Rockwell Medical Technologies, Inc. (RMTI)

[Minding]

The Bear Case On Rockwell Appears Gutted
Jun. 17, 2015 4:18 PM ET | 7 comments | About: Rockwell Medical, Inc. (RMTI), Includes: BAX, CMS, FMS
Disclosure: I am/we are long RMTI. (More...)
Summary

Rockwell has addressed every objection of short sellers over the past two years.
Triferic and Calcitriol expected to generate revenues by year end.
Insiders holding firm even as their stock's price and short interest have risen substantially.
Shares of Rockwell Medical (NASDAQ:RMTI) are (finally) attempting a breakout after trading sideways to down for over a year. The only recent news for the company seems small, but the increased volume behind its stock's bullish price action shows promise that investors may be overlooking the false specter RMTI's large short-interest is casting, and buying into the company's very apparent short and long-term appreciation potential.

Rockwell Medical is one of the two major suppliers of chemicals used in dialysis (dialysates) in the U.S. market. The other is Fresenius Medical Care (NYSE:FMS). Rockwell scored a big win with its dialysates business last October in the form of a distribution agreement with and investment from Baxter International (NYSE:BAX). The company is also busy preparing for the commercial launch of Calcitriol and Triferic, two drugs that both received FDA approval recently. Calcitriol is a low-cost generic vitamin D drug used in dialysis. Triferic is a potentially disruptive drug that changes the way anemia is treated in dialysis patients.

The most recent news on Rockwell is that the Centers for Medicare and Medicaid Services (NYSE:CMS) has granted a unique product reimbursement code for Rockwell's potentially disruptive Triferic drug. Short sellers have been wrong about many aspects of Rockwell during our nearly two years in the stock, and quite soundly so about Triferic-which is creating a new treatment paradigm for hemodialysis patients rather than simply competing with an existing drug. The CMS's code is yet another step towards the launch of Triferic.

The real surprise is that Rockwell's stock hasn't already traded more strongly since Triferic gained FDA approval in January. The average of analysts' expectations right now are for Rockwell's revenues to increase 27% this year, to $69 million, and nearly 70% next year, to $115 million. That's impressive, but these estimates are most instructive for their large range.

The low-end of revenue expectations for this year are a mere $56 million!? That's just a 3.7% increase from last year's sales-and is absolutely reflecting the bear case that neither Calcitriol nor Triferic is commercially viable. With over 25% of RMTI's float shorted, this case has quite a few advocates.

We have nothing against short sellers. But if the bear case had any legitimacy last year, it now seems obviously contrived after both Calcitriol and Triferic gained FDA approvals, and Rockwell solidified funding and a partnership with Baxter International. Even Rockwell's Q1 sales growth of 7.1% year-over-year makes that low-end revenue estimate for 2015 seem more based on an agenda than an honest calculation. (See our November 12, 2014 article on RMTI for more background on Rockwell's struggle with the bears.)

Management made clear in its Q1 conference call that feedback on Triferic from physicians and providers "continues to be very positive". They also expect both Calcitriol and Triferic to launch in July or August this year. Executives faith in their new products is also reflected in the continuing bullish-leaning insider trading profile for RMTI.

There appeared to be some disappointment on the Q1 conference call from questioners that Calcitriol wasn't launching by the end of Q2, but we hold no concerns about the time line. We've been waiting nearly two years for RMTI to reflect the full promise of the new drugs that were part of our initial investment thesis.

We don't think ourselves too greedy to believe that we should already have a much higher gain in RMTI given Rockwell's FDA approvals. The Baxter funding and partnership is just more good news besides that hasn't been figured into Rockwell's stock price. If it takes another quarter-or even two-for revenues from Calcitriol and Triferic to smite the bear case once and for all, we're fine with that. And we'd be very surprised at this point if the bear case on RMTI was not invalidated this year.

Rockwell is an established healthcare firm that is debt-free with $1.65 per share in cash on its balance sheet. Its two new products are set to add significantly to its top line beginning in Q3 or Q4 of this year, with leveraged affects expected for the company's earnings in coming years. We continue to view RMTI as a compelling long.

While shorts could yet cause more shenanigans in RMTI's trading, the stock's latest surge is showing that bulls are also emboldened. Unsurprisingly, RMTI is finding resistance at its past all-time high of around $15. But with the momentum behind Rockwell's product launches clearly on the side of the bulls, we fully expect RMTI to break out to new highs later this year.

From http://seekingalpha.com/article/3265915-the-bear-case-on-rockwell-appears-gutted?ifp=0