Wednesday, May 29, 2013

RMTI- Rockwell Medical is currently a strong buy

So let me start by saying that the views expressed here are my own and I do not advise anyone to buy or sell based upon my analysis. I am long RMTI and in the next few paragraphs i will explain why I believe it to be a good investment in the short term.

RMTI- Rockwell medical is a fully-integrated biopharmaceutical company targeting end-stage renal disease (ESRD) and chronic kidney disease (CKD) with innovative products and services for the treatment of iron deficiency, secondary hyperparathyroidism and hemodialysis.

There are approx 430,000 patients with End Stage Renal Disease (ESRD) being treated with dialysis dialysis in the U.S., and estimated 2.2 million ESRD patients worldwide, who require treatment for anemia. Anemia is a common occurrence in patients with ESRD due to the fact that the kidneys have become damaged and no longer produce and vital hormone called  Erythropoietin.

Currently patients with renal failure are treated with erythropoiesis-stimulating agents (ESA's) for anemia, primarily used in dialysis patients, most of whom have treatments MWF or TTHSAT. ESA's are used in conjunction with IV Iron Dextran to keep the patients hemoglobin levels elevated but can put them at risk for stroke or MI if their hemoglobin goes in the excess of 11g/dl (grams per deciliter). For normal healthy males the level is 14-18 g/dl, females 11-16 g/dl. The current standard of treatment is Erythropoietin (EPO), a synthetic form of the hormone that is produced mainly by the kidneys (before they were damaged). EPO shots are given quite frequently and it can take a month or two before a significant enough rise in hemoglobin/hematocrit levels (> 5%) for the patient to start feeling any better.

When patients are administered ESA's during their dialysis visits it increases the bodies demand for iron, as it as precursor in the production of Red Blood Cells (RBC's). Also, the process of dialysis reduces the amount of iron in the blood stream. To treat the low levels of iron in the blood stream, patients are given Intravascular (IV) Iron at the same time ESA's are given to start the production of RBC's. Since the levels of Iron are deficient, the clinicians have to administer higher doses of ESA's and this process is repeated several times throughout the month until Hemaglobin/Hematocrit levels increase and can sometime take several months.

Unfortunately, this repeated use of giving ESA's along with IV Iron supplements can cause the body to react in an unfavorable manner for the patient. The bodies reticuloendothelial system isolates the IV iron in the liver and releases a chemical called hepcidin, which blocks the release of the iron that is bound to the liver. This buildup of iron in the liver is not a benign event, it can lead to toxicity and not to mention leads to hypoxia (decreased oxygen being delivered) to organs, tissues, and cells; due to the decreased production of RBC's. When the patient returns to the dialysis center, labs are redrawn, pt is given more ESA's along with IV Iron supplements and the cycle continues until liver toxicity occurs, pt becomes hypoxic at the cellular level or if its the one day a week that the doctor actually shows up to the dialysis center to check up on the patient.

 The severe danger is that at some point the body reaches its breaking point and with excess amount of ESA's on board it starts increasing the production of RBC's leading to a high hemaglobin level, far in the excess of the safe range. This leads to strokes, Heart attacks, Pulmonary Embolism, Deep vein thrombosis, etc.

RMTI is currently working on developing and marketing Soluble Ferric Pyrophosphate (SFP). SFP is the company's lead investigational product, currently approaching the end of its Phase III trial (CRUISE 1 & 2), with results of CRUISE 1 expected in July and CRUISE 2 in October. SFP is an iron delivery therapy, designed to replace the current method of iron delivery to dialysis patients.

Here is an excerpt from the companies website:

"SFP has been designed to effectively address the current challenges in anemia management by:
  • Maintaining hemoglobin (Hgb) levels within a safe range using moderate ESA doses
  • Improving response to ESA therapy, while avoiding excessively high doses and potential risks
  • Preventing iron from being stored in the liver thereby avoiding liver toxicity
  • Reducing current drug administration costs
SFP is intended to deliver iron directly to the bloodstream in small, continuous doses three times per week and is designed to replace the 5-7 mg of iron that is lost during every dialysis treatment. This mode of delivery maintains patient Hgb within a target range resulting in moderate ESA dose and improved ESA response. With current IV iron therapy, iron levels are not always adequate when ESA’s are dosed and therefore greater ESA doses are needed; this is believed to contribute to Hgb variability and related adverse consequences.
SFP’s unique properties enable it to avoid storage in the liver upon dosing. Avoiding iron storage in the liver eliminates liver toxicity associated with current IV iron delivery. It is believed that approximately 50 percent of the IV iron that is dosed to a patient never leaves the liver and over time may cause adverse consequences. (Source: Coyne DW, Kapoian T, Suki W, et al. Ferric gluconate is highly efficacious in anemic hemodialysis patients with high serum ferritin and low transferrin saturation: results of dialysis patients' response to IV iron with elevated ferritin (DRIVE) study. JASN. 2007;18:975-984.)
In addition to the potential to provide significant patient benefit and improved patient outcome, SFP is expected to reduce related healthcare costs considerably. Because SFP is delivered via dialysate, required supplies such as needles and syringes needed for current IV therapy are avoided and nursing time to deliver and manage IV iron is no longer needed. Furthermore, because SFP is designed to continously maintain iron balance, as opposed to IV iron which is dosed infrequently to replenish iron after Hgb has dropped below a certain threshold, ESA dose is expected to be significantly reduced, which should result in considerable savings to the dialysis provider.
In the U.S. approximately $680M per year is spent on IV iron for ESRD patients; and $1.5B globally."

If you happen to have the misfortune of being in the medical field in the U.S. with the recent transition to obamacare, you have probably noted a few changes. At this time if a patient with COPD, CHF or Diabetes returns to the hospital within 30 days of treatment for the same problem, the hospital is not reimbursed for the visit by Medicare/Medicaid. 

Dialysis patients are in and out of the hospital on quite the regular basis and a shift in our culture has come upon; COST BASIS. 

 Here is the data from the recent meeting in which the company discussed their clinical data:
"The primary objective of the study was to determine whether regular administration of SFP via dialysate reduced the requirement for ESA dose by maintaining iron balance and optimizing iron delivery. The primary endpoint was the percent change in ESA dose from baseline to end of treatment (final two weeks of treatment period). Baseline ESA dose was similar between SFP (9483 U/wk) and placebo (9205 U/wk). In the modified ITT population, at the end of the study, ESA dose in the SFP arm was 9871 U/wk and placebo was 12628 U/wk. After adjusting for differences in baseline hemoglobin, the SFP arm required 35% less prescribed ESA compared to placebo. The difference between the two groups was statistically significant (p=0.045). The ESA sparing effect from SFP was observed without any increase in serum ferritin or pre-dialysis transferrin saturation. The PRIME study demonstrated that regular administration of SFP-iron via dialysate reduced the usage of erythropoietin stimulating agents (ESAs) during hemodialysis by 35% while maintaining iron balance and maximizing iron delivery."

Considering that the market for ESA's in the U.S is approx $2 Billion and AMGEN recently paid $24.9 million dollars for settling allegations for doing pharmacy kickbacks for using their ESA drug over competitors; this appears to be a lucrative market. A 35% reduction in the usage of ESA's is quite an achievement, IF THE RESULTS ARE REPRODUCED IN PHASE III.

Here are somethings to keep in mind:
1. The company recently completed financing via classic biotech dilution. One was for $12.9 million on March 20th and the second for a total of $40.3 million in which the the underwriters of its recently announced public offering have exercised their over-allotment option to purchase an additional 1,721,311 shares of its common stock at the offering price of $3.05. So this puts the question of financing to rest for the near term. However, the companies management has a long history of financial incompetence.

2. In completed clinical trials to date, SFP has demonstrated that it can safely deliver iron to the bone marrow (where the production of Red Blood Cells takes place). SFP is currently in ongoing Phase 3 clinical studies (CRUISE-1 and CRUISE-2) to address an estimated $600M U.S. and $1B global market. The completion of Cruise-1 was announced on 05/28/13.

3. Rockwell is preparing to launch its FDA approved generic drug called Calcitriol. Calcitriol is active vitamin D injection and indicated for the treatment of secondary hyperparathyroidism in dialysis patients. Rockwell intends to enter the vitamin D market in 2013, addressing an estimated $350M U.S. market. I do not believe that company will reach high market penetration but still will be able to generated positive income from this endeavor.

4. On March 8, 2013 RMTI announced that it has signed a contract with NxStage® Medical, Inc. to manufacture dialysate concentrate for the NxStage System One", the first and only truly portable hemodialysis system cleared for home use by the U.S. Food & Drug Administration. The contract term is for two years. You can research the company at

5. The stock has been in a down trend for the last year with a recent reversal; a 52 week high of $10.70 and a 52 Week low of $3.16. The technical analysis shows to be bullish if the stock could break the $3.86 resistance. The stock also has high call option interest along with approx 27% short interest which could trigger a short squeeze if positive data is announced. 

6. Current revenue of RMTI stands at approx $50 million and a market cap of $100.59 million, positive Phase III results could propel the stock to new highs. After the release of positive phase II data, the companies stock did surge to approx $8/share but being low on cash and a balance sheet that indicates a drug addict is responsible for accounting, it did not last long. 

7. According to the Wall street Journal the average analyst recommendation is a buy for all 3 analysts covering the stock with $15.33 as the average consensus price.

8. According to Finviz, Institutional Holding shows to be at 19.46% 

In conclusion, I am betting that the stock will see a positive trend leading to data announcement. GL to all and if i missed something in my analysis please enlighten me as i am always open to learning from others. Thank you.


  1. Apologies for the long read but its always worth it to do DD.

  2. P = 0.045 is too close to 0.05, There is not much room for error here. In phase III trial where there are more pt, it is very likely that P value will vary. Let's hope it's not more than +/- 0.005.

  3. Here is the study that was published by Rockwell earlier this year, P=0.034.