Is Rockwell Medical (RMTI) Really a Sell? DVA, FMS & NXTM

Small cap dialysis stock Rockwell Medical Inc (NASDAQ: RMTI) looks set to decline when the market opens after Brean Capital initiated coverage with a sell rating and a price target of $4.00, meaning it might be time to take a closer look at what is going on with the stock along with the performance of large cap dialysis stocks DaVita Healthcare Partners (NYSE: DVA) and Fresenius Medical Care (NYSE: FMS) along with small cap dialysis stocks NxStage Medical, Inc (NASDAQ: NXTM). 

What is Rockwell Medical?

Small cap Rockwell Medical is a fully-integrated biopharmaceutical company targeting end-stage renal disease (ESRD) and chronic kidney disease (CKD) with innovative products and services for the treatment of iron deficiency anemia, secondary hyperparathyroidism and hemodialysis. Rockwell Medical calls itself a leader in producing and delivering hemodialysis concentrates (solutions and powders) along with related ancillary products to dialysis providers located throughout the US and abroad. In addition, the company is further developing brand extensions and new drug opportunities in the areas of anemia for women's health, oncology, gastroenterology and parenteral nutrition, as well as new drugs for other targeted renal therapies and indications.

As for dialysis stock peers, DaVita Healthcare Partners is a provider of dialysis and administrative services; Fresenius Medical Care is a Germany-based vertically integrated holding and kidney dialysis company operating in the fields of dialysis products and dialysis services; and small cap NxStage Medical is a medical device company that develops, manufactures and markets products for the treatment of kidney failure, fluid overload and related blood treatments and procedures.

What You Need to Know About or Be Warned About Rockwell Medical?

Brean Capital analyst Jonathan Aschoff initiated coverage on Rockwell Medical with a sell plus he commented that:

"Triferic did not appear to reduce total ESA use versus placebo in the PRIME trial, and did not reduce ESA use versus baseline, by contrast to what is seen with IV iron and Zerenex. The CRUISE trials had a questionable design that we view as unlikely to result in approval. Both CRUISE trials did not allow IV iron use or changes in ESA use, which is utterly inconsistent with current dialysis center practice under bundled reimbursement. More than 80% of the patients in all CRUISE arms did not complete the 48-week treatment period, making the primary endpoint evaluation period (defined as the last 1/6 of time on treatment) highly variable among patients. A key employee termination and resulting lawsuit further speaks to inadequate Triferic testing, in our view, where a former VP of Drug Development and Medical Affairs warned Rockwell that its Phase 2b trial did not adequately show efficacy or dose-ranging information to proceed directly to Phase 3."

Aschoff's sell rating and assertions have caused a reaction on StockTwits with someone noting a blog post from 2007 complaining about his "daily bashing of Provenge," a drug to help prostate cancer patients in the late stage of disease from Dendreon Corporation (NASDAQ: DNDN) which apparently works just fine (see the Wikipedia entry for the drug here). The blog post goes on to note that:

"He was caught impersonating a doctor in order to get confidential information a few years ago. Why respected publications such as Barrons and Forbes continue associate themselves with this medical impersonator is baffling to say the least."

The whole story can be found here in a Wall Street Journal article about biotech analysts like Aschoff using questionable tactics to peek into drug trial results – meaning one has to wonder what kind of information he may have obtained and how he obtained it.

With that said, Aschoff also commented:

"Sales of Rockwell's drugs have been stagnant ($60 million, $49 million, and $50 million in 2010, 2011, and 2012, respectively) and we project flat future growth."

A look at Rockwell Medical's financials does show flat revenues of $49.84M (2012), $48.97M (2011), $59.55M (2010) and $54.73M (2009) for the past four years along with increasingly large net losses of $54.02M (2012), $21.44M (2011), $2.68M (2010) and $5.50M (2009) plus $31.22M in cash and short term investments to cover $18.07M in current liabilities and $19.43M in long term debt. Those financials are something investors should consider but of course FDA approval of Triferic would change all of that (Note: Stifel Nicolaus analyst Annabel Samimy says annual sales of Triferic could reach $200 million a year).

Share Performance: Rockwell Medical vs. DVA, FMS & NXTM

On Monday, small cap Rockwell Medical rose 1.13% to $13.47 (RMTI has a 52 week trading range of $3.16 to $15.85 a share) for a market cap of $538.77 million plus the stock is up 67.3% since the start of the year and up 298.5% over the past five years. Here is a look at the long term performance of Rockwell Medical verses large cap dialysis stocks DaVita Healthcare Partners and Fresenius Medical Care plus small cap NxStage Medical:

As you can see from the above chart, small cap dialysis stock NxStage Medical peaked in January 2011 and has trended down since then while Rockwell Medical bottomed out before the summer. Meanwhile, large caps Fresenius Medical Care has been relatively flat and DaVita Healthcare Partners has been steadily trending upward.

Finally, here is a quick look at the technical charts for all four dialysis stocks:

The Bottom Line. Irrespective of what Brean Capital analyst Jonathan Aschoff says, his track record and any ulterior motives he may have (e.g. they are shorting the stock), its really the FDA that will make or break small cap dialysis stock Rockwell Medical. So stay tuned…