese market with a prominent Chinese pharmaceutical company. China is expected to become the largest ESRD market in the world over the next several years. Commercial sales activity in these markets will commence following regulatory or registration approval. We retain manufacturing responsibilities for both Triferic and Calcitriol. We have also executed a distribution agreement to market Triferic in Canada, where we anticipate commercial availability in 2019 after regulatory approval. We recently licensed Triferic to distributors in Chile and Peru. We are actively engaged in licensing negotiations for Triferic in a number of other regions and countries. We intend to leverage the development, regulatory and commercial presence and expertise of potential business partners to accelerate sales of our products throughout the world.
Obtain Separate Reimbursement for Triferic. We have been engaged in extensive efforts to obtain approval from CMS for separate reimbursement of Triferic. We have worked with policy makers, Congress and stakeholders within the dialysis industry. We have had in-depth discussions with senior officials within the current administration, key members of Congress, patient advocacy groups and other industry stakeholders regarding the merits of Triferic and why this innovative therapy should receive separate reimbursement. Our efforts have received strong support. We have submitted information to CMS that highlights the improved clinical benefits that Triferic provides to patients, as well as the significant cost savings Triferic delivers to both Medicare and dialysis providers. Notwithstanding our efforts, arguments and expectations, we cannot predict the outcome, or the timing of the CMS review.
Additional Potential Indications for Triferic. We are currently undertaking development of other clinical indications for Triferic. These clinical applications include peritoneal dialysis (“PD”), total parenteral nutrition (“TPN”) and possibly treating cancer patients. We are also developing other methods for delivering and packaging Triferic, including intravenous delivery. Our drug product pipeline is summarized below by stage of development.
Expanding Out-Licensing. We have made significant progress with our international business development efforts for Triferic, including securing a licensing agreement with Wanbang Biopharmaceutical in 2016 for the rights to commercialize Triferic and Calcitriol for ESRD patients in the People’s Republic of China. We are working with our partner to commence a clinical trial in China anticipated to commence in 2018. Under the terms of the Wanbang Agreement, we received an upfront payment of $4 million, which we are recognizing over the term of the agreement. Rockwell may also receive milestone payments of up to an additional $35 million over the life of the agreement in regulatory and revenue milestone payments plus ongoing earnings on product sales, and Wanbang is responsible for the cost of the clinical trial and regulatory approval in China. In the fourth quarter of 2017, we licensed Triferic to distributors in Chile and Peru. Our distributors are responsible for obtaining regulatory approvals in those markets. We are actively pursuing licensing transactions in a number of countries and regions. We believe that our intravenous form of Triferic will be the preferred method of delivery in a number of countries and will support our out-licensing efforts for those territories.
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Current Drug Pipeline
We are currently developing Triferic for other clinical indications and presentations. We are developing an intravenous injection of Triferic primarily for use by hemodialysis patients in foreign markets and for use in other iron deficiency anemia indications, as well as other product presentations. Other clinical applications include peritoneal dialysis (“PD”) and total parenteral nutrition (“TPN”).
A new presentation and manufacturing process has been completed for infusing Triferic intravenously. A clinical equivalence study of Triferic IV infusion presentation has been completed. We expect to submit documentation for FDA approval of the Triferic IV presentation in 2018.
For our PD program, we completed a pharmacokinetic (“PK”) study which showed iron transfer from peritoneal dialysate to blood. Additional Phase I/II safety and PK studies are required to establish dosing and are planned to commence in the third quarter of 2018.
We have met with experts in the TPN field to evaluate the TPN market. We are currently in the process of evaluating the TPN market. If the market opportunity appears favorable, clinical studies will commence following submission and approval of an Investigational New Drug (“IND”) application with the FDA.
Our Drug Products
Triferic (Ferric Pyrophosphate Citrate)
The great majority of hemodialysis patients receive dialysis treatment three times per week, or approximately 156 times per year, and dialysis patients suffer from iron deficiency and anemia as a result of iron loss during their constant dialysis treatments. Triferic was designed specifically to treat this constant iron loss, and Triferic is the only FDA approved drug indicated to replace iron and maintain hemoglobin in hemodialysis patients. We believe Triferic will become the standard of care in anemia treatment for dialysis patients, addressing an important unmet need in the treatment of iron deficiency and anemia in ESRD patients.
Triferic is a novel iron therapy that replaces the small amount of iron patients lose during their hemodialysis treatment. It is innovative and convenient because it is delivered via dialysate Triferic’s unique mode-of-action is what distinguishes it from other drug treatments because Triferic donates iron to transferrin, immediately, and completely, as soon as it enters the blood, where it then is transported to the bone marrow to make hemoglobin. Triferic delivers sufficient iron to the bone marrow and maintains hemoglobin without increasing iron stores (ferritin).
Intravenous (IV) iron was approved for use as a repletion therapy in the early 1990’s, with a clinical indication to treat iron deficiency anemia – defined as a ferritin level < 200 ng/mL. At that time, the average ferritin level in dialysis patients in the U.S. was between 200 – 300 ng/mL. Ferritin is a marker of stored iron and inflammation in the body. IV iron has been the only viable therapy used during the last 30 years to attempt to treat dialysis patients for anemia . However, IV iron is not able to replace the continual iron loss that occurs at every dialysis treatment due to its mode-of-action. IV iron products are designed to metabolize in the patient’s liver and then bind to transferrin. Due to the constant inflammation present in hemodialysis patients, a protein called hepcidin mobilizes and blocks the IV iron from leaving the liver, trapping most of it there. As a result, the average ferritin levels in dialysis patients have soared over the last 30 years, to approximately 750 ng/mL, according to US-DOPPS Practice Monitor published August 2017.
Triferic is distinctly different from IV iron and is specifically FDA approved to treat the small amount of iron patients lose during every hemodialysis treatment. Triferic is different in molecular structure, mode-of-action (bypassing liver storage) and FDA approved clinical indication (to replace iron and maintain hemoglobin). Triferic is an iron maintenance therapy approved to be given to patients every treatment whereas IV iron is a repletion or “rescue” therapy that should be given only when a patient experiences significant blood loss and has a ferritin level < 200 ng/mL. Triferic delivers iron and maintains hemoglobin without increasing iron stores (ferritin) and addresses an unmet need.
Triferic has demonstrated an excellent safety profile. We received FDA approval to market Triferic in liquid form in 2015 and in powder form in 2016.
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Calcitriol (Active Vitamin D) Injection
Calcitriol is a generic active vitamin D and is indicated for the treatment of secondary hyperparathyroidism in dialysis patients. The majority of ESRD patients receive vitamin D every treatment using primarily one of two branded drugs or in some cases oral drugs. Clinical data shows Calcitriol to be clinically equivalent in safety and efficacy to the two branded drugs and Calcitriol is the most potent and physiological vitamin D therapy. We believe the lower cost of Calcitriol will provide incentive to dialysis providers to purchase it over current vitamin D options.
Dialysis Concentrate Products
We manufacture, sell, deliver and distribute hemodialysis concentrates, along with a full line of ancillary products abroad. As one of the two major suppliers in the United States, our dialysis concentrate products, as more fully described below, are used to maintain human life by removing toxins and replacing critical nutrients in the dialysis patient’s bloodstream. We use Baxter Healthcare Corporation (“Baxter”) as our exclusive marketer and distributor in the United States and in select foreign markets pursuant to an Exclusive Distribution Agreement, as amended (the “Distribution Agreement”). In June 2017, we settled arbitration proceedings with Baxter related to the Distribution Agreement and entered into the First Amendment to Exclusive Distribution Agreement with Baxter. See “Item 3 – Legal Proceedings.”
Dialysate concentrates accounted for over 95% of our 2017 revenue with ancillary products accounting for most of the remainder. All of our products are manufactured according to Association for the Advancement of Medical Instrumentation guidelines and current good manufacturing practices (“cGMP”the FDA's Current Good Manufacturing Practice ("cGMP") guidelines.. Our concentrate products are diluted with cleanpurified water on-site at the clinic in the dialysis machine, creating dialysate, which works to clean the patient’s blood.
Concentrat
eRenal Pure
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RenalPure and SteriLyte Bicarbonate Concentrate
Distribution Agreementtreatment, repeated blood draws to follow laboratory parameters and a limited diet. Furthermore, absorption of iron from the
Pursuantinflammation, such as ESKD patients on dialysis. Since iron is a critical component of hemoglobin production, reduced levels of iron can cause iron deficiency anemia.
Undereffective May 1, 2022, as well as the Distribution Agreement, Baxter purchases concentrate-related products from us at pre-determined gross margin-based prices per unit adjusted each year during the term and subject to an annual true up. The Distribution Agreement also requires Baxter to meet minimum annual purchase levels,pass-through of certain costs, determined on a quarterly basis. Certain costs are subject to a cure periodcap. The Amendment will provide us with the potential to operate the concentrates business profitably in the future, subject to cost containment activities to be undertaken by the Company.
Upon the mutual determination of us and Baxter, the Distribution Agreement also provides that Baxter will pay us up to $10 million to build a new manufacturing facility in the Pacific time zone that will serve customers in the Western United States. The fee payable in connection with building the facility will be reduced to the extent that the facility is not operational within 12 months after the start of construction. Except for any leased components, we will own and operate the facility when completed.
Either party may terminate the Distribution Agreement upon the insolvency or material breach of the other party or in the event of a force majeure. In addition, Baxter may also terminate the Distribution Agreement at any time upon 270 days’ prior written notice to us or if (1) prices increase beyond certain thresholds and notice is provided within 45 days after the true up payment is due for the year in which the price threshold is exceeded, (2) a change of control of the Company occurs and 270 days’ notice is provided, or (3) upon written notice that Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product. If Baxter terminates the Distribution Agreement under the discretionary termination or the price increase provisions, it would be subject to a limited non-compete obligation in the United States with respect to certain products for a period of two years.
If a “Refund Trigger Event” occurs, we would be obligated to repay a portion of the $20 million upfront fee and any paid portion of the facility fee. A “Refund Trigger Event” means any of the following: (1) a change of control of the Company involving any of certain specified companies; (2) a termination by Baxter due to the Company’s bankruptcy or breach, or due to price increases that exceed the stated thresholds; (3) a termination by either party due to a force
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majeure; (4) settlement or adjudication of any claim, action or litigation relating to a covered product that materially and adversely affects Baxter’s commercialization of the product; and (5) any regulatory action or ruling relating to a covered product that materially and adversely affects Baxter’s commercialization of the product. In addition, if Baxter terminates the Distribution Agreement because Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior to the end of 2019, Baxter would be entitled to a partial refund. In no event would more than one refund be required to be paid.
The Distribution Agreement may be extended an additional five years by Baxter if Baxter achieves a specified sales target and pays an extension fee of $7.5 million. If the first extension occurs, the Distribution Agreement term may later be extended an additional five years at Baxter’s option at no additional cost.
Distribution and Delivery Operations
The majorityapproximately 98.3% of our domestic dialysis concentrate products are delivered through2021 revenue. Approximately 89.4% of our subsidiary, Rockwell Transportation, Inc., which operates a fleet of trucks used2021 sales were to deliver products to our customers. Rockwell distributiondistributors and delivery will continue to operate under the Distribution Agreement on behalf of Baxtercustomers for domestic business. We perform delivery services that are generally not available from common carriers or our competitors, such as stock rotation, non-loading-dock delivery and drum pump-off service. As a result, we believe we offer a higher level of service than other providers. Our drug products are generally delivered by third party drug distributorsuse in the United States.
Sales and Marketing
We market and advertise through trade publications, journals, product literature, industry trade conferences, and web-based applications. We target our sales and marketing efforts to senior and operating management of dialysis companies, dialysis service providers, nephrologists, clinic administrators, nurses, medical directors and technical and purchasing personnel.
States
2020, respectively.
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administration and excellent safety profile. We are not aware of any other iron delivery products that compete with Triferic and its FDA approved clinical indication.
Vitamin D Therapy Market Competition
We intend to market Calcitriol injection against two competitors with branded vitamin D products, against other generic drug competitors and against oral forms of vitamin D. Abbott Laboratories markets Zemplar® and Sanofi-Aventis, through its Genzyme subsidiary, markets Hectorol®. Other companies offer oral forms of vitamin D. We believe the dialysis reimbursement law that went into effect in January 2011, along with Calcitriol being the lowest dose vitamin D injection available and our relationships with many dialysis providers gives us an advantage to sell Calcitriol against competitors in the market.
cardiac function.
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Technically trained professionals at our production facilities maintain our quality system. To assure quality and consistency of our concentrates, we conduct specific analytical tests during the manufacturing process for each type of product that we manufacture. Prior to shipment, our quality control laboratory at each facility conducts analytical tests to verify that the chemical properties of the concentrates comply with the specifications required by industry standards. Each product is assigned a lot number for tracking purposes.
Drug Manufacturing
Government Regulation
We ensure our CMOs have established robust quality systems and employ validated processes to ensure the quality and compliance of our drug products to their specifications prior to distribution.
A device which sustains
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have to file an investigational device exemption (“IDE”) application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards (“IRBs”), the device may be shipped for the purpose of conducting the investigations without compliance with all of the requirements of the FD&C Act and human clinical trials may begin. The FDA will specify the number of investigational sites and the number of patients that may be included in the investigation. If the device does not present a “significant risk” to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by one or more appropriate IRBs without the need for FDA approval.
An ANDA is a marketing application filed as part
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certify that the product does not infringe on the approved product’s patent or that such patent has expired. If the applicant certifies that its product does not infringe on the approved product’s patent, the patent holder may institute legal action to determine the relative rights of the parties and the application of the patent, and the FDA may not finally approve the ANDA until a court finally determines that the applicable patent is invalid or would not be infringed by the applicant’s product.
Pre‑clinical studies are conducted to obtain preliminary information on a pharmaceutical product’s efficacy and safety in animal or in vitro models. The results of these studies are submitted to the FDA as part of the IND and are reviewed by the FDA before human clinical trials begin. Human clinical trials may begin 30 days after receipt of the IND by the FDA unless the FDA objects to the commencement of clinical trials.
We do not expect that compliance with these regulations, including environmental laws, will have a material adverse impact on our financial condition.
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However, since medical practice and governmental regulations differ across regions, further testing may be needed to support market introduction in some foreign countries. Some foreign regulatory agencies may require additional studies involving patients located in their countries. Even after foreign approvals are obtained, further delays may be encountered before products may be marketed. Issues related to import and export can delay product introduction. Many countries require additional governmental approval for price reimbursement under national health insurance systems.
Product License Agreements
We are party to an in‑license agreement for exclusive worldwide rights to certain patents and information related to our Triferic® product. We licensed the rights from a company owned by Dr. Ajay Gupta, who subsequently joined us as our Chief Scientific Officer. The license agreement continues for the duration of the underlying patents in each country plus a period of ten years. Patents were issued in the United States in 2004 and extended through 2016. Other patents are issued or pending in the United States, the European Union and Japan, as well as other foreign jurisdictions. As noted below in “Trademarks and Patents,” the Company has also received a patent on the pharmaceutical grade formulation of the active pharmaceutical ingredient in Triferic product which extends until 2029. The license agreement requires us to obtain and pay the cost of obtaining FDA approval of our Trifericproduct and patent maintenance expenses in order to realize any benefit from commercialization of the product. In addition, we were obligated to make certain milestone payments during development of the product. As of December 31, 2017, there were no remaining milestones to be completed although we continue to be obligated to pay ongoing royalties upon sales of the Triferic product covered by the licensed rights.
Trademarks and Patents
We were
| United States | Foreign | ||||||||||||||||||||||||||||||||||||||||
| Description | Issued | Expiration | Pending | Issued | Expiration | Pending | |||||||||||||||||||||||||||||||||||
| Triferic (IV and Dialysate) | 2 | 2027 - 2029 | (1) | 1 | 4 | (2) | 2028 | (1) | 26 | (3) | |||||||||||||||||||||||||||||||
| Triferic (ESA Sparing) | — | 2034 | 1 | 11 | (4) | 2034 | 20 | ||||||||||||||||||||||||||||||||||
| Triferic (TPN) | 1 | 2030 | — | 9 | (5) | 2026 | — | ||||||||||||||||||||||||||||||||||
| Other | — | — | 4 | — | — | — | |||||||||||||||||||||||||||||||||||
| Total | 3 | 6 | 24 | 46 | |||||||||||||||||||||||||||||||||||||
We also own patents inIn the United States, and Canadathis patent is listed in Orange Book.
in 2036.
Suppliers
We believe the raw materials and packaging materials for our hemodialysis concentrates, the components for our hemodialysis kits and the ancillary hemodialysis products distributed by us are generally available from several potential suppliers. We intend to engage CMOs for the manufacture and packaging
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2017, 2016 and 2015, our direct sales to Baxter aggregated approximately 27%, 24% and 28% of sales, respectively, and we had a receivable from Baxter of $1,863,412 and $2,430,159 as of December 31, 2017 and 2016, respectively.
One customer, DaVita Healthcare Partners, Inc., accounted for 50% of our sales in 2017, 52% of our sales in 2016 and 48% of our sales in 2015. Our accounts receivable from this customer were $2,411,367 and $2,224,046 as of December 31, 2017 and 2016, respectively. DaVita and Baxter and the accounts administered by Baxter are important to our business, financial condition and results of operations. The loss of any significant accounts could have a material adverse effect on our business, financial condition and results of operations. No other customers accounted for more than 10% of our sales in any of the last three years.
See Item 1A “Risk Factors” for a discussion of certain risks related to our key customers.
The majority of our international sales in each of the last three years were sales to domestic distributors that were resold to end users outside the United States. Our sales directly to foreign customers and distributors accounted for less than 5% of our total sales in 2017, 2016 and 2015. Our total international sales, including sales made through domestic distributors for resale outside the United States, aggregated 12%, 12% and 13%, of our overall sales in 2017, 2016 and 2015, respectively.
See Item 1A “Risk Factors” for a discussion of certain risks related to our foreign sales.
Employees
As of December 31, 2017,2021, we had approximately 300 employees, substantially all of whom are full time employees. Our arrangements with our employees are not governed by any collective bargaining agreement. Our employees are employed on an “at‑will” basis.
Research & Development
Over
We engaged outside service providers, contract research organizations, consultants and legal counsel to assist us with clinical trials, product development and obtaining regulatory approval. We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products, including Triferic, aggregating approximately $6,321,000, $5,840,000 and $4,961,000, in 2017, 2016 and 2015, respectively. Future research and product development spending on the Triferic platform may include clinical testing in connection with peritoneal dialysis, total parenteral nutrition and a pediatric indication.
Where You Can Get Information We File with the SEC
Our internet address is http://www.rockwellmed.com. Our internet address is included as an inactive textual reference only and nothing on the website is incorporated by reference into this Annual Report on Form 10‑K. You can access free of charge on our website all of our reports filed pursuantemployees and their families. Additionally, we grant equity awards in order to Section 13(a) or 15(d)allow for directors, officers and senior-level employees to share in the performance of the Securities Exchange ActCompany.
The SEC also maintains a website on the internet that contains reports, proxyadditional cleaning and information statements and other information regarding issuers, such as us, that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.
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protective measures.
RISKS RELATED TO OUR DRUG BUSINESS
Although Triferic has been approved by
The commercial success of Triferic will depend on a number of factors, including the following:
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An adverse development with respect to any of the foregoing may have a material adverse effect on our ability to manufacture and market Triferic. We cannot assure you that we will be able to generate significant revenues through the sale of Triferic.common stock. If we are not successful in commercializing Triferic,unable to successfully address these risks and challenges, our business, financial condition, results of operations, or are significantly delayed in doing so, our entire investment in Triferic may be of no value, our inventory of finished product may expire or become obsolete
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(resulting in write-offs of such inventory), our licensing rightsprospects could be materially adversely affected andaffected. In such case, the trading price of our common stock could substantially decline. Even ifwould likely decline, and you may lose all or part of your investment. Below is a summary of some of the risks we face.
achieve profitability. If we are unable to use our Triferic inventory before its shelf life expires, we will likely have to write-off such inventory, which will likely have a material adverse effectraise additional capital on our business, results of operations, financial position and cash flows.
We cannot predict whenattractive terms, or if we will secure transitional separate reimbursement for Triferic or future usage of Triferic. As of December 31, 2017, we had invested approximately $13.5 million in Triferic inventory, including approximately $8.5 million in Triferic’s active pharmaceutical ingredient and $5.0 million in finished goods inventory. We recorded an inventory reserve of $3.5 million related to our Triferic finished goods inventory. As a result of this reserve, our total Triferic inventory had a net book value of $10.0 million as of December 31, 2017. The Triferic inventory has an initial shelf life ranging from one to three years. If we are unable to utilize some orat all, of our Triferic inventory before its shelf life expires, some or all of our investment in Triferic inventory may not be saleable, reducing the inventory we have available for sale, requiring us to reserve for the reduction in value and likely requiring us to write-off the value of such inventory. We may also need to reserve for inventory that we estimate will not be sold before such inventory expires. Any such inventory reserve could have a material adverse effect on our business, results of operations and financial position.
Our ability to market Triferic and other FDA-approved drugs is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, which may limit our ability to market Triferic and our other drug products.
Any new indication for an approved product requires FDA approval. Triferic is approved by the FDA for use in adult patients receiving hemodialysis treatments and has not yet been approved for other indications. We are not able to promote the products or encourage our customers to use the products for purposes other than those indications of use that are specifically approved by the FDA as safe and effective. If we are not able to obtain FDA approval for additional indications for Triferic, our ability to take full advantage of Triferic’s market opportunity may be reduced and our business may be adversely affected. Moreover, if our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, or an enforcement action by, the FDA that may include penalties, fines, injunctions, recall or seizure of products, suspension of production, denial of future regulatory approvals, withdrawal or suspension of existing regulatory approvals, operating restrictions, debarment, exclusion and criminal prosecution. Any of these events could materially harm our business.
If we are unable to obtain and maintain adequate protection forsustain our data, intellectual property and other proprietary rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights that are important to the commercialization of our drug products and drug candidates. The degree of patent protection that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts, administrative bodies and lawmakers in these countries. operations.
We also rely on regulatory exclusivity for protection of our products. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or maintain the extent or duration of such protections that we expect in each of the markets for our products due to challenges, changes or interpretations in the law or otherwise, could affect our revenues for our products or our decision on whether to market our products in a particular country or countries or could otherwise have an adverse impact on our results of operations.
Litigation, interferences, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of
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certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patent and regulatory protections covering our products by third parties, including manufacturers of generics and biosimilars that may choose to launch or attempt to launch their products before the expiration of our patent or regulatory exclusivity. Litigation, interference, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits derived from the covered products and services.
Defending our proprietary rights could be expensive, we may not always be successful in protecting our intellectual property, licenses and other proprietary rights and we could be prevented from selling products, forced to pay royalties and damages and compelled to defend against litigation if we infringe the rights of a third party.
Our success, competitive position and future revenues, particularly with respect to our drug products, will depend in part on our ability to obtain and maintain proprietary protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. There can be no assurance that these protections will prove commercially valuable.
We could incur substantial costs in seeking enforcement of our proprietary rights, and we cannot guarantee that we will prevail in any legal action seeking enforcement or that such rights will successfully preclude others from using technology that we rely upon. It is possible that we may infringe on proprietary rights of others, even if we are not aware of the infringement or believe our rights are otherwise valid. If a third party believes that one of our products infringes on the third party’s rights, it may sue us even if we have received our own patent protection for the technology or otherwise believe we have valid proprietary rights. If we are found by a court to have infringed the rights of a third party, we could be prevented from manufacturing and selling products, forced to pay royalties and damages, compelled to license technology from the party claiming infringement and lose the opportunity to license our technology to others and collect royalty payments, any of which could have a material adverse effect on our business. In addition, if Baxter is prevented from selling any of our concentrate or ancillary products due to a patent infringement or if its ability to sell any of our concentrate or ancillary products due to a patent infringement is materially and adversely affected, Baxter may be entitled to terminate our Distribution Agreement and obtain a refund of a portion of the upfront fee and facility fee.
We depend on contract manufacturing organizations to manufacture our drug products. If these organizations are unable or unwilling to manufacture our drug products, or if these organizations fail to comply with FDA or other applicable regulations or otherwise fail to meet our requirements, our drug business will be harmed.
We rely on CMOs to make Triferic and Calcitriol. If any are unable to make the product in sufficient quantities and on a consistent basis, or if they become unwilling to produce the product for us, we may not be able to supply our customers with product in a timely manner. The facilities and processes used by these CMOs to manufacture our drug products must be approved by the FDA and, where applicable, foreign regulators before the commercial products can be sold that were produced at a particular facility using a particular process. Even if approved, certain ongoing regulatory requirements for product testing and stability of our commercially marketed products must be met. We do not control the manufacturing processes of, and are dependent upon, these CMOs for compliance with current good manufacturing practices, referred to as cGMPs, and obtaining and maintaining their regulatory approval. If approval for a CMO is not received or ongoing testing does not continue to meet approved standards such that approval is withdrawn, the CMO’s production would be delayed or suspended and we may be forced to find another capable CMO and/or shift production to another CMO that is already approved and under contract with us. Any such circumstance could significantly hamper our ability to supply our customers in a timely manner, which may have a material adverse effect on our business, results of operations, financial position and cash flows.
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We rely on third party suppliers for raw materials and packaging components of our drug products. We may not be able to obtain the raw materials and proper components we need, or the cost of the materials or components may be higher than expected, any of which could impair our production or commercialization of drug products and have a material adverse effect on our business, results of operations and financial position.
We may not be able to obtain needed raw materials or packaging components, or the price of such materials or components may rise significantly, for a variety of reasons, including among others:
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Some of the suppliers for our raw materials or packaging components may be single-source suppliers. Finding an alternative source can be expensive and take a substantial amount of time, especially when regulatory approval is required to qualify the supplier. If we are unable to obtain our raw materials and components and are not able to establish alternative supply sources, or if the prices for our raw materials or packaging components increase substantially, our CMOs may not be able to produce the desired quantities of our drug products or our expected gross profit margins may be materially adversely affected, any of which could be costly to us and have a material adverse effect on our business, results of operations, financial position and cash flows.
We may not be successful in obtaining foreign regulatory approvals or in arranging out-licensing partners capable of obtaining the approvals needed to effectively commercialize our drug products outside of the United States. Even if we are successful in out-licensing our drug products and obtaining the required regulatory approvals, the licensees or partners may not be effective at marketing our products in certain markets or at all.
The approval procedures for marketing our new drug products, such as Triferic, outside the United States vary from country to country, can be difficult to obtain and carry the same risks as FDA approval. In particular, regulatory approval in foreign countries may require additional testing and may otherwise be expensive and time consuming to undertake. Even after foreign approvals are obtained, further delays may be encountered before products may be marketed. Many countries require additional government approval for price reimbursement under national health insurance systems.
Even if we obtain the necessary foreign approval in a particular market, should we attempt to develop international markets ourselves we do not have substantial expertise selling and marketing on an international level and, therefore, may not be successful in realizing commercial value from our products. Our strategy is to license the rights to our drugs in markets outside the United States to partners who have resources to obtain regulatory approval. However, we may not be successful in finding partners in addition to those currently under contract, who will be willing to invest in our drugs outside the United States or our partners may be unable to obtain the necessary regulatory approvals. If we are not successful in out-licensing our drugs outside of the United States or entering into other arrangements with partners capable of obtaining the necessary regulatory approvals to commercialize our drug products, we may be forced to seek regulatory approval and market these products ourselves. If we elect to seek approval ourselves, it may take longer than expected to obtain regulatory approval and to market and manufacture our drugs, and we may decide to delay or abandon development efforts in certain markets. Any such delay or abandonment, or any failure to receive one or more foreign approvals, may have an adverse effect on the benefits otherwise expected from marketing in foreign countries.
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If we are successful in obtaining partners to commercialize our products in foreign markets, we will be dependent upon their effectiveness in selling and marketing our products in those foreign markets. These partners may face stiff competition, government price regulations, generic versions of our drug products, violations of our intellectual property rights and other negative events or may otherwise be ineffective in commercializing our products, any of which could reduce the market potential for our products and our success in those markets.
If our products are approved and marketed outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
We may be subject to additional risks if our products are approved and marketed outside of the United States, including:
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We may not be successful in expanding our drug product portfolio or in our business development efforts related to in-licensing, acquisitions or other business collaborations. Even if we are able to enter into business development arrangements, they could have a negative impact on our business and our profitability.
As part of our business strategy to expand our drug product portfolio, we are seeking to acquire or in-license other drug products that we believe are a complementary fit with our current product portfolio, as well as other products that we believe have substantial development potential. The negotiation of such arrangements can be a lengthy and complex process and there can be no assurance that any such negotiations will be completed on a timely basis or at all, or result in an arrangement that will enable us to effectively integrate, develop and launch such products effectively.
In addition, the market potential for new drug products is highly uncertain and evaluation of such potential requires significant judgment and assumptions. There is a significant risk that any new drug product may not be able to be brought to market as profitably as expected or at all. If the results of any new drug product initiative are materially worse than expected, it could have a material adverse effect on our business, results of operations, financial position and cash flows.
Expansion of our drug business in the United States may require FDA approval of new drug candidates or indications for use. The process of obtaining FDA approval is a long and expensive process with no guarantee of success.
Expansion of our drug business will be dependent, in part, on our ability to successfully and timely develop, obtain regulatory approval for, and commercialize new drug candidates. The process of performing clinical trials for a potential new drug, filing an NDA with the FDA and receiving a decision from the FDA is expected to take several years, with no guarantee of approval. Clinical trials typically take years to complete and early promising clinical trial results may not necessarily be indicative of later results or demonstrate sufficient safety and efficacy to support an NDA filing. Clinical trials and the NDA approval process for any new drug candidate are also very expensive. Similarly, the FDA approval process for a new indication of Triferic would require us to pay substantial review fees, may require clinical trials and could take years to complete.
There is no guarantee the FDA will approve our new drug candidates. Once trials are completed and the NDA is submitted to the FDA, the FDA may find deficiencies that raise safety or efficacy concerns or may otherwise require additional clinical testing or impose other requirements, which could significantly delay approval or result in us not receiving approval at all. In addition, varying interpretations of the data obtained from testing could delay, limit or
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prevent regulatory approval. If approval is not granted for any new products or new indications submitted for approval, our entire investment in the related products may be worthless, any licensing rights could be forfeited and our business could be materially adversely affected.
Our drug business depends on government funding of health care, and changes could impact our ability to be paid in full for our products, increase prices or cause consolidation in the dialysis provider market.
Many dialysis providers receive the majority of their funding from the government and are supplemented by payments from private health care insurers. These providers depend on Medicare and Medicaid funding to be viable businesses. Congress continuously enacts a variety of changes to health insurance and reimbursement, some of which could have a negative impact on Medicare and Medicaid funding, which fund the majority of dialysis costs in the United States, and on reimbursement protocols. If Medicare and Medicaid funding were to be materially decreased, these providers would be severely impacted, increasing our risk of not being paid in full. An increase in our exposure to uncollectible accounts could have a material adverse effect on our business, results of operations, financial position and cash flows.
Since 2011, CMS has continued to modify reimbursement policies for dialysis under the ESRD prospective payment system generally resulting in lower payment to dialysis providers. We anticipate that dialysis providers will continue to seek ways to reduce their costs per treatment due to this change in reimbursement practice, which could reduce our sales and profitability and have a material adverse effect on our business, results of operations, financial position and cash flows.
The Trump administration and members of the U.S. Congress have introduced legislation in both the House of Representatives and Senate to repeal and/or replace all or part of the Patient Protection and Affordable Care Act, or PPACA, including potential changes or repeal of the Medicaid expansion, coverage for pre-existing coverages and insurance coverage minimum benefits. The likelihood of passage and the impact of this legislation is uncertain, but could potentially impact reimbursement by the Medicare and Medicaid programs for our drug products and dialysis and the ability of certain individuals to obtain coverage. Other federal and state healthcare reform measures could be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, or change the methods used by Medicare and Medicaid to reimburse providers, including the “bundled” payment model and the availability of transitional separate reimbursement, any of which could result in reduced demand for our products once approved or pricing pressures.
As a result of these changes to Medicare and Medicaid reimbursement, the dialysis provider industry may continue to consolidate. This may result in increased purchasing leverage for providers across all dialysis product categories and increased pricing pressure on all suppliers to the industry.
It may be difficult for us to capture market share for Calcitriol in the highly competitive generic drug market.
The market for generic drugs such as Calcitriol is generally very competitive, which may make it difficult for us to capture significant market share. If we have success in capturing market share with Calcitriol, it may attract other entrants to market their own Calcitriol-type product, which could have a material adverse effect on our future results of operations. Branded competitors may aggressively lower their prices to maintain market share. Dialysis service providers may seek alternative forms of treatment for this indication. Any of these outcomes could have an adverse effect on our ability to successfully commercialize Calcitriol.
Inventory obsolescence due to finite shelf lives could adversely affect our business.
To provide a high level of product availability to our distributors and customers, we generally maintain a considerable inventory of certain of our products. Our inventories of both raw materials and finished goods have finite shelf lives. If we overestimate the demand for our products or carry inventory in anticipation of certain future events, including the approval of reimbursements, we could experience significant write-downs of our inventory due to obsolescence. Such write-downs could have a material adverse effect on our business, results of operations and financial position.
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We may not be able to commercialize our drug products without significant additional expenditures.
Our success, competitive position and future revenues, particularly with respect to our drug products, will depend, in part, on the effectiveness of our marketing and sales strategies and implementation of our commercialization efforts including our ability to execute our marketing strategy. Due to the concentrated nature of our customers, we expect to market our drug products using a team of skilled individuals, led and directed by our Chief Executive Officer who will handle much of the sales effort with our major accounts. As a result, we may not have sufficient sales and implementation resources in place to fully take advantage of any opportunities we may have to commercialize our drug products, and our sales and results of operation could fail to achieve our desired goals and objectives for sales and market penetration. Furthermore, we may need to add significant additional sales and implementation resources to achieve our desired goals and objectives.
RISKS RELATED TO OUR CONCENTRATE BUSINESS
We may be required to repay a portion of the upfront fees received from Baxter, which could materially and adversely affect our financial position and cash reserves.
Pursuant to the terms of the Distribution Agreement, we may be required to repay a portion of the upfront fee and a portion of the facility fee to Baxter upon the occurrence of a “Refund Trigger Event”. A Refund Trigger Event includes, among other things, termination due to an uncured material breach by us. A Refund Trigger Event would obligate us to refund $6.6 million of the $20 million upfront fee (and any portion of the West Coast facility fee that may have been paid by Baxter) if termination occurs in 2018, and $5.0 million of the $20 million upfront fee (and any portion of the West Coast facility fee that may have been paid by Baxter) if termination occurs in 2019, 2020 or 2021.
If Baxter terminates the Distribution Agreement because it has been enjoined by a court of competent jurisdiction from selling in the United States prior to the end of 2018, Baxter would be entitled to a refund of up to $10 million, or $6.6 million if the termination occurs in 2019.
If we are required to make any such refund payment, we may need to reallocate funds from other parts of our business, which could force us to change or delay plans for use of that capital. In any such event, our financial condition, results of operations, and cash reserves could be materially and adversely affected.
A few customers account for a substantial portion of the end user sales of our concentrate products. The loss of any of these customers could have a material adverse effect on our business, results of operations, financial position and cash flows.
Sales of our products are highly concentrated in a few customers. One customer accounted for nearly half of our sales in each of the last three years and for a substantial number of the clinics we serve. The loss of any of these significant customers could have a material adverse effect on our business, results of operations, financial position and cash flows.
We provided Baxter with certain pricing concessions to provide Baxter with incentive to increase its domestic concentrate business. Baxter may not be successful in increasing its domestic concentrate business. If Baxter is not successful in increasing its concentrate business, we may realize lower operating profit from concentrates as a result.
The concentrate market is competitive and has a large competitor with substantial resources.
The primary competitor in the market for our concentrate products is Fresenius Medical Care NA, a large diversified company which has substantial financial, technical, manufacturing, marketing, research and management resources. We and our distributor, Baxter, may not be able to successfully compete with it. Fresenius has historically used product bundling and low pricing as a competitive strategy to capture market share of the concentrate products we sell. We and Baxter may be at a disadvantage in competing against its strategies to sell concentrate products. Furthermore, Fresenius is vertically integrated and is the largest provider of dialysis services in the United States, treating approximately 36% of all U.S. patients through its clinics. Fresenius has routinely acquired smaller clinic chain operations which we supply through Baxter, and it may acquire more of our customers in the future.
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We may be affected materially and adversely by increases in raw material costs.
Aand transportation costs and may be unable to recover certain costs due to provisions in our material contracts.
RISKS RELATED TO OUR BUSINESS AS A WHOLE
Our drug and concentrate businesses are highly regulated, resulting in additional expense and risk of noncompliance that can materially and adversely affect our business, results of operations, financial position and cash flows.
Our businesses are highly regulated. The testing, manufacture and sale of the products we manufacture directly and/or through third party CMOs are subject to extensive regulation by the FDA and by other federal, state and foreign authorities. Before drugs or medical devices, such as our concentrate products, can be commercially marketed in the United States, the FDA must give either premarket approval or 510(k) clearance.stock price. Even after a product is approved, regulatory authorities may still impose significant restrictions on a product’s indicated uses or marketing or impose requirements for potentially costly post-marketing studies. In addition, our products are subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record- keeping and reporting of safety and other post-market information, including both federal and state requirements in the United States and in other jurisdictions where they are marketed. In addition, manufacturers and their facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current cGMP and applicable state laws. As such, we and our CMOs are subject to continual review and periodic inspections to assess compliance with cGMP and state laws. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas to achieve and maintain regulatory compliance. We are also required to report certain adverse reactions and production problems, if any to the FDA, state agencies and foreign regulatory authorities, when applicable, and to comply with requirements concerning advertising and promotion for our products.
If non-compliant inventory is sold or if a regulatory agency determines that we dofuture lawsuits are not comply with any applicable regulatory requirements, we may be subject to warnings from, or enforcement action by, state and federal government authorities that may include penalties, fines, injunctions, recall or seizure of products, suspension of production, denial of future regulatory approvals, withdrawal or suspension of existing regulatory approvals, operating restrictions, injunctions and criminal prosecution. If regulatory sanctions are applied, the value of our Company and our operating results could be materially and adversely affected. Our business could also be adversely affected by delays in obtaining necessary regulatory approvals and any restrictions placed by the DFA on our intended marketing or the use of our products.
Our failure to comply with applicable regulations could also result in product liability litigationresolved against us. In addition, our failure to comply with respect to our concentrate products could constitute a breach by us, of the Distribution Agreement, providing Baxter with various remedies that would be material and adverse to us. Moreover, changes in applicable regulatory requirements could significantly increase the costs of defending such lawsuits may be material to our operations, which, if such higher costs result in price increases that exceedbusiness and our operations. Moreover, these lawsuits may divert our Board and our management’s attention from the thresholds specified in the Distribution Agreement, could give Baxter the right to terminate the Distribution Agreement and obtain a partial refundoperation of certain fees paid to us.
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February 15, 2018 (the “Additional Director”), and in the event the Board of Directors did not add the Additional Director by that date, the persons identified in the Settlement Agreement as the “Richmond Group” would be entitled to nominate directors by February 28, 2018 for election at the 2018 Annual Meeting of Shareholders (the “2018 Meeting”). Our Board was unable to appoint the Additional Director by February 15, 2018. Accordingly, on February 27, 2018, RBI and David S. Richmond (“Richmond”) delivered a letter to the Company nominating Lisa Colleran, Benjamin Wolin and Richmond for election to the Board of Directors at the 2018 Meeting. Thereafter, on March 7, 2018, we entered into a letter agreement with RBI and Richmond to memorialize the parties’ mutual agreement on certain corporate governance matters (the “Letter Agreement”). The Letter Agreement provided, among other things, that: (a) by March 7, 2018, the Company’s Board would increase the size of the Board from six directors to eight directors and would appoint: (i) Benjamin Wolin as (A) a Class I director to serve for a term expiring at the Company’s 2019 Annual Meeting of Shareholders and (B) the lead independent director of the Board; and (ii) Lisa Colleran as a Class II director to serve for a term expiring at the Company’s 2020 Annual Meeting of Shareholders; and (b) if the Company complied with the provisions of the Letter Agreement by March 7, 2018, then RBI would withdraw its proposal to separately nominate any directors for election at the 2018 Meeting. As a result, on March 9, 2018, RBI and Richmond withdrew their proposal to separately nominate directors for election at the 2018 Meeting.
substantial costs. A future proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the Board of Directors.Board. The potential of a proxy contest could interfere with our ability to execute our strategic plan, give rise to perceived uncertainties as to our future direction, adversely affect our relationships with customers, suppliers, investors, prospective and current team members and others, result in the loss of potential business opportunities or make it more difficult to attract and retain qualified personnel, any of which could materially and adversely affect our business and operating results.
Health care reform could
material contracts.
The United States government faces structural deficits that may require changesprices we charge Baxter, subject to government funded healthcare programsspecified levels. If these increases exceed the levels specified in the Distribution Agreement, Baxter has the option to terminate the Distribution Agreement. Any such as Medicaretermination could have a material and Medicaid which may negatively impact us directly or indirectly through the customers ofadverse effect on our products. Our business, results of operations, financial position and cash flowsflows.
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Device and pharmaceutical manufacturers are required to report annually to the Department of Health and Human Services regarding certain financial relationships they have with physicians and teaching hospitals. This reporting requirement imposes governmental scrutiny on our contractual relationships with physicians and teaching hospitals and creates risk that inadvertent violations will result in liability under the federal fraud and abuse laws, whichthese customers could have a material adverse effect on our business, results of operations, financial position and cash flows.
We depend on key personnel,
commercialize our products and generate product revenue.
Defending our intellectual property rights could be expensive, we may not always be successful in protecting our exclusive rights and we could be prevented from selling products, forced to pay damages and compelled to defend against litigation if we infringe the rights of a third party.
harmed.
parties, which could prevent us from selling products and could require us to pay significant damages and compel us to defend against litigation. We could incur substantial costs in seeking enforcementmay be subject to claims that our employees or directors have wrongfully used or disclosed alleged trade secrets of our patent rights against infringement, and we cannot guarantee that such patents will successfully preclude others from using technology that we rely upon. their former employers.
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Many of our employees and certain of our directors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and directors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees or directors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or director’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Our productsbusiness operations may have undesirable side effects and oursubject us to numerous commercial disputes, claims, lawsuits and/or investigations.
If concerns are raised regarding the safety of our products, intellectual property matters, employment matters, tax matters, commercial disputes, competition, sales and marketing practices, environmental matters, personal injury, insurance coverage and acquisition or divestiture‑related matters.
We maintain product liability insurance. We cannot be sure that such insurance would be sufficient to protect us against liabilities associated with any of these events in viewprice of our expanding business or that such insurance will remain available at economical levels. We may have significant legal expenses that are not covered by insurance. In addition, our reputation could be damaged by such sanctions or product liability litigationcommon stock has fluctuated and that could harm our business reputation and marketing ability. Any such sanctions or litigation could also hurt our abilityis likely to retain product liability insurance or make such insurance more expensive. In any such event, our business, results of operations, financial position and cash flows could be materially adversely affected.
Our business and operations would suffer in the event of a security breach, system failure, invasion, corruption, destruction or interruption of our or our business partners’ critical information technology systems or infrastructure.
In the ordinary course of business, we and our business partners store sensitive data, including intellectual property, proprietary business information, proprietary information of our customers and business partners in information technology systems and those of our current CMOs and other current or future contractors and consultants. Despite the implementation of security measures, these systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures due to employee error, malfeasance or other disruptions. We could experience a business interruption, intentional theft of confidential information or reputational damage from espionage attacks, malware, ransomware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our contractors or consultants. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities and business operations. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could be subject to legal claims or proceedings, liability under personal privacy laws and regulatory penalties. In any such event, our business, results of operations, financial position and cash flowscould be materially adversely affected.
We use biological and hazardous materials, and any claims relatingfurther wide fluctuations in response to improper handling, storage or disposal of these materials could be time consuming or costly.
We use hazardous materials, including chemicals and biological agents and compounds, which could be dangerous to human health and safety or the environment. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our pharmaceutical development efforts.
In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. If one of our employees was accidentally injured from the use, storage, handling or disposal of these materials or wastes, the medical costs related to his or her treatment would be covered by our workers’ compensation insurance policy. However, we do not carry specific biological or hazardous waste insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could
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be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, or operations otherwise affected.
Our existing capital resources may not be adequate to finance our operating cash requirements for the length of time that we have estimated.
Our forecast of the period of time through which our existing capital resources will be adequate to support our current operations is a forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject tonumerous factors, many factors, some of which are beyond our control. These factors include, but are not limited to: (i) the timingcontrol, such as those in this “Risk Factors” section and expenditures associated with the domestic and international commercialization of Triferic and Calcitriol and the timing and magnitude of cash received from product sales; (ii) the timing and expenditures associated with the build-up of inventory; (iii) the timing, design and conduct of, and results from, clinical trials that we may conduct; and (iv) the timing of the licensing, partnering and acquisition of new product opportunities. If our cash is insufficient to meet our future operating requirements, we will have to raise additional funds. Our capital raising activities may include, but may not be limited to, the issuance of common stock or other securities via private placement or public offerings or the issuance of debt. While we may seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all. Furthermore, additional equity financings may be dilutive to our stockholders and debt financing, if available, may involve significant cash payment obligations and covenants that restrict others including:
We may be unableobtain regulatory approvals for our product candidates, and delays or failures to obtain secured debt financingsuch approvals;
The Distribution Agreement prohibits us from entering into a contract encumberingcommon stock.
Any adverse conclusions from our SEC inquiryinstituted, could result in fines, criminal penaltiessubstantial costs and an adverse effect on our business.
We received letters dated February 13, 2017 and April 5, 2017 from the SEC informing us that the SEC was conducting an inquiry into our accounts receivable and inventory, calculation practices regarding such information, as well as disclosure regarding our dispute with Baxter and requesting that we voluntarily provide certain information and documents relating to our accounts receivable and inventory calculations and reporting practices, as well as information relating to the Baxter dispute. The SEC’s letters stated that the SEC’s inquiry should not be construed as an indication that any violation of any federal securities laws has occurred. We provided all of the requested information and documents to the SEC in March and April of 2017 and intend to continue to fully cooperate with the SEC inquiry. At this stage, we are unable to predict when the SEC’s inquiry will conclude or what the consequences may be. We believe we are in compliance with all federal securities laws related to our accounts receivable and inventory calculations practices, as well as our disclosures regarding the Baxter dispute, which was settled in June of 2017. Nevertheless, any continuation of the SEC inquiry may cause a diversion of management’s timemanagement attention and attention,resources, which could have a material adverse effect onsignificantly harm our business, results of operations, financial positionprofitability and cash flows.
RISKS RELATED TO OUR COMMON STOCK
reputation.
stock.
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shares stock may have an adverse effect on the market price of our common sharesstock and may dilute the economic value and voting rights of existing shareholders.
stockholders.
The market price for our common stock is volatile.
Our stock price, like the market price of many stocks in the specialty pharmaceutical, biotechnology and pharmaceutical industries, is volatile. Events such as announcements around clinical testing results or regulatory approval of a product, as well as the reporting of sales, operating results and cash resources, may cause significant fluctuations in our share price. In addition, third parties may engage in trading strategies that result in intentional volatility to and control over our share price.
We could have a material weakness in our internal control over financial reporting, which, until remedied, could result in errors in our financial statements requiring restatement of our financial statements. As a result, investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.
SEC rules require us to evaluate the effectiveness of our internal control over financial reporting, or ICFR, as of the end of each year, and to include a management report assessing the effectiveness of our ICFR in each Annual Report on Form 10-K. It is possible that we may identify control deficiencies in the future that constitute one or more material weaknesses. If our ICFR or disclosure controls and procedures are not effective, there may be errors in our financial statements and in our disclosure that could require restatements of our financial statements. In addition, if a restatement were to occur, investors may lose confidence in our reported financial information and in our disclosures, which could lead to a decline in our stock price.
Structural and anti-takeover provisions reduce the likelihood that you will receive a takeover premium.
Our Board of Directors has the authority, without shareholder approval, to issue shares of preferred stock, or rights to acquire preferred stock, having such rights, preferences and privileges our Board of Directors may determine. Any such issuance or potential issuance of preferred stock could, under certain circumstances, have the effect of delaying or preventing a change in control and may adversely affect the rights of holders of common shares, including by decreasing the amount of earnings and assets available for distribution to holders of common shares and adversely affect the relative voting power or other rights of the holders of the common shares. In addition, we may become subject to Michigan statutes regulating business combinations or our Board may take other actions which might also hinder or delay a change in control. Any such actions can have a depressive effect on the market price of our common shares and can limit shareholders’ ability to receive a premium on their shares by discouraging takeover offers.
Our shareholders do not have the right to cumulative voting in the election of directors. Moreover, our directors serve staggered three-year terms, and directors may only be removed for cause by a shareholder vote. These provisions
28
could have an anti-takeover effect by making it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent directors. These provisions could also delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interests, including those attempts that might result in a premium over the market price for the common shares.
We do not anticipate paying dividends in the foreseeable future.
2023. In addition, we executed a lease for 4,100 square feet of office space in Hackensack, New Jersey under a lease expiring on October 31, 2024. This lease is currently under a sublease expiring on October 31, 2024.
Baxter Arbitration
On September 12, 2016, Baxter initiated an arbitration proceeding against us
We filed a response denying all of Baxter’s claims of breach and wrongdoing, and counterclaimed that Baxter was itself in breach of the Distribution Agreement for failing to pay substantial accounts receivable and for repudiating its obligation to pay the West Coast facility fee of up to $10 million. We sought damages, declaratory, injunctive and other equitable relief, as well as interest, costs and attorney fees.
In addition, in October 2016, we gave notice to Baxter that it breached the minimum purchase requirement for the contract year ended October 2, 2016 and that we intended to cause our distribution rights to become non-exclusive unless Baxter cured the shortfall within the 30-day period specified in the Distribution Agreement. Baxter disputed the existence of a breach and failed to cure the deficiency. We subsequently provided Baxter with notice of loss of exclusivity due to its failure to cure as provided in the Distribution Agreement.
On June 23, 2017, we settled the arbitration with Baxter (the “Settlement”). The Settlement included a mutual release with respect to all known claims existing on the date of the Settlement and the arbitration was dismissed with prejudice. No payments were made by either party in connection with the Settlement.
29
In connection with the Settlement, on June 23, 2017, we entered into a First Amendment to Exclusive Distribution Agreement and a First Amendment to Investment Agreement, in each case, with Baxter. The terms of the Settlement included, among other things, reduced pricing on certain accounts that provides incentive to Baxter to pursue new customers and increase future sales. Our Settlement with Baxter is not expected to have a material impact on our business, results of operations, financial position or cash flows.
Richmond/Ravich Litigation
On March 8, 2017, we filed suit in the United States District Court for the Eastern District of Michigan against Richmond Brothers, Inc. and certain related entities, David S. Richmond, Mark H. Ravich and certain related trusts, Matthew J. Curfman (“Richmond/Ravich Defendants”), and three individual Rockwell shareholders: Jay F. Joliat, Chris Paxos and David Hagelstein (together with the “Richmond/Ravich Defendants,” the “Rockwell Shareholders). Subsequently, we voluntarily dismissed our claims against two of the individual shareholders, Chris Paxos and David Hagelstein pursuant to settlement agreements with each of them. Our complaint alleged that the Rockwell Shareholders failed to timely file a Schedule 13D identifying themselves as a shareholder group and that Schedules 13D ultimately filed by the Richmond/Ravich Defendants contained various material misstatements and omissions, in violation of Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and the rules promulgated thereunder by the Securities and Exchange Commission. The complaint sought declaratory and injunctive relief relating to these alleged violations, including requiring the Rockwell Shareholders to file new or amended Schedules 13D disclosing the proper date of their shareholder group’s formation and providing accurate information about the group’s membership and activities, and issuing a declaratory judgment finding that the Rockwell Shareholders violated Section 13(d) of the Exchange Act.
On June 28, 2017, the Court denied the Richmond/Ravich Defendants’ motion to dismiss this case, in which Defendant Jay F. Joliat had joined. On August 24, 2017, the Richmond/Ravich Defendants answered the Complaint, and Defendant Mark H. Ravich asserted counterclaims against us alleging that he was denied access to corporate books, not properly notified of a Board of Directors meeting, and that certain settlement agreements with former Defendant David Hagelstein and an unrelated third party violated Michigan law. On September 19, 2017, we moved for leave to amend the Complaint to add allegations regarding misstatements in the Richmond/Ravich Defendants’ Schedule 13(d) concerning the voting power of Richmond Brothers, Inc. and Mr. Richmond. The Richmond/Ravich Defendants opposed this Motion. On September 28, 2017, we moved to dismiss Counts II-IV of Defendant Ravich’s Counterclaims.
On November 22, 2017, we entered into a Settlement and Standstill Agreement with the Richmond/Ravich Defendants (the “Standstill Agreement”) whereby the Richmond/Ravich Defendants agreed to support our recommendations and nominations in connection with any meeting of shareholders, including the 2018 Annual Meeting of shareholders (the “2018 Meeting”) through December 31, 2018, and we agreed to add a seventh, independent director to our Board of Directors by February 15, 2018 and to reimburse the Richmond/Ravich Defendants for certain of their third-party expenses. PursuantContingencies, to the Standstill Agreement, we and Richmond/Ravich Defendants each released all claims against one another and jointly submitted a stipulation to the Court seeking to voluntarily dismiss the lawsuits. On November 30, 2017, the Court entered a Stipulated Order of Dismissal dismissing the entire case with prejudice.
Our Board of Directors was unable to appoint a seventh director by February 15, 2018. Accordingly, on February 27, 2018, Richmond Brothers, Inc. (“RBI”) and David S. Richmond (“Richmond”) delivered a letter to us nominating Lisa Colleran, Benjamin Wolin and Richmond for election to the Board of Directors at the 2018 Meeting. Thereafter, on March 7, 2018, we entered into a letter agreement with RBI and Richmond to memorialize the parties’ mutual agreement on certain corporate governance matters (the “Letter Agreement”). The Letter Agreement provided, among other things, that: (a) by March 7, 2018, the Company’s Board would increase the size of the Board from six directors to eight directors and would appoint: (i) Benjamin Wolin as (A) a Class I director to serve for a term expiring at the Company’s 2019 Annual Meeting of Shareholders and (B) the lead independent director of the Board; and (ii) Lisa Colleran as a Class II director to serve for a term expiring at the Company’s 2020 Annual Meeting of Shareholders; and (b) if the Company complied with the provisions of the Letter Agreement by March 7, 2018, then RBI would withdraw its proposal to separately nominate any directors for election at the 2018 Meeting. As a result, on March 9,2018, RBI and Richmond withdrew their proposal to separately nominate directors for election at the 2018 Meeting.
30
Other Proceedings
We are involved in certain other legal proceedings from time to time before various courts and governmental agencies. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on our operations or consolidated financial statements in the period in which they are resolved.
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| High |
| Low |
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2017 |
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Fourth Quarter |
| $ | 8.63 |
| $ | 5.43 |
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Third Quarter |
|
| 8.70 |
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| 6.00 |
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Second Quarter |
|
| 8.98 |
|
| 6.04 |
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First Quarter |
|
| 6.80 |
|
| 5.06 |
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2016 |
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Fourth Quarter |
| $ | 8.37 |
| $ | 3.55 |
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Third Quarter |
|
| 8.45 |
|
| 6.27 |
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Second Quarter |
|
| 10.58 |
|
| 6.86 |
|
First Quarter |
|
| 10.50 |
|
| 5.47 |
|
stock.
Policy
Securities Authorized for Issuance Under Equity Compensation Plans
The information contained under “Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10‑K under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” is incorporated herein by reference.
31
Performance Graph
The following graph compares the cumulative 5‑year total return of holders of the our common stock with the cumulative total returns of the Russell 2000 index and the Nasdaq Biotechnology index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with reinvestment of all dividends, if any) on December 31, 2012 with relative performance tracked through December 31, 2017. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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| 12/31/2012 |
| 12/31/2013 |
| 12/31/2014 |
| 12/31/2015 |
| 12/31/2016 |
| 12/31/2017 |
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Rockwell Medical, Inc. |
| 100.00 |
| 129.69 |
| 127.70 |
| 127.20 |
| 81.37 |
| 72.30 |
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Russell 2000 |
| 100.00 |
| 138.82 |
| 145.62 |
| 139.19 |
| 168.85 |
| 193.58 |
|
NASDAQ Biotechnology |
| 100.00 |
| 174.60 |
| 231.61 |
| 245.49 |
| 195.54 |
| 229.01 |
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The information furnished under the heading “Stock Performance Graph” shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, and such information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
32
Item 6. Selected Financial Data.
The financial data in the following tables should be read in conjunction with the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10‑K.
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| For the Year Ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
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Net sales |
| $ | 57,300,281 |
| $ | 53,284,166 |
| $ | 55,350,702 |
| $ | 54,188,444 |
| $ | 52,379,543 |
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Cost of sales |
|
| 53,598,390 |
|
| 46,531,648 |
|
| 46,412,848 |
|
| 45,643,231 |
|
| 45,720,323 |
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Gross profit |
|
| 3,701,891 |
|
| 6,752,518 |
|
| 8,937,854 |
|
| 8,545,213 |
|
| 6,659,220 |
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Income from continuing operations before interest expense and income taxes |
|
| (25,922,918) |
|
| (20,208,729) |
|
| (15,102,326) |
|
| (17,559,101) |
|
| (47,059,266) |
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Interest (expense) and Investment Income, net |
|
| 892 |
|
| 810,340 |
|
| 681,876 |
|
| (3,768,056) |
|
| (1,724,046) |
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Foreign Currency Gain (Loss) |
|
| 742 |
|
| — |
|
| — |
|
| — |
|
| — |
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Income from continuing operations before income taxes |
|
| (25,921,284) |
|
| (19,398,389) |
|
| (14,420,450) |
|
| (21,327,157) |
|
| (48,783,312) |
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Income taxes |
|
| — |
|
| 404,527 |
|
| — |
|
| — |
|
| — |
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Net income |
|
| (25,921,284) |
|
| (19,802,916) |
|
| (14,420,450) |
|
| (21,327,157) |
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| (48,783,312) |
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Earnings per common share: |
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Basic |
| $ | (0.51) |
| $ | (0.39) |
| $ | (0.29) |
| $ | (0.52) |
| $ | (1.48) |
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Diluted |
| $ | (0.51) |
| $ | (0.39) |
| $ | (0.29) |
| $ | (0.52) |
| $ | (1.48) |
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Weighted average number of common shares and common share equivalents |
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Basic |
|
| 51,067,412 |
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| 50,676,180 |
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| 50,068,129 |
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| 41,404,999 |
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| 32,882,333 |
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Diluted |
|
| 51,067,412 |
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| 50,676,180 |
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| 50,068,129 |
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| 41,404,999 |
|
| 32,882,333 |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
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Total assets |
| $ | 58,779,640 |
| $ | 83,153,638 |
| $ | 87,822,125 |
| $ | 97,999,716 |
| $ | 36,362,124 |
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Current assets |
|
| 48,828,318 |
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| 78,509,195 |
|
| 84,626,316 |
|
| 94,707,149 |
|
| 31,917,774 |
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Current liabilities |
|
| 9,143,174 |
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| 10,145,602 |
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| 8,091,451 |
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| 9,804,402 |
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| 17,849,671 |
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Working capital |
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| 39,685,144 |
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| 68,363,593 |
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| 76,534,865 |
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| 84,902,747 |
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| 14,068,103 |
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Long term debt |
|
| — |
|
| — |
|
| — |
|
| — |
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| 17,916,914 |
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Shareholders’ equity(2) |
|
| 32,913,148 |
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| 52,956,299 |
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| 62,319,822 |
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| 68,702,794 |
|
| 595,539 |
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Book value per outstanding common share |
| $ | 0.66 |
| $ | 1.03 |
| $ | 1.21 |
| $ | 1.37 |
| $ | 0.01 |
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Common shares outstanding |
|
| 51,768,424 |
|
| 51,527,711 |
|
| 51,501,877 |
|
| 50,284,007 |
|
| 40,110,661 |
|
33
| For the Year Ended December 31, | |||||||||||||||||||||||||||||
| 2021 | % of Revenue | 2020 | % of Revenue | % Change | |||||||||||||||||||||||||
| Net Sales | $ | 61,931 | $ | 62,197 | (0.4) | % | |||||||||||||||||||||||
| Cost of Sales | 64,351 | 103.9 | % | 59,472 | 95.6 | % | 8.2 | ||||||||||||||||||||||
| Gross (Loss) Profit | (2,420) | (3.9) | 2,725 | 4.4 | (188.8) | ||||||||||||||||||||||||
| Research and Product Development | 6,835 | 11.0 | 7,092 | 11.4 | (3.6) | ||||||||||||||||||||||||
| Selling and Marketing | 5,733 | 9.3 | 7,871 | 12.7 | (27.2) | ||||||||||||||||||||||||
| General and Administrative | 15,348 | 24.8 | 16,182 | 26.0 | (5.2) | ||||||||||||||||||||||||
| Operating Loss | $ | (30,336) | (49.0) | % | $ | (28,420) | (45.7) | % | 6.7 | % | |||||||||||||||||||
Our business strategy is developing unique, proprietary renal drug therapies that we can commercialize or out-license, while also expanding our dialysis products business. These novel renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy, while decreasing drug administration costs and improving patient convenience and outcome.
Triferic is our lead branded drug. We believe it has the potential to capture significant market share due to its improved clinical and cost-saving benefits. Triferic received FDA approval in 2015, and is the only FDA-approved therapy indicated to replace iron and maintain hemoglobin in adult hemodialysis patients. Triferic received a reimbursement J-code on January 1, 2016. At about that time, we received clarification from CMS that Triferic would be included in the ESRD bundled payment, which initiated our pursuit of separate reimbursement, which is available for new, innovative therapies.
We have been engaged in extensive efforts to obtain approval from CMS for separate reimbursement of Triferic. We have worked with policy makers, Congress and stakeholders within the dialysis industry. We have had in-depth discussions with senior officials within the current administration, key members of Congress, patient advocacy groups and other industry stakeholders regarding the merits of Triferic and why this innovative therapy should receive separate reimbursement. Our efforts have received strong support. We have submitted information to CMS that highlights the improved clinical benefits that Triferic provides to patients, as well as the significant cost savings Triferic delivers to both Medicare and dialysis providers. Notwithstanding our efforts, arguments and expectations, we cannot predict the outcome, or the timing of the CMS review.
Until separate reimbursement is approved for Triferic, we do not anticipate realizing significant revenues from Triferic sales. In the meantime, we continue to make progress in marketing to, and educating our customers about, Triferic and the valuable benefits it delivers by improving patient outcomes and lowering costs. We also continue to provide Triferic to dialysis providers via a drug sample program, receiving favorable response to its positive clinical and cost saving benefits. Our marketing and selling efforts to nephrologists and nurses, as well as to patients, have been well received.
We have built significant inventory of Triferic in anticipation of receiving separate reimbursement status. However, if we are unable to successfully commercialize Triferic and achieve sufficient sales volumes over the next one to two years, we may have to write off a significant portion of our inventory investment in Triferic, which would have an adverse effect on our business, results of operations and financial position. We have classified $6.0$60.8 million of Triferic Active Pharmaceutical Ingredient (“API”) as non-current inventory as of December 31, 2017. We have produced sufficient supplies of Triferic API to meet expected prospective demand in 2018 and 2019, assuming we can start commercial sales under separate reimbursement status in the first half of 2018. As of December 31, 2017, we also had $5.0 million of Triferic finished goods inventory that could expire within the next twelve months and against which we have reserved $3.5 million and expensed in 2017 as a result of the uncertainty regarding separate reimbursement
Our global strategy is to license Triferic to key partners to commercialize internationally. We are actively pursuing international licensing opportunities in a number of countries and regions. Additionally, we are continuing
34
development work on other clinical indications related to iron deficiency that address unmet patient needs and we are evaluating opportunities to in-license other products that will complement our product portfolio.
We are also working to begin marketing Calcitriol, generic injectable vitamin-D, which is manufactured through contract manufacturing organizations (“CMOs”). We received written notice from the FDA in October 2017 that the FDA needed additional time to review the data submitted by us supporting manufacturing changes to Calcitriol. The notice contained no indication by the FDA of any deficiency with the data submitted. We expect to begin marketing Calcitriol following FDA approval of the submission.
We also sell our dialysis concentrates in the United States and certain foreign markets under the Distribution Agreement with Baxter. We receive a pre-defined gross profit margin on our concentrate products sold pursuant to the Distribution Agreement, subject to an annual true-up of costs. As discussed in more detail in Note 6 to our condensed consolidated financial statements, we settled our contractual dispute with Baxter in June of 2017, and, as part of our settlement, reduced pricing on certain accounts was agreed upon that provides incentive to Baxter to pursue new customers and increase future sales.
Results of Operations
For the year ended December 31, 20172021 compared to $61.1 million for the year ended December 31, 2020. Net sales of Triferic (dialysate) remained flat at approximately $1.1 million for the years ended December 31, 2021 and 2020. On April 6, 2022, the Company and DaVita entered into an amendment (the "DaVita Amendment") to the Products Purchase Agreement, dated July 1, 2019 under which the Company supplies DaVita with certain dialysis concentrates. Under the DaVita Amendment, the Company and DaVita agreed to a price increase, effective May 1, 2022. Based the DaVita Amendment and assuming steady sales volumes, the Company expects a double digit increase in concentrates revenue year-over-year.
Sales
In 2017, our sales were $57.3 million compared to $53.3 million in 2016, an increase of $4.0 million, or 7.5%. Our domestic concentrate revenue increased $3.6 million, or 7.7 %, compared to 2016. Our international concentrate revenue for 2017 increased $0.4 million, or 5.8%, compared to 2016,2020 due to increased order volumes. We recognized deferred license revenuesignificant inflationary pressures related to the Baxter Distribution Agreementconcentrates segment. The Company has sought to mitigate these inflationary pressures by increasing product costs and by renegotiating certain terms of $2.1 millionits supply contract with DaVita in both 2017 and 2016.
Our domestic concentrate revenue increase was partially due to the addition of new business following pricing concessions provided to Baxter in order to increase dialysis concentrate business. Increased pass through billings for delivery services represented approximately 17%DaVita Amendment, one of the concentrate business revenue increase with Baxter.
We continue to market to and educate ourCompany's largest customers, on Trifericwhile seeking to obtain separate reimbursement status for Triferic. Until the reimbursement issue is resolved with CMS, however, we do not expect our Triferic sales to be significant.
Our drug business revenue was not significant in 2017. We recognized $0.2 million in deferred revenue relatedable to Triferic licensing agreements in 2017.
Gross Profit
Our gross profit was $3.7 million in 2017, a decrease of $3.0 million compared to 2016. Our gross profit margin was 6.5% in 2017, compared to 12.7% in 2016.
Our drug gross profit was a loss of $3.6 million in 2017 compared to a loss of $1.7 million in 2016. Our inventory reserves and write-offs of Triferic finished goods inventory aggregated $3.5 million in 2017, an increase of $2.9 million over 2016. If we do not receive separate reimbursement status for Triferic in the first half of 2018, we will likely need to write-off and reserve against additional amounts of our Triferic inventory. Other expenses associated with our drug products decreased approximately $1.0 million in 2017 over 2016 and included direct operating, regulatory, material, inventory and finished product expenses associated with our drug products.
Our concentrate business gross profit decreased $1.0 million in 2017 compared to 2016 as a result of our settlement with Baxter under which we provided certain pricing concessions on current and prospective business. Business added subsequent to the settlement agreement has been at a lower pricing and margin level than other business. In addition,pass through a significant portion of inflationary costs. As a result of these changes, the Company expects an improvement in margins in 2022
35
Selling, GeneralThe COVID-19 pandemic and Administrative Expenses
Selling, generalresulting domestic and administrative expenses were $23.3 million in 2017 comparedglobal disruptions have adversely affected our business and operations, including, but not limited to, $21.1 million in 2016, an increase of $2.2 million. The increase was primarily due to an increase in legalour sales and professional costs related to litigation, the settlement with Baxtermarketing efforts and our contested 2017 annual meetingresearch and development activities, and the
Researchthe past; however, current conditions in the financial and Development
We incurred product development and research costs relatedcredit markets may limit the availability of funding, refinancing or increase the cost of funding. Due to the commercial development, patent approval and regulatory approval of new products, primarily Triferic, aggregating approximately $6.3 million and $5.8 million in 2017 and 2016, respectively. Costs incurred in 2017 and 2016 were largely related to testing and development of Triferic for other indications and presentations.
Interest Income, Net
Our net interest and investment income was nominal in 2017 compared to income of $0.8 million in 2016. All of our net interest and investment income was offset by realized losses on repositioning our portfolio during 2017.
Income Tax Expense
We have substantial tax loss carryforwards from our losses in previous years. We have not recorded a federal income tax benefit from either our prior losses or our current year losses because we might not realize the carryforward benefitrapidly evolving nature of the remaining losses.
Forglobal situation, it is not possible to predict the year ended December 31, 2016 comparedextent to the year ended December 31, 2015
Sales
In 2016,which these conditions could adversely affect our sales were $53.3 million compared to $55.4 million in 2015 a decrease of $2.1 million, or 3.7%. Our domestic concentrate revenue increased $0.1 million, or 0.2 %, compared to 2015. Our international concentrate revenue for 2016 decreased $0.6 million, or 8.0%, compared to 2015 due to lower order volume. Third party contract manufacturing sales decreased $1.6 million compared to 2015 due to the completion of a manufacturing contract in 2015. We recognized deferred license revenue related to the Baxter Distribution Agreement of $2.1 million in both 2016liquidity and 2015.
Gross Profit
Our gross profit was $6.8 million in 2016, a decrease of $2.2 million compared to 2015. Our gross profit margin was 12.7% in 2016 compared to 16.1% in 2015. Gross profit decreased by $1.7 million primarily due to approximately $1.5 million related to direct operating, regulatory, material, inventory and finished product expenses associated with our drug products. We also expensed $0.2 million in value added taxes paid on the $4 million in licensing payments received in connection with the Wanbang agreement. The remainder of the decrease in gross profit was due to lower unit volumes on contract manufacturing sales and on international business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $21.1 million in 2016 compared to $19.1 million in 2015 an increase of $2.0 million. The increase was primarily due to an increase in non-cash equity compensation charges of $1.5 million related to equity grants in prior years as no equity compensation plan grants were made to directors and officers in 2016 other than a grant to a new director. Other significant cost increases included increased legal fees of $0.7 million related to litigation expenses and increased marketing costs related to Triferic of $0.2 million. The increase was
36
partially offset by the moratorium on medical device taxes for 2016 and 2017, resulting in a decrease of $0.4 million in 2016 compared to 2015.
Research and Development
We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products, primarily Triferic, aggregating approximately $5.8 million and $5.0 million in 2016 and 2015, respectively. Costs incurred in 2016 and 2015 were largely related to testing of Triferic and included pharmacokinetic testing of Triferic for use in other indications, pediatric indications of Triferic, peritoneal dialysis, an orphan indication for Triferic, additional presentations of Triferic as well as other testing and development costs.
Interest Income, Net
Our net interest income was $0.8 million compared to net interest income of $0.7 million in 2015.
Income Tax Expense
We recognized approximately $0.4 million in income tax expense in 2016 compared to no income tax expense in 2015. Our income tax expense pertained to foreign income taxes paid related to license payments received under the Wanbang Agreement. The amount of foreign income tax paid can be credited against future United States tax liabilities and carried forward to offset future United States income tax liabilities.
We have substantial tax loss carryforwards from our losses in previous years. We have not recorded a federal income tax benefit from either our prior losses or our current year losses because we might not realize the carryforward benefit of the remaining losses.
Liquidity and Capital Resources
We believe we currently have adequate capital resources and liquidity to pursue our business strategy in 2018. In addition to operating our concentrate business, our business strategy is centered on developing, marketing and licensing high potential drug products, in particular Triferic. the future.
As of December 31, 2017, we had approximately $33.1 million in cash and investments and $39.7 million in working capital. Our uses of cash have primarily been for funding our operating activities. Cash used in operating activities during 2017 was $21.1 million which included research and development of $6.3 million in 2017. Our 2017 operating expenses included substantial amounts for legal and professional fees related to litigation, the settlement with Baxter and the contested 2017 director election which were $2.7 million higher than in 2016.
We have also invested in inventories in preparation for commercial sales of(dialysate) and/or Triferic in anticipation of separate reimbursement of Triferic. As of December 31, 2017, we have invested approximately $10 million in Triferic inventory, including $1.5 million for finished goods presentations of Triferic and $8.5 million in active pharmaceutical ingredient (“API”) of Triferic. We have built substantial inventory of Triferic API, which we believe will be adequate to meet prospective product demand upon CMS awarding a separate reimbursement for Triferic in 2018. We have classified a significant amount of our Triferic API inventory as non-current, which we believe will supply a portion of our future API requirements after 2018. All of the $1.5 million of Triferic finished goods inventory will expire during the second half of 2018. If we are delayed in receiving separate reimbursement for Triferic or if we do not receive separate reimbursement for Triferic,AVNU should fail, we may needbe forced to write-off some or all of our investment in Triferic finished goods inventory which wouldimplement cost-saving measures that may potentially have a negative impact on our reportedactivities and potentially the results of operations during 2018.
We have no long term debt as of December 31, 2017 and do not expect to incur interest expense in 2017. Our capital expenditures were $1.7 million in 2017 but are not expected to materially exceed depreciation expense in 2018.
37
We anticipate that our accounts receivable will increase as we increase our drug product sales and that our inventories will increase to a more modest degree, if, and to the extent, we commercialize Triferic and Calcitriol. We also expect to continue investing in research and product development. Our future spending on research and development activities in the year ahead is expected to be in approximately the same range as incurred in the last two years. We believe that we have adequate capital resources to make these investments in accounts receivable, inventory and research and product development. We expect to generate positive cash flow from operations when our drug products generate substantial sales.
We are in discussions with multiple potential business development partners to out‑license rights to Rockwell’s drug products outside the United States. Such licensing arrangements often include upfront fees, developmental milestone payments and royalties.programs. If such licensing arrangements are negotiated for certain markets, we may receive such consideration in the future in addition to that which we are already entitled to receive under existing agreements. We are also considering other business development arrangements including joint ventures, partnerships and other transactions related to our products or other future products that we may develop or license.
We are currently using cash to fund our operations and while we believe we have sufficient cash to fund our operations for at least the year ahead, if we are unable to generate sufficient cash from our commercial business activities,raise the required capital, we may needbe forced to seek additional financingcurtail all of our activities and, ultimately, cease operations. Even if we are able to provide the cash necessary to execute our business strategy, including workingraise sufficient capital, needs. Our capital raising activitiessuch financings may include, but may not be limited to, the issuance of common stock or other securities via private placement or public offerings or the issuance of debt. While we may seek capital through a number of means, there can be no assurance that additional financing willonly be available on acceptableunattractive terms, if at all. In particular,or result in significant dilution of stockholders’ interests and, in such event, the market price of our distribution agreement with Baxter prohibits us from entering into a contract encumbering the assetscommon stock may decline.
Contractual Obligations
The following table details our contractual obligations as ofyear ended December 31, 2017:
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| Payments due by period |
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| Less than |
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| More than |
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Contractual Obligations |
| Total |
| 1 year |
| 1 ‑ 3 years |
| 3 ‑ 5 years |
| 5 years |
| |||||
Operating leases |
| $ | 4,320,190 |
|
| 1,917,356 |
|
| 2,141,513 |
|
| 261,321 |
|
| — |
|
Purchase obligations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
All other long term liabilities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total |
| $ | 4,320,190 |
| $ | 1,917,356 |
| $ | 2,141,513 |
| $ | 261,321 |
| $ | — |
|
Off‑Balance Sheet Arrangements
We do not have any off‑balance sheet arrangements that have or are reasonably likely2021.
short term note payable.
38
actual experience, trends, or subsequent realization depending on the nature and predictability of the estimates and contingencies.
Our policyRecognition
Consistent with these guidelines we recognizeperformance obligations in the contract
We apply judgment as we analyze each element of our contractual agreements to determine appropriate revenue recognition. The terms of our contractual agreements may include milestone payments if specified research and development objectives are achieved, non-refundable licensing fees, milestone payments on sales or royalties from product sales.
When entering into an arrangement, we first determine whether the arrangement includes multiple deliverables and is subject to the accounting guidance in ASC subtopic 605-25, Multiple-Element Arrangements. If we determine that an arrangement includes multiple elements, we determine whether the arrangement should be divided into separate units of accounting and how the arrangement consideration should be measured and allocated among the separate units of accounting. An element qualifies as a separate unit of accounting when the delivered element has standalone value to the customer. Our arrangements do not includecompany satisfies a general right of return relative to delivered elements. Any delivered elementsperformance obligation
Non-refundable upfront license fees are recorded as deferred revenue and recognized into revenue over the estimated period of our substantive performance obligations. If we do not have substantive performance obligations, we recognize non-refundable upfront fees into revenue through the date the deliverable is satisfied. Analyzing the arrangement to identify deliverables requires the use of judgment and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. In arrangements that include license rights and other non-contingent deliverables, such as participation in a steering committee, these deliverables do not have standalone value because the non-contingent deliverables are dependent on the license rights. That is, the non-contingent deliverables would not have value without the license rights, and only we can perform the related services. Upfront license rights and non-contingent deliverables, such as participation in a steering committee, do not have standalone value as they are not sold separately and they cannot be resold. In addition, when non-contingent deliverables are soldhandling costs associated with upfront license rights, the license rights do not represent the culmination of a separate earnings process. As such, we account for the license and the non-contingent deliverables as a single combined unit of accounting. In such instances, the license revenue in the form of non-refundable upfront payments is deferred and recognized over the applicable relationship period.
39
For milestone payments based on sales and for royalties based on sales, we recognize revenue in the quarter that the informationoutbound freight related to the sales becomes available and collectability is reasonably assured.
We generally recognize licensing fees over the term of the related license agreement. We received an upfront payment of $4 million pursuant to our license agreementcontracts with Wanbang Biopharmaceutical Co., Ltd. in February 2016. Deferred license revenue for our license agreements is being recognized over the term of the license agreement.
The initial payment of $20 million received pursuant to our Distribution Agreement with Baxter in October 2014 has beencustomers are accounted for as deferred license revenue. Deferred license revenue is being recognized based on the proportiona fulfillment cost and are included in cost of product shipments to Baxter in each period to total expected sales volume for the termwhen control of the agreement.
We recognize other revenues atgoods transfers to the time the related fees and or payments are earned.
Allowance for doubtful accounts
customer.
Inventories
We evaluate how much of our current inventory we
Share Based Compensation
We measureindefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the cost of employee services received in exchange for equity awards, including stock options, based on the grant date fair value of the awards in accordance with ASC 718‑10, Compensation—Stock Compensation. The cost of equity based compensation is recognized as compensation expense overreporting unit or the vesting period of the awards.
We estimate the fair value of compensation involving stock options utilizing the Black‑Scholes option pricing model. This model requires the input of several factors such as the expected option term, expected volatility of our stock price over the expected option term, and an expected forfeiture rate, and is subject to various assumptions. We believe the valuation methodology is appropriate for estimating the fair value of stock options we grant to employees and directors which are subject to ASC 718‑10 requirements. These amounts are estimates and thus may not be reflective of actual future results or amounts ultimately realized by recipients of these grants.
Impairments of long‑lived assets
We account for impairment of long‑lived assets, which include property and equipment, amortizable and non‑amortizableindefinite-lived intangible assets and goodwill, in accordance with authoritative accounting pronouncements. An impairment review is performed annually or whenever a change in condition occurs which indicates that thebelow their carrying amounts of assets may not be recoverable. Such changes may include changes in our business strategies and plans, changes to our customer contracts, changes to our product lines and changes in our operating practices. We use a variety of factors to assess the realizable value of long‑lived assets depending on their nature and use.
40
Goodwill is not amortized; however, it must be tested for impairment at least annually. The goodwill impairment analysis is based on the fair market value of our common shares. Amortization continues to be recorded for other intangibleIntangible assets with definite lives are amortized over thetheir estimated useful lives. Intangible assets subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverablerecoverable.
its options granted under the Company’s equity compensation plans to its directors and officers, and its employees.
Income Taxes
Tax Cuts and Jobs Act (TCJA) tax reform legislation enacted on December 22, 2017 makes major changes to the U.S. corporate income tax system, including lowering the U.S. federal corporate income tax rate to 21 percent from 35 percent. TCJA resulted in a reduction in the deferred tax asset, before valuation allowance, as a result
Interest Rate Risk
We have invested $24.6 million
Foreign Currency Exchange Rate Risk
Our international business is conducted in U.S. dollars with the exception of transactions by our subsidiary in India, which conducts business in Indian rupees and has had only minor transactional activity to date. It has not been our practice to hedge the risk of appreciation of the U.S. dollar against the predominant currencies of our trading partners. We have no significant foreign currency exposure to foreign supplied materials, and an immediate 10% strengthening or weakening of the U.S. dollar would not have a material impact on our shareholders’ equity or net income.
41
this Item.
As of December 31, 2017, we carried out an evaluation under
Company’s management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements included in this Annual Report are fairly stated, in all material respects, in accordance with generally accepting accounting principles in the United States for each of the periods presented herein.
2021.
Plante & Moran, PLLC, an independent registered public accounting firm, as auditors of our consolidated financial statements, has issued
42
as of December 31, 2017. Plante & Moran, PLLC’s report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting, is included herein.
The attestation report required under this Item 9A can be found on page F-3 in Consolidated Financial Statements for Rockwell Medical, Inc. and Subsidiaries found at the end of this Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Controls
Control over Financial Reporting
reference to information in our proxy statement for our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2021, including under headings “Election of Directors,” “Executive Officers,” “Corporate Governance” and, as applicable, "Delinquent Section 16(a) Reports."
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Securities Authorized for Issuance Under Equity Compensation Plans
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| equity compensation plans |
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| outstanding options, |
| outstanding options, |
| (excluding securities |
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Plan Category |
| warrants and rights |
| warrants and rights |
| reflected in column (a)) |
| Plan Category | Number of securities to be issued upon exercise of outstanding options and restricted stock units | Weighted‑average exercise price of outstanding options | Number of securities remaining available for future issuance under (excluding securities reflected in column (a)) | |||||||||||||||||
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| (a) |
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| (b) |
| (c) |
| (a) | (b) | (c) | |||||||||||||||||
Equity compensation plans approved by security holders |
| 6,906,001 |
| $ | 7.92 |
| — |
| ||||||||||||||||||||
Equity compensation plans not approved by security holders |
| — |
|
| — |
| — |
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| Equity compensation plans approved by security holders (1) | Equity compensation plans approved by security holders (1) | 5,364,988 | $ | 3.07 | 1,040,339 | |||||||||||||||||||||||
| Equity compensation plans not approved by security holders (2) | Equity compensation plans not approved by security holders (2) | 850,000 | $ | 1.50 | — | |||||||||||||||||||||||
Total |
| 6,906,001 |
| $ | 7.92 |
| — |
| Total | 6,214,988 | $ | 2.85 | 1,040,339 | |||||||||||||||
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(b)Exhibits
The following documents are filed as part of this report or were previously filed and incorporated herein by reference to the filing indicated. Exhibits not required for this report have been omitted. Our Commission file number is 000‑23661.
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| XBRL Instance Document | |||||
| XBRL Taxonomy Extension Schema | |||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||||
101.DEF | XBRL Taxonomy Extension Definition Database | |||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | |||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |||||
| 104 | The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included as Exhibit 101) | |||||
*Current Indicates management contracts or compensatory plans or arrangements.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROCKWELL MEDICAL, INC. (Registrant) /s/ President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ President, Chief Executive Officer and Director (Principal Executive Officer) /s/ John G. Cooper /s/ Allen Nissenson PAGE F- Marcum LLP ROCKWELL MEDICAL, INC. AND SUBSIDIARIES December 31, December 31, 2017 2016 ASSETS Cash and Cash Equivalents $ 8,406,917 $ 17,180,594 Investments Available for Sale 24,648,459 40,759,703 Accounts Receivable, net of a reserve of $11,000 in 2017 and $5,000 in 2016 6,355,566 6,393,228 Inventory 7,637,384 12,141,072 Other Current Assets 1,779,992 2,034,598 Total Current Assets 48,828,318 78,509,195 Property and Equipment, net 2,548,978 1,391,575 Inventory, Non-Current 5,986,752 1,826,554 Intangible Assets 4,028 4,382 Goodwill 920,745 920,745 Other Non-current Assets 490,819 501,187 Total Assets $ 58,779,640 $ 83,153,638 LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts Payable $ 4,222,159 $ 5,858,234 Accrued Liabilities 4,715,712 4,210,151 Customer Deposits 205,303 77,217 Total Current Liabilities 9,143,174 10,145,602 Deferred License Revenue 16,723,318 20,051,737 Shareholders’ Equity: Common Shares, no par value, 51,768,424 and 51,527,711 shares issued and outstanding 273,210,907 268,199,939 Accumulated Deficit (240,262,376) (214,341,092) Accumulated Other Comprehensive Income (35,383) (902,548) Total Shareholders’ Equity 32,913,148 52,956,299 Total Liabilities And Shareholders’ Equity $ 58,779,640 $ 83,153,638 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES 2017 2016 2015 Sales $ 57,300,281 $ 53,284,166 $ 55,350,702 Cost of Sales 53,598,390 46,531,648 46,412,848 Gross Profit 3,701,891 6,752,518 8,937,854 Selling, General and Administrative 23,303,409 21,120,901 19,078,867 Research and Product Development 6,321,400 5,840,346 4,961,313 Operating Income (Loss) (25,922,918) (20,208,729) (15,102,326) Interest and Investment Income 892 810,340 681,876 Interest (Expense) — — — Foreign Currency Gain (Loss) 742 — — Income (Loss) Before Income Taxes (25,921,284) (19,398,389) (14,420,450) Income Tax Expense — (404,527) — Net Income (Loss) $ (25,921,284) $ (19,802,916) $ (14,420,450) Basic Earnings (Loss) per Share $ (0.51) $ (0.39) $ (0.29) Diluted Earnings (Loss) per Share $ (0.51) $ (0.39) $ (0.29) LOSS 2017 2016 2015 Net Income (Loss) $ (25,921,284) $ (19,802,916) $ (14,420,450) Unrealized Gain (Loss) on Available-for-Sale Investments 866,031 13,619 (717,827) Foreign Currency Translation Adjustments 1,134 (671) — Comprehensive Income (Loss) $ (25,054,119) $ (19,789,968) $ (15,138,277) ROCKWELL MEDICAL, INC. AND SUBSIDIARIES ACCUMULATED OTHER TOTAL COMMON SHARES ACCUMULATED COMPREHENSIVE SHAREHOLDER’S SHARES AMOUNT DEFICIT INCOME (LOSS) EQUITY Balance as of December 31, 2014 50,284,007 $ 249,018,189 $ (180,117,726) $ (197,669.) $ 68,702,794 Net Loss — — (14,420,450) — (14,420,450) Unrealized Gain on Available-for-Sale Investments — — — (717,827) (717,827) Issuance of Common Shares 1,644,248 4,132,250 — — 4,132,250 Stock Tendered in Satisfaction of Tax Liabilities (426,378) (4,264,922) — — (4,264,922) Exercise of Purchase Warrants — — — — — Expiration of Purchase Warrants — — — — — Purchase Warrants Expense — — — — — Stock Option Based Expense — 5,193,481 — — 5,193,481 Restricted Stock Amortization — 3,694,496 — — 3,694,496 Balance as of December 31, 2015 51,501,877 $ 257,773,494 $ (194,538,176) $ (915,496) $ 62,319,822 Net Loss — — (19,802,916) — (19,802,916) Unrealized Gain on Available-for-Sale Investments — — — 13,619 13,619 Foreign Currency Rate Changes (671) (671) Issuance of Common Shares 25,834 80,161 — — 80,161 Stock Tendered in Satisfaction of Tax Liabilities — — — — — Stock Option Based Expense — 5,984,524 — — 5,984,524 Restricted Stock Amortization — 4,361,760 — — 4,361,760 Balance as of December 31, 2016 51,527,711 $ 268,199,939 $ (214,341,092) $ (902,548) $ 52,956,299 Net Loss — — (25,921,284) — (25,921,284) Unrealized Gain on Available-for-Sale Investments — — — 866,031 866,031 Foreign Currency Rate Changes — — — 1,134 1,134 Issuance of Common Shares 508,384 123,603 — — 123,603 Shares Issued in Exchange for Services 50,000 228,847 228,847 Stock Option Based Expense — 3,858,502 — — 3,858,502 Stock Tendered in Satisfaction of Tax Liabilities (317,671) (2,287,231) — — (2,287,231) Restricted Stock Amortization — 3,087,247 — — 3,087,247 Balance as of December 31, 2017 51,768,424 $ 273,210,907 $ (240,262,376) $ (35,383) $ 32,913,148 ROCKWELL MEDICAL, INC. AND SUBSIDIARIES 2017 2016 2015 Cash Flows From Operating Activities: Net (Loss) $ (25,921,284) $ (19,802,916) $ (14,420,450) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 514,362 762,368 822,294 Share Based Compensation—Non-employee 228,847 — — Share Based Compensation—Employees 6,945,749 10,346,284 8,887,977 Loss on Disposal of Assets 10,777 8,168 5,281 Loss on Sale of Investments Available for Sale 792,207 26,820 58,095 Changes in Assets and Liabilities: (Increase) in Accounts Receivable (962,338) (1,162,469) (574,731) (Increase) in Inventory 343,490 (6,095,846) (3,951,595) (Increase) in Other Assets 264,975 (1,230,084) (360,303) (Decrease) Increase in Accounts Payable (1,636,840) 1,863,018 (1,299,299) (Decrease) Increase in Other Liabilities 634,238 191,134 (413,652) (Decrease) in Deferred License Revenue (2,099,028) (2,065,785) (2,081,668) (Decrease) Increase in Deferred Drug License Revenue (229,390) 4,706,670 — Changes in Assets and Liabilities (3,684,893) (3,793,362) (8,681,248) Cash (Used In) Operating Activities (21,114,235) (12,452,638) (13,328,051) Cash Flows From Investing Activities: Purchase of Investments Available for Sale (35,733,677) (25,781,853) (21,800,000) Sale of Investments Available for Sale 51,918,745 24,491,677 1,468,656 Purchase of Equipment (1,682,913) (355,264) (815,002) Proceeds on Sale of Assets 725 1,000 4,800 Cash Provided by (Used In) Investing Activities 14,502,880 (1,644,440) (21,141,546) Cash Flows From Financing Activities: Proceeds from Issuance of Common Shares 123,603 80,161 2,780,187 Restricted Stock Retained in Satisfaction of Tax Liabilities (2,287,231) — (2,912,859) Cash (Used In) Provided By Financing Activities (2,163,628) 80,161 (132,672) Effects of exchange rate changes 1,306 (671) — (Decrease) In Cash (8,773,677) (14,017,588) (34,602,269) Cash At Beginning Of Period 17,180,594 31,198,182 65,800,451 Cash At End Of Period $ 8,406,917 $ 17,180,594 $ 31,198,182 2017 2016 2015 Income Taxes Paid $ — $ 404,527 $ — ROCKWELL MEDICAL, INC. AND SUBSIDIARIES Description of Business the treatment of hospitalized patients with acute heart failure. marketing efforts and our research and development activities, and the operations of third parties upon whom the Company relies. Quarantines, shelter-in-place, executive and similar government orders and the recent surge in infections domestically have negatively impact Rockwell's sales and marketing activities. The Company's international business development activities may also be negatively impacted by COVID-19, especially with the recent surge in infections and resulting quarantines or shelter-in-place orders. All intercompany balances and transactions have been eliminated in consolidation. the agreement. The accounting for income taxes. Level 1: Quoted prices in active markets for identical assets or liabilities. temporary. received an upfront fee of $20 million. The upfront fee was recorded December 31, 2021. 2017 2016 2015 Basic Weighted Average Shares Outstanding 51,067,412 50,676,180 50,068,129 Effect of Dilutive Securities — — — Diluted Weighted Average Shares Outstanding 51,067,412 50,676,180 50,068,129 2017 2016 2015 Stock Options 6,906,001 7,691,501 7,759,002 Range of Exercise Prices of Stock Options $3.09 - $11.49 $3.09 - $11.49 $3.09 - $11.49 Unvested Restricted Common Shares 480,000 850,000 850,000 Carrying value Fair value Level 1 Level 2 Level 3 As of December 31, 2017 Financial assets Cash and cash equivalents $ 8,407 $ 8,407 $ 8,407 $ — $ — Investment securities available for sale 24,648 24,648 24,648 — — As of December 31, 2016 Financial assets Cash and cash equivalents $ 17,181 $ 17,181 $ 17,181 $ — $ — Investment securities available for sale 40,760 40,760 40,760 — — As of December 31, modified extension terms. annual true up. The Distribution Agreement also requires Baxter to meet minimum annual facility will be reduced to the extent that the 2020, respectively. Components of inventory, net of reserves as of December 31, December 31, December 31, 2017 2016 Raw Materials $ 10,604,232 $ 10,903,084 Work in Process 212,505 86,452 Finished Goods 2,807,399 2,978,090 Total $ 13,624,136 $ 13,967,626 46SIGNATURESBy: By:Robert L. ChioiniRobert L. ChioiniDate:March 15, 2018April 8, 2022 47Robert L. ChioiniMarch 15, 2018Robert L. ChioiniApril 8, 2022 Russell Ellison /s/ Russell Skibsted Vice President of Finance, Chief FinancialApril 8, 2022 /s/ Thomas E. KlemaOfficer, Treasurer and Secretary (PrincipalMarch 15, 2018Thomas E. KlemaFinancial Officer and Principal Accounting/s/ Paul E. McGarry Officer)April 8, 2022 Paul E. McGarry /s/ Patrick J. BagleyDirectorMarch 15, 2018 Patrick J. Bagley/s/ Ronald D. BoydDirectorMarch 15, 2018Ronald D. BoydJOHN G. COOPERDirectorMarch 15, 2018Director April 8, 2022 John G. Cooper /s/ Robin L. SmithDirectorMarch 15, 2018Robin L. SmithDirector April 8, 2022 Robert S. Radie /s/ MARK H. RAVICHDirectorMarch 15, 2018Director April 8, 2022 Allen Nissenson /s/ Andrea Heslin Smiley Director April 8, 2022 Andrea Heslin Smiley /s/ Mark H. Ravich Director April 8, 2022 Mark H. Ravich 48I.Consolidated Financial Statements for Rockwell Medical, Inc. and SubsidiariesF-2 – F-3F-4F-5F-6F-7F-8F-9F-23II.30S-1F-1ShareholdersStockholders and Board of Directors of20172021 and 2016,2020, the related consolidated statements of income,operations, comprehensive income, shareholders’loss, changes in stockholders’ equity and cash flows for each of the two years in the three-year period ended December 31, 2017,2021, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172021 and 2016,2020, and the consolidated results of its operations and its cash flows for each of the two years in the three-year period ended December 31, 2017,2021, in conformity with accounting principles generally accepted in the United States of America.We also have auditedCompany’s internal control over financial reporting as of December 31, 2017, in accordance with the standardsresponsibility of the Public Company Accounting Oversight Board (United States) (“PCAOB”), based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our report dated March 15, 2018, expresses an unqualified opinion.Basis for OpinionThe Company's management is responsible for these financial statements.management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.Plante & Moran, PLLC1998.Clinton Township, Michigan March 15, 2018F-2ReportTable of Independent Registered Public Accounting FirmTo the Shareholders and Board of Directors of Rockwell Medical, Inc. and SubsidiariesOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting as of December 31, 2017 of Rockwell Medical, Inc. and Subsidiaries (the “Company”), based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the COSO framework.We also have audited the accompanying balance sheets of the Company as of December 31, 2017 and 2016, the related statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and schedule (collectively referred to as the “financial statements”), in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our report dated March 15, 2018, expresses an unqualified opinion.Basis for OpinionThe Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ Plante & Moran, PLLCWe have served as the Company’s auditor since 1998.Clinton Township, MichiganMarch 15, 2018F-3December 31,
2021December 31,
2020ASSETS Cash and Cash Equivalents $ 13,280 $ 48,682 Investments Available-for-Sale 9,158 9,997 Accounts Receivable, net of a reserve of $16 for 2021 and $9 for 2020 5,913 4,171 Inventory 4,076 3,913 Prepaid and Other Current Assets 2,861 2,706 Total Current Assets 35,288 69,469 Property and Equipment, net 2,486 2,642 Inventory, Non-Current 1,523 1,176 Right of Use Assets, net 7,737 2,911 Goodwill 921 921 Other Non-Current Assets 619 629 Total Assets $ 48,574 $ 77,748 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts Payable $ 3,739 $ 4,155 Accrued Liabilities 5,090 5,013 Lease Liability - Current 2,004 1,167 Deferred License Revenue 2,171 2,175 Term Loan - Net of Issuance Costs 7,381 — Insurance Financing Note Payable 437 — Customer Deposits 144 152 Other Current Liability - Related Party — 131 Total Current Liabilities 20,966 12,793 Lease Liability - Long-Term 5,887 1,821 Term Loan, Net of Issuance Costs 13,186 20,949 Deferred License Revenue - Long-Term 5,986 8,015 Long Term Liability - Other 14 — Total Liabilities 46,039 43,578 Commitments and Contingencies (See Note 14) 0 0 Stockholders’ Equity: Preferred Stock, $0.0001 par value, 2,000,000 shares authorized, no shares issued and outstanding at December 31, 2021 and 2020 — — Common Stock, $0.0001 par value, 170,000,000 shares authorized, 93,986,470 and 93,573,165 shares issued and outstanding at December 31, 2021 and 2020, respectively 9 9 Additional Paid-in Capital 372,554 371,510 Accumulated Deficit (370,080) (337,406) Accumulated Other Comprehensive Income 52 57 Total Stockholders’ Equity 2,535 34,170 Total Liabilities and Stockholders’ Equity $ 48,574 $ 77,748 2017, 20162021 and 201520202021 2020 Net Sales $ 61,931 $ 62,197 Cost of Sales 64,351 59,472 Gross (Loss) Profit (2,420) 2,725 Research and Product Development 6,835 7,092 Selling and Marketing 5,733 7,871 General and Administrative 15,348 16,182 Operating Loss (30,336) (28,420) Other Expense Realized Gain on Investments — 8 Warrant Modification Expense — (837) Interest Expense (2,360) (1,879) Interest Income 22 238 Total Other Expense (2,338) (2,470) Net Loss $ (32,674) $ (30,890) Basic and Diluted Net Loss per Share $ (0.35) $ (0.41) Basic and Diluted Weighted Average Shares Outstanding 93,788,050 75,621,674 INCOME (LOSS)2017, 20162021 and 201520202021 2020 Net Loss $ (32,674) $ (30,890) Unrealized Loss on Available-for-Sale Investments (6) (3) Foreign Currency Translation Adjustments 1 8 Comprehensive Loss $ (32,679) $ (30,885) 2017, 20162021 and 20152020COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED
DEFICITACCUMULATED
OTHER
COMPREHENSIVE
INCOME / (LOSS)TOTAL
STOCKHOLDERS'
EQUITYSHARES AMOUNT Balance as of January 1, 2020 65,378,890 $ 7 $ 326,777 $ (306,516) $ 52 $ 20,320 Net Loss — — — (30,890) — (30,890) Unrealized Loss on Available-for-Sale Investments — — — — (3) (3) Foreign Currency Translation Adjustments — — — — 8 8 Issuance of Common Stock — — — — — — Vesting of Restricted Stock Units Issued, net of taxes withheld 216,646 — (19) — — (19) Issuance of Common Stock, net of Issuance Costs/Public offering 26,849,021 2 40,677 — — 40,679 Issuance of Common Stock, net of Issuance Costs / At-the-market 1,128,608 — 2,262 — — 2,262 Issuance of Warrants related to Debt Financing — — 501 — — 501 Warrant Modification Expense — — 837 — — 837 Stock-based Compensation — — 475 — — 475 Balance as of December 31, 2020 93,573,165 $ 9 $ 371,510 $ (337,406) $ 57 $ 34,170 Net Loss — — — (32,674) — (32,674) Unrealized Loss on Available-for-Sale Investments — — — — (6) (6) Foreign Currency Translation Adjustments — — — — 1 1 Vesting of Restricted Stock Units Issued, net of taxes withheld 258,305 — (6) — — (6) Issued shares for services 155,000 — 107 — — 107 Stock-based Compensation — — 943 — — 943 Balance as of December 31, 2021 93,986,470 $ 9 $ 372,554 $ (370,080) $ 52 $ 2,535 the years endedThe Years Ended December 31, 2017, 20162021 and 20152020Supplemental Cash Flow Information:2021 2020 Cash Flows From Operating Activities: Net Loss $ (32,674) $ (30,890) Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities: Depreciation and Amortization 668 834 Stock-based Compensation 943 475 Warrant Modification Expense — 837 Increase in Inventory Reserves 146 305 Amortization of Right of Use Asset 1,847 1,455 Amortization of Debt Financing Costs and Accretion of Debt Discount 369 294 Loss on Disposal of Assets 8 7 Realized Loss on Sale of Investments Available-for-Sale — (8) Foreign Currency Translation Adjustment 2 8 Changes in Assets and Liabilities: (Increase) Decrease in Accounts Receivable, net (1,742) 32 Increase in Inventory (656) (1,306) Decrease in Other Assets 1,823 76 (Decrease) Increase in Accounts Payable (416) 1,136 Decrease in Settlement Payable — (104) Decrease in Lease Liability (1,771) (1,439) (Decrease) Increase in Other Liabilities (48) 534 Decrease in Deferred License Revenue (2,033) (1,887) Changes in Assets and Liabilities (4,843) (2,958) Cash Used In Operating Activities (33,534) (29,641) Cash Flows From Investing Activities: Purchase of Investments Available-for-Sale (26,058) (29,307) Sale of Investments Available-for-Sale 26,891 33,565 Purchase of Equipment (522) (1,046) Cash Provided By Investing Activities 311 3,212 Cash Flows From Financing Activities: Proceeds from Term Loan — 22,500 Debt Issuance Costs — (1,343) Payments on Short Term Note Payable (1,530) (763) Payments on Debt (750) — Proceeds from the Issuance of Common Stock / Public Offering — 43,148 Offering Costs from the Issuance of Common Stock / Public Offering — (2,469) Proceeds from the Issuance of Common Stock / At-the Market Offerings — 2,325 Offering Costs from the Issuance of Common Stock / At-the Market Offerings — (63) Proceeds from issuance of Common Stock for payment related to services provided 107 — Repurchase of Common Stock to Pay Employee Withholding Taxes (6) (19) Cash (Used in) Provided By Financing Activities (2,179) 63,316 (Decrease) Increase In Cash and Cash Equivalents (35,402) 36,887 Cash and Cash Equivalents At Beginning Of Period 48,682 11,795 Cash and Cash Equivalents At End Of Period $ 13,280 $ 48,682 Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest $ 1,827 $ 1,558 Supplemental Disclosure of Noncash Investing Activities: Change in Unrealized Loss on Marketable Securities Available-for-Sale $ (6) $ (3) Insurance Financing Note Payable $ 437 $ — Fair Value of Warrants issued related to Debt Financing $ 501 $ 501 statementsstatements.F-8DESCRIPTION OF BUSINESSand Subsidiaries, (collectively, “we”, “our”, “us”("Rockwell Medical," "Rockwell" or the “Company”"Company") is a fully-integrated pharmaceuticalcommercial-stage, biopharmaceutical company targeting end-stage renaldeveloping and commercializing our next-generation parenteral iron technology platform, ferric pyrophosphate citrate (“FPC”), which we believe has significant potential to lead to transformative treatments for iron deficiency in multiple disease (“ESRD”states, that we believe could reduce healthcare costs and improve patients’ lives. We are also one of the two major suppliers of life saving hemodialysis concentrate products to kidney dialysis clinics in the United States.and chronic kidney disease with innovative products and servicesthe goal to advance our FPC platform strategy by conducting a Phase II trial for the treatment of iron deficiency secondary hyperparathyroidism and hemodialysis (also referred to as “dialysis”anemia in patients outside of dialysis, who are receiving intravenous ("IV"). Rockwell Medical, Inc. was incorporated medications in the statehome infusion setting. The trend toward providing medical care, including the delivery of Michiganinfused medications, at home make the home infusion market a rapidly growing area of healthcare. We believe that the home infusion setting is a natural path for expansion of our platform as many of the patients suffer from diseases that are associated with iron deficiency and anemia. In our R&D pipeline, we are also investigating FPC’s impact in 1996.currently marketing and developing unique, proprietary renal drug therapies. These novel renal drug therapies support disease management initiatives to improve the qualitysecond largest supplier of life and care of dialysis patients and are designed to deliver safe and effective therapy, while decreasing drug administration costs and improving patient convenience and outcome. We have also obtained licenses for certain dialysis related drugs which we are developing and planning to market globally.We are also an established manufacturer and leader in delivering high-quality hemodialysis concentrates/dialysates to dialysis providers and distributorsconcentrates in the United States, with a reputation for excellent service, quality, and abroad.reliability. We manufacture, sellbelieve that this reputation, which is based on over 25 years of service to the kidney dialysis centers, combined with about $60 million in annual revenue, approximately 300 dedicated employees, expertise in manufacturing and distribute hemodialysis concentrateslogistics and other medicalthe added expertise in pharmaceutical development and commercialization brought to the Company by recent additions to our management team, gives us a solid foundation on which to grow.suppliesequity securities and payments from partnerships. At December 31, 2021, Rockwell had an accumulated deficit of approximately $370.1 million and stockholders' equity of $2.5 million. As of December 31, 2021, Rockwell had approximately $22.4 million of cash, cash equivalents and investments available-for-sale, and working capital of $14.3 million. Net cash used in operating activities for the treatmentyear ended December 31, 2021 was approximately $33.5 million.patients with ESRD. In 2017, we supplied approximately 25%these inflationary pressures, and in light of the United States domestic marketfact that the Company's concentrates business continued to operate at a loss in 2021, the Company sought to renegotiate certain terms of its supply contracts with dialysisthe Company’s 2 largest customers in an effort to allow the Company to stabilize its concentrates business.majoritydegree of our sales weresuccess in addressing inflationary pressures affecting the United States. We also supplied dialysisCompany’s concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim. We are regulated by the United States Food and Drug Administration (“FDA”) under the Federal Drug and Cosmetics Act,business, as well as the Company’s ability to contain costs, raise additional working capital and remain in compliance with financial and operating covenants under the Company’s secured loan.other federal, stateJune 30, 2022. The Company’s existing liquidity, taking into account the 2 executed agreements described above and local agencies. We hold several FDAimplementing increases to product approvalspricing, containing certain costs, and reducing expenses, management believes that the Company has sufficient capital to fund its operations and is sufficient to fund its operations and anticipated capital expenditures for the next 12 months.both drugsbut not limited to, its sales and medical devices.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOurour accounts and the accounts for our wholly ownedof the Company and its wholly-owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited. Rockwell Medical India Private20162018 for the purpose of conducting certain commercial activities in India.Our policytothat a company should recognize revenue consistent with authoritative guidance for revenue recognition includingto depict the provisionstransfer of the Financial Accounting Standards Board Accounting Standards Codification. We recognize revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurredpromised goods or services have been rendered, (iii)to customers in an amount that reflects the seller'sconsideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:buyerperformance obligations in the contractfixeda description of principal activities from which the Company generates its revenue.determinable,service is separately identifiable from other items and (iv) collectabilityif a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is reasonably assured.Consistent with these guidelines we recognize revenue atallocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the time we transfer title to our products to our customers which generally occurs when ourcost plus margin approach.deliveredsold directly to our customer’s location consistentdialysis clinics and to wholesale distributors in both domestic and international markets. Distribution and license agreements for which upfront fees are received are evaluated upon execution or modification of the agreement to determine if the agreement creates a separate performance obligation from the underlying product sales. For all existing distribution and license agreements, the distribution and license agreement is not a distinct performance obligation from the product sales. In instances where regulatory approval of the product has not been established and the Company does not have sufficient experience with our terms of sale. We recognizethe foreign regulatory body to conclude that regulatory approval is probable, the revenue for international shipments when title has transferred consistent with standard terms of sale.We apply judgment as we analyze each element of our contractual agreements to determine appropriate revenue recognition. The terms of our contractual agreements may include milestone payments if specified research and development objectives are achieved, non-refundable licensing fees, milestone payments on sales or royalties from product sales.F-9When entering into an arrangement, we first determine whether the arrangement includes multiple deliverables andperformance obligation is subject to the accounting guidance in ASC subtopic 605-25, Multiple-Element Arrangements. If we determine that an arrangement includes multiple elements, we determine whether the arrangement should be divided into separate units of accounting and how the arrangement consideration should be measured and allocated among the separate units of accounting. An element qualifies as a separate unit of accounting when the delivered element has standalone value to the customer. Our arrangements do not include a general right of return relative to delivered elements. Any delivered elements that do not qualify as separate units of accounting are combined with other undelivered elements within the arrangement as a single unit of accounting. If the arrangement constitutes a single combined unit of accounting, we determine the revenue recognition method for the combined unit of accounting and recognize the revenue either on a straight-line basis or on a modified proportional performance method over the period from inception through the date the last deliverable within the single unit of accounting is delivered.Non-refundable upfront license fees are recorded as deferred revenue and recognized into revenue over the estimated period of our substantive performance obligations. If we do not have substantive performance obligations, we recognize non-refundable upfront fees into revenue through the date the deliverable is satisfied. Analyzing the arrangement to identify deliverables requires the use of judgment and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. In arrangements that include license rights and other non-contingent deliverables, such as participation in a steering committee, these deliverables do not have standalone value because the non-contingent deliverables are dependent on the license rights. That is, the non-contingent deliverables would not have value without the license rights, and only we can perform the related services. Upfront license rights and non-contingent deliverables, such as participation in a steering committee, do not have standalone value as they are not sold separately and they cannot be resold. In addition, when non-contingent deliverables are sold with upfront license rights, the license rights do not represent the culmination of a separate earnings process. As such, we account for the license and the non-contingent deliverables as a single combined unit of accounting. In such instances, the license revenue in the form of non-refundable upfront payments is deferred and recognized over the applicable relationship period.For milestone payments based on sales and for royalties based on sales, we recognize revenue in the quarter that the information related to the sales becomes available and collectability is reasonably assured.We recognize drug licensing fees over the term of the related license agreement. We received an upfront payment of $4 million pursuant to our license agreement with(over time recognition). Conversely, when regulatory approval already exists or is probable, revenue is recognized at the point in time that control of the product transfers to the customer.BiopharmaceuticalBiopharmaceuticals Co., Ltd. (“Wanbang”), a subsidiary of Shanghai FosunSun Pharmaceutical (Group)Industries Ltd. ("Sun Pharma"), Jeil Pharmaceutical Co., Ltd. Deferred drug license("Jeil Pharma") and Drogsan Pharmaceuticals ("Drogsan Pharma") are recognized as revenue for our drugover the estimated term of the applicable distribution and license agreement is being recognized overas regulatory approval was not received and the termCompany did not have sufficient experience in China, India, South Korea and Turkey, respectively, to determine that regulatory approval was probable as of those license agreements and we recognized drug license revenuethe execution of $0.2 million in 2017. initial payment of $20 millionamounts received pursuant to our long-term Exclusive Distribution Agreement (the “Distribution Agreement”) withfrom Baxter Healthcare Corporation (“Baxter”) are recognized as revenue at the point in October 2014 has been accountedtime that the estimated product sales under the agreement occur.as deferred license revenue. Deferred licensethe majority of the Company’s international customers, the Company recognizes revenue at the shipping point, which is beinggenerally the Company’s plant or warehouse. For other business, the Company recognizes revenue based on when the customer takes control of the product. The amount of revenue recognized is based on the proportionpurchase order less returns and adjusted for any rebates, discounts, chargebacks or other amounts paid to customers. There were no such adjustments for the periods reported. Customers typically pay for the product based on customary business practices with payment terms averaging 30 days, while distributor payment terms average 45 days.In thousands of US dollars ($) Year Ended December 31, 2021 Products By Geographic Area Total U.S. Rest of World Drug Revenues Product Sales - Point-in-time $ 835 $ 835 $ — License Fee – Over time 241 — 241 Total Drug Products 1,076 835 241 Concentrate Products Product Sales – Point-in-time 58,913 52,614 6,299 License Fee – Point-in-time 1,942 1,942 — Total Concentrate Products 60,855 54,556 6,299 Net Revenue $ 61,931 $ 55,391 $ 6,540 In thousands of US dollars ($) Year Ended December 31, 2020 Products By Geographic Area Total U.S. Rest of World Drug Revenues Product Sales - Point-in-time $ 910 $ 910 $ — License Fee – Over time 226 — 226 Total Drug Products 1,136 $ 910 226 Concentrate Products Product Sales – Point-in-time 59,100 53,707 5,393 License Fee – Point-in-time 1,961 1,961 — Total Concentrate Products 61,061 55,668 5,393 Net Revenue $ 62,197 $ 56,578 $ 5,619 In thousands of US dollars ($) December 31, 2021 December 31, 2020 Receivables, which are included in "Trade and other receivables" $ 5,913 $ 4,171 Contract liabilities $ 8,157 $ 10,190 shipments to Baxter in each period to total expected sales volume forover the termduration of the agreement.We recognize other revenues As of December 31, 2021 unfulfilled performance obligations related to the Baxter Agreement are product sales totaling $5.2 million, which will be amortized through expiration of the agreement on October 2, 2024.timedate of the related feesconsolidated financial statements and or payments are earned.Shipping and Handling Revenue and CostsOur products are generally priced on a delivered basis withreported amounts of expenses during the price of delivery includedreporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the overall pricepreparation of our products which is reported as sales. Separately identified freightfinancial statements include estimates associated with fair value and handling charges are also included in sales.We include shippingclassification of warrants, revenue recognition, allowance for doubtful accounts, inventory reserves, accrued expenses, deferred license revenue, stock-based compensation, impairments of long-lived assets, and handling costs, including expenses of Rockwell Transportation, Inc., in cost of sales.We consideron hand,equivalents excluding items held in Investments - Available for Sale as noted below. Cash and cash equivalents include cash held in banks, money market mutual funds and unrestricted certificates of deposit with an original maturity of 90 days or less asdeposit. The Company’s cash and cash equivalents.equivalents exceeds the Federal Deposit Insurance Corporation insured limits. The Company has not experienced any credit losses for amounts in excess of insured limits. Currently the Company does not reasonably believe a significant risk of credit loss exists.F-10
The Company applies the guidance issued with ASC 820, Fair Value Measurements, which provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.Investments Available for Sale are short-term investments, consisting principallyshortequity securities at the time of purchase and reevaluates such determination at each balance sheet date. Marketable securities that are bought and held principally for the purpose of selling them in the near term duration bond funds, and are statedreported at fair value, based upon observedwith unrealized gains and losses recognized in earnings.prices (Level 1value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in stockholders’ equity.hierarchy). Unrealized holding gains or losses on these securities are included in accumulated other comprehensive income (loss). Realized gains and losses, including declines in valueof its investments below the cost basis is judged to be other-than-temporary on available-for-sale securities are included as a component of other income or expense.Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when conditions warrant such an evaluation. When evaluating investment securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.We reviewThe Company reviews outstanding trade accounts receivable balances and based on ourits assessment of expected collections, we estimatethe Company estimates the portion, if any, of the balance that may not be collected as well as a general valuation allowance for other accounts receivable based primarily on historical experience. All accounts or portions thereof deemed to be uncollectible are written off to the allowance for doubtful accounts.OurThe Company's policy is to reserve for ourits drug product inventory that we determineit determines is unlikely to be sold to, or if sold, unlikely to be utilized by ourits customers on or before its expiration date. areis recorded at cost. Expenditures for normal maintenancecost and repairs are charged to expense as incurred. Property and equipment areis depreciated using the straight‑line method over theirthe useful lives of the assets, which range from three to ten years. Expenditures for routine maintenance and repairs are expensed as incurred. Leasehold improvements are amortized using the straight‑line method over the shorter of theirthe useful lives or the related lease term.Licensing FeesLicenseGoodwill, Intangible AssetsLong Lived Assetsamounts of goodwillas deferred revenue and other intangibles from prior business combinations areis being recognized based on management’s best estimatesthe proportion of product shipments to Baxter in each period, compared with total expected sales volume over the term of the fair valuesDistribution Agreement. The Company recognized revenue of assets acquiredapproximately $1.9 million and liabilities assumed at$2.0 million for the dateyears ended December 31, 2021 and 2020, respectively. Deferred revenue related to the Baxter agreement totaled $5.2 million and $7.2 million as of acquisition. GoodwillDecember 31, 2021 and 2020, respectively.not amortized; however, it mustbeing recognized as revenue based on the agreement term. The Company recognized revenue of approximately $0.2 million during the years ended December 31, 2021 and 2020, respectively. Deferred revenue related to the Wanbang Agreement totaled $2.5 million and $2.7 million as of December 31, 2021 and 2020, respectively.testedthe exclusive development and commercialization partner for impairment at least annually. Amortization continuesTriferic (dialysate) in India, and the Company will supply the product to Sun Pharma. In consideration for the license, the Company received an upfront fee of $0.1 million, and will be eligible for milestone payments and royalties on net sales. A Joint Alliance Committee, comprised of members from the Company and Sun Pharma, will guide the development and execution for Triferic (dialysate) in India. Sun Pharma will be responsible for all clinical and regulatory approval, as well as commercialization activities. The upfront fee was recorded as deferred revenue and is being recognized as revenue based on the agreement term. The Company recognized revenue of approximately $10,000 for both of the years ended December 31, 2021 and 2020. Deferred revenue related to the Sun Pharma Agreement totaled $80,000 and $90,000 as of December 31, 2021and 2020, respectively.for other intangible assets with definite lives over their estimated useful lives. Intangible assets subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may notas deferred revenue and will be recoverable.An impairment review of goodwill, intangible assets, and property and equipment is performed annually or whenever a change in condition occurs which indicates that the carrying amounts of assets may not be recoverable. Such changes may include changes in our business strategies and plans, changes to our customer contracts, changes to ourF-11product lines and changes in our operating practices. We use a variety of factors to assess the realizable value of long‑lived assets depending on their nature and use.The useful lives of other intangible assets arerecognized as revenue based on management’s best estimatesthe agreement term. The Company recognized revenue of $7,500 during the period over which the assets are expected to contribute directly or indirectly to our future cash flows. Management annually evaluates the remaining useful lives of intangible assets with finite useful lives to determine whether events and circumstances warrant a revisionyear ended December 31, 2021. Deferred revenue related to the remaining amortization periods. It is reasonably possible that management’s estimatesDrogsan Agreements totaled approximately $0.1 million as of the carrying amount of goodwill and the remaining useful lives of other intangible assets may change in the near term.We accountwethe Company determine it to be more likely than not that the deferred tax asset will not be realized.We recognizecosts as expenses as incurred. WeThe Company incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products including Triferic and for other indications of Triferic, aggregating approximately $6,321,000, $5,840,000$6.8 million and $4,961,000$7.1 million for the years ended December 31, 2021 and 2020, respectively.2017, 2016the estimated fair value of these non-employee awards are recognized as compensation expense in the period of change. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and 2015, respectively.Share Based CompensationWe measure the costassumptions used in calculating the fair value of employee services receivedstock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. For the years ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense on its options granted under the Company’s equity compensation plans to its directors and officers, and its employees (See Note 12).exchangethe calculation of the fair value of the market awards include the risk-free interest rate, dividend yield, average closing price, expected volatility based on the historical volatility of the Company, and the remaining period of the award.equityeach recipient based upon the recipient’s continued employment with the Company through the settlement date of the award and the Company’s achievement of specified milestones. The requisite service period of the awards including stock options,with performance conditions is generally 1-2 years. In the case of awards with performance conditions, the Company recognizes stock-based compensation expense based on the grant date fair value of the award when achievement of the underlying performance-based targets become probable.accordancethe issuance of common stock based upon the recipient’s continuing employment with ASC 718‑10, Compensation — Stock Compensation.the Company through the settlement date of the award related to the market capitalization criteria. The cost of equity based compensationfair value related to the awards with market conditions is recognizedrecorded as stock-based compensation expense over the vesting period from date of grant to the awards.We estimatesettlement date regardless of whether the fair valuemarket capitalization is achieved.compensation involving stock options utilizingbusiness, the Black‑Scholes option pricing model. This model requires the input of several factorsCompany may become subject to loss contingencies, such as legal proceedings and claims arising out of its business, including government investigations. An accrual for a loss contingency is recognized when it is probable that an asset had been impaired or a liability had been incurred and the expected option term, expected volatilityamount of our stock price over the expected option term, and an expected forfeiture rate, and is subject to various assumptions. We believe the valuation methodology is appropriate for estimating the fair valueloss can be reasonably estimated. The Company expenses legal costs associated with loss contingencies as they are incurred. stock options we grant to employees and directors which are subject to ASC 718‑10 requirements. These amounts are estimates and thus may not be reflective of actual future results or amounts ultimately realized by recipients of these grants.Employee Retirement PlansWe are the sponsor of a non‑contributory 401(k) Employee Savings Plan.Earnings per ShareWe compute our basic earnings (loss) per share using weighted average shares outstanding for each respective period. Diluted earnings per share also reflect the weighted average impact from the date of issuance of all potentially dilutive securities, consisting of stock options and common share purchase warrants, unless inclusion would have had anF-12anti‑dilutive effect. Actual weighted average shares outstanding used in calculating basic and diluted earnings per share were:For 2017, 2016(“EPS”), with a reconciliation of the numerator and 2015,denominator of the dilutive effectbasic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or otheroptions, unvested restrictedwere exercised or converted into common stock or resulted in the issuance of common stock that are then shared in the earnings of the entity.grantsof common stock excludes dilution and is computed by dividing the net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. The Company has only incurred losses, therefore, basic and diluted net loss per share purchase warrants haveis the same. Securities that could potentially dilute loss per share in the future that were not been included in the average shares outstanding for the calculationcomputation of diluted loss per share for the years ended December 31, 2021 and 2020 were as the effect would be anti-dilutive as a result of our net loss in these periods. The table below summarizes potentially dilutive securities.follows:As of December 31, 2021 2020 Options to purchase common stock 5,814,506 6,467,956 Unvested restricted stock awards 78,300 146,800 Unvested restricted stock units 322,182 265,494 Warrants to purchase common stock 26,426,863 26,426,863 Total 32,641,851 33,307,113 (Loss)Accounting principles generally requirerecognized revenue,resulted from investments by or distributions to the Company’s stockholders. Accumulated other comprehensive income refers to revenues, expenses, gains and losses bethat are included in comprehensive income, but excluded from net income. Certain changes in assets and liabilities, however, suchincome as unrealized gains and losses on available for sale securities,these amounts are reportedrecorded directly as a directan adjustment to the equity section of the balance sheet. Such items, along with net income (loss), are considered components ofstockholders’ equity. Accumulated other comprehensive income (loss). Accumulated Other Comprehensive Income (Loss) consists almost entirely of unrealized gains and losses on available‑for‑sale investment securities. We also recordsecurities and foreign currency translation adjustmentsadjustments.Other Comprehensive Income (Loss). However, such amounts were insignificant in 2017.Estimates in Preparationdetermine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of Financial StatementsThe preparation of financial statements in conformity with generally accepted accounting principles requires managementthe change to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theits consolidated financial statements and reported amounts of revenues and expenses duringassures that there are proper controls in place to ascertain that the period. Actual results could differ from those estimates.New Accounting PronouncementsIn May 2014,Company’s consolidated financial statements properly reflect the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for the year beginning January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has evaluated the impactchange.new standardfollowing as of December 31, 2021 and has elected the cumulative effect transition method. The adoption of the standard will not have a material impact on our financial position or results of operations. We have finalized and implemented our accounting policy and our internal controls under the new standard without significant issues. The new standard will also require expanded disclosures surrounding revenue2020 (table in the notes to the financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The amendments in this ASU are effective for the Company beginning onF-13December 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 9,143 $ 1 $ — $ 14 $ 9,158 December 31, 2020 Amortized Cost Unrealized Gain Unrealized Loss Accrued Interest Income Fair Value Available-for-Sale Securities Bonds $ 9,987 $ 3 $ — $ — $ 9,997 January 1, 2019 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We anticipate this standard will have a material impact on our consolidated balance sheets. However, we do not believe adoption will have a material impact on our consolidated income statements. Upon implementation, the Company's lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice.3. FAIR MARKET VALUE MEASUREMENTSAccounting standards require certain assets and liabilities be reported at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.Level 2:Observable prices that are based on inputs not quoted in active markets, but corroborated by market data.Level 3:Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in its assessment of fair value. The following methods, assumptions, and valuation techniques were used to measure different financial assets and liabilities at fair value and in estimating its fair value disclosures for financial instruments.Cash and Cash Equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are deemed to approximate fair valueInvestment Securities: Fair values for investment securities are determined by quoted market prices if available.Accounts Receivable, Accounts Payable and Accrued Liabilities: The fair value of trade receivables and payables approximate their carrying amounts due to the short duration before collection or payment.Basedinvestments available-for-sale are determined using quoted market prices from daily exchange-traded markets based on the foregoing methods and assumptions, the carrying value and fair valueclosing price as of the Company’sbalance sheet date and are classified as Level 1, as described in Note 3, Fair Value Measurement to our consolidated financial instruments other than trade receivables and payables are as follows (in thousands):The Company also has certain non‑financial assets that under certain conditions are subject to measurement at fair value on a non‑recurring basis. No such measurements were required in 2017 or 2016.F-144. INVESTMENTS IN AVAILABLE FOR SALE SECURITIES2017, we held investments in available for sale securities with a market2021 and 2020, the amortized cost and estimated fair value of $24,648,459. These investments consisted primarilyour available-for-sale securities were due in one year or less.sold securities with a market value of $51,918,745 with an average cost basis of $52,711,407. In 2017, we had realized gains of $12,927 and realized losses of $805,134.As of December 31, 2016, we held investments in available for sale securities in several short term bond funds. These funds generally held high credit quality short term debt instruments. These debt instruments were subject to changes in fair market value due to changes in interest rates. The market value of these investments was $40,759,703 as of December 31, 2016. In 2016, we purchased securities with a market value of $25,781,853 and had unrealized losses of $901,877 as of December 31, 2016. In 2016, we sold securities with a market value of $24,491,677 with an average cost basis of $24,518,497. We had realized gains of $156,461 and realized losses of $183,281. 5. SIGNIFICANT MARKET SEGMENTS AND CUSTOMERSWe operateCustomersweRockwell entered into the Baxter Distribution Agreement, with Baxter, which was amended in June 2017 and March 2020, pursuant to which Baxter received exclusive distribution rights for ourthe Company's concentrate products in the United States. OurStates, a commitment by Rockwell to maintain a specified manufacturing capacity for Baxter, a cap upon the net amount of reimbursable transportation expenses and modified extension terms. Rockwell's domestic customer contracts for the supply of dialysis concentrate products that permitted assignment to Baxter without consent have been assigned to Baxter. As a result, for 2017, 20162021 and 2015, our2020, Rockwell's direct sales to Baxter aggregated approximately 27%, 24%26% and 28%25% of sales, respectively, and wethe Company had a receivable from Baxter of $1,863,412$3.5 million and $2,430,159$1.6 million as of December 31, 20172021 and 2016,2020, respectively.One customer, DaVita Healthcare Partners, Inc., accounted for 50% of our sales in 2017, 52% of our sales in 2016 and 48% of our sales in 2015. Our accounts receivable from this customer were $2,411,367 and $2,224,046 as of December 31, 2017 and 2016, respectively. ourRockwell's business, financial condition and results of operations. The loss of any significant accounts could have a material adverse effect on ourthe Company's business, financial condition and results of operations. No other domestic customers accounted for more than 10% ofits our sales in any of the last threetwo years.ourRockwell's international sales in each of the last threetwo years were sales to domestic distributors that were resold to end users outside the United States. OurRockwell's sales directly to foreign customers and distributors accounted for less than 5%approximately 10% and 9% of ourits total sales in 2017, 20162021 and 2015. Our total2020, respectively. One international customer, Nipro Medical Corporation, accounted for 8% and 7% of its sales including sales made through domestic distributors for resale outside the United States, aggregated 12%, 12%2021 and 13%, of our overall sales in 2017, 2016 and 2015,2020, respectively.DISTRIBUTION AGREEMENTAs ofDistribution Agreement2, 2014, weRockwell entered into the Baxter Distribution Agreement, with Baxter, pursuant to which Baxter became ourRockwell's exclusive agent for sales, marketing and distribution activities for ourcommercializing its hemodialysis concentrate and ancillary products in the United States and various foreign countries for an initial term of 10 years ending on October 2, 2024. The Distribution Agreement does not include any of our drug products. We will retainRockwell retains sales, marketing and distribution rights for ourits hemodialysis concentrate products for its international customers and in specified foreignthose countries in which we haveits has an established commercial presence. During the term of the Distribution Agreement, Baxter has agreed not to manufacture or sell any competitive concentrate products in the United States hemodialysis market, other than specified products.Pursuant The Distribution Agreement does not include any of the Company’s drug products. In June 2017, Rockwell entered into the First Amendment to Exclusive Distribution Agreement with Baxter (the “Amendment”). The Amendment provides for, among other things, reduced pricing on certain accounts and incentives to Baxter to pursue new customers and increase future sales. In March 2020, Rockwell entered into the Second Amendment to the Exclusive Distribution Agreement with Baxter paid us $20 million in cash in October 2014 (the “Upfront Fee”“Second Amendment”). The Upfront Fee has been deferredSecond Amendment provides for, among other things, a commitment by Rockwell to maintain a specified manufacturing capacity for Baxter, a cap upon the net amount of reimbursable transportation expenses and is being recognized as revenue based on the proportion of product shipments to Baxter in each period to total expected sales volume over the term of the Distribution Agreement. We recognized revenue associated with the Upfront Fee totaling $2,099,028 for the year ended December 31, 2017, $2,065,785 for the year ended December 31, 2016 and $2,081,668 for the year ended December 31, 2015. usRockwell at establishedpre-determined gross margin-based prices per unit adjusted each year during the term. We continueterm and subject to manage customer service, transportation and certain otherF-15functions for our current customers on Baxter’s behalf, in exchange for which Baxter will pay us an amount equal to our related costs to provide such functions plus a slight mark-up. gallon-equivalent purchase levels, subject to a cure period and certain other relief, in order to maintain its exclusive distribution rights. The minimum purchase levels increase each year over the term of the Distribution Agreement. OrdersPurchases in any contractcalendar year that exceed the minimum willmay be carried forward and applied to future years’ minimum requirements. The Distribution Agreement, as amended by the Second Amendment, also contains provisions governing the operating relationship between the parties, ourregarding Rockwell's obligations to maintain specified manufacturing capacity and quality levels, remedies, as well as representations, warrantieslevels. Rockwell continues to manage customer service, transportation and indemnification obligationscertain other functions for its current customers. For customer service, Baxter pays Rockwell an amount equal to our related costs plus a slight mark-up for these services. For transportation costs, Baxter pays Rockwell an amount equal to its related costs, subject to the defined caps contained within the Second Amendment, which are based upon defined percentages of liquid concentrate product being shipped.parties. usRockwell or if (1)(i) prices increase beyond certain thresholds and notice is provided within 45 days after the true up payment is due for the year in which the price threshold is exceeded, (2)(ii) a change of control of the Company occurs and 270 days’ notice is provided, or (3)(iii) upon written notice that Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product. If Baxter terminates the Distribution Agreement under the discretionary termination or the price increase provisions, it would be subject to a limited non-compete obligation in the United States with respect to certain products for a period of two years.If“Refund Trigger Event” occurs, we would be obligatedletter reserving its right to repayassert that it could claim a refund of a portion of the Upfront Fee and Facility Fee (described below) as follows: 33%its upfront payment if the event occurs in 2018, and 25% if the event occurs in 2019, 2020 or 2021. A “Refund Trigger Event” means any of the following: (1) a change of control of the Company involving any of certain specified companies; (2) a termination by Baxter due to the Company’s bankruptcy or breach, or due to price increases that exceed the stated thresholds; (3) a termination by either party due to a force majeure; (4) settlement or adjudication of any claim, action or litigation relating to a covered product that materially and adversely affects Baxter’s commercialization of the product; and (5) any regulatory action or ruling relating to a covered product that materially and adversely affects Baxter’s commercialization of the product. In addition, if Baxterit terminates the Distribution Agreement becauseas a result of certain price increases. While management believes that the claims in Baxter’s letter are without merit and that Baxter cannot recoup any portion of its upfront payment, management cannot assure you what a mediator or arbitrator may decide if it pursues such claim. Rockwell intends to vigorously defend against any such claim.enjoined by a courtdeferred and is being recognized as revenue based on the proportion of competent jurisdiction from sellingproduct shipments to Baxter in each period to total expected sales volume over the United States any product covered byterm of the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior toAgreement. We recognized revenue associated with the end of 2018, Baxter would be entitled to a refund of up to $10upfront fee totaling $1.9 million or $6.6and $2.0 million iffor the termination occurs in 2019. In no event would Baxter be entitled to more than one refund payment.The Distribution Agreement also required us to prepay our outstanding secured long-term indebtedness within 180 daysyears ended December 31, 2021, and prohibits us from entering into a subsequent contract encumbering the assets used in our concentrate business without the prior written consent of Baxter.On September 12, 2016, Baxter initiated an arbitration proceeding against us under the Distribution Agreement alleging various breaches of the Distribution Agreement, and we counterclaimed alleging various breaches by Baxter. On June 23, 2017, we settled the arbitration with Baxter (the “Settlement”). The Settlement included a mutual release with respect to all known claims existing on the date of the Settlement and the arbitration was dismissed with prejudice. No payments were made by either party in connection with the Settlement.In connection with the Settlement, on June 23, 2017, we entered into a First Amendment to Exclusive Distribution Agreement and a First Amendment to Investment Agreement, in each case, with Baxter. The terms of the Settlement included, among other things, reduced pricing on certain accounts that provides incentive to Baxter to pursue new customers and increase future sales.F-16
Note 7. Inventory7. INVENTORY20172021 and 20162020 are as follows:December 31,
2021December 31,
2020Raw Materials $ 3,434 $ 3,112 Work in Process 201 172 Finished Goods 1,964 1,805 Total $ 5,599 $ 5,089
As of December 31, 2021 and 2020, Rockwell had total Triferic inventory aggregating $1.7 million and $3.9 million, respectively, against which Rockwell had reserved $0.1 million and $2.6 million, respectively.
Major classesProperty and Equipment
| 2021 | 2020 | ||||||||||
| Leasehold Improvements | $ | 1,204 | $ | 1,196 | |||||||
| Machinery and Equipment | 5,864 | 5,475 | |||||||||
| Information Technology & Office Equipment | 1,845 | 1,831 | |||||||||
| Laboratory Equipment | 676 | 676 | |||||||||
| 9,589 | 9,178 | ||||||||||
| Accumulated Depreciation | (7,103) | (6,536) | |||||||||
| Net Property and Equipment | $ | 2,486 | $ | 2,642 | |||||||
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Leasehold Improvements |
| $ | 824,087 |
| $ | 728,151 |
|
Machinery and Equipment |
|
| 7,893,566 |
|
| 7,169,223 |
|
Information Technology & Office Equipment |
|
| 2,327,524 |
|
| 2,293,587 |
|
Laboratory Equipment |
|
| 631,666 |
|
| 610,767 |
|
Transportation Equipment |
|
| 242,277 |
|
| 265,198 |
|
|
|
| 11,919,120 |
|
| 11,066,926 |
|
Accumulated Depreciation |
|
| (9,370,142) |
|
| (9,675,351) |
|
Net Property and Equipment |
| $ | 2,548,978 |
| $ | 1,391,575 |
|
| 2021 | 2020 | ||||||||||
| Depreciation expense | $ | 668 | $ | 834 | |||||||
Below is a summary of depreciation expense by period:
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Depreciation expense |
| $ | 514,009 |
| $ | 601,093 |
| $ | 655,265 |
|
Goodwill and Intangible Assets
We have entered into a global licensing agreement for certain patents covering Triferic, a therapeutic drug compound to be delivered using our dialysate product lines. We received FDA approval for this product in January 2015. We have capitalizedrequired during the licensing fees paid for the rights to use this patented technology as an intangible asset. We have capitalized certain patent approval costs.
During 2011, we acquired an abbreviated new drug application (“ANDA”) for a generic version of an intravenous vitamin‑D analogue, Calcitriol. Total capitalized costs related to this ANDA were approximately $695,000. These were amortized over a five year period endingyears ended December 31, 2016.
F-17
Note 10. Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Capitalized Licensing Fees |
| $ | 1,070,126 |
| $ | 1,070,126 |
| $ | 1,070,126 |
|
Accumulated Amortization |
|
| (1,066,098) |
|
| (1,065,744) |
|
| (904,469) |
|
Capitalized Licensing Fees, Net of Amortization |
| $ | 4,028 |
| $ | 4,382 |
| $ | 165,657 |
|
Amortization Expense |
| $ | 353 |
| $ | 161,275 |
| $ | 167,029 |
|
Our policy is to amortize licensing fees over the life of the patents pertaining to certain licensing agreements and to amortize patent costs over the life of the patent. Estimated amortization expense for amortization of capitalized patent costs in 2018 is approximately $353. In 2015, we recognized expenses related to milestone achievements of $275,000.
10. ACCRUED LIABILITIES
We had the following accruedAccrued liabilities as of December 31, 20172021 and 2016:
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Accrued Research & Development Expense |
| $ | 400,024 |
| $ | 193,638 |
|
Accrued Compensation and Benefits |
|
| 1,991,874 |
|
| 2,002,767 |
|
Other Accrued Liabilities |
|
| 2,323,814 |
|
| 2,013,746 |
|
Total Accrued Liabilities |
| $ | 4,715,712 |
| $ | 4,210,151 |
|
11. OPERATING LEASES
We lease our production facilities and administrative offices as well as certain equipment used in our operations including leases on transportation equipment used in the delivery of our products. The lease terms range from monthly to seven years. We occupy a 51,000 square foot facility and a 17,500 square foot facility in Wixom, Michigan under a lease expiring in August 2018. We also occupy a 51,000 square foot facility in Grapevine, Texas under a lease expiring in December 2020. In addition, we lease a 57,000 square foot facility in Greer, South Carolina under a lease expiring February 2020.
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|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Rent Expense Recognized Under Operating Leases |
| $ | 2,463,145 |
| $ | 2,369,101 |
| $ | 2,301,930 |
|
Future minimum rental payments under operating lease agreements are as follows:
|
|
|
|
|
Year ending December 31, 2018 |
| $ | 1,917,356 |
|
Year ending December 31, 2019 |
|
| 1,456,164 |
|
Year ending December 31, 2020 |
|
| 685,349 |
|
Year ending December 31, 2021 |
|
| 206,595 |
|
Year ending December 31, 2022 |
|
| 54,726 |
|
Year ending December 31, 2023 and thereafter |
|
| — |
|
Total |
| $ | 4,320,190 |
|
12. INCOME TAXES
A reconciliation of income tax expense at the statutory rate to income tax expense at our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Tax Expense (Benefit) Computed at 34 % of Pretax Income (Loss) |
| $ | (8,813,237) |
| $ | (6,595,452) |
| $ | (4,903,000) |
|
Changes in Tax Laws |
|
| 29,450,000 |
|
| — |
|
| — |
|
Foreign Income Tax Expense |
|
| — |
|
| (404,527) |
|
| — |
|
Effect of Change in Valuation Allowance |
|
| 20,636,763 |
|
| (6,595,452) |
|
| (4,903,000) |
|
Total Income Tax Expense |
| $ | — |
| $ | 404,527 |
| $ | — |
|
F-18
The details2020 consisted of the net deferred tax assetfollowing (table in thousands):
| 2021 | 2020 | ||||||||||
| Accrued Research & Development Expense | $ | 366 | $ | 232 | |||||||
| Accrued Compensation and Benefits | 1,791 | 2,500 | |||||||||
| Accrued Unvouchered Receipts | 796 | 755 | |||||||||
| Accrued Workers Compensation | 382 | 395 | |||||||||
| Other Accrued Liabilities | 1,755 | 1,131 | |||||||||
| Total Accrued Liabilities | $ | 5,090 | $ | 5,013 | |||||||
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
Net Operating Loss Carryforward |
| $ | 35,030,000 |
| $ | 51,463,000 |
|
Stock Based Compensation |
|
| 5,030,000 |
|
| 7,704,000 |
|
Deferred Revenue |
|
| 3,512,000 |
|
| 6,478,000 |
|
General Business Credit |
|
| 6,872,000 |
|
| 6,146,000 |
|
Accrued Expenses |
|
| 341,000 |
|
| 605,000 |
|
Inventories |
|
| 909,000 |
|
| 494,000 |
|
Book over Tax Depreciation |
|
| 32,000 |
|
| 61,000 |
|
Allowance for Doubtful Accounts |
|
| 2,000 |
|
| 2,000 |
|
Total Deferred Tax Assets |
|
| 51,728,000 |
|
| 72,953,000 |
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
Goodwill & Intangible Assets |
|
| 98,000 |
|
| 137,000 |
|
Prepaid Expenses |
|
| 136,000 |
|
| 182,000 |
|
Total Deferred Tax Liabilities |
|
| 234,000 |
|
| 319,000 |
|
Subtotal |
|
| 51,494,000 |
|
| 72,634,000 |
|
Valuation Allowance |
|
| (51,494,000) |
|
| (72,634,000) |
|
Net Deferred Tax Asset |
| $ | — |
| $ | — |
|
TCJA tax reform legislation enactedpaid on a straight-line amortization over 9 month with the final payment due on March 3, 2022. As of December 22, 2017 makes major changes to31, 2021, the U.S. corporate income tax system, including lowering the U.S. federal corporate income tax rate to 21 percent from 35 percent, limitingCompany's insurance note payable balance was $0.4 million.
Deferred tax assets result primarily from net operating loss carryforwards. For tax purposes, we have net operating loss carryforwards of approximately $166,800,000 that expire between 201893,986,470 and 2037.
In assessing the potential for realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized upon the generation of future taxable income during the periods in which those temporary differences become deductible. We recognized no income tax expense or benefit for93,573,165 shares issued and outstanding, respectively.
We account for our uncertain tax positions in accordance with ASC 740‑10, Income Taxes and the amount of unrecognized tax benefits related to tax positions is not significant at December 31, 2017 and 2016.
F-19
Note 13. Stock-Based Compensation
13. CAPITAL STOCK
Our authorized capital stock consists of 2,000,000 preferred shares, none of which were issued or outstanding at December 31, 2017, 2016 and 2015, and 120,000,000 common shares, no par value per share, of which the following shares were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Shares outstanding as of December 31, |
|
| 51,768,424 |
|
| 51,527,711 |
|
| 51,501,877 |
|
Summary of Share Issuances: |
|
|
|
|
|
|
|
|
|
|
Share Issuances related to Equity Compensation: |
|
|
|
|
|
|
|
|
|
|
Shares issued upon exercise of stock options by employees |
|
| 28,384 |
|
| 25,834 |
|
| 657,998 |
|
Proceeds realized from stock option exercises |
| $ | 123,603 |
| $ | 80,161 |
| $ | 2,780,188 |
|
Average exercise price of options exercised |
| $ | 4.35 |
| $ | 3.10 |
| $ | 4.23 |
|
Restricted Stock Grants |
|
| 530,000 |
|
| — |
|
| 850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
Holders of the common shares are entitled to one vote per share on all matters submitted to a vote of our shareholders and are entitled to receive dividends when and if declared by the Board of Directors. The Board is authorized to issue additional common shares within the limits of the our Articles of Incorporation without further shareholder action, subject to applicable stock exchange rules.
14. LONG TERM INCENTIVE PLAN & STOCK OPTIONS
Long Term Incentive Plan & Stock Options
The Board of Directors adopted the Rockwell Medical, Inc., 2007 Long Term Incentive Plan (“2007 LTIP”) on April 11, 2007 as a replacement for the 1997 Stock Option Plan (the “Old Plan”) which was terminated as to future grants. No options were granted under the Old Plan after 2006 and no options remained outstanding as of December 31, 2016.2007. The 2007 LTIP expired on April 11, 2017 and no equity awards were granted under the 2007 LTIP following its expiration. There were 11,500,000 shares of common sharesstock reserved for issuance under the 2007 LTIP. The Board of Directors adopted the 2018 Long-Term Incentive Plan (“2018 LTIP”) on January 29, 2018 as a replacement for the 2007 LTIP. Initially there were 3,300,000 shares of common stock reserved for issuance under the 2018 LTIP. On May 18, 2020, at the 2020 Annual Meeting, the Company’s stockholders approved the amendment and restatement of the Rockwell Medical, Inc. 2018 Long Term Incentive Plan to increase the number of shares of common stock issuable thereunder by 2,900,000 shares bringing common stock reserve for issuance up to 6,200,000 under the 2018 LTIP. The Compensation Committee of the Board of Directors (the “Committee”) is responsible for the administration of the 2007 LTIP and 2018 LTIP, including the grant of stock based awards and other financial incentives including performance based incentives to employees, non‑employee directors and consultants.
Restricted Stock Grants
We granted 530,000 and 850,000 restricted shares in 2017 and 2015, respectively under the 2007 LTIP. There were no grants of restricted stock during 2016. These restricted stock grants were valued at the market price on the date of grant.
During 2017, 480,000 performance based restricted shares were granted. Vesting is conditioned upon achievement of certain performance measures which were originally estimated to be approximately seventeen months following the grant date and may also vest based on a market performance measure. Evaluation of the expected vesting period is reviewed quarterly. During 2017, 50,000 restricted shares were granted in consideration for consulting services.
F-20
During 2015, restricted stock grants aggregating 850,000 common shares were granted in October 2015 with a vesting date of approximately twenty months following the grant date. Vesting is conditioned upon continued employment with the Company.
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Restricted Shares Granted |
|
| 530,000 |
|
| - |
|
| 850,000 |
|
Average Market Value Per Share on Grant Date |
| $ | 5.72 |
| $ | - |
| $ | 8.23 |
|
Expense related to All Restricted Shares |
| $ | 3,316,093 |
| $ | 4,361,760 |
| $ | 3,694,496 |
|
Unearned Stock Based Compensation for All Restricted Stock Awards Attributable to Future Periods. |
| $ | 1,266,666 |
|
|
|
|
|
|
|
Stock Option Grants
OurCompany's standard stock option agreement under the 2007 LTIP and 2018 LTIP allows for the payment of the exercise price of vested stock options either through cash remittance in exchange for newly issued shares, or through non‑cash exchange of previously issued shares held by the recipient for at least six months in exchange for our newly issued shares. The 2007 LTIP and 2018 LTIP also allowsallow for the retention of shares in payment of the exercise price and income tax withholding. The latter method results in no cash being received by us,the Company, but also results in a lower number of total shares being outstanding subsequently as a direct result of this exchange of shares. Shares returned to usthe Company in this manner would be retired.
In 2017, 2016 and 2015, we received cash proceeds of $123,603, $80,161 and $2,780,188 respectively, in exchange for shares issued upon the exercise of options
2021 and 2020 as follows (table in thousands):
| Year Ended December 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Service based awards: | ||||||||||||||
| Restricted stock units | $ | 344 | $ | 372 | ||||||||||
| Stock option awards | 1,354 | 1,491 | ||||||||||||
| $ | 1,697 | $ | 1,863 | |||||||||||
| Performance based awards: | ||||||||||||||
| Restricted stock awards | $ | (390) | $ | — | ||||||||||
| Restricted stock units | — | (1,148) | ||||||||||||
| Stock option awards | (364) | (240) | ||||||||||||
| (754) | (1,388) | |||||||||||||
| Total | $ | 943 | $ | 475 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| WEIGHTED |
|
|
|
|
|
|
|
| AVERAGE |
| AGGREGATE |
| |
|
|
|
| EXERCISE |
| INTRINSIC |
| |
|
| SHARES |
| PRICE |
| VALUE |
| |
Outstanding at December 31, 2014 |
| 6,885,083 |
| 7.41 |
| $ | 19,730,211 |
|
Granted |
| 1,697,500 |
| 8.30 |
|
|
|
|
Exercised |
| (794,248) |
| 3.50 |
| $ | 2,780,188 |
|
Forfeited |
| (29,333) |
| 6.91 |
|
|
|
|
Outstanding at December 31, 2015 |
| 7,759,002 |
| 7.84 |
| $ | 18,648,477 |
|
Granted |
| 30,000 |
| 6.54 |
|
|
|
|
Exercised |
| (25,834) |
| 4.35 |
| $ | 112,280 |
|
Forfeited |
| (71,667) |
| 9.33 |
|
|
|
|
Outstanding at December 31, 2016 |
| 7,691,501 |
| 7.83 |
| $ | 1,821,384 |
|
Granted |
| 15,000 |
| 6.09 |
|
|
|
|
Exercised |
| (433,500) |
| 6.45 |
| $ | 109,847 |
|
Forfeited |
| (367,000) |
| 7.85 |
|
|
|
|
Outstanding at December 31, 2017 |
| 6,906,001 |
| 7.92 |
| $ | 976,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS OUTSTANDING |
| OPTIONS EXERCISABLE |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| WEIGHTED |
| |
|
|
|
|
| REMAINING |
| WEIGHTED |
|
|
|
| AVERAGE |
| ||
|
| NUMBER OF |
| CONTRACTUAL |
| EXERCISE |
| NUMBER OF |
| EXERCISE |
| ||||
RANGE OF EXERCISE PRICES |
| OPTIONS |
| LIFE |
| PRICE |
| OPTIONS |
| PRICE |
| ||||
$3.09 to $4.93 |
|
| 389,500 |
| 1.0-5.5 yrs. |
| $ | 3.31 |
|
| 389,500 |
| $ | 3.31 |
|
$5.86 to $7.13 |
|
| 1,922,500 |
| .4-8.7 yrs. |
| $ | 6.43 |
|
| 1,887,500 |
| $ | 6.43 |
|
$8.23 to 11.49 |
|
| 4,594,001 |
| 1.8-7.8 yrs. |
| $ | 8.93 |
|
| 4,056,168 |
| $ | 9.02 |
|
Total |
|
| 6,906,001 |
| 5.1 yrs. |
| $ | 7.92 |
|
| 6,333,168 |
| $ | 7.90 |
|
Intrinsic Value |
| $ | 976,335 |
|
|
|
|
|
| $ | 976,335 |
|
|
|
|
F-21
| Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at January 1, 2020 | 146,800 | $ | 5.70 | ||||||||
| Unvested at December 31, 2020 | 146,800 | 5.70 | |||||||||
| Forfeited | (68,500) | 5.70 | |||||||||
| Unvested at December 31, 2021 | 78,300 | $ | 5.70 | ||||||||
|
|
|
|
|
|
|
|
|
|
| WEIGHTED |
| |
|
|
|
| AVERAGE |
| |
|
| NUMBER OF |
| FAIR MARKET |
| |
|
| UNVESTED |
| VALUE AT |
| |
|
| OPTIONS |
| GRANT DATE |
| |
As of December 31, 2014 |
| 2,580,500 |
|
|
|
|
Granted |
| 1,697,500 |
| $ | 4.56 |
|
Forfeited |
| (28,333) |
|
|
|
|
Vested |
| (1,135,056) |
|
|
|
|
As of December 31, 2015 |
| 3,114,611 |
|
|
|
|
Granted |
| 30,000 |
| $ | 3.85 |
|
Forfeited |
| (71,667) |
|
|
|
|
Vested |
| (1,370,778) |
|
|
|
|
As of December 31, 2016 |
| 1,702,166 |
|
|
|
|
Granted |
| 15,000 |
| $ | 3.70 |
|
Forfeited |
| (367,000) |
|
|
|
|
Vested |
| (777,333) |
|
|
|
|
As of December 31, 2017 |
| 572,833 |
|
|
|
|
We value stock options awarded using the Black‑Scholes method. Assumptions used in the stock option valuations were:
|
|
|
|
|
| 2017 | 2016 | 2015 |
|
Volatility of share price | 66% | 64 - 65 % | 58 - 61 % |
|
Risk free interest rate | 2.00% | 1.3-1.6 % | 1.5 - 1.7 % |
|
Expected option life | 6 yrs. | 6 yrs. | 6 yrs. |
|
Dividend Yield | 0.0% | 0.0% | 0.0% |
|
We believe this valuation methodology is appropriate for estimating theThe fair value of restricted stock options we grant to employees and directors whichawards are subject to ASC 718‑10 requirements. We primarily base our determination of expected volatility through our assessment of the historical volatility of our common shares. We do not believe that we are able to relymeasured based on our historical stock option exercise and post‑vested termination activity to provide accurate data for estimating our expected term for use in determining thetheir fair value of these options. Therefore, as allowed by Staff Accounting Bulletin (SAB) No. 107, Share‑Based Payment, we have opted to use the simplified method for estimating the expected option term equal to the midpoint between the vesting period and the contractual term. The contractual term of the option is 10 years fromon the date of grant and amortized over the vesting termperiod of 20 months. As of December 31, 2021, unvested restricted stock awards of 78,300 were related to performance based awards. The forfeited performance-based restricted stock awards of 68,500 was due to the termination of the optionCompany's former Chief Science Officer on January 19, 2021. These forfeited awards reduced stock-based compensation expense by $0.4 million. Stock-based compensation expense of nil was recognized for both the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there is three years from dateno unrecognized stock-based compensation expense related to restricted stock awards.
| Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at January 1, 2020 | 463,786 | $ | 4.26 | ||||||||
| Granted | 208,993 | 2.00 | |||||||||
| Forfeited | (159,724) | 4.26 | |||||||||
| Vested | (247,561) | 4.30 | |||||||||
| Unvested at December 31, 2020 | 265,494 | 2.60 | |||||||||
| Granted | 310,050 | 0.90 | |||||||||
| Forfeited | (11,799) | 4.81 | |||||||||
| Vested | (241,563) | 2.27 | |||||||||
| Unvested at December 31, 2021 | 322,182 | $ | 1.17 | ||||||||
| Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at January 1, 2020 | 988,958 | $ | 4.48 | ||||||||
| Forfeited | (988,958) | 4.48 | |||||||||
| Unvested at December 31, 2020 | — | $ | — | ||||||||
Foryear ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was 0 unrecognized stock-based compensation expense related to performance-based restricted stock units.
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Exercise price | $0.54 - $0.54 | $0.92 - $2.90 | |||||||||
| Expected stock price volatility | 75.0% - 77.7% | 68.2% - 75.8% | |||||||||
| Risk-free interest rate | 0.47% - 1.30% | 31.00% - 1.70% | |||||||||
| Term (years) | 5.5 - 6.0 | 5.5 - 6.0 | |||||||||
| Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value (in $1,000's) | ||||||||||||||||||||
| Outstanding at January 1, 2020 | 8,210,024 | $ | 7.06 | 5.1 | $ | — | |||||||||||||||||
| Granted | 2,288,386 | 1.94 | 9.0 | — | |||||||||||||||||||
| Expired | (4,249,596) | (8.07) | |||||||||||||||||||||
| Forfeited | (530,858) | (3.88) | — | ||||||||||||||||||||
| Outstanding at December 31, 2020 | 5,717,956 | $ | 4.55 | 6.6 | $ | — | |||||||||||||||||
| Granted | 1,947,162 | 0.88 | — | — | |||||||||||||||||||
| Expired | (1,408,709) | (7.00) | — | ||||||||||||||||||||
| Forfeited | (441,903) | (2.22) | — | ||||||||||||||||||||
| Outstanding at December 31, 2021 | 5,814,506 | $ | 2.91 | 7.5 | $ | — | |||||||||||||||||
| Exercisable at December 31, 2021 | 2,612,079 | $ | 4.81 | 5.7 | $ | — | |||||||||||||||||
| Number of Shares | Weighted Average Exercise Price | ||||||||||
| Outstanding at January 1, 2020 | 388,125 | $ | 4.70 | ||||||||
| Granted | 750,000 | 2.20 | |||||||||
| Forfeited | (388,125) | (4.70) | |||||||||
| Outstanding at December 31, 2020 | 750,000 | $ | 2.20 | ||||||||
| Cancelled | (750,000) | 2.20 | |||||||||
| Outstanding at December 31, 2021 | — | $ | — | ||||||||
| Exercisable at December 31, 2021 | — | $ | — | ||||||||
certain IP reimbursement expenses and certain sublicense royalty fees as an accrued liability on the condensed consolidated balance sheet.
Commitments and Contingencies
| For the year ended December 31, | For the year ended December 31, | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Operating leases | |||||||||||||||||
| Operating lease cost | $ | 1,793 | $ | 1,609 | |||||||||||||
| Variable lease cost | 373 | 488 | |||||||||||||||
| Operating lease expense | 2,166 | 2,097 | |||||||||||||||
| Finance leases | |||||||||||||||||
| Amortization of right-of-use assets | 313 | 18 | |||||||||||||||
| Interest on lease obligations | 99 | 5 | |||||||||||||||
| Finance lease expense | 412 | 23 | |||||||||||||||
| Short-term lease rent expense | 17 | 17 | |||||||||||||||
| Total rent expense | $ | 2,595 | $ | 2,137 | |||||||||||||
| Other information | |||||||||||||||||
| Operating cash flows from operating leases | $ | 1,772 | $ | 1,648 | |||||||||||||
| Operating cash flows from finance leases | $ | 99 | $ | 5 | |||||||||||||
| Financing cash flows from finance leases | $ | 255 | $ | 17 | |||||||||||||
| Right of use assets exchanged for operating lease liabilities | $ | 4,217 | $ | 268 | |||||||||||||
| Right of use assets exchanged for finance lease liabilities | $ | 2,431 | $ | 930 | |||||||||||||
| Weighted-average remaining lease term - operating leases | 3.5 | 2.3 | |||||||||||||||
| Weighted-average remaining lease term – finance leases | 5.4 | 5.8 | |||||||||||||||
| Weighted-average discount rate - operating leases | 6.3 | % | 6.4 | % | |||||||||||||
| Weighted-average discount rate – finance leases | 6.4 | % | 5.1 | % | |||||||||||||
| Operating | Finance | ||||||||||
| Year ending December 31, 2022 | $ | 1,772 | $ | 660 | |||||||
| Year ending December 31, 2023 | 1,455 | 668 | |||||||||
| Year ending December 31, 2024 | 1,114 | 671 | |||||||||
| Year ending December 31, 2025 | 637 | 676 | |||||||||
| Year Ended December 31, 2026 | 259 | 665 | |||||||||
| Remaining future payments | 120 | 311 | |||||||||
| Total | 5,357 | 3,651 | |||||||||
| Less present value discount | $ | (555) | $ | (562) | |||||||
| Operating and Finance lease liabilities. | $ | 4,802 | $ | 3,089 | |||||||
We evaluate
F-22
December 31, 20172021 by which retention limits exceed the claims paid and accrued is approximately $569,000$431,000 for the policy year ending July 1, 2018.2022. Estimated loss and additional future claims subject to our payment of approximately $116,000$382,000 have been reserved and accrued for the year ended December 31, 2017.
At2021.
Loan and Security Agreement
| Year | Principal Payments | |||||||
| 2022 | $ | 7,750 | ||||||
| 2023 | 6,000 | |||||||
| 2024 | 6,000 | |||||||
| 2025 | 2,000 | |||||||
| $ | 21,750 | |||||||
| 2021 | 2020 | ||||||||||
| Tax Expense (Benefit) Computed at 22.62% and 22.67% of Pretax Income (Loss) | $ | (6,744) | $ | (6,373) | |||||||
| Changes in Tax Laws | — | — | |||||||||
| Foreign Income Tax Expense | — | — | |||||||||
| Effect of Change in Valuation Allowance | 6,744 | 6,373 | |||||||||
| Total Income Tax Expense | $ | — | $ | — | |||||||
| December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net Operating Loss Carryforward | $ | 66,895 | $ | 59,586 | |||||||
| Stock Based Compensation | 7,726 | 7,582 | |||||||||
| Deferred Revenue | 1,846 | 2,310 | |||||||||
| General Business Credit | 6,872 | 6,872 | |||||||||
| Accrued Expenses | 174 | 185 | |||||||||
| Inventories | 88 | 666 | |||||||||
| Book over Tax Depreciation | 6 | 25 | |||||||||
| Other Deferred Tax Assets | 865 | 387 | |||||||||
| Total Deferred Tax Assets | 84,472 | 77,613 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Goodwill & Intangible Assets | 183 | 155 | |||||||||
| Prepaid Expenses | 381 | 294 | |||||||||
| Total Deferred Tax Liabilities | 564 | 449 | |||||||||
| Subtotal | 83,908 | 77,164 | |||||||||
| Valuation Allowance | (83,908) | (77,164) | |||||||||
| Net Deferred Tax Asset | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter |
| Second Quarter |
| Third Quarter |
| Fourth Quarter |
| ||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 14,592,254 |
| $ | 13,243,107 |
| $ | 14,626,904 |
| $ | 14,838,016 |
|
Cost of Sales |
|
| 12,234,782 |
|
| 11,744,819 |
|
| 13,555,853 |
|
| 16,062,936 |
|
Gross Profit |
|
| 2,357,472 |
|
| 1,498,288 |
|
| 1,071,051 |
|
| (1,224,920) |
|
Selling, General and Administrative |
|
| 6,100,715 |
|
| 6,541,179 |
|
| 4,791,636 |
|
| 5,869,879 |
|
Research and Product Development |
|
| 1,214,851 |
|
| 1,675,494 |
|
| 1,304,658 |
|
| 2,126,397 |
|
Operating Income (Loss) |
|
| (4,958,094) |
|
| (6,718,385) |
|
| (5,025,243) |
|
| (9,221,196) |
|
Interest and Investment Income, net |
|
| 216,071 |
|
| (364,599) |
|
| (31,751) |
|
| 181,171 |
|
Foreign Currency Gain (Loss) |
|
| — |
|
| — |
|
| — |
|
| 742 |
|
Income (Loss) Before Income Taxes |
|
| (4,742,023) |
|
| (7,082,984) |
|
| (5,056,994) |
|
| (9,039,283) |
|
Income Tax Expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
Net Income (Loss) |
| $ | (4,742,023) |
| $ | (7,082,984) |
| $ | (5,056,994) |
| $ | (9,039,283) |
|
Basic And Diluted Earnings (Loss) Per Share |
| $ | (0.09) |
| $ | (0.14) |
| $ | (0.10) |
| $ | (0.18) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter |
| Second Quarter |
| Third Quarter |
| Fourth Quarter |
| ||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 13,627,048 |
| $ | 13,452,517 |
| $ | 12,814,815 |
| $ | 13,389,786 |
|
Cost of Sales |
|
| 11,932,122 |
|
| 11,962,989 |
|
| 11,234,934 |
|
| 11,401,603 |
|
Gross Profit |
|
| 1,694,926 |
|
| 1,489,528 |
|
| 1,579,881 |
|
| 1,988,183 |
|
Selling, General and Administrative |
|
| 4,986,741 |
|
| 5,014,370 |
|
| 5,070,127 |
|
| 6,049,663 |
|
Research and Product Development |
|
| 1,314,430 |
|
| 2,063,324 |
|
| 1,261,863 |
|
| 1,200,729 |
|
Operating Income (Loss) |
|
| (4,606,245) |
|
| (5,588,166) |
|
| (4,752,109) |
|
| (5,262,209) |
|
Interest and Investment Income, net |
|
| 186,562 |
|
| 227,020 |
|
| 188,847 |
|
| 207,911 |
|
Interest Expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
Income (Loss) Before Income Taxes |
|
| (4,419,683) |
|
| (5,361,146) |
|
| (4,563,262) |
|
| (5,054,298) |
|
Income Tax Expense |
|
| (404,527) |
|
| — |
|
| — |
|
| — |
|
Net Income (Loss) |
| $ | (4,824,210) |
| $ | (5,361,146) |
| $ | (4,563,262) |
| $ | (5,054,298) |
|
Basic And Diluted Earnings (Loss) Per Share |
| $ | (0.10) |
| $ | (0.11) |
| $ | (0.09) |
| $ | (0.10) |
|
F-23
not the result of any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Balance at |
|
|
|
|
|
|
| Balance |
| |||||
|
| Beginning |
|
|
|
|
|
|
| at End |
| |||||
|
| of Period |
| Additions |
| (Deductions) |
| of Period |
| |||||||
Allowance for Doubtful Accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Year ended December 31, 2017 |
| $ | 5,231 |
| $ | 11,711 |
| $ | (5,864) |
| $ | 11,078 |
| |||
Year ended December 31, 2016 |
| $ | 75,160 |
| $ | 13,348 |
| $ | (83,277) |
| $ | 5,231 |
| |||
Year ended December 31, 2015 |
| $ | 52,213 |
| $ | 72,877 |
| $ | (49,930) |
| $ | 75,160 |
| |||
Inventory Reserve: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Year ended December 31, 2017 |
| $ | 563,815 |
| $ | 5,330,198 |
| $ | (2,424,566) |
| $ | 3,469,447 |
| |||
Year ended December 31, 2016 |
| $ | 10,662 |
| $ | 564,451 |
| $ | (11,298) |
| $ | 563,815 |
| |||
Year ended December 31, 2015 |
| $ | 27,274 |
| $ | 59,581 |
| $ | (76,193) |
| $ | 10,662 |
| |||
Deferred Tax Asset Valuation Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Year ended December 31, 2017 |
| $ | 72,634,000 |
| $ | — |
| $ | (21,140,000) |
| $ | 51,494,000 |
| |||
Year ended December 31, 2016 |
| $ | 69,014,000 |
| $ | 3,620,000 |
| $ | — |
| $ | 72,634,000 |
| |||
Year ended December 31, 2015 |
| $ | 69,307,000 |
| $ | — |
| $ | (293,000) |
| $ | 69,014,000 |
| |||
Allowances
S-1