3 Ways Rockwell Medical Inc. Could Turn Things Around

By Markets Fool.com

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Things just haven't looked great for Rockwell Medical (NASDAQ: RMTI) lately. Despite winning FDA approval for iron replacement drug Triferic in early 2015, sales haven't taken off. Rockwell's shares are down over 30% so far this year. It won't be easy for the stock to bounce back, but it's not impossible. Here are three ways Rockwell Medical could turn things around.

1. Add add-on reimbursements for Triferic

The biggest problem by far for Rockwell relates to federal reimbursement levels for Triferic. Rockwell Medical desperately needs what is called a transitional add-on reimbursement for the drug. The Centers for Medicare and Medicaid Services (CMS) typically pays for dialysis treatments in a bundled payment to providers, which means that all services and products used in dialysis are lumped together in one single reimbursement. CMS allows some new treatments, though, to receive an add-on reimbursement that pays 106% of a drug's average selling price for two years.This provides a financial incentive for healthcare providers to adopt new treatments. Winning approval for a transitional add-on reimbursement can be the difference between success and failure for a new drug.

Rockwell is definitely trying. The company's lobbying efforts gained support of several members of Congress. These representatives signed and sent a letter to CMS urging the agency to approve a transitional add-on reimbursement for Triferic. Other groups are also helping. Dialysis providers, who stand to reduce costs by using Triferic, have also appealed to CMS. So have patient advocacy groups, nephrologists, and nurse associations.

There is precedent for winning CMS over. Amgen (NASDAQ: AMGN) accomplished last year what Rockwell Medical is trying to do now. The big biotech at first didn't have an add-on reimbursement for IV Sensipar. Amgen picked up support in Congress to pressure CMS just as Rockwell has done. Those efforts paid off, with CMS ultimately granting a transitional add-on reimbursement for Amgen's chronic kidney disease treatment.

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Ironically, Amgen could be the biggest loser if Rockwell Medical succeeds in its quest. Dialysis providers who use Triferic won't need Amgen's Epogen nearly as much. When Rockwell Medical's management talks about a $1 billion potential market for Triferic, they're counting on winning market share from Epogen.

2. Gain ground internationally

While Rockwell needs CMS' assistance to jump-start Triferic sales in the U.S., that's not an issue in other markets. If the company can gain ground internationally, it would definitely help Rockwell turn things around.

There is good news on this front. In March, the China Food and Drug Administration (CFDA) accepted Rockwell's clinical trial application for Triferic. Rockwell Medical CEO Robert Chioini thinks that this application could be approved by the end of 2016.

Rockwell has teamed up withWanbang Biopharmaceutical to distribute Triferic in China. Wanbang will help navigate the regulatory approval waters there, which is certainly a plus. Chioini has stated in the past that the Chinese dialysis market will become the largest in the world over the next few years. He's probably right -- and that means a major opportunity for Triferic.

3. Score a win with Calcitriol

Triferic isn't the only product that is important to Rockwell Medical. Calcitriol also could generate significant revenue for the company. The generic drug, which helps prevent and treat secondary hyperparathyroidism (SHPT) byincreasing the absorption of calcium from the diet, received FDA approval back in June 2014.

It's taken a long, long time for Rockwell to get Calcitriol to the point of launching commercially due primarily to manufacturing issues. However, the company now expects to launch Calcitriol in the U.S. by late November.

Calcitriol is projected to achieve peak annual sales of around $48 million. That's not a huge amount, but it's still big for Rockwell Medical, which pulled in total sales of only $55.4 million in all of 2015.

Is a turnaround likely?

If Rockwell Medical manages to secure CMS approval of a transitional add-on reimbursement for Triferic, picks up international sales, and successfully launches Calcitriol, I have no doubt that the stock will rebound solidly. But can the company pull all of these things off? I think so, but I'm not 100% sure.

One would think that CMS would be crazy not to grant add-on reimbursement for a treatment that could potentially save the federal government money. However, you never know what decision CMS will make. There's also no guarantee about what the CFDA will do. And who knows if another manufacturing issue will emerge with Calcitriol?

There's plenty of uncertainty for Rockwell Medical. I am cautiously optimistic that the company will turn things around. What I don't know is how long that turnaround might take.

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Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.