rmti_Current_Folio_10Q

Table of Contents

 

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 March 31, 2019

 

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)

 

 

 

Michigan

38-3317208

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

30142 Wixom Road, Wixom, Michigan

48393

(Address of principal executive offices)

(Zip Code)

 

(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 every Interactive Data File required to be submitted 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 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.

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

 

Emerging growth company ☐

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, no par value

 

RMTI

 

Nasdaq Global Market

 

 

The number of shares of common stock outstanding as of May 8, 2019 was 57,565,370.

 

 

 

 

 

 


 

Table of Contents

Rockwell Medical, Inc. and Subsidiaries

Index to Form 10-Q

 

 

 

 

Page

Part I — Financial Information (unaudited) 

 

 

 

Item 1 - Financial Statements  

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 

3

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018 

5

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 

8

 

 

Notes to Condensed Consolidated Financial Statements 

9

 

 

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 

24

 

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk 

29

 

 

Item 4 - Controls and Procedures 

29

 

 

Part II — Other Information 

 

      

 

Item 1 -    Legal Proceedings 

30

 

 

Item 1A - Risk Factors 

31

 

 

Item 6 -    Exhibits 

34

 

 

Signatures 

35

 

 

 

 

 

2


 

Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

20,919,518

 

$

22,713,980

Investments Available-for -Sale

 

 

6,876,221

 

 

10,818,059

Accounts Receivable, net of a reserve of $2,240 in 2019 and $2,104 in 2018

 

 

6,711,410

 

 

6,979,514

Insurance Receivable

 

 

 —

 

 

371,217

Inventory

 

 

4,001,570

 

 

4,038,778

Prepaid and Other Current Assets

 

 

1,680,818

 

 

1,903,682

Total Current Assets

 

 

40,189,537

 

 

46,825,230

Property and Equipment, net

 

 

2,572,680

 

 

2,638,293

Inventory, Non-Current

 

 

1,501,000

 

 

1,637,000

Right of Use Assets, net

 

 

3,005,792

 

 

 —

Goodwill

 

 

920,745

 

 

920,745

Other Non-current Assets

 

 

555,310

 

 

536,516

Total Assets

 

$

48,745,064

 

$

52,557,784

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts Payable

 

$

4,522,225

 

$

4,492,071

Accrued Liabilities

 

 

6,272,040

 

 

5,129,761

Settlement Payable

 

 

166,669

 

 

416,668

Lease Liability - Current

 

 

1,680,475

 

 

 —

Deferred License Revenue - Current

 

 

2,248,062

 

 

2,252,868

Customer Deposits

 

 

240,239

 

 

63,143

Other Current Liability - Related Party

 

 

600,000

 

 

850,000

Total Current Liabilities

 

 

15,729,710

 

 

13,204,511

 

 

 

 

 

 

 

Lease Liability - Long-Term

 

 

1,336,319

 

 

 —

Deferred License Revenue - Long-Term

 

 

11,517,988

 

 

12,076,399

Total Liabilities

 

 

28,584,017

 

 

25,280,910

 

 

 

 

 

 

 

Commitments and Contingencies (See Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

Preferred Shares, no par value, no shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common Shares, no par value, 57,128,327 and 57,034,154 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

301,171,733

 

 

299,601,960

Accumulated Deficit

 

 

(281,066,581)

 

 

(272,388,234)

Accumulated Other Comprehensive Income

 

 

55,895

 

 

63,148

Total Shareholders’ Equity

 

 

20,161,047

 

 

27,276,874

Total Liabilities And Shareholders’ Equity

 

$

48,745,064

 

$

52,557,784

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


 

Table of Contents

 

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended March 31, 2019

    

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

Net Sales

 

$

15,559,439

 

$

14,948,579

 

Cost of Sales

 

 

14,549,047

 

 

15,669,072

 

Gross Profit (Loss)

 

 

1,010,392

 

 

(720,493)

 

Selling and Marketing

 

 

3,102,378

 

 

215,083

 

General and Administrative

 

 

6,220,499

 

 

3,116,872

 

Research and Product Development

 

 

497,276

 

 

1,666,356

 

Operating Loss

 

 

(8,809,761)

 

 

(5,718,804)

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

Realized Gain (Loss) on Investments

 

 

13,888

 

 

(2,892)

 

Interest Income

 

 

117,526

 

 

175,307

 

Other Income

 

 

 —

 

 

(3,132)

 

Total Other Income (Expense)

 

 

131,414

 

 

169,283

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(8,678,347)

 

$

(5,549,521)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per Share

 

$

(0.15)

 

$

(0.11)

 

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Shares Outstanding

 

 

57,098,947

 

 

51,288,424

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4


 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended March 31, 2019

    

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(8,678,347)

 

$

(5,549,521)

 

Unrealized Loss on Available-for-Sale Debt Instrument Investments

 

 

(7,161)

 

 

(189,995)

 

Foreign Currency Translation Adjustments

 

 

(92)

 

 

(2,485)

 

Comprehensive Loss

 

$

(8,685,600)

 

$

(5,742,001)

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

5


 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the three months ended March 31, 2019

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

INCOME / (LOSS)

    

EQUITY

 

Balance as of December 31, 2018

 

57,034,154

 

$

299,601,960

 

$

(272,388,234)

 

$

63,148

 

$

27,276,874

 

Net Loss

 

 —

 

 

 —

 

 

(8,678,347)

 

 

 —

 

 

(8,678,347)

 

Unrealized Loss on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

(7,161)

 

 

(7,161)

 

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

(92)

 

 

(92)

 

Exercise of Employee Stock Options

 

30,000

 

 

147,900

 

 

 —

 

 

 —

 

 

147,900

 

Delivery of common stock underlying restricted stock units, net of tax

 

64,173

 

 

(95,429)

 

 

 —

 

 

 —

 

 

(95,429)

 

Stock-based Compensation

 

 —

 

 

1,517,302

 

 

 —

 

 

 —

 

 

1,517,302

 

Balance as of March 31, 2019

 

57,128,327

 

$

301,171,733

 

$

(281,066,581)

 

$

55,895

 

$

20,161,047

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

For the three months ended March 31, 2018

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TOTAL

 

 

COMMON SHARES

 

ACCUMULATED

 

COMPREHENSIVE

 

SHAREHOLDER’S

 

    

SHARES

    

AMOUNT

    

DEFICIT

    

INCOME / (LOSS)

    

EQUITY

Balance as of December 31, 2017

 

51,768,424

 

$

273,210,907

 

$

(240,262,376)

 

$

(35,383)

 

$

32,913,148

Net Loss

 

 —

 

 

 —

 

 

(5,549,521)

 

 

 —

 

 

(5,549,521)

Unrealized Loss on Available-for-Sale Investments

 

 —

 

 

 —

 

 

 —

 

 

(189,995)

 

 

(189,995)

Foreign Currency Translation Adjustments

 

 —

 

 

 —

 

 

 —

 

 

(2,485)

 

 

(2,485)

Stock-based Compensation

 

 —

 

 

446,003

 

 

 —

 

 

 —

 

 

446,003

Balance as of March 31, 2018

 

51,768,424

 

$

273,656,910

 

$

(245,811,897)

 

$

(227,863)

 

$

27,617,150

 

 

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the three months ended March 31, 2019 and  2018

 

(Unaudited)

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net Loss

 

$

(8,678,347)

 

$

(5,549,521)

Adjustments To Reconcile Net Loss To Net Cash Used In Operating Activities:

 

 

 

 

 

 

Depreciation and Amortization

 

 

187,527

 

 

129,076

Stock-based Compensation

 

 

1,517,302

 

 

446,003

Increase in Inventory Reserves

 

 

11,000

 

 

2,046,954

Amortization of Right of Use Asset

 

 

478,442

 

 

 —

Loss on Disposal of Assets

 

 

 —

 

 

3,083

Realized (Gain) Loss on Sale of Investments Available-for-Sale

 

 

(13,888)

 

 

2,892

Foreign Currency Translation Adjustment

 

 

(92)

 

 

(2,446)

Changes in Assets and Liabilities:

 

 

 

 

 

 

Decrease in Accounts Receivable

 

 

268,104

 

 

295,973

Decrease in Insurance Receivable

 

 

371,217

 

 

 —

Decrease in Inventory

 

 

162,208

 

 

59,427

Decrease in Other Assets

 

 

203,982

 

 

238,438

Increase (Decrease) in Accounts Payable

 

 

30,154

 

 

(209,208)

Decrease in Settlement Payable

 

 

(249,999)

 

 

 —

Decrease in Lease Liability

 

 

(467,440)

 

 

 —

Increase (Decrease) in Other Liabilities

 

 

1,319,375

 

 

(1,494,969)

Decrease in Deferred License Revenue

 

 

(563,217)

 

 

(572,709)

Changes in Assets and Liabilities

 

 

1,074,384

 

 

(1,683,048)

Cash Used In Operating Activities

 

 

(5,423,672)

 

 

(4,607,007)

Cash Flows From Investing Activities:

 

 

 

 

 

 

Purchase of Investments Available-for-Sale

 

 

(8,812,954)

 

 

(1,416,665)

Sale of Investments Available-for-Sale

 

 

12,761,519

 

 

1,050,554

Purchase of Equipment

 

 

(121,826)

 

 

(155,712)

Purchase of Research and Development Licenses (Related Party)

 

 

(250,000)

 

 

 —

Cash Provided By (Used In) Investing Activities

 

 

3,576,739

 

 

(521,823)

Cash Flows From Financing Activities:

 

 

 

 

 

 

Proceeds from the Exercise of Employee Stock Options

 

 

147,900

 

 

 —

Repurchase of Common Shares to Pay Employee Withholding Taxes

 

 

(95,429)

 

 

 —

Cash Provided By Financing Activities

 

 

52,471

 

 

 —

 

 

 

 

 

 

 

Decrease In Cash and Cash Equivalents

 

 

(1,794,462)

 

 

(5,128,830)

Cash At Beginning Of Period

 

 

22,713,980

 

 

8,406,917

Cash At End Of Period

 

$

20,919,518

 

$

3,278,087

 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Investing Activities:

 

 

 

 

 

 

Change in Unrealized Loss on Marketable Securities Available-for-Sale

 

$

(7,161)

 

$

(189,995)

Delivery of Common Stock Underlying Restricted Stock Units

 

$

273,830

 

$

 —

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

8


 

Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.  Description of Business

 

Rockwell Medical, Inc. and subsidiaries (collectively, “we”, “our”, “us”, or the “Company”), is a specialty pharmaceutical company targeting end-stage renal disease and chronic kidney disease with products for the treatment of iron deficiency and hemodialysis.  We are also a manufacturer of hemodialysis concentrates for dialysis providers and distributors in the United States and abroad. We supply the domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries, primarily in the Americas and the Pacific Rim. Substantially, all of our sales have been concentrate products and ancillary items.

 

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 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 a registered trademark of Rockwell Medical, Inc.

 

2. Going Concern

 

As of March 31, 2019, the Company had approximate balances of $20.9 million of cash and cash equivalents, $6.9 million of investments available-for-sale, working capital of $24.5 million and an accumulated deficit of $281.1 million. Net cash used in operating activities for the three months ended March 31, 2019 was approximately $5.4 million.

 

The Company will require significant additional capital to sustain its operations and make the investments it needs to execute upon its longer-term business plan. The Company’s existing liquidity is not sufficient to fund its operations and anticipated capital expenditures within one year of the issuance of the accompanying condensed consolidated financial statements. On March 22, 2019, the Company entered into a sales agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time shares of the Company’s common stock, no par value, through the Agent up to $40,000,000.  We are not required to sell any shares at any time during the term of the facility.  Our ability to sell common stock under the facility may be limited by several factors including, among other things, the trading volume of our common stock and certain black-out periods that we may impose upon the facility, among other things. The Company intends to seek additional equity or debt financing; however, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all.

 

The Company’s recurring operating losses, net operating cash flow deficits, and an accumulated deficit, raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the accompanying condensed consolidated financial statements. The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made any adjustments to the accompanying condensed consolidated financial statements related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

3.  Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

 

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Table of Contents

ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The condensed consolidated balance sheet at March 31, 2019 has been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s annual report on Form 10-K filed on March 18, 2019.

The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

Certain reclassifications have been made to the 2018 financial statements and notes to conform to the 2019 presentation.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Significant Accounting Policies

 

Other than leases, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Leases

 

Effective January 1, 2019, the Company accounts for its leases under Accounting Standards Codification (“ASC”) 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.

 

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

 

The Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.

 

 Loss Per Share

 

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”), with a reconciliation of the numerator and denominator of the basic 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 other contracts to issued 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.

 

Basic net loss per share of 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

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

common stock or resulted in the issuance of common stock that 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 is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share for the three months ended March 31, 2019 and 2018 were as follows:

 

 

 

 

 

 

 

As of March 31, 

 

2019

2018

Options to purchase common stock

 

8,289,605

 

6,881,001

Unvested restricted stock awards

 

146,800

 

480,000

Unvested restricted stock units

 

1,461,917

 

 -

 

 

9,898,322

 

7,361,001

 

Adoption of Recent Accounting Pronouncements

 

The Company continually assesses any new accounting pronouncements to determine 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 the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amended the guidance on accounting for leases. The FASB issued this update to increase transparency and comparability among organizations. This update requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The Company adopted this ASU effective January 1, 2019 using the additional (optional) approach by recording a right of use asset and a lease liability of approximately $3.5 million; there was no effect on opening retained earnings, and the Company continues to account for leases in the prior period consolidated financial statements under ASC Topic 840. In adopting the new standard, the Company elected to apply the practical expedients regarding identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components.

 

       In June 2018, the FASB issued ASU 2018-17, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under ASU 2018-17, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company adopted this new standard on January 1, 2019 and the adoption did not have a material impact on its condensed consolidated financial statements and related disclosures.

 

 

 

4. Revenue Recognition

 

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of 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 following five steps are applied to achieve that core principle:

 

·

Step 1: Identify the contract with the customer

·

Step 2: Identify the performance obligations in the contract

·

Step 3: Determine the transaction price

·

Step 4: Allocate the transaction price to the performance obligations in the contract

·

Step 5: Recognize revenue when the company satisfies a performance obligation

 

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.

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 the Company generates its revenue.

 

Product sales –The Company accounts 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 dialysis 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 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 the foreign regulatory body to conclude that regulatory approval is probable, the revenue for the performance obligation is recognized over the term of the license 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.

 

The Company received upfront fees under two distribution and license agreements that have been deferred as a contract liability.  The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”) are recognized as revenue over the estimated term of the distribution and license agreement as regulatory approval was not received and the Company 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 Healthcare Corporation (“Baxter”), are recognized as revenue at the point in time that the estimated product sales under the agreement occur. 

 

For the business under the Company’s distribution agreement with Baxter (the “Baxter Agreement”), and for the majority of the Company’s international customers, the Company recognizes revenue at the shipping point, which is generally 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 purchase 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.

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregation of revenue

 

Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

 

 

 

 

 

 

 

 

 

 

In thousands of US dollars ($) 

 

Three Months Ended March 31, 2019

Products By Geographic Area

    Total

    

U.S.

    

Rest of World

Drug Revenues

 

 

 

 

 

 

 

 

    License Fee – Over time

$

68

 

$

 —

 

$

68

Concentrate Products

 

 

 

 

 

 

 

 

    Product Sales – Point-in-time

 

14,996

 

 

12,923

 

 

2,073

    License Fee – Point-in-time

 

495

 

 

495

 

 

 —

    Total Concentrate Products

 

15,491

 

 

13,418

 

 

2,073

Net Revenue

$

15,559

 

$

13,418

 

$

2,141

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

Products By Geographic Area

 

Total

 

 

U.S.

 

 

Rest of World

Drug Revenues

 

 

 

 

 

 

 

 

    License Fee – Over time

$

68

 

 

 —

 

$

68

Concentrate Products

 

 

 

 

 

 

 

 

    Product Sales – Point-in-time

 

14,376

 

 

12,472

 

 

1,904

    License Fee – Point-in-time

 

504

 

 

504

 

 

 —

    Total Concentrate Products

 

14,880

 

 

12,976

 

 

1,904

Net Revenue

$

14,948

 

$

12,976

 

$

1,972

 

Contract balances

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

 

 

 

 

 

 

 

 

In thousands of US dollars ($)

    

March 31, 2019

    

December 31, 2018

Receivables, which are included in "Trade and other receivables"

 

$

6,711

 

$

6,980

Contract liabilities

 

$

13,766

 

$

14,329

 

There were no impairment losses recognized related to any receivables arising from the Company’s contracts with customers for the three months ended March 31, 2019 and 2018.

 

For the three months ended March 31, 2019 and March 31, 2018, the Company did not recognize material bad-debt expense and there were no material contract assets recorded on the condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018.  The Company does not generally accept returns of its concentrate products and no reserve for returns of concentrate products was established as of March 31, 2019 or December 31, 2018. 

 

The contract liabilities primarily relate to upfront payments and 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, 2019, 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

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, totaled $13.8 million as of March 31, 2019. The amount relates primarily to upfront payments and consideration received from customers that are received in advance of the customer assuming control of the related products. The Company applies the practical expedient in paragraph 606-10-50-14 and does 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 Baxter Agreement are product sales of $10.6 million, which will be amortized through expiration of the agreement on October 2, 2024.

 

5. Investments - Available-for-Sale

 

Investments available-for-sale consisted of the following as of March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

Amortized Cost

 

Unrealized Gain

 

Unrealized Loss

 

Fair Value

Available-for-Sale Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

6,869,060

 

$

7,210

 

$

(49)

 

$

6,876,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Amortized Cost

 

Unrealized Gain

 

Unrealized Loss

 

Fair Value

Available-for-Sale Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

$

10,801,836

 

$

17,415

 

$

(1,192)

 

$

10,818,059

 

The fair value of investments available-for-sale are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date and are classified as Level 1, as described in Note 3, Fair Value Measurement to our condensed consolidated financial statements.

As of March 31, 2019 and December 31, 2018, the amortized cost and estimated fair value of our available-for-sale securities were due in one year or less.

6.  Inventory

 

Components of inventory, net of reserves as of March 31, 2019 and December 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

Raw Materials

 

$

3,344,878

 

$

3,621,548

Work in Process

 

 

240,402

 

 

256,129

Finished Goods

 

 

1,917,290

 

 

1,798,101

Total

 

$

5,502,570

 

$

5,675,778

 

As of March 31, 2019 and December 31, 2018, we classified $1.5 million and $1.6 million, respectively, of inventory as non-current, all of which was related to Triferic or the active pharmaceutical ingredient for Triferic. As of March 31, 2019 and December 31, 2018 we had total Triferic inventory aggregating $5.5 million and $8.0 million respectively, against which we had reserved  $3.4 million and $5.8 million respectively.

 

The $2.1 million net value of Triferic inventory consisted of $0.4 million of Dialysate Triferic finished goods sellable through 2020, and $1.7 million of Triferic API with estimated useful lives extending through 2023.

 

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

7.  Property and Equipment

 

As of March 31, 2019 and December 31 2018, the Company’s property and equipment consisted of the following:

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

Leasehold Improvements

 

$

1,040,890

 

$

929,849

Machinery and Equipment

 

 

4,723,090

 

 

4,800,774

Information Technology & Office Equipment

 

 

1,664,568

 

 

2,459,832

Laboratory Equipment

 

 

668,977

 

 

668,977

 

 

 

8,097,525

 

 

8,859,432

Accumulated Depreciation

 

 

(5,524,845)

 

 

(6,221,139)

Net Property and Equipment

 

$

2,572,680

 

$

2,638,293

 

Depreciation expense for the three months ended March 31, 2019 and 2018, totaled $0.2 million and $0.1 million.  

 

8. Accrued Liabilities

 

Accrued liabilities as of March 31, 2019 and December 31, 2018 consisted of the following:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

Accrued Research & Development Expense

 

$

99,259

 

$

86,820

Accrued Compensation and Benefits

 

 

1,810,456

 

 

1,525,599

Accrued Legal Expenses

 

 

1,054,924

 

 

170,334

Accrued Marketing Expenses

 

 

771,656

 

 

5,000

Other Accrued Liabilities

 

 

2,535,745

 

 

3,342,008

Total Accrued Liabilities

 

$

6,272,040

 

$

5,129,761

 

 

9. Deferred Revenue

 

In October of 2014, the Company entered into a 10 year distribution agreement with Baxter and received an upfront fee of $20 million. The upfront fee was recorded as deferred revenue and is being recognized based on the proportion of product shipments to Baxter in each period, compared with total expected sales volume over the term of the Distribution Agreement. The Company recognized revenue of approximately $0.5 million during the three months ended March 31, 2019 and 2018, respectively. Deferred revenue related to the Baxter agreement totaled $10.6 million as of March 31, 2019 and $11.1 million as of December 31, 2018.

 

If a “Refund Trigger Event” occurs, we would be obligated to repay a portion of the upfront fee and any paid portion of the facility fee. In the event of a Refund Trigger Event occurring from January 1, 2019 to December 31, 2021, Baxter would be eligible for a 25% refund of the Agreement’s Upfront Payment. 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 eligible for a partial refund of $6.6 million. In no event would more than one refund be required to be paid.

During the year ended December 31, 2016, the Company entered into a distribution agreement with Wanbang and received an upfront fee of $4.0 million. 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 $0.1 million during the three months ended March 31, 2019 and 2018. Deferred revenue related to the Wanbang agreement totaled $3.1 million as of March 31, 2019 and $3.2 million as of December 31, 2018.

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

10.  Shareholders’ Equity

 

Preferred Stock

 

As of March 31, 2019 and December 31, 2018, there were 2,000,000 shares of preferred stock authorized and no shares of preferred stock issued or outstanding.

 

Common Stock

 

During the three months ended March 31, 2019, 30,000 vested employee stock options were exercised for cash proceeds of $147,900, at a weighted average exercise price of $4.93.

 

Controlled Equity Offering

 

On March 22, 2019, the Company entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell from time to time shares of the Company’s common stock, no par value, through the Agent. The offering and sale of up to $40,000,000 of the shares has been registered under the Securities Act of 1933, as amended, pursuant to the Company’s registration statement on Form S-3 (File No. 333-227363), which was originally filed with the SEC on September 14, 2018 and declared effective by the SEC on October 1, 2018.  The base prospectus contained within the registration statement, and a prospectus supplement that was filed with the SEC on March 22, 2019.

 

Sales of the shares, if any, pursuant to the Sales Agreement, may be made in sales deemed to be a “at the market offering” as defined in Rule 415 (a)(14) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for the Company’s common stock. The Company intends to use the proceeds from the offering for working capital and other general corporate purposes. The Company may suspend or terminate the Sales Agreement at any time.

 

During the three months ended March 31, 2019, the Company did not sell any shares of common stock under the Sales Agreement. As of March 31, 2019, $40 million of common stock remained available to be sold under this facility.

 

Subsequent to March 31, 2019, the Company sold 437,043 shares of its common stock for gross proceeds of $2,296,235, at a weighted average selling price of approximately $5.25. The Company paid $57,406 in commissions related to the sale of the common shares.

 

Restricted Common Stock

 

During the three months ended March 31, 2019, 98,500 shares of common stock related to fully vested restricted stock units were delivered to an officer of the Company. The Company withheld 34,327 of these common shares at a fair value of $95,429 to cover the officer’s withholding taxes related to the vesting of restricted stock units.

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

11.  Stock-Based Compensation

 

The Company recognized total stock-based compensation expense during the three months ended March 31, 2019 and 2018 as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

    

2019

    

2018

Service based awards:

 

 

 

 

 

 

Restricted stock awards

 

$

 -

 

$

240,827

Restricted stock units

 

 

344,351

 

 

 -

Stock option awards

 

 

652,024

 

 

205,176

 

 

 

996,375

 

 

446,003

Performance based awards:

 

 

 

 

 

 

Restricted stock units

 

 

398,388

 

 

 -

Stock option awards

 

 

122,539

 

 

 -

 

 

 

520,927

 

 

 -

Total

 

$

1,517,302

 

$

446,003

 

Restricted Stock

 

A summary of the Company’s restricted stock awards during the three months ended March 31, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant-Date

 

 

Number of Shares

 

 

Fair Value

Unvested at December 31, 2018

 

146,800

 

$

5.70

Unvested at March 31, 2019

 

146,800

 

$

5.70

 

A summary of the Company’s restricted stock awards during the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant-Date

 

 

Number of Shares

 

 

Fair Value

Unvested at December 31, 2017

 

480,000

 

$

7.27

Unvested at March 31, 2018

 

480,000

 

$

7.27

 

The fair value of restricted stock awards are measured based on their fair value on the date of grant and amortized over the vesting period of 20 months. As of March 31, 2019 unvested restricted stock awards of 146,800 were related to performance based awards.

 

Service Based Restricted Stock Units

 

A summary of the Company’s service based restricted stock units during the three months ended March 31, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant-Date

 

 

Number of Shares

 

 

Fair Value

Unvested at December 31, 2018

 

472,959

 

$

4.32

Unvested at March 31, 2019

 

472,959

 

$

4.32

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The fair value of service based restricted stock units are measured based on their fair value on the date of grant and amortized over the vesting period. The vesting periods range from 1-3 years. Stock-based compensation expense of $0.3 million was recognized during the three months ended March 31, 2019. No stock-based compensation was recognized during the three months ended March 31, 2018, since there were no service based restricted stock units granted during that period. As of March 31, 2019, the unrecognized stock-based compensation expense was $1.3 million.

 

Performance Based Restricted Stock Units

 

A summary of the Company’s performance based restricted stock units during the three months ended March 31, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant-Date

 

 

Number of Shares

 

 

Fair Value

Unvested at December 31, 2018

 

988,958

 

$

4.48

Unvested at March 31, 2019

 

988,958

 

$

4.48

 

Stock-based compensation expense recognized for performance based restricted stock units was $0.4 million during the three months ended March 31, 2019. No stock-based compensation was recognized during the three months ended March 31, 2018, since there were no performance based restricted stock units granted during that period. As of March 31, 2019, the unrecognized stock-based compensation expense related to performance restricted stock units was $2.3 million.

 

Service Based Stock Options

 

The fair value of the service based stock options granted for the three months ended March 31, 2019 were based on the following assumptions:

 

 

 

March 31,

 

2019

Exercise price

$3.08 - $6.21

Expected stock price volatility

67.5% - 68.4%

Risk-free interest rate

2.5% - 2.6%

Term (years)

5.5  -6.5

 

A summary of the Company’s service based stock option activity for the three months ended March 31, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

Shares

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

Underlying

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

Term

 

 

Value

Outstanding at December 31, 2018

 

7,856,480

 

$

7.50

 

 

5.2

 

$

 -

Granted

 

75,000

 

$

3.49

 

 

9.8

 

 

 

Exercised

 

(30,000)

 

$

4.93

 

 

 -

 

 

 

Outstanding at March 31, 2019

 

7,901,480

 

$

7.47

 

 

5.0

 

$

1,959,736

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2019

 

6,707,693

 

$

8.05

 

 

4.2

 

$

206,872

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of the Company’s service based stock option activity for the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

Shares

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

Underlying

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

Term

 

 

Value

Outstanding at December 31, 2017

 

6,906,001

 

$

7.92

 

 

5.1

 

$

976,335

Forfeited

 

(25,000)

 

$

8.23

 

 

 -

 

 

 

Outstanding at March 31, 2018

 

6,881,001

 

$

7.92

 

 

4.8

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2018

 

6,323,160

 

$

7.90

 

 

4.5

 

$

738,740

 

The aggregate intrinsic value in the table above is calculated as the difference between the closing price of our common stock and the exercise price of the stock options that had strike prices below the closing price.

 

During the three months ended March 31, 2019, the Company granted to certain employees stock options to purchase up to 75,000 shares of common stock. The vested options were exercisable at an average price of $8.05 per share and the unvested options were exercisable at an average of $4.23 per share.

 

As of March 31, 2019 and 2018, stock-based compensation expense of $0.7 million and $0.2 million was recognized, respectively. As of March 31, 2019, total stock-based compensation expense related to unvested options not yet recognized totaled approximately $2.2 million. 

 

Performance Based Stock Options

 

A summary of the performance based stock options for the three months ended March 31, 2019, is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Exercise

 

 

Number of Shares

 

 

Price

Outstanding at December 31, 2018

 

388,125

 

$

4.70

Outstanding at March 31, 2019

 

388,125

 

$

4.70

 

 

 

 

 

 

Exercisable at March 31, 2019

 

 -

 

$

 -

 

Stock-based compensation expense recognized for performance based stock options was $0.1 million during the three months ended March 31, 2019. No stock-based compensation was recognized during the three months ended March 31, 2018, since there were no performance based stock options granted during that period. As of March 31, 2019, the unrecognized stock-based compensation expense related to performance based stock options was $0.8 million.

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12.  Related Party Transactions

 

Product License Agreements

 

The Company is a party to an in-license agreement for exclusive worldwide rights to certain patents and information related to our Triferic® product. On October 7, 2018, the Company entered into a Master Services and IP Agreement (the “Charak MSA”) with Charak, LLC and Dr. Ajay Gupta (collectively “Charak”), who serves as Executive Vice President and Chief Scientific Officer of the Company. Pursuant to the MSA, the parties entered into three additional agreements described below related to the license of certain soluble ferric pyrophosphate (“SFP”) intellectual property owned by Charak, as well as the Employment Agreement (defined below). The Charak MSA provides for a payment of $1.0 million to Dr. Gupta, payable in four quarterly installments of $250,000 each on October 15, 2018, January 15, 2019, April 15, 2019 and July 15, 2019, and reimbursement for certain legal fees incurred in connection with the Charak MSA. The Company recorded $1.1 million as Research and Development Expense – License Acquired (Related Party) for the twelve months ended December 31, 2018. As of March 31, 2019, the Company paid two of the quarterly installments totaling $500,000 and accrued $100,000 for the reimbursement of certain legal expenses. As of March 31, 2019 and December 31, 2018, the Company accrued $600,000 and $850,000, respectively, as a related party payable on the condensed consolidated balance sheet.

 

Pursuant to the Charak MSA, the aforementioned parties entered into an Amendment, dated as of October 7, 2018 (the “Charak Amendment”), to the Licensing Agreement between the Company and Charak, dated January 7, 2002, as amended (the “2002 Agreement”), under which Charak granted the Company an exclusive, worldwide, non-transferable license to commercialize SFP for the treatment of patients with renal failure. The Charak Amendment amends the royalty payments due to Charak under the 2002 Agreement such that the Company is liable to pay Charak royalties on net sales by the Company of products developed under the license, which includes the Company’s Triferic® product, at a specified rate until December 31, 2021 and thereafter at a reduced rate from January 1, 2022 until February 1, 2034. Additionally, the Company shall pay Charak a percentage of any sublicense income during the term of the agreement, which amount shall not be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and be no less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.

 

Also pursuant to the Charak MSA, the Company and Charak entered into a Commercialization and Technology License Agreement IV Triferic®, dated as of October 7, 2018 (the “IV Agreement”), under which Charak granted the Company an exclusive, sublicensable, royalty-bearing license to SFP for the purpose of commercializing certain intravenous-delivered products incorporating SFP for the treatment of iron disorders worldwide for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. The Company is liable to pay Charak royalties on net sales by the Company of products developed under the license at a specified rate until December 31, 2021. From January 1, 2022 until February 1, 2034, the Company is liable to pay Charak a base royalty at a reduced rate on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the IV Agreement, which amount shall not be less than a minimum specified percentage of net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and not be less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.

 

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ROCKWELL MEDICAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Also pursuant to the Charak MSA, the Company and Charak entered into a Technology License Agreement TPN Triferic®, dated as of October 7, 2018 (the “TPN Agreement”), pursuant to which Charak granted the Company an exclusive, sublicensable, royalty-bearing license to SFP for the purpose of commercializing worldwide certain parenteral nutritional (TPN”) products incorporating SFP. The license grant under the TPN Agreement continues for a term that expires on the later of February 1, 2034 or upon the expiration or termination of a valid claim of a licensed patent. During the term of the TPN Agreement, the Company is liable to pay Charak a base royalty on net sales and an additional royalty on net sales while there exists a valid claim of a licensed patent, on a country-by-country basis. The Company shall also pay to Charak a percentage of any sublicense income received during the term of the TPN Agreement, which amount shall not be less than a minimum royalty on net sales of the licensed products by the sublicensee in jurisdictions where there exists a valid claim, on a country-by-country basis, and not be less than a lower rate of the net sales of the licensed products by the sublicensee in jurisdictions where there exists no valid claim, on a country-by-country basis.