United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2018

or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                              

Commission File Number: 000-23661

ROCKWELL MEDICAL, INC.

(Exact name of registrant as specified in its charter)

(248) 960-9009

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒  Yes  ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒  Yes  ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐  Yes  ☒  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Rockwell Medical, Inc.

Index to Form 10-Q

Triferic® is a registered trademark of Rockwell Medical, Inc.

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of September 30, 2017March 31, 2018 and December 31, 20162017

(Unaudited)

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

For the three and nine months ended September 30,March 31, 2018 and March 31, 2017 and September 30, 2016 

(Unaudited)

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the three and nine months ended September 30,March 31, 2018 and March 31, 2017 and September 30, 2016

(Unaudited)

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the ninethree months ended September 30, 2017March 31, 2018

(Unaudited)

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ninethree months ended September 30,March 31, 2018 and March 31, 2017 and September 30, 2016

(Unaudited)

Rockwell Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.  Description of Business

Rockwell Medical, Inc. and Subsidiaries (collectively, “we”, “our”, “us”, or the “Company”) is a fully-integrated pharmaceutical company targeting end-stage renal disease and chronic kidney disease with innovative products for the treatment of iron deficiency, secondary hyperparathyroidism and hemodialysis. 

We are currently marketing and developing unique, proprietary renal drug therapies. 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.  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 distributors in the United States and abroad. We manufacture, sell and distribute hemodialysis concentrates and other ancillary medical products and supplies used in the treatment of patients with End Stage Renal Disease,end stage renal disease, or “ESRD”.  In 2017, we supplied approximately 25% of the United States domestic market with dialysis concentrates.  We also supply our productsdialysis concentrates to dialysis providers and distributors who treat patients with kidney disease.  Our concentrate products are used to remove waste and replace essential nutrientsserving a number of foreign countries, primarily in the blood of dialysis patients during their hemodialysis treatment.Americas and the Pacific Rim. The majority of our sales occur in the United States.

We are regulated by the FederalUnited 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. 

2.  Summary of Significant Accounting Policies

Basis of Presentation

Our consolidated financial statements include our accounts and the accounts forof our wholly owned subsidiaries, Rockwell Transportation, Inc. and Rockwell Medical India Private Limited. All intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America, or “GAAP,” and with the instructions to Form 10-Q and Securities and Exchange Commission Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The balance sheet at December 31, 20162017 has been derived from theour audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of our management, all adjustments have been included that are necessary to make the financial statements not misleading. All of these adjustments that are material are of a normal and recurring nature. Our operating results for the three and nine months ended September 30, 2017March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.2018. You should read our unaudited interim financial statements together with the financial statements and related footnotes for the year ended December 31, 20162017 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. Our Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 includes a description of our significant accounting policies.

Revenue Recognition

Our policy is to recognize revenue consistent with authoritative guidance for revenue recognition including the provisions ofIn May 2014, the Financial Accounting Standards Board Accounting Standards Codification.   We recognize(“FASB”) issued a new accounting standard, ASC 606 Revenue from Contracts with Customers, which requires recognition of revenue when allto depict the transfer 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's priceconsideration to which we expect to be entitled in exchange for those goods or services. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the buyer is fixed or determinable,use of more estimates and (iv) collectability is reasonably assured.judgments than the former standards.

ConsistentThe new revenue standard became effective for us on January 1, 2018, and was adopted using the modified retrospective method. The adoption of the new revenue standard as of January 1, 2018, did not change our revenue recognition as the majority of our revenues continue to be recognized when the customer takes control of our product. As we did not identify any accounting changes that impacted the amount of reported revenues with these guidelines we recognize revenue at the time we transfer titlerespect to our productsproduct revenues or licensing agreements, no adjustment to our customers which generally occurs when our products are delivered to our customer’s location consistentretained earnings was required upon adoption.

In accordance with our terms of sale.the standard, revenue is measured based on consideration transferred as specified in a contract with a customer, and excludes any sales incentives or rebates. We recognize revenue for international shipments when title has transferred consistentit satisfies a performance obligation by transferring control over a product or service to a customer.  We recognize revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with standard terms of sale.a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligations.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer.

Nature of goods and services

The following is a description of principal activities from which we generate our revenue.

Product sales – Product sales are tracked in two reportable segments – Drug Products and Concentrate Products.  We apply judgment as we analyze each elementaccount for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if 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 allocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost plus margin approach.

Drug and concentrate products are sold directly to dialysis 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 our contractual agreementsthe agreement 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 asagreement creates a separate unitperformance 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 accounting when the delivered elementproduct 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 accountingbeen established 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 intosufficient experience with the foreign regulatory body to conclude that regulatory approval is probable, the 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 paymentsperformance obligation 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.

For international license agreements that we have entered into, deferred license revenue is being recognized over the term of the license agreement.agreement (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.

We have received upfront fees under two distribution and license agreements that have been deferred as a contract liability.  The initial paymentamounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) are recognized as revenue over the estimated term of $20 millionthe distribution and license agreement as regulatory approval was not received pursuantand we did not have sufficient experience in China to determine that regulatory approval was probable as of the execution of the agreement.  The amounts received from Baxter are recognized as revenue at the point in time that the estimated product sales under the agreement occur. 

For the business under our long-term Exclusive Distribution Agreement (the “Distribution Agreement”)distribution agreement with Baxter Healthcare Corporation (“Baxter”(the “Baxter Agreement”)  in October 2014 has been accountedand for as deferred license revenue.   Deferred licensethe majority of our international customers we recognize revenue at the shipping point, which is beinggenerally our plant or warehouse.  For other business, we recognize revenue based on when the customer takes control of the product.  The amount of revenue recognized is based on the proportion of product shipmentspurchase order less returns and adjusted for any rebates, discounts, chargebacks or other amounts paid to Baxter in each period to total expected sales volumecustomers. There were no such adjustments for the term ofperiods reported. Customers typically pay for the agreement. See Note 4 to condensed consolidated financial statements for information related to the settlement of arbitration proceedingsproduct based on customary business practices with Baxter. payment terms averaging 30 days, while distributor payment terms averaging 45 days.

We recognize other revenues at the time the related fees and or payments are earned.

We require certain customers, mostly international customers, to pay for product prior to the transfer of title to the customer.  Deposits received from customers and payments in advance for orders are recorded as liabilities under Customer Deposits until such time as orders are filled and title transfers to the customer consistent with our terms of sale.

In May 2014, 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

Disaggregation of revenue

In the following table, revenue 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 is in the process of evaluating how the new revenue recognition standard could impact the financial statementsdisaggregated by primary geographical market, major product line, and disclosures.  For the majority of our sales transactions, the new standard is not expected to significantly change the timing of revenue recognition.

Contract balances

The new standard could impact the timing of revenue recognitionfollowing table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

There were no impairment losses recognized related to up-frontany receivables arising from our contracts with customers for the quarter ending March 31, 2018.

For the three months ended March 31, 2018, we had no material bad-debt expense and milestonethere were no material contract assets recorded on the Consolidated Balance Sheet as of March 31, 2018.  We do not generally accept returns of our concentrate products and no reserve for returns of concentrate products was established as of March 31, 2018 or December 31, 2017. 

The contract liabilities primarily relate to upfront payments for licensing agreements./ consideration received from customers that are received in advance of the customer assuming control of the related products. 

Transaction price allocated to remaining performance obligations

For the three months ended March 31, 2018, revenue recognized from performance obligations related to prior periods  was not material.

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, totaled $16,151,000 as of March 31, 2018. The new standard will also require expanded disclosures surrounding revenueamount relates primarily to upfront payments / consideration received from customers that are received in advance of the notescustomer assuming control of the related products.  We apply the practical expedient in paragraph 606-10-50-14 and do not disclose information about remaining performance obligations that have original expected durations of one year or less. The Baxter Agreement includes minimum commitments of product sales over the duration of the agreement.  Unfulfilled performance obligations related to the financial statements. Baxter Agreement are product sales of $12,742,000 through expiration of the agreement on October 2, 2024.

Cash and Cash Equivalents

We consider cash on hand, money market funds, unrestricted certificates of deposit and short term marketable securities with an original maturity of 90 days or less as cash and cash equivalents.

Investments Available for Sale

Investments Available for Sale are short-term investments, consisting of investments in short term bond fundsshort-term notes and in short term bonds and are stated at fair value based upon observed market prices (Level 1 in the fair value hierarchy).  The portfolio generally consists of high credit quality short termshort-term debt instruments.  These instruments are subject to changes in fair market value due primarily to changes in interest rates.  The fair value of these investments was $35,028,841$24,821,682 as of September 30, 2017.March 31, 2018.  Unrealized holding gains or losses on these securities are included in accumulated other comprehensive income (loss). Realized gains and losses, including declines in value judged to be other-than-temporary on available-for-sale securities are included as a component of other income or expense. Gross unrealized losses were $76,399$216,256 and gross unrealized gains were $35,274$26,260 as of September 30, 2017.March 31, 2018. There were realized gains of $57$1,425 and realized losses of $199,758$4,417 in the third quarter.  For the nine months ended September 30, 2017, there were realized gainsfirst quarter of $57 and realized losses of $704,752.2018. 

The Company has evaluated the near term interest rate environment and the expected holding period of the investments along with the duration of the fund portfoliosportfolio assets in assessing the severity and duration of potential impairments. Based on thatour evaluation, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2017.March 31, 2018.

Research and Product Development

We recognize research and product development expenses as incurred.  We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products aggregating approximately $4.2$1.7 million and $4.6$1.2 million for the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, respectively.

Share Based Compensation

We measure the cost of employee and non-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 over 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. 

3.  Inventory

Components of inventory, net of reserves as of September 30, 2017March 31, 2018 and December 31, 20162017 are as follows:

Risks Related To Our Common Stock

Other factors not currently anticipated may also materially and adversely affect our results of operations, cash flow and financial position.  There can be no assurance that future results will meet expectations.  We do not undertake and expressly disclaim any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Overview

Rockwell isWe are a fully-integrated pharmaceutical company targeting end-stage renal disease and chronic kidney disease with innovative products and services for the treatment of iron deficiency, secondary hyperparathyroidism and hemodialysis. We are also an established manufacturer and leader in delivering high-quality hemodialysis concentrates/dialysates to dialysis providers and distributors in the United States and abroad. We supply approximately 25% of the United States domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim.  Substantially all of our sales were concentrate products and related ancillary items.

Although we cannot be certain, we believe that Triferic will receivehas the potential to be granted separate reimbursement which offers greater incentive for dialysis providers to adopt new, innovative therapies. 

We believe that Triferic will receive separate reimbursementby CMS as a result of our extensive efforts in working with policy makers.makers to secure separate reimbursement.  We have had in-depth discussions with high level officials within the current administration, key members of Congress, patient advocacy groups and otherindustry stakeholders regarding the merits of Triferic and about why this innovative therapy should receive separate reimbursement.  Our efforts have resulted in strong support for separate reimbursement all of whom have been supportive of our efforts.for Triferic. We have had meetings with the leadership of the Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS) and the Center for Medicare and Medicaid Innovation (CMMI). Upon their guidance, we have submitted a proposalinformation to the Innovation Center at CMS.  Among other advantages, the proposalCMS 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. Additionally, our key supporters in Congress and other influential agencies are encouraging CMS to immediately approve separate reimbursement for Triferic. We cannot predict the outcome or timing of the CMS review.CMS’s process and there can be no assurance of if or when we might receive separate reimbursement for Triferic from CMS. 

Until the separate reimbursement issue is resolved 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 benefitbenefits 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-date to theits positive clinical and cost saving benefits. Our marketing and sellingeducation efforts to nephrologists and nurses, as well as to patients, are effective and being received favorably. have been well received.

We have built and previously invested in significant inventory of Triferic in anticipation of receiving separate reimbursement.  Ifreimbursement status.  However, if we are unable to successfully commercialize Triferic and achieve sufficient sales volumes over the next one to two years, we maywill have to write off a significant portion of our inventory investment in Triferic, which would not have ana material negative impact on our cash flow but would have a material adverse effect on our results of operations.operations and financial position.  As of September 30, 2017,March 31, 2018, we had $4.0$5.9 million of Triferic finished goods inventory that could expire within the next twelve months.12 months and against which we have reserved $4.8 million. In the first quarter of 2018, we reserved an additional $1.3 million (included within our $4.8 million reserve) resulting in a remaining net book value of $1.1 million of Triferic finished goods inventory as of March 31, 2018.   We reserved $0.6also have approximately $7.5 million in the third quarter for specificof Triferic Active Pharmaceutical Ingredient (“API”) and have classified $3.7 million of Triferic API batches that were determinedas non-current inventory as of March 31, 2018.  We believe we have produced sufficient supplies of Triferic API to meet prospective demand in 2018 and 2019. If CMS does not award us separate reimbursement for Triferic during 2018 or further extends its review of Triferic for separate reimbursement or should we not realize commercial sales during 2018 or 2019, some or all of our current investment in Triferic finished goods inventory and some of our Triferic API inventory will likely need to be in excesswritten off, which would not have a material negative impact on our cash flow but would have a material adverse impact on our reported results of our expected requirements over the next yearoperations and for which there was no plan to convert the API into finished goods.financial position. 

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 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 Calcitriol. The notice contained no indication by FDA of any deficiency with the data submitted.  We expect to begin marketing Calcitriol in the first quarter of 2018 assuming FDA approval of the submission.

Rockwell sells itssell our dialysis concentrates in the United States and certain foreign markets under the Distribution Agreementagreement with Baxter.  Rockwell receivesWe receive a pre-defined gross profit margin on itsour concentrate products sold pursuant to the DistributionBaxter Agreement, subject to an annual true-up of costs. As discussed

We are also working to begin marketing Calcitriol, an active Vitamin D injection for the management of hypocalcemia in more detail in Note 4patients undergoing chronic hemodialysis.  Calcitriol is FDA approved under an Abbreviated New Drug Application which is manufactured for us through a contract manufacturing organization (“CMO”).  We submitted a manufacturing update to the condensed consolidated financial statements, BaxterFDA to approve the CMO and Rockwell settledFDA has provided a target date for their contractual dispute and, as partresponse of their settlement, modified pricingno later than August 19, 2018.  The stability data that provides incentivewas provided in the Calcitriol submission remains within specification. There can be no assurance the FDA will grant approval of our submission. If we are permitted to Baxter to pursue new customers and increase future sales.  The Settlement with Baxter isbegin marketing Calcitriol, we do not expected toanticipate Calcitriol sales will have a material impact on our liquidity or results of operations.operations during 2018.

Results of Operations for the Three Months Ended March 31, 2018 and March 31, 2017

Sales

Our sales in the first quarter of 2018 were $14.9 million, $0.4 million or 2.4% higher than the first quarter of 2017. The increase was primarily due to higher domestic concentrate sales of $0.4 million which was primarily due to increased pass through delivery costs billed to Baxter.  Our international sales increased 1.6% over the first quarter of 2017.  Revenue recognized from licensing fees was slightly lower than the first quarter of 2017.

Results of Operations for the Three Months and Nine Months Ended September 30, 2017 and September 30, 2016

Sales

Our sales in the third quarter of 2017 were $14.6 million, $1.8 million or 14.1%  higher than the third quarter of 2016. The increase was primarily due to higher domestic concentrate sales of $1.6 million which was primarily due to volume growth with our domestic customers.  Invoicing for pass through delivery costs to Baxter increased approximately $0.6 million due to volume growth and increased expenses compared to the third quarter of 2016.  Our international sales were $0.2 million higher than the third quarter of 2016.  Revenue recognized from licensing fees was the same as the third quarter of 2016.

Our sales in the first nine months of 2017 were $42.5 million, an increase of $2.6 million or 6.4% over the first nine months of 2016.  Our domestic concentrate sales increased $2.4 million or 6.9% over the first nine months of 2016 primarily due to increased sales volumes and additional pass through billings for delivery services to Baxter.  Our international sales were $0.2 million higher than the first nine months of 2016.     Our drug business revenue was not significant in the first nine months of 2017 or 2016. 

Gross Profit

Gross profit in the thirdfirst quarter of 20172018 was $1.1million comparedslightly positive as the gross profit from our concentrate business was offset by expenses related to our drug business.  Gross profit was negatively impacted by $1.6 million in the third quarter of 2016.

Gross profit margins were 7.3 % in the third quarter of 2017 compared to 12.3% in the third quarter of 2016.   Our concentrate gross profit decreased $0.2 million due to lower pricing resulting from modifications to our contractual terms with Baxter.  Our net drug business costs were approximately $0.3 million higher than the third quarter of 2016. Our drug business costs in the third quarter included inventory reserves of $0.7 million for inventory that was expected to be surplus to our requirements.

 Gross profit in the first nine months of 2017 was $4.9 million, an increase of $0.1 million or 3.4% over the first nine months of 2016.  Gross profit margins were 11.6 % compared to 11.9% in the first nine months of 2016.  The gross profit increase was primarily due to lower costs of $0.5 million related to our drug business operations for regulatory fees and value add taxes paid in connection with our execution of the Wanbang license agreement and partially offset by inventory reserves for surplus product.  Thewhich included an increase in our Triferic inventory reserve of $1.3 million.  Our concentrate gross profit was approximately $1.7 million and decreased by $0.7 million in the first quarter of 2018 compared to the first quarter of 2017.  The decrease in our concentrate business gross profit was largely due to increased concentrate distribution costs and lower pricing under the Baxter Agreement, which was partially offset by lower gross profit onincreased unit volume growth. Recently implemented government regulation in the concentrate business of $0.4 million.trucking industry has further negatively impacted a nationwide driver shortage resulting in increased costs for both incoming materials and shipments within the United States.  We expect this trend to continue to increase costs in the near term.

Selling, General and Administrative Expense

Selling, general and administrative expense during the thirdfirst quarter of 20172018 was $4.8$5.1 million compared to $5.1$6.1 million in the thirdfirst quarter of 2016.2017.  The $0.3$1.0 million expense decrease was primarily due to lower equity compensation expensesexpense of $0.9$1.1 million.  Equity grants awarded to our independent directors and non-executive employees during the first quarter were made expressly contingent upon shareholder approval of our proposed 2018 Long Term Incentive Plan (the “Plan”) at our scheduled June 21, 2018 annual meeting of shareholders.  If our shareholders approve the Plan, we will begin to amortize $1.7 million of equity compensation expense associated with these awards at that time, with approximately $830,000 expected to be recognized during the remainder of 2018.  We incurred lower legal and litigation costs during the quarter, which was partially offset by higher legal costs, expenses relateda settlement payment to shareholderan activist activities and the contested 2017 annual meetinginvestor group of $0.5 million.

Selling,$428,000.  See Part II – Item 1 – Legal Proceedings.  We expect our selling, general and administrative expense during the first nine months of 2017 was $17.4 million compared to $15.1 millionwill increase significantly in the first nine monthssecond half of 2016.   The $2.3 million increase was primarily duethe year to higher legal and professional costs relating to pending litigation,  the Settlement with Baxter and the contested 2017 annual meeting.  Equity compensation costs decreased by $1.8 million compared to the first nine months of 2016, partially offset by higher compensation and benefit costs of $0.5 million.  Marketing costs forhelp support our expected increased Triferic increased $0.4 million compared to the first nine months of 2016.commercialization efforts.

Research and Product Development Expense

We incurred product development and research costs related to the commercial development, patent approval and regulatory approval of new products, primarily Triferic, aggregating approximately $1.3$1.7 million and $1.3compared to $1.2 million in the thirdfirst quarter of 2017 and 2016, respectively.2017. Research and product development costs incurred in the first nine monthsquarter of 2017 and 2016 were $4.2 million and $4.6 million, respectively, and2018 were largely related to Triferic testing and development costs for use in other clinical indications and delivery presentations.

We paid $2.3 million in withholding taxes in connection with restricted stock that vested in 2017 and for which we received common shares to be retired from the holders in accordance with the terms of the grants.

 The Company isare in discussions with multiple potential business development partners to out‑license rights to Rockwell’sour drug products outside the United States. Such licensing arrangements oftenmay include a combination of upfront fees, developmental milestone payments and royalties. 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.

As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15 under the Exchange Act) during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION 

Item 1.  Legal Proceedings

Richmond Matters

Richmond/Ravich Litigation

On March 8, 2017, Rockwell filed suitOur Board of Directors was unable to reach agreement to appoint a seventh director by February 15, 2018 in the United States District Court for the Eastern Districtbreach of Michigan againstour prior settlement agreement with Richmond Brothers, Inc. and certain related entities,(“RBI”), David S. Richmond Mark H. Ravich(“Richmond”) and others. Accordingly, on February 27, 2018, RBI and Richmond delivered a letter to us nominating Lisa Colleran, Benjamin Wolin and Richmond for election to our Board of Directors at our 2018 annual meeting of shareholders.  Thereafter, on March 7, 2018, we entered into a letter agreement with RBI and Richmond to memorialize the parties’ mutual agreement on certain related trusts,corporate governance matters (the “Letter Agreement”).  The Letter Agreement provided, among other things, that: (a) by March 7, 2018, our Board would increase its size from six directors to eight directors and Matthew J. Curfman (“Richmond/Ravich Defendants”),would appoint: (i) Benjamin Wolin as a Class I director to serve for a term expiring at the Company’s 2019 annual meeting of shareholders and three individual Rockwell shareholders: Jay F. Joliat, Chris

Item 6. 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.

EXHIBIT INDEX

*Current management contracts or compensatory plans or arrangements.

SIGNATURES

Pursuant to the requirements 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.