Rockwell Medical Inc | August 13, 2015
MORGAN STANLEY & CO. LLC
August 13, 2015
Andrew S Berens
Rockwell Medical Inc
Andrew.Berens@morganstanley.com
+1 212 761-3017
Thomas J Smith
Survey Says Centralized Dispensing,
Need for Long Pilot Studies Hamper
Early Adoption of Triferic: Initiating at
UW
Industry View
In-Line
Stock Rating
Underweight
Price Target
$7.00
Triferic is likely to have an anemic launch. Consultants indicate 12-18
month pilot testing is needed before major dialysis clinics become
early adopters, confirmed by our AlphaWise survey. Most centers
have switched from jugs to central vats, making individually supplied
Triferic usage cumbersome.
We are initiating coverage of Rockwell Medical Inc (RMTI) with an
Underweight rating and a $7 price target. Our bearishness stems from our
strong conviction Rockwell's Triferic, an iron containing concentrate for
dialysis, will have a disappointing launch relative to expectation, pressuring
RMTI. This is a commercial risk thesis and our high conviction is based on 1)
multiple consultations with external clinicians, 2) dialysis center site visits, and
3) our July 2015 AlphaWise survey of 50 US nephrologists. Our work suggests,
prior to adoption, major dialysis providers are likely to conduct 12 to 18
month pilot testing for safety, feasibility and practicality, especially since most
have switched to centralized vat systems from individual jugs. Adopting
Triferic involves switching back to jugs or requiring all patients receive
supplemental iron, not standard practice. Management comments on the Q2
call about 4-week pilots suggest no large dialysis providers are likely to be
early Triferic adopters, leading to a very disappointing launch.
Majority of dialysis clinics use vats instead of jugs: External
consultants and our AlphaWise survey confirm over 75% of dialysis clinics
have switched from individual jugs to centralized vats, a change since the
Triferic program began. Triferic is supplied in vials for individual use,
making usage in vats difficult and potentially increasing infection. Link to
AlphaWise Survey
Long pilots necessary before adoption: Using Triferic in vats would
provide iron to all patients in a dialysis center, not a current practice. Prior
to adopting Triferic, our diligence suggests long pilot tests would be
needed to confirm safety as well as financial feasibility.
Dialysis centers need to confirm savings with Triferic: Because of the
bundle, dialysis centers are extremely cost-sensitive. The Triferic trial
showing savings by decreasing EPO usage was flawed and not indicative
of the anticipated real-world experience, as noted by the FDA. As
confirmed by our survey, pilot studies are necessary to test the feasibility
of real-world use.
Large dialysis providers not early adopters: External consultants and
Thomas.J.Smith@morganstanley.com
+1 212 761-6209
Amy Le
Amy.Le@morganstanley.com
+1 212 761-0840
Rockwell Medical Inc ( RMTI.O, RMTI US )
Biotechnology / United States of America
Stock Rating
Industry View
Price target
Shr price, close (Aug 12, 2015)
Mkt cap, curr (mm)
52-Week Range
Fiscal Year Ending
ModelWare EPS ($)
Prior ModelWare EPS
($)
P/E
Consensus EPS ($)§
Div yld (%)
Underweight
In-Line
$7.00
$13.74
$691
$18.90-8.10
12/14
(0.52)
-
12/15e
(0.09)
-
12/16e
0.25
-
12/17e
0.48
-
NM
-
NM
(0.08)
-
54.5
0.86
-
28.7
1.01
-
Unless otherwise noted, all m etrics are based on Morgan Stanley ModelWare fram ework
§ = Consensus data is provided by Thom son Reuters Estim ates
e = Morgan Stanley Research estim ates
QUARTERLY MODELWARE EPS ($)
Quarter
Q1
Q2
Q3
Q4
2014
(0.20)
(0.08)
(0.10)
(0.14)
2015e
Prior
-
2015e
Current
(0.07)a
(0.05)a
(0.01)
0.03
2016e
Prior
-
2016e
Current
-
e = Morgan Stanley Research estim ates, a = Actual Com pany reported data
Exhibit 1: RMTI Risk Profile
Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a result,
investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of Morgan
Stanley Research. Investors should consider Morgan
Stanley Research as only a single factor in making their
So
u rce: Co mp an ydecision.
data, Mo rgan Stan ley Research
investment
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
1
Rockwell Medical Inc | August 13, 2015
our AlphaWise survey suggest little meaningful pilot testing is occurring
or planned. We have confirmation that Fresenius, which comprises 35% of
the market, as of June, had no plans to test or use Triferic.
Consensus too bullish on launch and peak Triferic sales. We model a
slow Triferic launch, tempered by the major dialysis centers pilot testing.
We divide revenues by provider, assuming minimal penetration into
Fresenius. Our 2015 and 2016 revenue estimates of $55mm and $89mm
are ~15% and ~30% below consensus. This difference is primarily driven
by expectations for a slower Triferic launch.
Risk Reward: Our $20 bull case assumes wide adoption of Triferic and a
favorable ex-US partnership for the product. In the bear case, our $4
valuation assumes Triferic only penetrates small and independent dialysis
centers.
2
Rockwell Medical Inc | August 13, 2015
Risk Reward
Commercial Challenges to Drag on RMTI Shares
Investment Thesis
$ 25
20
$20.00 (+46%)
15
$13.74
10
$7.00 (-49%)
5
$4.00 (-71%)
0
Aug-13
Feb-14
Aug-14
Price Target (Aug-16)
Feb-15
Historical Stock Performance
Aug-15
Feb-16
Current Stock Price
Aug-16
WARNINGDONOTEDIT_RRS4RL~RMTI.O~
So u rce: Co mp an y data, Mo rgan Stan ley Research
Price Target $7
We derive our PT from a risk-adjusted sum-of-the-parts (SOP)
analysis. We forecast expected revenue/profits for each
drug/condition combination with varying commercial assumptions
for base/bull/bear cases. We assume an 12% WACC and terminal
value of 2.5x the 2030 cash flow to derive our PT. We then assign
a probability factor for each drug/condition to reflect clinical and
regulatory risks/timing, sum the risk-adjusted NPVs and add cash
in excess of required investment.
Bull
Faster-than-anticipated uptake of Triferic and the formation of a
partnership with current competitor Fresenius, leading to broad
adoption of both Triferic and Calcitriol. This scenario also includes a
lucrative ex-US partnership for Triferic, providing a large upfront
payment and favorable (>20%) royalties on sales. We model peak
sales of Triferic of ~$475mn in this scenario, approximately 2.5x
our peak Base case sales.
$20
Risk-adjusted SOP
Base
$7
Risk-adjusted SOP
Bear
$4
Risk-adjusted SOP
A tepid launch for Triferic, with uptake hindered by multiple
headwinds including the need for pilot studies prior to widespread
adoption, dialysis center conversion to centralized bicarbonate
distribution, and the lack of a definitive Epo-sparing benefit. We
model peak Triferic sales of $190mn in 2029.
Triferic fails to gain commercial acceptance with either of the two
largest dialysis providers (Fresenius and DaVita), and gains only
minimal penetration into small and independent dialysis centers.
We model peak Triferic sales of $95mn in this scenario.
We are Underweight RMTI given we believe that
Rockwell's Triferic is unlikely to experience
meaningful usage in dialysis.
Majority of dialysis clinics use vats instead of
jugs: External consultants and our AlphaWise
survey confirm the majority of dialysis clinics have
switched from individual jugs to centralized vats.
Triferic is supplied in individual vials, making usage
in these large vats cumbersome and potentially
increasing the risk of infection.
Pilots necessary prior to widespread
adoption: Using Triferic in vats would provide iron
to all patients in a dialysis center, not a current
practice. Prior to adopting Triferic, our diligence
suggests 12-18 month pilot testing would be
necessary, both to confirm safety as well as
financial feasibility.
Dialysis centers need to confirm EPO sparing:
Because of the bundle, dialysis centers are
extremely cost-sensitive. The Rockwell trial
showing EPO sparing was flawed and not
indicative of the anticipated real-world experience,
as noted by the FDA in denying Triferic an EPO
sparing label. Again, pilot studies are likely
necessary, and they would take 12-18 months to
generate meaningful data.
Key Value Drivers
The main valuation driver is the commercial launch
execution for Triferic.
Potential Catalysts
Triferic and calcitriol launch 3Q15
Risks to Achieving Price Target
Dialysis centers, especially large providers (DaVita
and Fresenius), widely adopt Triferic without the
need for lengthy pilot studies
Triferic sales significantly exceed expectations
Potential M&A
3
Rockwell Medical Inc | August 13, 2015
Table of Contents
Investment Summary- Page 5
Valuation - Page 7
MS Rockwell Risk Analysis - Page 9
Lessons Learned from Dialysis Site Visit - Page 11
Insights from Our AlphaWise Survey - Page 14
Upcoming Catalyst - Page 18
Triferic Key Debates Discussion - Page 19
Triferic Phase 3 Clinical Program - Page 24
Triferic Primer - Page 30
Calcitriol: Launching into a Competitive, Price Sensitive Market - Page 31
Core Dialysate Business - Page 33
Financials - Page 34
4
Rockwell Medical Inc | August 13, 2015
The Times They Are A-Changing...
We are launching coverage on Rockwell Medical (RMTI) with an Underweight rating and a $7 price
target, which represents a ~50% discount from current levels. Rockwell Medical has two recently approved
drugs, branded Triferic and generic calcitriol, as well as a legacy business selling concentrates. Neither Triferic or
calcitriol has launched in the US after Triferic was approved in January 2015, and calcitriol in June 2014, but
management indicates commercial preparations are underway. The main value driver for RMTI stock is Triferic,
which represents 50% of our RMTI valuation. We view calcitriol as less important, representing ~20% of our
RMTI value. Triferic is a solution that is added to dialysate, which is the fluid that is put into the dialysis machines
to allow them to remove impurities from patients. Triferic is novel in that it provides iron to patients during the
dialysis procedure, purportedly replacing that which is routinely lost in a more physiological and safer route
than intravenous iron, the current standard of care in these patients.
Why are we Underweight? Our Underweight thesis reflects our bearish views on the commercial prospects
for Triferic, which we see as having extremely slow uptake for a number of reasons. Our diligence suggests that
the large chain dialysis providers have little interest in Triferic, and that the necessary pilot studies to prepare for
Triferic usage are not being conducted or planned to any meaningful extent. Our diligence process included 1)
site visits to dialysis centers, 2) multiple consultations with external clinicians, 3) an AlphaWise survey, and 4)
discussions with nurse practitioners, physicians, and dialysis center managers at an annual nephrology
conference. One of Triferic's main logistical challenges is that over the last decade, after the Triferic clinical
program began, most dialysis centers switched to a centralized bicarbonate dispensary (100 gallon vats) for
convenience and savings. Triferic, which was tested and is supplied to be mixed individually in 2.5 gallon jugs,
appears ill-suited for this change, especially since usage in the central dispensary may increase infections and
would require all patients receive supplemental iron.
Key Takeaways
Triferic supplied for usage with individual jugs, while majority of dialysis centers have switched to
centralized vats: We believe the commercial prospects for Triferic may be significantly hampered because it is
only supplied in ampules for reconstitution in 2.5 gallons of bicarbonate, usage tailored for one patient.
Previously, dialysis centers utilized individual “jugs” for each patient (see exhibit 2). Over the last 5 to 7 years,
after the Triferic clinical program began, the majority of dialysis centers switched to large “vats” (Exhibit 2) that
allow centralized distribution of the bicarbonate solution and bulk mixing, usually once daily. This saves the
dialysis centers expense and is more convenient. Our AlphaWise survey suggests that over 75% of patients may
be treated by centers that use centralized vats. Centralized systems are preferred by the large chain providers,
who buy in bulk to save costs.
Bulk mixing of Triferic possible, but may increase infection rate: Our physician consultants expressed
concerns about bulk mixing of Triferic in centralized vats that could be piped to patients. According to our
consultants, these vats are already prone to high infection rates, and adding iron to the solution could increase
the risk of bacterial colonization. Triferic is iron, which is often added to petri dishes as a medium for bacterial
cultures. Great precaution is taken to prevent infection in these vats, which could pose a safety risk, as well as
hampering productivity. Many states have rigorous requirements and regulations regarding the maintenance of
the fluids utilized in dialysis centers to prevent infections and cross-contamination. Our AlphaWise survey found
that 50% of respondents expressed some degree of concern about central vats getting infected.
Bulk mixing would require all patients in dialysis center to get supplemental iron: Our consultants also
expressed concerns about converting an entire dialysis center to Triferic, which would mean that all patients in
that center would receive Triferic, and thus, supplemental iron. While the majority of dialysis patients do require
supplemental iron, our consultants indicated that up to 15% may not need iron and/or have signs of iron
overload. Despite Triferic’s purported ability to only supply iron as needed, these consultants expressed
reluctance to use the drug in all of their patients. Our AlphaWise survey found that 40% of physicians felt
5
Rockwell Medical Inc | August 13, 2015
comfortable converting all patients to Triferic, with 60% uncomfortable or unsure about widespread adoption.
Pilot studies likely to delay launch: Our physician consultants indicated that all the large chain dialysis centers
and many of the smaller centers considering switching to Triferic would conduct extensive “pilot studies,” in
which a few centers try the drug in order to measure safety, financial impact, and adjust existing protocols.
Given the infection concerns about using Triferic in bulk vats and the safety issues surrounding changing
anemia management protocols, our consultants had very high levels of conviction that these pilot studies would
be needed, and were likely to last at least 12 to 18 months. Our AlphaWise survey found that 76% of
respondents felt that pilot studies should be conducted ahead of Triferic adoption, and 70% stated that
conversion would require existing EPO and iron protocols.
Other anemia drugs like Affymax's Hematide had pilot testing for over a year to determine feasibility and safety.
Because this drug failed the pilots and was eventually withdrawn from the market, the large chain providers
have become incrementally more cautious. The smaller dialysis chains may require less testing, but these units
comprise less than a third of the market, and many of these centers may also want to conduct pilots prior to
switching the entire unit to Triferic. Pilot studies would also allow adjustment of the existing anemia
management protocols from the usage of Triferic.
Based on Rockwell management comments on the recent earnings call about planned 4-week pilot studies, we
believe the company may have convinced some of the smaller providers to conduct short-term studies. These
providers are unlikely to generate meaningful demand for Triferic. In our opinion, the lack of meaningful, longterm pilot studies suggests that none of the large chain dialysis providers will be early adopters. Without these
providers, the Triferic launch is likely to disappoint expectations.
EPO sparing, Triferic's main value proposition, not in the label, and data questionable: Triferic was
approved, but the label neglected to mention “EPO sparing.” Triferic’s main financial value proposition was that
the drug would allow the dialysis centers to use less EPO, a costly drug that boosts red blood cells. However, the
pivotal study results (PRIME) regarding EPO usage were driven primarily by the control arm, which did not get
routine iron supplementation according to real world practice, and thus, had a 40% increase in EPO usage from
baseline. The Triferic arm also had an increase in EPO usage, albeit less than the control group. The FDA advisory
panel debated these issues, and the agency did not grant Triferic EPO sparing in the label. Testing the financial
feasibility of converting to Triferic is an additional reason that the dialysis units would likely want to pilot test the
drug before widespread conversion, especially given the cost-sensitive environment. Our AlphaWise survey
found that 64% of respondents were neutral or disagreed that Triferic had an EPO sparing benefit.
Net pricing may be pressured without EPO sparing: Rockwell indicated that they would strategically price
Triferic to capture some of the value savings from decreased EPO and intravenous iron usage, while still
providing a financial incentive for the providers. We quantify the potential savings in this report, but as we note
above, the FDA did not include EPO sparing in the label, and we think the EPO sparing data are flawed given the
design of the trial. Without reliable data showing EPO sparing, we think the dialysis providers will have little
reason to switch to Triferic, especially since the drug is not supplied or tested for use in centralized vat
dispensaries. Notably, Rockwell has not been transparent about either the wholesale acquisition cost (WAC) of
Triferic, or the anticipated gross to net. This indicates to us that significant discounting will be necessary to
achieve any market penetration. In our opinion, to gain early adoption, net Triferic pricing may have to approach
the level of traditional diasylate concentrates to offset the increased labor cost and risk of infection when
individually supplied Triferic is used in centralized systems.
6
Rockwell Medical Inc | August 13, 2015
Valuation
Exhibit 2: Rockwell Sum-of-the-Parts Analysis
So u rce: Co mp an y data, Mo rgan Stan ley Research
Our Target Price for RMTI stock is $7, which represents a ~50% discount to current RMTI levels. We use
a risk-adjusted sum of the parts valuation to determine RMTI's value, with a discount rate of 12%. Rockwell's
primary assets include two FDA approved drugs (Triferic and Calcitriol) and its core hemodialysis concentrates
business. As there is no known clinical development ongoing, this discount rate reflects Rockwell's overall
company risk.
We attribute $3 per share to Triferic sales as an iron replacement to chronic kidney disease (CKD) patients
undergoing dialysis. We expect Triferic to launch in 3Q15, following FDA approval obtained in January 2015,
and model peak sales of $190mn, assuming exclusivity until 2029.
We attribute $2 per share to generic calcitriol, Rockwell's generic IV vitamin D. We expect launch in 3Q15,
following final FDA approval obtained in June 2014, and model peak sales $75mn in 2030.
We attribute approximately $1 per share to Rockwell's core hemodialysis concentrates business, which the
company partnered with Baxter in November 2014.
Valuation Methodology: We use a risk-adjusted sum-of-the-parts methodology to value Rockwell Medical,
examining the clinical, regulatory, and commercial risks and opportunities for each individual indication and
region, and assigned a probability of success to account for the likelihood of achieving those revenues/expenses.
Discount Rate: We use a discount rate of 12% for RMTI, in-line with the company's historical WACC, which has
7
Rockwell Medical Inc | August 13, 2015
ranged from 9% to over 18% since 2012.
Terminal Growth Rate: Our model forecasts the revenues and expenses for each opportunity to 2030. We
apply a 2.5x multiple to the 2030 cash flows to account for the terminal value of each asset.
Residual Cash: At the end of the 2Q15, RMTI had ~$77mn of cash and short term investments, with
approximately 50mn shares outstanding. This represents ~$1.50 per share in current net cash. However, we
calculate the company's residual cash by taking our year-end 2015 forecasted cash balance and subtracting the
NPV of anticipated operating cash flows and capital expenditures through profitability. For RMTI, our year-end
2015 cash estimate is ~$76mn, with profitability possible in 2016. Therefore, we assign ~$1 per share to
residual cash.
Financing: We do not anticipate that Rockwell will need to raise additional equity funds.
Alternative Valuation Technique: Multiple Analysis: While we view
Exhibit 3: RMTI Multiple
our Sum-of-the-Parts (SOP) methodology as the most precise and
Analysis
useful technique to assess fundamental value for development stage
SOP
EPS CAGR
Implied Implied Discount
biotechnology companies, we tested our valuation using a multiple
PEG
Valuation (2021 - 2030)
P/E
Rate
$7
13.6%
1.2
16.4
11.3%
applied to our forecasted P&L. Our P&L forecasts a 13.6% CAGR for
RMTI from 2018 through 2025, after the company is profitable. We use
So u rce: Mo rgan Stan ley Research
a PEG of 1.2, which is in-line with similar companies, suggesting an
appropriate P/E multiple of 16.4x our 2018 EPS estimate of $0.55. Our $7 price target represents a discount rate
of 11.3% to this 2018 multiple. 11% is an appropriate rate for a commercial stage company like Rockwell.
MS Revenue Estimates vs. Consensus
Exhibit 4: RMTI MSe vs. Consensus
($ mm)
RMTI
MSe
Cons
% Diff
2015E
55
65
-15%
2016E
89
132
-32%
2017E
120
148
-19%
2018E
143
184
-22%
So u rce: Co mp an y data, Mo rgan Stan ley Research , B lo o mb erg Estimates
8
Rockwell Medical Inc | August 13, 2015
MS Rockwell Risk Analysis
Exhibit 5: RMTI Risk Analysis
So u rce: Co mp an y data, Mo rgan Stan ley Research
9
Rockwell Medical Inc | August 13, 2015
MS Rockwell Risk Profile
Exhibit 6: Rockwell Risk Profile
Overview: Rockwelll Medical is an Early Commercial Biotech
company, with two approved drugs. Since these drugs are approved
and the clinical programs concluded, we address the key commercial
levers for Triferic and Calcitriol in our assessment of risk.
Commercial Drivers of Demand
Triferic: We think the most significant commercial risks for Triferic are
related to Provider Adoption and Pricing Power, which we rate as High.
The Providers are the dialysis chains, which are paid a bundled amount
for each patient. This amount includes all the dialysis related supplies
and services, as well as injectable drugs, or their oral equivalent. This
prospective payment system makes the dialysis arena very costSo u rce: Co mp an y data, Mo rgan Stan ley
sensitive. As discussed elsewhere in this report, we do not believe that
Research
the Triferic data demonstrating EPO sparing was compelling, as the
trials were conducted under conditions that did not provide enough
iron to the control group, driving up the EPO usage to prevent anemia. Based on our diligence, we have a high
level of conviction that the Providers will want to retest the feasibility of using Triferic under real world
conditions. We also think that the lack of compelling data showing EPO sparing will make premium pricing
difficult, an analysis done elsewhere in this report. In the dialysis arena, the patients and the payors play very
little role in the choice of drugs used during the dialysis sessions. Similarly, we do not see Competition as a
major factor, although there are several well-entrenched intravenous irons like Venofer and Ferrlecit.
Generic Calcitriol: As noted above, the bundle makes the dialysis arena very cost-sensitive. External consultants
indicated that the injectable vitamin D products are chosen exclusively on the basis of cost. In this situation, we
view Pricing Power and Competition as the riskiest drivers of demand. As with Triferic, patients and the payors
play little part in the choice of drug. Since the Providers view the different products as interchangeable and are
likely to choose the least expensive product, we see Medium risk from their role in this decision.
10
Rockwell Medical Inc | August 13, 2015
Lessons Learned from Dialysis Site Visit
Most modern dialysis centers have elaborate, integrated central dispensaries for the bicarbonate and acidic
dialysate components, a change that occurred over the last decade. As noted in the pictures below from one of
our site visits, this system is an extensive, integrated part of the dialysis center infrastructure, and the centers
have routine protocols for cleaning and disinfecting the tanks and delivery apparatus, many of which are
regulated by state authorities. We believe Rockwell is likely to find this change to a central system will hamper
individually supplied Triferic uptake, especially since bulk usage of Triferic would provide iron to all patients in a
center, not common practice. Dialysis Centers are unlikely to switch back to jugs, given the cost savings and
elaborate investments made in these ubiquitous centralized systems.
Exhibit 7: Bicarbonate Jugs No Longer Standard Equipment in Dialysis Units
So u rce: Mo rgan Stan ley Research site visit
Dialysis centers use two solutions in the dialysis process, one is basic (bicarbonate) and the other is acidic.
Triferic is supplied in an ampule that contains 27.2 mg of iron per 5 cc, in packages (pouches) containing 5
ampules. The drug is mixed with 2.5 gallons of the bicarbonate dialysate solution to a final concentration of 2
mcg/L, and was provided to patients in the clinical trials using a jug that dispensed the solution individually.
The times are changing: Over the last decade, after Rockwell began the Triferic clinical development program,
the majority of dialysis centers switched to centralized distribution using large vats of bicarbonate that are
mixed daily and then piped to the different dialysis machines. This centralized process saves time, money and
also requires less manpower. One producer of vats also cites less back injuries from having to carry the heavy
jugs. The vats are 70-100 gallons in size. At the recent American Society of Nephrology Meeting (ASN),
Fresenius indicated that only about 10 of 2,100 (0.5%) centers still used individual jugs, a trend that seems to be
pervasive in the industry. It is possible that Triferic could be bulk mixed in a vat by using multiple vials, although
this was not tested clinically in the pivotal program, and is not endorsed by the FDA on the label. Even if the
company had adapted to this shift, it would have been hard for Rockwell to design trials using bulk Triferic in
11
Rockwell Medical Inc | August 13, 2015
vats,
given
it would
Exhibit
8: that
Nurse
mixinghave
100required entire dialysis centers be converted to Triferic, with all patients in that
center getting supplemental iron.
gallon bicarbonate vat using
semi-sterile technique
Infections can pose a serious problem for centralized vats: One of
the major problems with vats and centralized usage has been infection
rates, which necessitate shutting down the vat and cleaning it
thoroughly. The infection rates, according to external physician
consultants, can vary tremendously between facilities for reasons that
are not completely understood. Nonetheless, centers try to avoid
infections in the centralized vat system, which can pose safety problems
and strain resources. Any infection increase could meaningfully offset
much of the purported financial benefits with Triferic.
Iron is a substrate for bacterial growth: Bacteria that utilize iron for
food are called siderophilic bacteria, and consist of e. coli, vibrio
vulnificus, listeria monocytogenes, Yersinia enteroccolica, salmonella
enterica, and klebsiella pneumobiae. Iron acquisition is also required for
staph aureus colonization and pathogenesis. Therefore, a number of
external consultants expressed concerns that providing iron via Triferic
in a centralized dispensary could increase infection rates in a process
that already is prone for infection, and that this could eliminate any
potential cost savings from using Triferic.
Pilot studies may be conducted to test infection rates with bulk
mixing: Because the Triferic studies were conducted in individual jugs,
external physicians indicated that their respective dialysis centers would
likely have concerns about increasing infection rates with bulk usage.
So u rce: Mo rgan Stan ley Research site visit
These physicians believed that 12-18 month pilot studies would likely
be conducted prior to widespread adoption, especially in the large
dialysis chains, who are very conservative about adopting new products.
Bulk vat usage requires that entire dialysis population receive iron: Several external consultants
expressed concerns about converting an entire dialysis center to Triferic given that some patients require very
little or no iron. These physicians indicated that pilot studies would likely be conducted to test Triferic’s ability to
only supply iron as needed and insure that Triferic does not cause iron overload in these patients. It is possible
that some patients could be treated without Triferic by using jugs, although it would add additional complexities
to the process and detract from Triferic’s overall value proposition.
12
Rockwell Medical Inc | August 13, 2015
Exhibit 9: Embedded Bicarbonate Holding Tank and Associated Plumbing
So u rce: Mo rgan Stan ley Research site visit
Exhibit 10: Bulk Bicarbonate Bag Provides Convenience and Cost Savings
So u rce: Mo rgan Stan ley Research site visit
13
Rockwell Medical Inc | August 13, 2015
Insights from Our AlphaWise Survey
We conducted a survey in July 2015 of 50 US nephrologists who treat on average 238 CKD patients and 121
dialysis patients per month. 76% of these physicians primarily practice in a community setting and the
remaining 24% in an academic-based setting.
Exhibit 11: Physician Background
Please give your best estimate of how many chronic kidney disease (non-dialysis) patients and
how many dialysis patients you see per month on average.
Mean # of CKD (non-dialysis) patients/ month
Mean # of dialysis patients/ month
238
121
Which category best describes your primary practice setting?
Community practice (solo or group practice)
Academically-based practice (i.e., employed by academic institution and/or teaching hospital)
Which of the following dialysis center do you have affiliation with?
76%
24%
DaVita
Fresenius
DCI
Small Dialysis Organization
Independent
Hospital-Based
None
62%
66%
8%
14%
10%
30%
0%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
Results from our survey are detailed below:
1. Over 75% of physicians agree there should be pilot studies performed ahead of widespread Triferic
usage, yet 96% deny knowledge or are unaware of any planned or ongoing studies in their clinic.
Additionally, almost 20% of physicians have never heard of Triferic before. The low awareness and lack of pilot
studies suggest Triferic is unlikely to experience meaningful usage in dialysis at launch.
14
Rockwell Medical Inc | August 13, 2015
Exhibit 12: Triferic awareness & requirement for pilot studies
Please indicate your experience with the following products.
Triferic (ferric pyrophosphate citrate)
Never heard of
Aware
Prescribed in the past but no longer
Currently prescribe
18%
66%
6%
10%
Please indicate your level of agreement with the statement: "I think that pilot studies
should be performed ahead of widespread Triferic usage."
Strongly agree
Somewhat agree
Neutral
Somewhat disagree
Strongly disagree
36%
40%
10%
12%
2%
Are you aware of Triferic pilot studies that are planned or are ongoing for your clinic?
Yes
No
Don't know
4%
84%
12%
How likely would your dialysis center be to perform pilot studies prior to widespread
adoption of an anemia drug like Triferic?
Very unlikely
Somewhat unlikely
Maybe
Somewhat likely
Very likely
4%
22%
38%
24%
12%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
2. Over 60% of physicians question or are neutral that the data for Triferic conclusively demonstrates
an EPO sparing benefit. Given dialysis centers are highly cost-sensitive, EPO sparing is one of Triferic's main
value proposition. This benefit however is not reflected in the label nor as our survey suggests, appreciated by
physicians. Almost 60% are also unsure that the dialysis providers would see the data as conclusive.
15
Rockwell Medical Inc | August 13, 2015
Exhibit 13: Triferic EPO sparing benefit
I believe that the data for Triferic conclusively demonstrates an EPO sparing benefit
Strongly agree
Somewhat agree
Neutral
Somewhat disagree
Strongly disagree
12%
24%
34%
24%
6%
I believe that the dialysis centers would accept these data as conclusive of an economic
benefit to using Triferic
Strongly agree
Somewhat agree
Neutral
Somewhat disagree
Strongly disagree
12%
30%
30%
22%
6%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
3. 70% of physicians believe that converting all patients to Triferic during dialysis would require
changing the existing iron and EPO protocols. 40% of these physicians indicated they expect the changes to
be extensive, and 0% saw no changes to existing protocols. This dynamic makes us believe dialysis centers are
unlikely to use Triferic without first conducting extensive pilot studies, likely longer than the 4 weeks highlighted
by management on the call.
Exhibit 14: Triferic changes to EPO protocol
If you converted all your patients to Triferic during dialysis, do you think it would require
changing the existing iron and epo protocols?
Yes
70%
No
20%
Don't know
10%
How much adjustment to existing anemia management protocols would you foresee?
Base Respondents (n=35): Physicians that believe it would require changing the
existing iron and epo protocols
Extensive
Minimal
None
40%
60%
0%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
4. 68% of physicians are not comfortable or unsure with converting all their patients in any given
dialysis unit to Triferic. If Triferic were to be incorporated into the centralized vats , every patient in the
dialysis center would receive the drug. Our diligence suggests that up to 15% of patients may not need iron or
have signs of iron overload, potentially contributing to physicians' reluctance to convert all patients to Triferic.
16
Rockwell Medical Inc | August 13, 2015
Exhibit 15: Triferic conversion
Triferic has the purported ability to only supply iron as needed without a risk of iron
overload. Would you feel comfortable converting ALL your patients in any given dialysis
unit to Triferic, which would give them iron at each dialysis session?
Yes
No
Don't know
40%
32%
28%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
5. Our survey indicated over 75% of their dialysis patients receive dialysate via a centralized vat.
Triferic is supplied in vials designed for individual use. Thus, Triferic usage in centralized vats is likely
cumbersome and potentially increases the risk of infection. Only 14% of physicians indicated no concern with
infections in the centralized vat system with about a third having experience with infections in the dispensing
system.
Exhibit 16: Centralized vat usage and concerns
What percentage of your patients receive dialysis dialysate via an individual machinebased jug versus a centralized vat? MEAN %
Jug - MEAN %
24%
Centralized Vat - MEAN %
76%
Please indicate how concerning is potential infection with a Centralized Vat system to
your center and your center’s experience with infections
Not at all a concern 1
2
3
4
Very concerning 5
14%
36%
16%
20%
14%
How common are infections with the centralized vat distribution system in your center?
No infections with centralized vat system 1
2
3
4
Many infection cases with centralized vat system 5
62%
18%
10%
10%
0%
So u rce: Mo rgan Stan ley Research , Alp h aW ise
17
Rockwell Medical Inc | August 13, 2015
Upcoming Catalyst
Exhibit 17: RMTI Catalysts Timeline
So u rce: Co mp an y data, Mo rgan Stan ley Research
Exhibit 18: RMTI Catalyst Calendar
So u rce: Co mp an y data, Mo rgan Stan ley Research
18
Rockwell Medical Inc | August 13, 2015
Triferic's EPO Sparing May Not be a Strong Value Proposition
One of the purported value propositions for Triferic is the ability to decrease both intravenous iron and EPO
usage. Management has indicated that Triferic will be priced based on this cost savings, and that the bundled
payment system will drive dialysis centers to use Triferic to improve margins. Therefore, this is a very important
commercial factor that could shape the rate of conversion and uptake of Triferic.
The Triferic FDA label highlights that “Triferic is indicated for the replacement of iron to maintain hemoglobin in
adult patients with hemodialysis-dependent chronic kidney disease (HDD-CKD).” Notably, any data suggesting
EPO sparing is absent, and the PRIME Study (discussed below) is not included in the label. We believe this
omission will make it difficult for Rockwell to market ESA sparing to providers, and is likely to impact the price
that the company can charge for the drug.
Exhibit 19: Triferic Label
So u rce: Co mp an y data, Mo rgan Stan ley Research
Triferic Advisory Committee not supportive of ESA-sparing benefit: On November 6, 2014, an FDA
Advisory Committee (ODAC) voted 8 to 3 to endorse Triferic for the treatment of iron loss. Much of the
discussion at the meeting focused on the company’s PRIME Study, which was intended to demonstrate that
Triferic usage could decrease ESA and additional intravenous iron usage. The panel denounced the integrity of
the data from this trial and provided feedback to the agency about future trial design to document this claim.
19
Rockwell Medical Inc | August 13, 2015
Triferic's Pricing Power
Triferic was approved in January 2015, but the company has not disclosed pricing. As with many drugs in the
dialysis arena, we expect the retail price to be heavily discounted based on volume. Triferic will be a direct cost
to the dialysis providers, not being reimbursed outside the bundle. As such, the main financial incentive to use
Triferic requires cost savings elsewhere. In the following section we analyze the potential pricing for Triferic by
dialysis provider using data available from the clinical trial program, as well as from the USRDS database.
Triferic Pricing: Triferic is unique relative to the other intraveneous iron products used in dialysis, Venofer,
Ferrlecit and iron dextran, as it provides about 50% of the annual iron needs of dialysis patients. Therefore,
dialysis patients using Triferic will still require intravenous iron supplementation periodically. Aside from the
potential physiological benefits of using Triferic, the main value driver is the ability to use less ESA products and
less intravenous iron to maintain hemoglobin levels. We used these dynamics to assess potential Triferic pricing,
taking into account the costs of the current irons, despite it being a different product with different value
propositions.
We do note, however, that we do not find the EPO-sparing benefit convincing, based on the data
supplied by the company. The control arm was not given adequate iron in accordance with standard
practice in the U.S., and this deprivation drove up the EPO usage. This sentiment was expressed at the
FDA advisory panel meeting, and resulted in Triferic not receiving a label endorsing EPO sparing, or
including the PRIME Trial data, which the FDA found flawed. Our Alphawise survey respondents echoed
this skepticism, with over 60% not finding it conclusive. We have a high level of conviction, any of the
major dialysis providers will want to test the feasibility of this EPO sparing hypothesis under their real
world conditions and protocols, as supported by external consultants and our Alphawise survey.
20
Rockwell Medical Inc | August 13, 2015
Exhibit 20: IV Iron Pricing ASP (per gram)
IV Iron Pricing ASP (Per Gram)
$900.00
$800.00
$700.00
$600.00
$500.00
Feraheme
Venofer
Iron Dextran
Ferrlecit
$400.00
$300.00
$200.00
$100.00
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
$0.00
So u rce: CMS, Mo rgan Stan ley Research
Iron-Sparing Incentive: The current irons, with the exception of AMAG’s Feraheme which is used primarily
outside dialysis (and the bundle), cost about $1,000 per year, given the data from the USRDS on utilization rates
and CMS on the Average Selling Price (ASP). The ASP has trended downward since the bundle was
implemented. Since Triferic has the ability to replace about 50% of the iron usage, this equates to about a $500
savings in iron annually. Fresenius would not have this benefit because they would lose revenues from Venofer.
EPO-Sparing Incentive: EPO Usage has been trending downward, driven by both safety concerns and the change
from ASP+6% reimbursement to the bundle as noted in the following table. The usage is highly variable among
different providers, especially prior to the bundle, where the larger dialysis chains had lower pricing from
quantity discounts, at the expense of the smaller providers, who paid prices exceeding the ASP. We quantified
the potential savings from less EPO usage, and factored this into our pricing assumptions.
Exhibit 21: Annual EPO Usage/Patients (units)
So u rce: Co mp an y data, Mo rgan Stan ley Research
We utilized data from the PRIME Study, the USRDS database on utilization rates, and CMS Pricing file to quantify
the potential savings from using less iron and EPO agents:
21
Rockwell Medical Inc | August 13, 2015
Exhibit 22: Potential Savings from Decreased Iron and EPO Usage
So u rce: Co mp an y data, Mo rgan Stan ley Research , U SRDS
We chose a baseline cost for Triferic of $1,000 annually, which would be slightly higher than the current irons,
and which would provide about 40% of the potential savings to the providers, with the exception of Fresenius,
who would lose Venofer revenues.
22
Rockwell Medical Inc | August 13, 2015
Triferic Market Penetration / Ramp
Unlike consensus, we believe the Triferic ramp will be more prolonged because of the high likelihood for pilot
programs ahead of widespread adoption, although our diligence and Alphawise survey suggests that these
pilots have not started to any meaningful extent in the marketplace. We also model Triferic sales by provider, as
each provider has had different iron and EPO usage patterns historically. These differences in usage patterns are
well-documented in the USRDS database.
We model minimal penetration (10% peak) into Fresenius, given the chain's vested interest in Venofer and the
fact that Rockwell's core dialysate business is a direct competitor. Fresenius also has the least financial incentive
per patient to switch given the lost Venofer revenues. Management anticipates that Fresenius will be a
consumer of Triferic, and we will adjust our numbers and valuation accordingly should this materialize.
However, we anticipate any large dialysis chain adoption would likely require sizable pilot programs prior to
adoption, which our external consultants and AlphaWise survey suggest have not started.
Exhibit 23: Triferic Penetration Rates by Provider
Fresenius
Davita
DCI
Small Dialysis Org (SDO)
Independent
Hospital-Based
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
0%
1%
2%
2%
2%
2%
3%
4%
5%
7%
7%
6%
5%
6%
7%
10%
11%
10%
6%
9%
11%
13%
14%
13%
7%
12%
15%
16%
16%
15%
8%
16%
18%
20%
22%
17%
9%
20%
22%
25%
27%
22%
10%
23%
27%
30%
30%
25%
10%
25%
30%
32%
33%
30%
10%
27%
33%
36%
36%
35%
10%
28%
35%
37%
38%
35%
10%
28%
35%
37%
38%
35%
10%
28%
35%
37%
38%
35%
10%
28%
35%
37%
38%
35%
10%
28%
35%
37%
38%
35%
1%
1%
1%
1%
1%
1%
So u rce: Mo rgan Stan ley Research
We model greater Triferic penetration (28% peak) into Davita, as the company is a current Rockwell customer,
accounting for 49% of their revenue in 2014. We expect Davita would also require a large pilot program prior to
widespread adoption. We model greater uptake among the independent, hospital-based, and small dialysis
organizations, as we believe Rockwell may be able to more easily penetrate these smaller centers, who may not
require lengthy pilot programs.
Exhibit 24: Triferic Revenue by Provider
$200,000,000
$180,000,000
$160,000,000
$140,000,000
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
Hospital-Based
Independent
Small Dialysis Organizations (SDOs)
DCI
Davita
Fresenius
$20,000,000
$0
So u rce: Mo rgan Stan ley Research
23
Rockwell Medical Inc | August 13, 2015
Triferic Phase 3 Clinical Program
Overview: Rockwell’s clinical development program consisted of two identical pivotal Phase 3 trials: CRUISE-1
and CRUISE-2, a single-arm extension trial for patients that were moved out of the CRUISE trials, the PRIME
study, and a long-term crossover trial SFP-6. SFP-6 was a double-blinded trial that allowed patients to crossover
from the placebo arm to the Triferic (SFP) arm and vice versa. CRUISE-1 and CRUISE-2 were completed in 2013
and data from the two trials have been primarily presented in posters at various medical meetings. An investor
call was also held to discuss the CRUISE-1 top-line trial results in July 2013. Additionally, the long-term
extension data was completed in January 2014 and has been presented in an aggregate poster at the National
Kidney Foundation 2014 meeting. We highlight data from the CRUISE-1, CRUISE-2, and PRIME studies in the
sections below.
Overview: PRIME was a Phase III, double-blinded, 36-week study conducted in 103 iron replete dialysis patients
who were randomized 1:1 to receive Triferic or regular dialysate. Patients in both arms were allowed to have
ESA dose titrations by a blinded anemia management group, and IV iron could be provided per protocol
specified criteria (serum ferritin <200 ug/L) if patients developed absolute iron deficiency. The primary endpoint
of the trial was the percent change in prescribed ESA dose between the treatment groups, with secondary
endpoints measuring IV iron requirements, ferritin levels, reticulocyte hemoglobin content (CHRr) and safety.
Contrary to the CRUISE-1 and CRUISE-2 studies, in which ESA dose changes and additional intravenous iron
were restricted, the PRIME study more closely reflected anticipated “real world” usage, although the study
protocol required more ESA usage than the baseline protocols in both the Triferic arm and the Placebo arm. We
view this trial as important commercially, as one of the main drivers of Triferic uptake in the cost-sensitive
dialysis arena is the potential ESA-sparing nature of the drug.
Efficacy: In the PRIME Study, Triferic reduced the necessary ESA dose 35% (relative to the Placebo arm) required
to maintain hemoglobin at baseline. The fact that the ESA sparing effect is relative to the Placebo arm is an
extremely important factor to consider when assessing the financial value proposition for Triferic, as discussed
below. Additionally, the trial found that Triferic reduced ESA usage 74% in hyporesponsive patients, again,
relative to Placebo. This group of patients requires much higher doses of ESA than regular dialysis patients,
which may be a significant value proposition for Triferic, both economically and physiologically if it is
maintained in the real world.
The PRIME Study also found a 48% reduction in IV iron requirements with Triferic. The fact that the 35% relative
decrease in ESA usage was driven primarily by a 40% increase in ESA usage by the Placebo group (and that the
Triferic arm also had a 5% increase instead of a decrease), suggests that the study protocol was less efficient
than the baseline protocols utilized by the patients prior to entering the trial. Management indicated that this
was primarily because the intravenous iron was only allowed when Ferritin levels dropped, rather than given
prophylactically, as maintenance therapy, which is the standard of care. Nonetheless, it is likely that the dialysis
providers will want to test this ESA-sparing hypothesis using real world protocols for both ESAs and intravenous
iron prior to widespread adoption.
Additional results: Additional results were posted on the clinicaltrials.gov website in February 2014. The
following table shows that the control arm had their baseline ESA dose adjusted upwards 39.8% +/-12.18% to
maintain the target hemoglobin range versus the Triferic arm, which also had the baseline ESA dose adjusted
upwards 4.9% +/-12.07%. Therefore, the patients had their anemia more efficiently managed prior to entering
the trial.
24
Rockwell Medical Inc | August 13, 2015
Exhibit 25: ESA Changes from Baseline
So u rce: Co mp an y data, Mo rgan Stan ley Research
Safety: Safety data was also obtained through clinicaltrials.gov. The serious adverse event profile does not
contain any significant signals for Triferic, though one of the potential concerns with Triferic could be the impact
of the drug on calcium levels, and thus, on cardiac conduction and contractility. Bradycardia is listed as occurring
5 times as often with Triferic (15 events) as with placebo (3 events). This may be clinically insignificant
bradycardia, especially since it was not listed in the serious adverse events. No further granularity was provided
about the level of bradycardia that occurred in the trial.
Exhibit 26: Adverse Events
So u rce: Co mp an y data, Mo rgan Stan ley Research
CRUISE-1 and CRUISE-2
Overview: CRUISE-1 and CRUISE-2 were single-blind, placebo controlled, parallel group Phase 3 studies
evaluating Triferic vs. standard dialysate in ~600 iron replete dialysis patients over a course of up to 48 weeks.
Patients, who (1) required a change in anemia management (see definition in table below) or (2) completed the
48 weeks, could enter a single arm, open label extension phase that allowed ESA titration and additional
intravenous iron administration. Note that in the initial phase of the trial placebo patients were given their stable
dose of ESA, but no supplemental iron. Dialysis patients require between 2 -5 grams annually of supplemental
iron to replace the iron that is lost from the dialysis procedure and to fuel the ESA driven red blood cell
production. Standard of care for dialysis patients recommends maintaining iron repletion. Thus, it is
understandable that most patients finished less than half of the randomized phase of the trial.
As a note, the study protocol was changed from a double-blinded design to single-blinded design between
10/2011 and 02/2012, according to the clinicaltrials.gov registry. With the single-blinded design, investigators
were not blinded to the treatment given to the patients, but the patients were not aware of whether they
received Triferic or placebo.
25
Rockwell Medical Inc | August 13, 2015
Exhibit 27: CRUISE-1 and CRUISE-2 Trial Design
So u rce: Co mp an y data, Mo rgan Stan ley Research , Clin icaltrials.go v
26
Rockwell Medical Inc | August 13, 2015
Exhibit 28:
So u rce: Co mp an y data, Mo rgan Stan ley Research
Efficacy: Both CRUISE-1 and CRUISE-2 met the primary endpoint with Triferic showing a statistically significant
mean change from baseline Hgb to the end of treatment, which was defined as the last 1/6th of the randomized
phase. Note that this definition is important, as a number of patients discontinued treatment with very few
completing 48 weeks. The primary endpoint in these trials thus reflected varying degrees of treatment
exposures, with less than 20% of patients in any arm completing the full 48 weeks. On the investor call for
CRUISE-1, the company indicated that the average time patients remained in the randomized treatment phase
was 23 weeks.
Exhibit 29: CRUISE-1 and CRUISE-2 Primary Endpoint
Primary Endpoint: Triferic Maintains Hgb
The primary endpoint was mean change in Hgb from baseline to the end of treatment (last 1/6th of
randomized phase - EoT), analyzed using ANCOVA with baseline Hgb as covariate.
CRUISE-1
Triferic
N= 148
10.96
Baseline Hgb g/dL
+0.06
LS Mean Change from Baseline g/dL (SE)
(0.12)
CRUISE-2
Placebo
N = 151
10.90
-0.30
(0.11)
Triferic
N= 142
10.96
-0.05
(0.11)
Placebo
N =144
10.93
-0.40
(0.11)
Difference from Placebo
LS Mean g/dL (SE)
0.36 (0.14)
0.36 (0.14)
95% CI
P-value
0.08, 0.63
0.011
0.08, 0.63
0.011
So u rce: Co mp an y data, Mo rgan Stan ley Research
27
Rockwell Medical Inc | August 13, 2015
Exhibit 30:
So u rce: Co mp an y data, Mo rgan Stan ley Research
On ‘discontinuations’, in CRUISE-1 17.8% of patients completed 48 weeks of the trial in the Triferic arm vs.
17.6% in the placebo arm. Similarly, in CRUISE-2 19.0% Triferic vs. 15.0% placebo patients completed 48 weeks.
Most of these “discontinuations” were related to anemia management adjustments, with 57% of placebo
patients in both trials and 46% in the Triferic arms listed as having protocol changes (i.e. ESA changes and IV
iron administration). Notably, less patients in the Triferic arms (2.3%) than the placebo arms (11.7%) were
removed from the trial because of necessary iron changes, presumably ferritin levels dropping below 100
ug/liter, per the study protocol. This implies that Triferic is effective in reducing supplemental iron requirements,
but not eliminating them completely. ESA changes were 44% in the Triferic arms and 46% in the placebo arms. It
is likely that the Triferic patients required downward ESA adjustments because of the additional iron they
received in the dialysate, but it is not clear whether the necessary ESA doses were up or down, as the protocol
provided for both as reasons to move on to the extension phase.
From a commercial perspective, we expect larger dialysis chains to require pilot programs before using the drug
given the high discontinuation rates and frequent adjustments to the anemia management of the patients in the
trials suggest that long-standing protocols in the dialysis units may have to be adjusted. Larger dialysis chains
are generally very cautious when adopting a drug that could have widespread implications. We note this as an
important factor to consider when modeling Triferic’s uptake curves.
Exhibit 31: Patient Disposition
So u rce: Co mp an y data, Mo rgan Stan ley Research
Safety: In contrast to what has been seen with other intravenous irons, safety data in the posters suggest that
Triferic is not associated with an increase in anaphylaxis or hypotension. Cardiovascular events appear balanced
28
Rockwell Medical Inc | August 13, 2015
in both arms and consistent with the background morbidities and mortalities in this high risk group. Stannous
pyrophosphate has been associated with hypocalcemia in the medical literature, presumably from the binding
of the phosphate molecule to the calcium. The presentations do not comment on the calcium levels in these
trials, but earlier publications dismissed ferric pyrophosphate as problematic in terms of calcium homeostasis,
citing the greater affinity of iron for pyrophosphate. Nonetheless, the regulatory reviewers are likely to pay
attention to this dynamic and to the potential for cardiac conduction aberrances given the relationship of
calcium to the contractility and conductivity of the heart.
Exhibit 32: Adverse Events of Special Interest are Similar Between Triferic and Placebo
Total
Events
Total Subjects
IDH
Composite CV Events
Systemic/Serious Infections
Other Thromboses
Vascular Access Thromboses
Suspected Hypersensitivity Reaction
314
21
25
22
12
1
Triferic
n
292
62
20
22
18
10
1
%
Events
21.2
6.8
7.5
6.2
3.4
0.3
283
27
24
21
6
0
Placebo
n
296
57
18
23
16
5
0
%
19.3
6.1
7.8
5.4
1.7
0.0
So u rce: Co mp an y data, Mo rgan Stan ley Research
29
Rockwell Medical Inc | August 13, 2015
Triferic Primer
Exhibit 33: Triferic
So u rce: FDA Lab el, Co mp an y data, Mo rgan
Stan ley Research
Triferic is a complex iron salt (ferric pyrophosphate) that is added to the
dialysate solution used during the hemodialysis procedure in patients
with kidney failure. These patients require iron supplementation
because they continuously lose iron during the dialysis procedures (3
times weekly) and because they are given ESA agents to stimulate red
blood cell production; red blood cell production requires iron. Anemia is
a significant problem in these patients because their kidneys are not
able to produce internal ESA, which controls red blood cell production
to account for the continuous loss and turnover.
Triferic
provides
maintenance iron therapy directly to the patient by
diffusing across the dialyzer membrane and binding to
apotransferrin. Compared to traditional iron products,
Triferic is purported to bypass the reticuloendothelial
system, which has been associated with some of the
safety issues experienced with intravenous iron usage.
Additionally, Triferic does not have a carbohydrate shell
like the other intravenous irons, which has been
associated with many of the immunogenicity problems
like hypersensitivities and anaphylaxis. The concept of
providing maintenance iron to dialysis patients to
replace the 5-7 mg they lose during each dialysis
treatment is consistent with the evolving anemia
management paradigms, as is complementary to the
effort to lower usage of ESA agents for economic and
safety reasons. Ensuring iron repletion has been shown
to decrease the necessary ESA dosing to maintain
adequate hemoglobin levels. This ESA-sparing ability is
one of the main value propositions highlighted by
Rockwell management, and is the primary strategy for
penetrating the competitive, cost-sensitive dialysis arena.
Exhibit 34: Triferic Inside Dialyzer Membrane
So u rce: Co mp an y data, Mo rgan Stan ley Research
30
Rockwell Medical Inc | August 13, 2015
Calcitriol: Launching into a Competitive, Price Sensitive Market
Rockwell's Calcitriol is an FDA-approved generic of AbbVie's Calcijex that the company acquired in July 2011 for
an undisclosed amount. Rockwell is utilizing a contract manufacturer to produce calcitriol, and received final
FDA approval for the manufacturing process in June 2014. Since this final approval, management has indicated
they are waiting to launch calcitriol until they have built sufficient inventory to meet anticipated demand.
Management guidance suggests the ability to attain $50mn of sales if 50% of existing dialysis concentrate
customers purchase calcitriol, yielding gross margins of 60%-70% with minimal incremental sales and
marketing expense.
We model Rockwell's calcitriol launch in 3Q15 and sales of $3mn in 2015, growing to $24mn in 2016, and
reaching $75mn by 2030. We think Rockwell's calcitriol may eventually gain more than 30% of the IV vitamin D
market, though pricing pressure is likely to suppress the overall opportunity.
Calcitriol Pricing: Rockwell’s Calcitriol will compete in the intravenous vitamin D market, currently dominated
by AbbVie’s Zemplar and Sanofi’s Hectorol. Generic versions of Hectorol (doxercalciferol) and Zemplar
(paricalcitol) were launched in 2014 by Sandoz and Hospira respectively, though sales of these generics remain
limited as dialysis providers typically enter into multi-year supply contracts to secure stable supply and volume
discounts. Generics account for just ~1% of IV vitamin D sales YTD, according to IMS Health.
Prior to the bundle, limited competition and provider incentive to use more (and more expensive) injectable
drugs created a dynamic of limited pricing pressure in the vitamin D market.
An analysis of Medicare Part B Average Selling Price (ASP) data show significant pricing pressure for the IV
vitamin D market, with the average price per microgram falling 55% since January 2005.
Exhibit 35: IV Vitamin D ASP per Microgram
So u rce: CMS, Mo rgan Stan ley Research
Calcitriol’s efficacy provides an efficiency benefit over both Zemplar and Hectorol, with only 1-2 micrograms
required per treatment vs. 2-4 micrograms of Hectorol or 4-6 micrograms of Zemplar. This should allow
Rockwell to price calcitriol at a premium per microgram, while providing an incentive to providers to switch
based on a lower annual cost per patient. We assume an average initial cost of $2.00 per microgram for
Rockwell's calcitriol, a ~35% premium on a per microgram basis, which translates to a ~30% savings per annual
31
Rockwell Medical Inc | August 13, 2015
treatment cost.
Exhibit 36: IV Vitamin D Pricing
IV Vitamin D Pricing
Drug
Company
Dosing
Price per mcg
Cost / Treatment
Annual Patient Cost
Zemplar
Hectorol
Calcitriol
AbbVie
Sanofi
Rockwell
4-6 mcg 3x weekly
2-4 mcg 3x weekly
1-2 mcg 3x weekly
$1.27
$1.49
$2.00
$6.35
$4.47
$3.00
$991
$697
$468
So u rce: CMS, Co mp an y data, Mo rgan Stan ley Research
Pricing pressure is likely to persist with the introduction of additional generic competition. We assume modest
near-term price erosion, with ASP falling 6% in 2015 and 7% in 2016, accelerating to mid-to-high teens in 2018,
2019, and 2020 before stabilizing at $0.70 per microgram in 2023.
32
Rockwell Medical Inc | August 13, 2015
Core Dialysate Business Partnered with Baxter
The core of Rockwell's business has historically consisted of selling low-margin dialysis concentrates and
dialysates. In October 2014, Rockwell entered into a marketing and distribution agreement with Baxter for the
company's core business of hemodialysis concentrates and dialysates. Notably, the deal does not include Triferic
or calcitriol, which we view as the major value drivers of RMTI shares.
Under the terms of the deal, Baxter assumes exclusive marketing and distribution of Rockwell's core business. In
exchange, Rockwell received a $20mn upfront payment, and Baxter assumed a $15mn equity stake in the
company, purchasing shares at $11.39 (average closing price over the last 12 months), a slight premium at the
time. Rockwell is also eligible for a $10mn milestone payment related to the expansion of its manufacturing
capabilities to the west coast.
Baxter will purchase products from Rockwell at a predetermined gross margin-based price per unit, with
minimum annual purchase levels required to retain the exclusive rights. Baxter will leverage Rockwell's
distribution infrastructure (trucking business and customer call center) during the first three years of the deal,
and will reimburse Rockwell's costs for these services at a “slight premium”. Given the accounting, we expect
near-term pressure on revenues, offset by gross margin improvements. Historically, gross margins for this
business have fluctuated between 12% and 17%.
Ultimately, given Baxter's presence in dialysis supplies and equipment (over $4bn in global renal revenues in
2014), we believe the company will likely be able to grow this business at a faster rate than Rockwell alone. We
forecast total concentrate and dialysate revenue to Rockwell of $71mn by 2030 with steady-state margins of
20%.
33
Rockwell Medical Inc | August 13, 2015
Income Statement
Exhibit 37: Rockwell Medical Income Statement
Rockwell Medical, Inc. Income Statement
Triferic
Calcitriol
Hemodialysis Concentrates
Baxter Milestone Payment
2012A
2013A
2014A
1Q15A
49,842
-
52,380
-
53,681
507
13,391
493
2012A
2013A
2014A
1Q15A
Quarter Estimates
2Q15A
3Q15E
12,456
500
1,098
1,111
10,371
500
Quarter Estimates
2Q15A
3Q15E
4Q15E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
3,293
3,293
10,682
500
4,391
4,404
44,511
1,993
20,022
24,282
42,941
2,000
35,990
37,376
44,873
2,000
49,618
45,101
46,668
2,000
63,049
46,070
66,486
2,000
82,540
45,967
69,145
2,000
104,614
46,478
71,565
2,000
123,966
49,125
74,070
2,000
138,759
54,984
76,663
2,000
155,950
59,496
79,346
1,499
166,280
63,535
82,123
-
4Q15E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
49,842
52,380
54,188
13,884
12,956
13,079
17,769
55,300
89,245
120,239
143,387
177,605
199,652
224,657
249,161
272,406
296,292
311,938
43,149
45,720
45,643
11,572
10,890
9,098
10,727
39,552
49,483
59,579
66,569
70,253
74,246
78,737
83,989
90,302
96,360
101,344
6,693
6,659
8,545
2,312
2,066
3,981
7,041
15,748
39,762
60,659
76,818
107,352
125,406
145,920
165,172
182,104
199,932
210,594
R&D Expense
SG&A Expense
Stock-based Compensation
48,272
12,684
7,302
39,382
14,336
7,712
7,784
18,321
10,095
800
5,326
3,293
885
800
4,000
800
4,500
3,285
17,661
9,280
6,007
20,194
9,087
7,918
26,350
11,199
9,924
30,789
12,316
11,349
33,688
13,475
14,857
35,874
14,350
17,784
41,669
16,667
19,835
46,885
18,754
20,814
51,293
20,517
23,393
56,792
22,717
24,942
60,386
24,154
Total Expenses
Net Operating Profit (Loss)
60,956
53,718
(47,059)
26,104
(17,559)
6,125
(3,813)
20,946
(5,198)
26,201
13,561
34,268
26,391
40,713
36,105
45,037
62,315
50,731
74,675
59,453
86,467
66,719
98,453
72,106
109,998
80,185
119,747
85,328
125,266
98
1,822
(48,783)
-
386
4,154
(21,327)
0%
114
(3,699)
0%
432
(4,766)
0%
400
13,961
0%
400
26,791
0%
400
36,505
5,476
15%
400
62,715
15,679
25%
400
75,075
26,276
35%
400
86,867
30,403
35%
400
98,853
34,598
35%
400
110,398
38,639
35%
400
120,147
42,052
35%
400
125,666
43,983
35%
Net Revenue
Cost of Goods
Gross Profit
(54,262)
242
1
(54,022)
-
Interest & Investment Income
Interest Expense
Earnings Before Taxes
Income Taxes
Tax Rate
GAAP Net Income (Loss)
(54,022)
Basic Shares Outstanding
Diluted Shares Outstanding
EPS NON-GAAP (incl options)
EPS GAAP
20,395,889
20,395,889
$
$
(2.65) $
(2.65) $
(48,783) $
32,882,333
32,882,333
(21,327) $
41,404,999
43,008,471
(1.48) $
(1.48) $
(0.52) $
(0.52) $
3,836
1,702
(3,699) $
49,667,434
56,199,995
2,413
2,599
4,721
(2,655)
118
4,800
(819)
100
5,300
1,741
100
(2,537)
0%
(719)
0%
1,841
0%
(2,537) $
50,069,729
56,668,949
(0.07) $
(0.07) $
(719) $
50,570,426
57,302,963
(0.05) $
(0.05) $
1,841 $
51,076,131
57,875,327
(0.01) $
(0.01) $
(4,766) $
50,345,930
54,690,471
0.03 $
0.03 $
13,961 $
51,313,329
55,334,916
(0.09) $
(0.09) $
26,791 $
51,991,546
55,972,917
0.25 $
0.25 $
31,030 $
52,662,981
56,604,538
0.48 $
0.48 $
47,036 $
53,327,701
57,229,843
0.55 $
0.55 $
48,799 $
53,985,774
57,848,894
0.82 $
0.82 $
56,463 $
54,637,266
58,461,756
0.84 $
0.84 $
64,254 $
55,282,244
59,068,488
0.97 $
0.97 $
71,759 $
55,920,772
59,669,153
1.09 $
1.09 $
78,096
56,552,914
60,263,812
1.20 $
1.20 $
$
81,683
57,178,735
60,852,524
1.30 $
1.30 $
1.34
1.34
So u rce: Co mp an y data, Mo rgan Stan ley Research
34
Rockwell Medical Inc | August 13, 2015
Balance Sheet
Exhibit 38: Rockwell Medical Balance Sheet
Rockwell Medical, Inc. Balance Sheet
Assets
Cash and Equivalents
Investments Available for Sale
Accounts Receivable, net
Inventory
Other Current Assets
Total Current Assets
Property, Plant, and Equipment, net
Intangible Assets
Goodwill
Other Non-Current Assets
2011A
5,715
11,811
4,223
2,504
1,644
25,897
2,290
834
921
1,998
2012A
4,712
4,432
2,650
1,356
13,149
1,858
667
921
430
2013A
11,881
12,035
4,578
2,800
624
31,918
1,649
500
921
1,375
2014A
65,800
19,927
4,472
3,920
587
94,707
1,497
333
921
542
2015E
75,570
4,977
8,295
599
89,441
1,580
333
921
553
2016E
82,797
8,032
12,494
967
104,290
2,025
333
921
893
2017E
104,708
10,821
15,631
1,303
132,464
2,679
333
921
1,203
2018E
132,869
12,905
17,206
1,554
164,534
3,408
333
921
1,435
2019E
172,846
15,984
21,313
1,925
212,068
4,304
333
921
1,777
2020E
217,699
17,969
23,958
2,163
261,790
5,172
333
921
1,998
2021E
270,359
20,219
26,959
2,434
319,971
6,000
333
921
2,248
2022E
330,730
22,425
29,899
2,700
385,754
6,801
333
921
2,493
2023E
398,605
24,517
32,689
2,952
458,762
7,575
333
921
2,726
2024E
473,907
26,666
35,555
3,211
539,339
8,329
333
921
2,965
2025E
555,665
28,074
37,433
3,380
624,552
8,997
333
921
3,121
Total Assets
31,940
17,025
36,362
98,000
92,828
108,462
137,599
170,630
219,402
270,214
329,473
396,301
470,316
551,886
637,924
Liabilities & Stockholder's Equity
Note Payable Capitalized Lease Obligation
Capitalized Lease Obligations
Accounts Payable
Accrued Liabilities
Customer Deposits
Total Current Liabilities
Capitalized Lease Obligations
Deferred License Revenue
Long-Term Debt
Total Liabilities
6
5,365
8,225
96
13,692
2
13,695
2
14,834
12,016
135
26,987
26,987
2,308
8,686
6,648
208
17,850
17,917
35,767
5,295
4,326
184
9,804
19,493
29,297
4,608
3,471
188
8,267
17,499
25,766
5,764
4,342
303
10,409
15,499
25,908
7,539
5,679
408
13,626
13,499
27,125
8,957
6,747
487
16,190
11,499
27,690
9,908
7,463
603
17,974
9,499
27,474
11,161
8,407
678
20,246
7,499
27,745
13,080
9,853
762
23,695
5,499
29,194
14,678
11,057
846
26,581
3,499
30,080
15,863
11,949
924
28,737
1,499
30,237
17,641
13,288
1,005
31,934
31,934
18,772
14,141
1,059
33,971
33,971
Total Stocholders' Equity
Total Stockholder's Equity and Liabilities
18,245
31,940
(9,962)
17,025
596
36,362
68,703
98,000
67,062
92,828
82,553
108,462
110,474
137,599
142,940
170,630
191,929
219,402
242,469
270,214
300,279
329,473
366,222
396,301
440,080
470,316
519,952
551,886
603,953
637,924
So u rce: Co mp an y data, Mo rgan Stan ley Research
35
Rockwell Medical Inc | August 13, 2015
Cash Flow
Exhibit 39: Rockwell Medical Cash Flow
Rockwell Medical, Inc. Cash Flow
Operating Cash Flows
Net Income (Loss)
Depreciation and Amortization
Non-Cash Stock Option Expense
Loss on Disposal of Fixed Assets
Loss on Sale of Investments Available for Sale
Amortization of Debt Issuance Costs
Non-Cash Interest Expense
Change in Assets & Liabilities
Accounts Receivable
Inventory
Other Assets
Account Payable
Other Liabilities
Deferred Distribution Income
Net Cash Used by Operating Activities
2011A
(21,445)
1,176
4,378
29
85
4,994
284
433
(2,457)
1,705
5,029
(10,783)
2012A
(54,022)
1,087
7,302
18
67
14,800
(209)
(146)
1,856
9,469
3,830
(30,747)
2013A
(48,783)
1,007
7,712
16
227
225
(11,070)
(146)
(150)
670
(6,147)
(5,296)
(50,665)
2014A
2015E
(21,327) (4,766)
996
790
10,095
9,280
7
14
1
883
875
12,728
(7,578)
106
(505)
(1,121) (4,375)
(13)
(12)
(3,392)
(686)
(2,345)
19,493
(2,000)
4,258 (11,541)
2016E
13,961
682
9,087
13
-
2017E
26,791
865
11,199
11
-
2018E
31,030
1,083
12,316
13
-
2019E
47,036
1,348
13,475
12
-
2020E
48,799
1,654
14,350
12
-
2021E
56,463
2,010
16,667
2022E
64,254
2,347
18,754
2023E
71,759
2,668
20,517
2024E
78,096
2,989
22,717
2025E
81,683
3,272
24,154
(8,466)
(3,055)
(4,199)
(368)
1,156
(6,487)
(2,789)
(3,137)
(336)
1,775
(4,492)
(2,083)
(1,575)
(251)
1,418
(8,605)
(3,080)
(4,106)
(371)
951
(5,616)
(1,984)
(2,646)
(239)
1,253
(5,603)
(2,250)
(3,001)
(271)
1,919
(5,813)
(2,205)
(2,940)
(266)
1,599
(5,948)
(2,092)
(2,789)
(252)
1,185
(4,991)
(2,150)
(2,866)
(259)
1,777
(2,324)
(1,408)
(1,877)
(170)
1,131
(2,000)
6,190
(2,000)
21,181
(2,000)
27,633
(2,000)
39,790
(2,000)
44,848
(2,000)
52,871
(2,000)
60,789
(2,000)
68,478
(1,493)
76,095
82,632
Investing Cash Flows
Capital Expenditures
Sales of Investments Available for Sale
Purchase of Investments Available for Sale
Proceeds on Sales of Assets
Purchase of Intangible Assets
Net Cash Used in Investing Activities
(421)
1,975
(2,000)
3
(145)
(588)
(508)
14,037
(2,013)
2
11,518
(654)
(12,002)
7
(12,650)
(685)
4,976
(13,100)
(8,809)
(699)
19,927
(1,127)
-
(1,519)
-
(1,811)
-
(2,244)
-
(2,522)
-
(2,838)
(3,148)
(3,441)
(3,743)
(3,941)
19,228
(1,127)
(1,519)
(1,811)
(2,244)
(2,522)
(2,838)
(3,148)
(3,441)
(3,743)
(3,941)
Financing Cash Flows
Proceeds from Issuance of Common Shares / Warrants
Proceeds from Issuance of Notes Payable
Debt Issuance Costs
Payments on Notes Payable and Capital Leases
Net Cash Used in Financing Activities
4,841
(18)
4,823
18,231
(6)
18,225
51,596
20,000
(1,110)
(2)
70,484
79,570
(21,100)
58,470
2,082
-
2,164
-
2,250
-
2,339
-
2,431
-
2,527
-
2,627
2,731
2,838
2,951
3,067
2,082
2,164
2,250
2,339
2,431
2,527
2,627
2,731
2,838
2,951
3,067
(6,548)
12,263
(1,004)
5,715
7,170
4,712
53,919
11,881
9,770
65,800
7,227
75,570
21,912
82,797
28,160
104,708
39,978
132,869
44,853
172,846
52,659
217,699
60,371
270,359
67,875
330,730
75,302
398,605
81,758
473,907
5,715
4,712
11,881
65,800
75,570
82,797
104,708
132,869
172,846
217,699
270,359
330,730
398,605
473,907
555,665
Increase (Decrease) in Cash & Cash Equivalents
Cash & Cash Equivalents at Beginning of Period
Cash & Cash Equivalents at End of Period
So u rce: Co mp an y data, Mo rgan Stan ley Research
36
Rockwell Medical Inc | August 13, 2015
Disclosure Section
The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or
Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley"
includes Morgan Stanley & Co. LLC, Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., Morgan Stanley Canada
Limited and their affiliates as necessary.
For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan
Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley
Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.
For valuation methodology and risks associated with any price targets referenced in this research report, please contact the Client Support Team as follows:
US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169; Singapore +65 6834-6860;
Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or Morgan Stanley Research at 1585
Broadway, (Attention: Research Management), New York, NY 10036 USA.
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that
they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report:
Andrew S Berens.
Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
Global Research Conflict Management Policy
Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at
www.morganstanley.com/institutional/research/conflictpolicies.
Important US Regulatory Disclosures on Subject Companies
As of July 31, 2015, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan
Stanley Research: Amgen Inc., ImmunoGen Inc., Ironwood Pharmaceuticals, Inc., Ophthotech Corp, Rockwell Medical Inc.
Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Amgen Inc., Celgene Corp, Chimerix
Inc, Galapagos NV, Ironwood Pharmaceuticals, Inc., Juno Therapeutics Inc, Portola Pharmaceuticals Inc, Ultragenyx Pharmaceutical Inc.
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Amgen Inc., Celgene Corp, Chimerix Inc,
Galapagos NV, Ironwood Pharmaceuticals, Inc., Juno Therapeutics Inc, Ophthotech Corp, Portola Pharmaceuticals Inc, Ultragenyx Pharmaceutical Inc.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Alexion Pharmaceuticals,
Amgen Inc., Biogen Inc, Celgene Corp, Chimerix Inc, Galapagos NV, Gilead Sciences Inc., ImmunoGen Inc., Infinity Pharmaceuticals Inc, Ironwood
Pharmaceuticals, Inc., Juno Therapeutics Inc, Ophthotech Corp, Portola Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc., Theravance Inc, Ultragenyx
Pharmaceutical Inc, Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Amgen Inc.,
Biogen Inc, Celgene Corp, Gilead Sciences Inc., Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship
with, the following company: Alexion Pharmaceuticals, Amgen Inc., Biogen Inc, Celgene Corp, Chimerix Inc, Galapagos NV, Gilead Sciences Inc.,
ImmunoGen Inc., Infinity Pharmaceuticals Inc, Ironwood Pharmaceuticals, Inc., Juno Therapeutics Inc, Ophthotech Corp, Portola Pharmaceuticals Inc,
Regeneron Pharmaceuticals Inc., Theravance Inc, Ultragenyx Pharmaceutical Inc, Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has
entered into an agreement to provide services or has a client relationship with the following company: Amgen Inc., Biogen Inc, Celgene Corp, Gilead
Sciences Inc., Regeneron Pharmaceuticals Inc., Vertex Pharmaceuticals.
Morgan Stanley & Co. LLC makes a market in the securities of Alexion Pharmaceuticals, Amgen Inc., Biogen Inc, Celgene Corp, Chimerix Inc, Galapagos
NV, Gilead Sciences Inc., ImmunoGen Inc., Infinity Pharmaceuticals Inc, Ironwood Pharmaceuticals, Inc., Ophthotech Corp, Portola Pharmaceuticals Inc,
Regeneron Pharmaceuticals Inc., Rockwell Medical Inc, Theravance Inc, Vertex Pharmaceuticals.
The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking
revenues.
Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making,
providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and
buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a
position in the debt of the Company or instruments discussed in this report.
Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan
Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of
buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley
Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and
not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision
to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.
Global Stock Ratings Distribution
(as of July 31, 2015)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our
ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover.
Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see
definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond
Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.
37
Rockwell Medical Inc | August 13, 2015
COVERAGE UNIVERSE
STOCK RATING CATEGORY
Overweight/Buy
Equal-weight/Hold
Not-Rated/Hold
Underweight/Sell
TOTAL
INVESTMENT BANKING CLIENTS (IBC)
COUNT
% OF TOTAL
COUNT
% OF TOTAL
IBC
% OF RATING
CATEGORY
1198
1449
93
623
36%
43%
3%
19%
321
325
10
78
44%
44%
1%
11%
27%
22%
11%
13%
3,363
734
Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received
investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a
risk-adjusted basis, over the next 12-18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's
industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.
Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on
a risk-adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant
broad market benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad
market benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad
market benchmark, as indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index.
Important Disclosures for Morgan Stanley Smith Barney LLC Customers
Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith
Barney LLC or Morgan Stanley or any of their affiliates, are available on the Morgan Stanley Wealth Management disclosure website at
www.morganstanley.com/online/researchdisclosures. For Morgan Stanley specific disclosures, you may refer to
www.morganstanley.com/researchdisclosures.
Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is
conducted by the same person who reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest.
Other Important Disclosures
Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Amgen Inc., Celgene Corp, Gilead
Sciences Inc., Regeneron Pharmaceuticals Inc..
Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within
the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to
the recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or
other factors. For all research available on a particular stock, please contact your sales representative or go to Matrix at
http://www.morganstanley.com/matrix.
Morgan Stanley Research is provided to our clients through our proprietary research portal on Matrix and also distributed electronically by Morgan Stanley
to clients. Certain, but not all, Morgan Stanley Research products are also made available to clients through third-party vendors or redistributed to clients
through alternate electronic means as a convenience. For access to all available Morgan Stanley Research, please contact your sales representative or go
to Matrix at http://www.morganstanley.com/matrix.
Any access and/or use of Morgan Stanley Research is subject to Morgan Stanley's Terms of Use (http://www.morganstanley.com/terms.html). By
accessing and/or using Morgan Stanley Research, you are indicating that you have read and agree to be bound by our Terms of Use
(http://www.morganstanley.com/terms.html). In addition you consent to Morgan Stanley processing your personal data and using cookies in accordance
with our Privacy Policy and our Global Cookies Policy (http://www.morganstanley.com/privacy_pledge.html), including for the purposes of setting your
preferences and to collect readership data so that we can deliver better and more personalized service and products to you. To find out more information
about how Morgan Stanley processes personal data, how we use cookies and how to reject cookies see our Privacy Policy and our Global Cookies Policy
(http://www.morganstanley.com/privacy_pledge.html).
If you do not agree to our Terms of Use and/or if you do not wish to provide your consent to Morgan Stanley processing your personal data or using cookies
please do not access our research.
Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the
circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and
strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of an investment or strategy will depend on an investor's
circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and
certain investors may not be eligible to purchase or participate in some or all of them. Morgan Stanley Research is not an offer to buy or sell or the
solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. The value of and income from your
investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market
indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in
securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on
assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the
subject company's securities/instruments.
The fixed income research analysts, strategists or economists principally responsible for the preparation of Morgan Stanley Research have received
38
Rockwell Medical Inc | August 13, 2015
compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading
and capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts', strategists' or economists'
compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular
trading desks.
The "Important US Regulatory Disclosures on Subject Companies" section in Morgan Stanley Research lists all companies mentioned where Morgan
Stanley owns 1% or more of a class of common equity securities of the companies. For all other companies mentioned in Morgan Stanley Research,
Morgan Stanley may have an investment of less than 1% in securities/instruments or derivatives of securities/instruments of companies and may trade them
in ways different from those discussed in Morgan Stanley Research. Employees of Morgan Stanley not involved in the preparation of Morgan Stanley
Research may have investments in securities/instruments or derivatives of securities/instruments of companies mentioned and may trade them in ways
different from those discussed in Morgan Stanley Research. Derivatives may be issued by Morgan Stanley or associated persons.
With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to
use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or
information in Morgan Stanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views
presented in Morgan Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley
business areas, including investment banking personnel.
Morgan Stanley Research personnel may participate in company events such as site visits and are generally prohibited from accepting payment by the
company of associated expenses unless pre-approved by authorized members of Research management.
Morgan Stanley may make investment decisions that are inconsistent with the recommendations or views in this report.
To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such
information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decisions.
Morgan Stanley Research may not be distributed to the public media or quoted or used by the public media without the express written consent of Morgan
Stanley. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation
or a solicitation to trade in such securities/instruments. MSTL may not execute transactions for clients in these securities/instruments. To our readers in
Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated activities
in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong sales representatives.
Morgan Stanley is not incorporated under PRC law and the research in relation to this report is conducted outside the PRC. Morgan Stanley Research does
not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors shall have the relevant qualifications to invest in
such securities and shall be responsible for obtaining all relevant approvals, licenses, verifications and/or registrations from the relevant governmental
authorities themselves.
Morgan Stanley Research is disseminated in Brazil by Morgan Stanley C.T.V.M. S.A.; in Japan by Morgan Stanley MUFG Securities Co., Ltd. and, for
Commodities related research reports only, Morgan Stanley Capital Group Japan Co., Ltd; in Hong Kong by Morgan Stanley Asia Limited (which accepts
responsibility for its contents) and by Bank Morgan Stanley AG, Hong Kong Branch; in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration
number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of
Singapore (which accepts legal responsibility for its contents and should be contacted with respect to any matters arising from, or in connection with,
Morgan Stanley Research) and by Bank Morgan Stanley AG, Singapore Branch (Registration number T11FC0207F); in Australia to "wholesale clients"
within the meaning of the Australian Corporations Act by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services
license No. 233742, which accepts responsibility for its contents; in Australia to "wholesale clients" and "retail clients" within the meaning of the Australian
Corporations Act by Morgan Stanley Wealth Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No.
240813, which accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India
Company Private Limited; in Indonesia by PT Morgan Stanley Asia Indonesia; in Canada by Morgan Stanley Canada Limited, which has approved of and
takes responsibility for its contents in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main and Morgan Stanley Private Wealth
Management Limited, Niederlassung Deutschland, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley,
S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley
Research has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish
regulations; in the US by Morgan Stanley & Co. LLC, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized by
the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority, disseminates in the UK
research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been
prepared by any of its affiliates. Morgan Stanley Private Wealth Management Limited, authorized and regulated by the Financial Conduct Authority, also
disseminates Morgan Stanley Research in the UK. Private UK investors should obtain the advice of their Morgan Stanley & Co. International plc or Morgan
Stanley Private Wealth Management representative about the investments concerned. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE
Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by
Morgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai
Financial Services Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to
which this research relates will only be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar
Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail
Customers as defined by the QFCRA.
As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of
investment advisory activity. Investment advisory service is provided exclusively to persons based on their risk and income preferences by the authorized
firms. Comments and recommendations stated here are general in nature. These opinions may not fit to your financial status, risk and return preferences.
For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.
The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no
warranties or representations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages
relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley
Research or portions of it may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
39
Rockwell Medical Inc | August 13, 2015
INDUSTRY COVERAGE: Biotechnology
COMPANY (TICKER)
RATING (AS OF)
PRICE* (08/12/2015)
U (08/13/2015)
$13.74
E (01/05/2015)
E (01/05/2015)
O (03/26/2014)
E (03/26/2014)
O (08/14/2014)
O (06/08/2015)
O (12/29/2014)
E (06/01/2015)
E (01/05/2015)
E (08/14/2014)
E (01/13/2015)
O (08/14/2014)
O (08/14/2014)
O (01/05/2015)
U (08/14/2014)
E (07/27/2015)
E (08/14/2014)
$191.01
$170.62
$316.73
$131.03
$51.78
$59.83
$116.25
$14.38
$9.29
$11.35
$42.38
$51.65
$49.72
$579.25
$14.35
$114.92
$137.64
Andrew S Berens
Rockwell Medical Inc (RMTI.O)
Harrison, Matthew
Alexion Pharmaceuticals (ALXN.O)
Amgen Inc. (AMGN.O)
Biogen Inc (BIIB.O)
Celgene Corp (CELG.O)
Chimerix Inc (CMRX.O)
Galapagos NV (GLPG.O)
Gilead Sciences Inc. (GILD.O)
ImmunoGen Inc. (IMGN.O)
Infinity Pharmaceuticals Inc (INFI.O)
Ironwood Pharmaceuticals, Inc. (IRWD.O)
Juno Therapeutics Inc (JUNO.O)
Ophthotech Corp (OPHT.O)
Portola Pharmaceuticals Inc (PTLA.O)
Regeneron Pharmaceuticals Inc. (REGN.O)
Theravance Inc (THRX.O)
Ultragenyx Pharmaceutical Inc (RARE.O)
Vertex Pharmaceuticals (VRTX.O)
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.
© 2015 Morgan Stanley
40