Rockwell life_sci_advisors_initiation_6-10-10__clientinfo[1]

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LIFESCI ADVISORS Equity Research

June 10, 2010

Initiation of Coverage

We are initiating coverage on Rockwell Medical. Our research describes Rockwell’s core dialysate business as well as the prospects for SFP, the Company’s lead drug candidate slated to enter Phase III development in 2010.

Andrew I. McDonald, Ph.D.(415) [email protected] Van Buren, [email protected]

FY Dec FY Dec 2008A 2009A 2010

EPS: Q1 ($0.09)A ($0.12)A ($0.02)A

(GAAP) Q2 ($0.08)A ($0.12)A NA

Q3 ($0.18)A ($0.11)A NA

Q4 ($0.22)A ($0.03)A NA

FY ($0.57)A ($0.38)A NA

Ticker RMTI

Price $4.39

Market Cap (M) $77

EV (M) $52

Shares Outstanding (M) 17.5

Avg. Daily Vol. 59,642

52-week Range: $4.33-$9.39

Cash (M) $24.6

Net Cash/Share $1.41

Debt (M) $0.0

Annualized Cash Burn (M) $8.0

Years of Cash Left 3.1

Short Interest (M) 1.6

Short Interest (% of Float)

9.1%

Base Business. Rockwell currently has ~27% market share of hemodialysis concentrates and solutions. Related to this business, Rockwell has distribution channels, a fleet of trucks, and three manufacturing plants. These operations can be leveraged as Rockwell adds additional products to their commercial portfolio.

SFP Potential Game-Changer. Rockwell’s lead pipeline product, SFP, is a form of iron delivered to hemodialysis patients continuously via dialysate during a patient’s hemodialysis treatment. SFP is being developed as a maintenance iron therapy. SFP may have safety, convenience and cost benefits over the currently marketed IV iron products and has the potential to transform iron therapy in dialysis, particularly in a bundled environment.

Bundled Reimbursement. Expected sweeping changes to the economics of dialysis starting in 2011 should benefit SFP. In a bundled environment SFP should have a substantial competitive advantage since it is expected to cost less than the IV iron products, lower the EPO requirement, and reduce ancillary IV iron administration costs - powerful economic incentives for the provider.

Financial Outlook. Rockwell has stated that it expects to generate $3-4MM of positive cash flow from operations in 2010, excluding the effect of research and development expenses assuming stable operating results and relative stability in the markets for their key raw materials. The company expects to spend ~$10MM in cash per year on R&D over the next two years. At the same time, they expect to generate ~$6MM or more cash from operations over the two years. Hence, Rockwell should have more than enough cash to fund Phase III development of SFP.

Rockwell Medical

mailto:[email protected]




YoY Financials. Rockwell generated net sales of $54.7MM, $51.7MM, and $43.0MM in 2009, 2008, and 2007, respectively. Gross profit was $7.9MM, $2.5MM, and $2.9MM, in 2009, 2008, and 2007, respectively. Net income was ($5.3MM), ($7.9MM), and ($3.8MM) in 2009, 2008, and 2007 respectively.

QoQ Financials. Rockwell reported 1Q10 sales of $15.0MM, gross profit of $2.3MM, and net income of ($0.4MM). This compares to 4Q09 reported sales of $14.4MM, gross profit of $2.5MM, and net income of ($0.5MM).

SFP Related Expenses. Rockwell incurred aggregate expenses related to the development of SFP of approximately $6.5MM, $3.8MM, and $3.3MM, in 2009, 2008 and 2007, respectively.

Recent Financing Activity/Cash. In October 2009, Rockwell issued 2.84MM shares at $7.75 and 1.2MM warrants, exercisable at $9.55, for net proceeds of $20.4MM. As of March 31, 2010 the company had cash and cash equivalents of $24.6MM, an increase of $1.6MM over the 4Q09 balance.

NIH Study Results. We look forward to seeing how SFP performs against Venofer in this study; interim results may be forthcoming at any time as this is an open-label study. Additionally, we may see important ESA use, iron parameter, and safety information.

SFP Development Path. With Phase IIa and IIb studies complete, SFP has demonstrated an excellent safety profile and study results have suggested a desired dosage range for phase III investigation. In the near-term, we await the NIH-study results which may start reporting in 2H10 and the finalization of the Phase III protocol in mid 2010. The Phase III study for SFP is anticipated to start by the end of the 2010.

Expected Upcoming Milestones

Date EventQ2:2010 End of Phase II Clinical Program Meeting with FDA2H:10 (anytime) Potential release NIH Study DataQ4:2010 Initiate Phase III SFP Trial2012 File NDA for SFP as Intravenous Iron Supplementation2013 FDA Approval and Launch of SFP

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Company Description

Background. Rockwell Medical (NASDAQ: RMTI) Inc. was founded in 1995 in Wixom, Michigan and underwent an IPO on the NASDAQ stock exchange in 1998. Rockwell has an established business in hemodialysis concentrates and ancillary dialysis items. These products are sold to hemodialysis providers in 37 states in the US and internationally in several countries in Latin America, Asia, and Europe. Rockwell has approximately 300 employees and 65 trucks, which make deliveries across the US. Rockwell’s business focuses on providing their innovative products to individuals with End-Stage Renal Disease (ESRD) who are undergoing chronic hemodialysis and have a need for new, safe, and effective dialysis concentrates and supplements.

Commercial Products. Rockwell’s current line of hemodialysis products consists primarily of two types; acidified concentrate (acid concentrate) and bicarbonate concentrate. These products are mixed with reverse osmosis water in a dialysis machine at the center and create dialysate, which is used to cleanse the dialysis patient’s blood. Rockwell’s entire current product portfolio has received 510K FDA market approval and includes:

• Renal Pure® Liquid Acid Concentrate. This product consists mainly of sodium chloride, dextrose, and electrolytes (Magnesium, Potassium, and Calcium) and acetic acid, hence the name. They supply up to 60 different formulations, and package them in either 55-gallon drums or a case which includes four 1-gallon containers.

• Dri-Sate® Dry Acid Concentrate and Mixing System. This system allows clinics to mix acid concentrate on-site from dry powder stock. In turn, mixing on-site substantially decreases delivery costs, decreases needed storage capacity, and decreases the frequency and need of deliveries.

• Renal Pure® Powder Bicarbonate Concentrate. This product serves patients primarily in the chronic setting. Rockwell sells 9 different mixes.

• SteriLyte® Liquid Bicarbonate Concentrate. This product serves patients primarily in the acute setting.

• Ancillary Products. These products include blood tubing, fistula needles, custom dialysis kits, associated cleaning agents, filtration salts, and other dialysis-related products.

Rockwell intends to augment its current product offering by eventually commercializing products from its research and development pipeline. Rockwell fills this pipeline with renal drug therapies that are either in-licensed or developed in-house. Their lead pipeline candidate is Soluble Ferric Pyrophosphate (SFP), which is being developed to deliver a biologically-compatible form of iron. SFP is designed to maintain iron stores in ESRD patients. In contrast to currently available intravenously-delivered iron therapies used to treat iron deficiency in this population, SFP is unique in that it is delivered via dialysate during each dialysis session. The SFP product candidate is poised to begin phase III trials by the end of 2010. Should the clinical program prove successful and the FDA grant marketing approval to SFP, the Company intends to market SFP on a global scale. Separately, Rockwell has entered into a licensing agreement that is related to a patent for the delivery

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of carnitine and vitamins by way of dialysate. These new product candidates are not only complimentary to Rockwell’s core business, but they could have a profound impact on the company’s future revenues.

Business Strategy. Rockwell directly targets hemodialysis clinics with their own sales team and other independent sales representatives. Distributors are utilized for both nation-wide and international business. For US-based sales, Rockwell has a subsidiary called Rockwell Transportation that employees their own drivers (as opposed to contract carriers) using their own fleet of trucks to deliver Rockwell’s products, which the company firmly believes enables them to provide a higher level of service to their customers. The Company outlines what they call a Dri-Sate® Synergy, which allows clinics to use their Dri-Sate® Dry Acid Concentrate and Mixing System to reduce shipping costs. One pallet of pre-mixed liquid dialysate equates to 220 gallons. In comparison, one pallet of Dri-Sate® dry mix equates to 1,200 gallons of dialysate. Hence, there is considerable shipping savings when shipping Dri-Sate® over liquid dialysate. Rockwell’s marketing activities are directed towards purchasing decision makers for large for-profit national and regional hemodialysis chains and independent service providers. Targeted professionals include: purchasing directors, clinic administrators, patient-care technicians, clinic administrators, nurses, medical directors at clinics, and nephrologists.

Rockwell is focused on becoming a leading biopharmaceutical company providing therapies for renal indications. Some of their business strategies include:

• Obtain regulatory approval for SFP and develop a larger product portfolio• Identify new novel drug targets to address current unmet needs• Partner with companies to achieve development and commercialization of their products

globally• Acquire rights to complimentary drug candidates and technologies

Rockwell Medical - In a Strong Position. Rockwell Medial is in an enviable position of having both an established base business and an potential game-changing pipeline product in SFP. Should SFP successfully navigate clinical development and achieve FDA approval, we think it could transform iron therapy in the ESRD segment of the market, particularly as bundling takes effect. SFP has the potential to reduce ESA use, which has been a focus of the clinical community since the recent discovery of a mortality increase associated with high ESA doses. SFP also has the potential to supplant IV iron administration and reduce the associated administration costs. Importantly, Rockwell should have little trouble commercializing SFP as they have an established channel for distribution; SFP would essentially be an add-on to their current dialysate portfolio.

Kidney Function, Iron Metabolism, & Disease Information

Kidney Function. The average person is born with two kidneys that serve as vital organs in the urinary system. The kidneys serve in several homeostatic functions, including the regulation of blood pressure, electrolytes, and the acid-base balance. The kidney is bean-shaped, about the size of

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a baseball, and is located behind the abdominal cavity in the lower-back portion of the human body. As blood enters the kidney from the renal artery, it will be filtered as it passes through the kidney and later exits the organ through the renal vein. Urine and waste products collected from this filtration process will then exit the kidney through the ureter, go to the bladder, and exit the body by the process of urination. Located in the medulla and cortex of the kidney are approximately 1 million nephrons that carry out almost all of the kidney’s filtration functions. The nephron acts as a filter as it reabsorbs and secretes solutes that include ions (e.g., sodium), carbohydrates (e.g., glucose), and amino acids (e.g., glutamate). The kidney filters and cleans the blood to produce an ultrafiltrate that is secreted into the urine. It is estimated that the kidney generates 200 liters of filtrate a day, and from that, approximately 2 liters of urine is produced.

Another critical function of the kidney is the secretion of hormones that aid in many of the body’s biological systems. Erythropoietin is a hormone secreted by the kidneys in response to hypoxia, or low amounts of oxygen in the body, and it stimulates the production of red blood cells (RBCs) from the bone marrow. Calcitriol is an activated from of vitamin D that is secreted by the kidneys and promotes the absorption of calcium in the gastrointestinal tract. Renin is an enzyme that is also secreted by the kidneys, which helps to maintain aldosterone levels functioning in the regulation of blood pressure.

Figure 1: Human Kidney Anatomy

Source: RelayHealth

Iron (Fe) Metabolism. Iron metabolism encompasses all the chemical reactions that take place in the body that are required for iron homeostasis. Homeostasis is the process of internally regulating an environment and in this case, maintaining stable amounts of iron. Iron is necessary for the production of RBCs, which are vital in the delivery of oxygen to the body and numerous other biological functions. The average human being requires approximately 20 mg of iron per day for the production of RBCs. When the amount of iron in the body deviates from equilibrium it may cause a variety of life-threatening diseases. Understanding a person’s iron status helps to treat a number of related diseases.

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Several molecules that exist in the human body are responsible for the regulation of internal iron levels. Hemoglobin (Hb) is a protein that exists in the body and is largely responsible for the transport of oxygen to the tissues. Hemoglobin is located in the body’s RBCs and accounts for greater than 95% of their total dry weight. More importantly, hemoglobin has the capacity to increase the blood-oxygen capacity upwards of 70 times allowing for a more efficient oxygen uptake. Typically, the hemoglobin molecule is comprised of 4 globular protein subunits, each of which has a heme group that contains an iron ion. Non-normal amounts of iron can affect internal hemoglobin levels causing a variety of diseases. Measuring hemoglobin concentration is one of the most commonly performed blood tests.

Transferrin is glycoprotein that has the ability to bind iron. It has two high affinity sites for iron ions in the ferric form (Fe3+). The amount of iron bound to transferrin in the body at any given time is about 0.1% of the body’s total iron, or approximately 4 mg. While this may seem low, transferrin-bound iron is one of the most important iron pools in the human body, particularly because of its high iron turnover rate; 25 mg per 24 hours. Of biological significance, transferrin’s iron binding capacity dramatically decreases as the environmental pH decreases. When an individual becomes hypoxic or lacks oxygen, carbon dioxide will build up in the body and decrease biological pH, allowing iron to then be released for the immediate production of RBCs.

Ferritin is a globular protein that is the primary intracellular iron-storage protein in all living things. More importantly, ferritin’s main biological function is to store iron in a safe and non-toxic form, so that it may be released appropriately to maintain iron homeostasis.

Hepcidin is a small peptide produced in the liver and is the body’s main regulator of systemic iron homeostasis. Inflammation and elevated body iron levels increases hepcidin production. Hepcidin levels are decreased by erythropoietic activity and hypoxia. Hepcidin controls the flux of iron into plasma by regulation of the body’s sole cellular iron exporter, ferroportin-1. High hepcidin levels inhibit both the absorption of iron in the gut and the release of iron from storage sites by wiping out ferroportin-1 expression. In summary, hepcidin inhibits the release of iron from the liver to be taken to the bone marrow for the production of red blood cells.

Associated Diseases. Some of the most prevalent diseases involving iron homeostasis include chronic kidney disease (CKD), end-stage renal disease (ESRD), and iron deficiency anemia. Chronic kidney disease is the loss of kidney function over a period of time that can span months to years. Typical causes of CKD include, but are not limited to, diabetic nephropathy (angiopathy of capillaries in the kidney due to long-term chronic diabetes), hypertension (high blood pressure), or glomerulonephritis (inflammation of the small blood vessels in the kidney). Methods employed for diagnosis include blood test of creatinine, urinalysis for protein and RBCs, medical imaging, and renal biopsies. Patients with CKD often suffer from atherosclerosis, which is the thickening of arterial walls by fatty material, which leads to increased risk of cardiovascular disease (CVD). Atherosclerosis, in combination with the typical symptom of high blood pressure, is a lethal combination and usually results in a prognosis for patients with CKD that include, a decrease in

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lifetime expectancy and a relatively decreased quality of life. Other conditions that may result from decreased kidney function are anemia, acidosis, cholesterol and fatty acid disorders, and bone disease. Iron deficiency anemia is a disease that may cause some similar symptoms, but is typically due to a decrease in the dietary intake or adsorption of iron. This is quite a serious disease because if iron levels are abnormally low, then there will be a decreased amount of hemoglobin being made and oxygen transport will be drastically reduced. This disease can lead to malfunctioning organ systems and treatment requires some form of iron supplementation.

CKD Treatment & Dialysis

Treatment Options. There are 5 stages of CKD disease that are characterized by symptoms of increasing seriousness with stage 1 being the least serious and stage 5 being the most. Stage 5 CKD is also classified as end-stage renal disease (ESRD) where the kidney stops functioning and there is a dangerous accumulation of water, waste, and toxic substances. In the early stages of CKD, ACE Inhibitors or ARBs are pharmaceutical agents that can slow the progress of the disease, but are not a sufficient treatment. As the disease worsens patients can be supplemented with erythropoietin (EPO), vitamin D3, and calcium. In addition, phosphate binders can also be used to control typically elevated serum-phosphate levels in CKD. Once a patient reaches ESRD or Stage 5 CKD, renal replacement therapy is their only option, which will include either dialysis or organ transplant.

Dialysis. Due to the shortage of organ donors, dialysis has become a very common procedure for serious chronic kidney disease. Only 4% of patients with end-stage renal disease received donated kidneys in 2008. Dialysis is therefore the next best treatment. Dialysis is a treatment used to replace the normal function of a kidney when the patient has ESRD. Even though dialysis can replace some of the kidney functions like diffusion (waste removal) and ultrafiltration (fluid removal), it does not replace the endocrine functions of the kidney and it only prolongs the patient’s life until they can find an organ donor. There are 4 types of dialysis, which include hemodialysis, peritoneal dialysis, hemofiltration and intestional dialysis. We will focus on hemodialysis since it is the most commonly used procedure for the treatment of chronic kidney disease.

The process of dialysis is based on the principle of diffusion of solutes and the ultrafiltration of liquid across a semi-permeable membrane. Once the blood enters the dialyzer, it flows in an opposite direction across a semi-permeable membrane from the dialysate solution to maximize the concentration gradient and maintain efficiency of dialysis. Solutes tend to travel from areas of high concentration to areas of low concentration. With that being said, the dialysis solution is a solution of mineral ions with solutes at similar concentrations to healthy blood. Therefore, if blood waste products like urea, potassium, and phosphate are at high levels in the blood, they will diffuse into the dialysate. In addition to that, some chemicals that people with CKD are lacking, such as calcium, are introduced from the dialysate solution. Fluid removal or removal of free water from blood is achieved by altering the hydrostatic pressure of the dialysate compartment.

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Figure 2: Hemodialysis Schematic

Source: National Institute of Diabetes and Digestive and Kidney Diseases

Hemodialysis is commonly used for the treatment of chronic kidney disease and kidney failure as an alternative to a renal transplant. Hemodialysis is a specific method that uses a dialyzer (apparatus that include semi-permeable membrane) to remove waste products and free water from the blood, a function that the kidney would normally do. For a patient to undergo dialysis, a nephrologist (medical kidney specialist) must prescribe the patient-specific treatment, which varies based on treatments per week, length of treatment, blood and dialysis solution flow rates, and the size of the dialyzer apparatus. In general, as the body weight of the treated individual increases, the more dialysis that is required. Routine dialysis may be performed on an inpatient or outpatient basis; however dialysis is commonly performed on an outpatient basis at a stand-alone clinic. The average patient undergoes dialysis three times a week, but it is understood that more than three dialysis sessions a week can be beneficial for the patient. Interestingly enough, the Federal Government will only reimburse up to three dialysis sessions a week. Currently, there is a movement towards more convenient methods of dialysis that can allow patients to live a more regular lifestyle. Some patients have the option to complete short, daily dialysis treatments at home. In addition to that, many individuals are also considering nocturnal dialysis, which would drastically increase the patient’s lifestyle and reduce the impediment of dialysis on day-to-day activities.

Adjunct Therapy. Besides a renal transplant, dialysis is one of the most effective treatments used for end-stage renal disease (ESRD). As noted earlier, dialysis is used primarily for removal of waste and excess fluid from the blood; however anemia often results from CKD. Anemia refers to the lack of red blood cells, or diagnostically, by the lack of hemoglobin in the blood. This lack of hemoglobin lowers the oxygen carrying capacity of the patient’s blood. Because kidney function is severely decreased in ESRD patients, less erythropoietin is being produced for RBC production. In addition to that, loss of small amounts of blood during dialysis procedures and other non-documented instances can result in deficient levels of iron. A biological shortage of iron will also cause low levels of hemoglobin, which will contribute to patient anemia. Due to the common occurrence of anemia in patients with CKD, several treatments are available, which when used in

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combination with dialysis, improve the patient’s condition.

In the United States, erythropoietin (EPO) is a therapeutic agent produced by recombinant DNA technology in mammalian cell culture used for stimulating red blood cell production. EPO is usually injected subcutaneously (non-dialysis patients) or delivered intravenously (dialysis patients). There are several commercial forms of EPO and it has become a widely used and accepted form of treatment either in combination with dialysis or without. One pitfall of EPO therapy is that if a patient’s iron levels are deficient, despite treatment with EPO, less hemoglobin will be produced. Iron will therefore be the limiting reactant of red blood cell production. Several forms of iron supplementation have been introduced over the last several decades to the market to provide a solution to this problem. While there are many iron-deficient people who take oral forms of iron supplementation, HD patients for the most part are non-compliant in taking oral iron as it causes GI side effects, such as nausea, and they have many other oral medications to take. Studies show that iron delivered intravenously to either dialysis or non-dialysis CDK patients is superior to iron delivered orally. It is estimated that over 90% of patients in the US receiving routine hemodialysis are being treated with IV iron.

Intravenous (IV) Iron Drugs Market

Epidemiology. The National Institute of Diabetes and Digestive and Kidney Disease (NIDDK), provides data in which 11.5% (23 million people) of adults older than 20 years of age have physiological evidence of chronic kidney disease. This number continues to increase throughout the years even as treatment and therapies progress with the advancement of technology. Disease statistics indicated that over the past decade the incidence of diabetes and hypertension has greatly increased, which has a significant contribution to the prevalence chronic kidney disease (CKD). In 2006, NIDDK estimates there were approximately 506,000 patients in treatment for end-stage renal disease (ESRD) resulting from the following diseases:

• Diabetes: 188,381• Hypertension: 122,339• Glomerulonephritis: 80,164• Cystic kidney: 23,685• Urologic disease: 13,371• All other: 78,316

Of these 506,000 patients undergoing treatment, approximately 88,000 patient outcomes resulted in death. As the prevalence of CKD seems to be growing quite rapidly, the supply of donated organs is not. An increase of 616 transplantations was performed between years 2005-2006 (17,436 to 18,052 transplants) by NIDDK estimates and continues to grow. The growing demand for ESRD treatments and therapies and can be seen in the growing number of dialysis patients each year. Figure 3 shows the prevalence of ESRD in the US population and also the various modalities of treatment for ESRD patients. It is important to note that hemodialysis is not only the most rapidly growing modality, but it is also the largest form of treatment by a significant margin.

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Figure 3: Prevalence of Patients with ESRD by Source and by Treatment Modality

Source: Unites States Renal Data System (Volume 2, 2009)

The current iron drug market is estimated at $560 million in the United States and $1 Billion globally. Within the US, the IV iron market is estimated to have a compounded annual growth rate (CAGR) of 9%. In addition to that, the current US Market of $560 million can then be segmented into the following market segments:

• Pre-dialysis: 5%• Dialysis: 70%• Iron Deficiency Anemia (IDA): 25%

As we’ll discuss in the next section, Rockwell Medical’s SFP could be a disruptive agent in the dialysis segment, or 70% of the $560MM market.

Currently, the estimated US Market of $560 million is shared by the following five products: Ferrlecit, INFeD, Dexferrum, Venofer, and Feraheme (Table 1), with the market dominated by Venofer and Ferrlecit. The median dose of IV iron in the United States is about 4 grams per year. We expect that the focus on the adequacy of iron therapy in the dialysis setting is going to intensify as bundling is implemented by CMS. With the awareness of the IV iron market increasing and the prevalence of CKD increasing year-over-year it is clear that market space is an attractive one for Rockwell to enter. Importantly, Rockwell’s lead product candidate, SFP, represents a disruptive technology, that if successfully developed and commercialized, could largely supplant use of the currently marketed IV iron products in the ESRD population.

Soluble Ferric Pyrophosphate (SFP)

Soluble ferric pyrophosphate (SFP) is Rockwell Medical’s lead biopharmaceutical drug candidate and it is intended for the continuous maintenance of iron stores in patients with ESRD undergoing chronic hemodialysis. SFP is currently in clinical development. SFP has completed a phase IIb study and the phase III clinical program is expected to commence by the end of 2010. SFP has a

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combined product designation, meaning that the dialysate component is the medical device and the iron salt is the drug.

Physiological Iron (Fe) Delivery. SFP contains a ferric iron tightly complexed to a pyrophosphate ligand. When ferric iron is strongly bound to pyrophosphate, which naturally exists in blood, the complex does not allow for significant release of iron. This complex limits the toxicity realized from free iron associated with other iron salts. SFP also allows for rapid release and transfer of iron ions to plasma transferrin. Iron-bound transferrin can then shuttle iron to the bone marrow for red blood cell production. Interestingly, pyrophosphate in the blood is known to have a positive effect on promoting the binding of iron ions to plasma transferrin. Rockwell expects that a continuous slow release of SFP in the patient’s blood stream will mitigate the 5-7 mg of iron lost in each dialysis session. SFP is a water-soluble complex, which allows for effective transportation through the blood stream. SFP’s properties give it a potential advantage over other IV iron drugs, as iron uptake from SFP resembles iron uptake from the gut (Gupta et al. 2000). Lastly, the fact that SFP is both water-soluble and small makes it an ideal candidate for transmembrane delivery systems, or a candidate for delivery through dialysate. A video describing SFP’s mechanism of action can be found on the Company’s website (http://www.rockwellmed.com/collateral/documents/english-us/mode-of-action.html)

Superior Safety Profile. Safety has historically been the most important point of differentiation among the IV iron products. The earlier dextran-based products (INFeD, Dexferrum) induced high levels of anaphylaxis in patients and were subsequently replaced by the safer second-generation products (Ferrlecit, Venofer). The currently available, and most widely used, IV iron therapies (Feraheme, Venofer, Ferrlecit) are relatively large (35-730 KDa) iron-carbohydrate complexes. SFP, in contrast, is a very small monomeric iron salt lacking any carbohydrate functionality. Hence, the allergic reactions which are largely ascribed the carbohydrate coatngs of the IV iron products do not exist with SFP. Other toxicities associated with the conventional IV iron products have been ascribed to their release of free iron. Importantly, as a totally different modality, SFP does not seem to exhibit these type of toxicities.

With approximately 5,000 administrations of SFP being delivered in patients to date, there have been no discernible drug-related effects of toxicity. In addition, a comparison of the incidence of AEs for placebo versus SFP dose groups did not suggest any AE’s were causally associated with SFP treatment, even in patients receiving high doses of SFP that regularly resulted in transferrin saturation (TSAT) scores over 90%. This observed safety profile leads one to believe ferric pyrophosphate is a stable complex that does not readily ionize. Additionally, since SFP doesn’t contain carbohydrates, patients and doctors can be much less concerned about potential anaphylactic reactions.

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http://www.rockwellmed.com/collateral/documents/english-us/mode-of-action.html




Table 1: SFP vs. other IV Iron Drugs SFP Venofer Ferrlecit Feraheme

Iron Dose 10-15 ug/dL dialysate 100 mg 125 mg 510 mg

Carbohydrate Backbone No Yes Yes YesMolecular Weight (Da) < 1,000 34,000-60,000 289,000- 440,000 730, 000Estimated Iron Use (g/year) ~1.5 (50% less) 3 3 3

Iron Delivery Method Slow infusion from dialysate

Injection/ Infusion

Injection/ Infusion Injection

# of Administrations/ Year 156 (3x/ week) 25-50 25-50 4-6Rate of Iron Injection 2-3 mg/hour 50 mg/ min 12.5 mg/ min > 510 mg/ minNurse Time Required/ Dose None 2-5 min 5-10 min < 1 min

Source: RMTI Company Reports

Hepcidin, Iron Homeostasis and IV Iron. Excess iron delivered to the liver from the iron-carbohydrate products is believed to result in decreased iron available for the production of RBCs. The IV iron products increase iron stores in a patient’s liver as the iron is incorporated into the reticuloendothelial (RE) system in this organ. In contrast, the smaller SFP molecule does not contain carbohydrates and is presumably not recognized by the RE system to a significant degree. SFP’s absorption properties appears to result in less iron accumulation in the liver relative to the traditional IV iron products. It is believed that iron overload of the liver increases the production of hepcidin, the key regulator of iron homeostasis. Hepcidin inhibits the release of iron from the liver to be taken to the bone marrow for the production of red blood cells. It appears that SFP bypasses the liver, and the deleterious hepcidin-induced blockade of iron release, and delivers iron directly to the bone marrow.

Erythropoietin Stimulating Agent (ESA) Sparing Effect. Concern about erythropoietin therapy

has attracted considerable attention recently in the clinical community. Epidemiologic and clinical trial evidence in patients with ESRD and chronic kidney disease suggests that liberal administration of erythropoietin (target Hb >13 g/dl) is associated with a slight but statistically significant increase

in mortality. As a result of this findings, ESA dosing dosing has been on the decline. The National Kidney Foundation updated its practice guideline to target hemoglobin levels in the range of 11.0 to 12 g/dL and not greater than 13 g/dL.

Studies done to determine the magnitude of erythropoietin stimulating agent (ESA) sparing have shown that dosing IV iron drugs 3-times weekly in small doses (off-label) can reduce ESA doses by up to 35%. SFP is thought to have a similar ESA sparing ability as it delivers iron 3-times weekly during the course of dialysis treatment, a regimen similar to that of EPO administration. Furthermore, iron supplementation is necessary for patients receiving hemodialysis because an ESA will be rendered less effective if the patient is iron deficient. Bio-available iron is a key component of developing reticulocytes (immature RBCs). Importantly, there is delicate balance between erythropoietic drive and the ability of the reticuloendothelial system to release storage iron at a rate sufficient to satisfy the demand of the stimulated bone marrow. It is believed that SFP directly

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delivers iron to the bone marrow, bypassing the reticuloendothelial block, unlike IV iron. Therefore, in ESRD patients with inflammatory RE block treated with high ESA doses, SFP specially holds promise as an ESA-sparing agent by improving iron delivery to the red cell precursors in bone marrow.

The relatively high cost of the currently marketed IV iron products diminishes some of the potential cost savings that are obtained by optimizing EPO dose in an iron-replete patient. Since SFP is expected to be low cost relative to the currently marketed IV iron products, SFP could be positioned as a preferred agent in this space. Furthermore, using SFP may allow providers to achieve additional cost savings through decreased ESA used during hemodialysis in a bundled environment. Rockwell has stated that it expects to study the potential ESA-sparing effect of SFP in phase III.

SFP is a drug product with several attributes making it a potential disruptive technology in the market space, particularly as the bundle is implemented. SFP is complementary to Rockwell’s current core operating business of making and mixing dialysates. Hence, there is tremendous leverage to the Rockwell model should SFP make it to market. We look forward to additional study data from the remainder of the clinical program.

Clinical Data Discussion

Rockwell Medicals’ lead drug candidate SFP is currently in clinical development. Studies of SFP include: Phase IIa (completed), Phase IIb (completed), an on-going NIH Study, and an anticipated Phase III trial to commence in late 2010.

Before discussing the clinical data generated to date for SFP, it is important to understand that Rockwell intends to develop SFP as “continuous maintenance” therapy, which is a novel. The current IV iron products are used as “intermittent or maintenance” therapies. The currently marketed IV iron therapies (Venofer, Ferrlecit, and Feraheme) enrolled iron deficient patients (Hb <11.0 g/dL, TSAT <25%) and measured increases in Hb, TSAT and ferritin at week 4-5. In stark contrast to those trials, Rockwell plans to measure changes in iron parameters and ESA usage over a much longer period of time in their Phase III study (6+ months). As we’ll see when discussing Rockwell’s Phase IIb data, conducting a “maintenance” trial poses operational challenges that are largely not encountered when conducting a “treatment” trial.

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Table 2: SFP Clinical Study Designs

Phase IIa Phase IIb NIH Phase III (predicted)*

TypeDose-escalating, open-

label, 0, 2, 4, 8, 12 ug Fe/dL dialysate

Dose ranging, double-blind, 0, 5, 10, 12, 15 ug Fe/dL

dialysate

SFP vs. Venofer (IV iron Sucrose)

Phased clinical study design for SFP. Dosage expected to be 10-13 ug Fe/dL Dialysate

Objectives Determine safety and optimal dose

Determine safety, optimal SFP dose, exploratory

Analyze ESA change, iron parameters, IV iron need,

and oxidative stress markers

Analyze change in ESA dosage and continue to monitor hemoglobin

maintenance and safety parameters

Outcomes

Approx. 700 human doses. Optimal Dose = 12 ug Fe/dL of dialysate. Safe

and well-tolerated with no adverse reactions

Approx. 4,882 human doses; Optimal Dose Rang =

Intermediate doses (10-12 ug Fe/dL). Safe and well-

tolerated.

Open-label data expected in when available

Trial expected to commence by the end of 2010

Duration 6 Months 6 Months 12 Months 9-12 Months

Patients 21 131 30 400-600

Sites 1 29 Multiple Many

Source: RMTI Company Reports and LifeSci Advisors Estimates. *Phase III study could change depending on FDA meeting.

Phase IIa: dose-escalating study [Ajay Gupta, et. al, Kidney International v55 (1999) p1891]. The purpose of this study was to determine if dialysate containing SFP is safe and effective in the short-term for patients with ESRD receiving chronic hemodialysis. This study was also a dose-ranging study, intending to guide to an optimal SFP dosage. (Note: This study was performed before RMTI obtained licensing for SFP.)

This was an open-label, single-center study that included 24 patients who have been on routine hemodialysis for at least 3 months. This study, which was approved under Investigational New Drug Application (IND) by the US Food and Drug Administration along with the Human Rights Committee at Henry Ford Hospital, sought out to compare SFP treatment to IV iron dextran treatment. This study included male and female subjects over 18 years of age that underwent hemodialysis 3 times a week, received EPO for treatment of anemia and fit the following characteristics: transferrin saturation (TSAT) between 18%-25%, and a serum ferritin level between 100-200 ug/L [patients were excluded if they maintained an adequate iron balance (TSAT >25%and serum ferritin >200 ug/dL) without IV iron supplementation or had severe iron deficiency]. The study was conducted in two phases with the first pre-treatment phase being 4-weeks (week 0-4) with routine blood tests and the second phase being 24 weeks (month 1-6) of treatment. During every dialysis session a cohort of 10 patients received SFP via dialysate in escalating doses of 2, 4, 8, 12, 12, 12 ug Fe/dL of dialysate while others (n=11) received only IV iron dextran (INFeD). A total of 21 patients completed the study with blood parameters being measured each of the 24 weeks.

SFP was determined to be safe and well tolerated among all patients, with no drug-related adverse reactions reported in over 700 administrations of SFP. 12 ug Fe/dL of SFP was determined to be the optimal dosage and TSAT levels remained stable over the last three months of treatment at this

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level. As indicated in Figure 4a, hemoglobin levels between both study groups (SFP and IV iron treated) remained stable. From this, the authors conclude that SFP does not contribute to anemia and aids in the proper maintenance of hemoglobin. These findings suggest that SFP has an effect on the production of and maintenance of hemoglobin levels in patients with ESRD. Lastly, patients treated with SFP had a reduction (statistically significant) in IV iron dose requirement (mg/week) when compared to IV iron treated patients (Figure 4c). This data further suggests that small doses of SFP are sufficient to maintain target hemoglobin levels with significantly decreased treatments of IV iron. In summary, this study showed that SFP was safe, that the optimal SFP dosage was 12 ug Fe/dL of dialysate, and SFP treatment requireed less EPO and IV iron treatment. We note, however, that this was a relatively small (21 patient) single-center study and results should be interpreted accordingly.

Figure 4: Hemoglobin level, EPO units, and IV Iron Dose by SFP ( ) IV Iron ( ) over 6 months

Source: A. Gupta et al., Kidney International, Vol. 55 (1999), 1891-1898.

Phase IIb: dose-ranging study. The goal of this study was to determine the safety of SFP at various dosage levels. In addition, data from various dosage levels were expected to inform how much SFP is required to maintain proper iron balance within a specified target hemoglobin range. Specifically, this study looked at the effect of SFP as continuous iron maintenance therapy in chronic hemodialysis (HD) patients.

The phase IIb study was a dose ranging (0, 5, 10, 12, and 15 ug Fe/dL dialysate), double-blind, randomized, and placebo-controlled trial with a duration of six months. A total of 131 patients receiving chronic hemodialysis (HD) for ESRD across 29 sites in both the US and Canada were enrolled into the trial. A total of 105 were treated with SFP and 29 received placebo. The placebo group received 0 ug Fe/dL dialysate over the course of the trial, while the SFP treated group received SFP in the amounts of 5, 10, 12, 15 ug Fe/dL dialysate. The SFP treated group consisted of 105 subjects that received a combined 4,882 SFP treatments, which collectively equals 701,935 liters of dialysate and an exposure of 413 patient-months.

The anticipated results of this study were released February 25, 2010. The results provide insights into the efficacy and safety of continuous parental iron therapy in patients with CKD receiving chronic HD. SFP was reported to be well-tolerated across all individuals in the study. There was no evidence of drug-related toxicity or hypersensitivity reaction after nearly 5,000 treatments of SFP.

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Total adverse events (AEs) were reported to be 84.6% in the placebo group versus 69.5% in the combined SFP groups, resulting in an approximate 15% decrease in AEs for the SFP group.

Figure 5 (left chart) illustrates that an increasing dosage of SFP in patients correlates with increasing serum iron and decreasing unbound iron binding capacity (UIBC), suggesting that iron from SFP was being transferred from dialysate to the patient and that iron derived from SFP effectively binds to apo-transferrin in a dose-dependent manner. Within 24 hours after treatment, serum iron and UIBC returned to pre-dialysis baseline. This data highlights the ability of SFP to perform one of its most critical functions, efficiently deliver iron from dialysate to the patient in a safe manner.The data represented in Figure 5 (right chart) shows an increase in serum ferritin from baseline to the last study evaluation as SFP dose increases. Presumably, as SFP dose increased up to 15 ug Fe/dL dialysate, iron stores were increased. This is in contrast to the placebo group, which experienced an expected decrease on iron stores. The trend of an increase in TIBC with higher SFP doses, despite better maintenance of iron balance, is suggestive of a potential anti-inflammatory effect of SFP. Transferrin saturation (TSAT) levels also increased over the study duration as SFP dose increased, providing more evidence that SFP is delivering iron to patients undergoing chronic hemodialysis (HD).

Figure 5: Change in Serum Iron, UIBC, TSAT, TIBC, and Serum Ferritin by Increasing SFP Concentration

Source: Rockwell Medical- Phase IIb Clinical Data

With respect to the primary endpoint of the Phase IIb study, Rockwell had expected that 90% of individuals in the control group would experience a 1.0 g/dL or greater decrease in hemoglobin (Hb) relative to hemoglobin levels in the SFP-treated group over the 6-month treatment period. This endpoint, however, was not met. The expected decrease in Hb in the control group, set before the start of Phase IIb, seemed like a reasonable assumption, as the control group did not receive IV iron treatment. However, the company details that this assumption made in 2006 by renal experts may not have been correct, presumably as non-treated patients were able to access iron from their stores for up to several months. Failure of the control group to experience a drop in Hb could be due to a variety of factors that include: the placebo group patients were significantly more iron loaded at

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baseline with a 32% increase in iron treatment 2 months prior to enrollment (iron stores then maintained Hb levels for the 6 months of the study), significant protocol violations post-baseline by changing ESA dosage in 29% of patients, and also 15% of patients received IV iron administration, another protocol violation.

It is clear that there were many uncontrolled variables in the Phase IIb study and that protocol violations (i.e., change in ESA dose, IV iron administration) impacted the Hb endpoint. Nevertheless, it is important to consider that there may have been other factors contributing to the missed Hb endpoint. Rockwell has presented some data (Figure 6) looking at the changes of Hb using a covariate adjusted repeated measures analysis. This method of analysis allows the company to look at every hemoglobin endpoint based on weekly measurement in every patient. The intent-to-treat (ITT) data set in Figure 6 would be considered most pure since it contains every Hb endpoint. However, Rockwell compiled a list of rules based on protocol violations and confounding variables that could be censored out to put together a censored patient data set that gives a more accurate depiction of hemoglobin maintenance in treated patients. While the censored patient data set has fewer Hb data points, it is important to consider that both patient groups support the same conclusion, which is that at intermediate doses of SFP hemoglobin levels are being increased.

Serum ferritin levels in Figure 5, for doses between 12-15 ug/dL dialysate may have exceeded the therapeutic goal of SFP, which is to maintain but not increase iron stores. One hypothesis is that excess delivery of iron by SFP could contribute to a phenomenon known as reticuloendothelial (RE) block. RE block is well-recognized with IV iron administration. This block is largely due to increased hepcidin levels, which was produced by the liver as a result of liver inflammation, which is presumably a result of an insult from excess iron. This liver inflammation results in increased hepcidin levels, which, as discussed previously, leads to trapping biologically available iron in the RE system.

As a result of this blockade, less iron would be delivered to the bone marrow, impacting hemoglobin levels (and ESA effectiveness). A Rockwell hypothesis, based on the data depicted in Figure 6, is that SFP levels above 12ug/dL dialysate contribute to RE blockade and doses at or above this level are therefore undesirable and unnecessary. We acknowledge that it difficult to reconcile SFP’s dose-dependent impact on iron parameters with its confounded impact on hemoglobin. This observation leads one to possible explanations, including, the RE blockade theory. An alternative hypothesis is that there are performance characteristics of SFP that have not been accurately identified. Its possible that the data presented in Figure 6 do not accurately portray the in reticulocyte production abilities of SFP, for example.

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Figure 6: Mean Hgb Change per Month Using Covariate Adjusted Repeated Measures Analysis

Source: Rockwell Medical

SFP had no adverse effects on dialysis filters, tubing, or machines after a cumulative total of approximately 702,000 liters of dialysate was run through them. Filters from a total of 5 companies were used in addition to 26 different types of dialyzers. Single-use and multi-use dialyzers were also used with some of these dialyzers having more than 90 previous uses.

The Phase IIb findings enhance our understanding of SFP’s safety profile. SFP has a history of no significant drug-related adverse events or toxicity in treated individuals. Rockwell believes that the optimal SFP dose range has been determined for future phase III clinical trials.

Proposed Phase III Clinical Program: Based on company guidance, we estimate this study to be initiated in the fourth quarter of 2010, post an FDA meeting in mid 2010. While little is known about the proposed study design at this point, we believe that a Phase III trial will consist of two-three study groups; each arm will likely consist of approximately 200 ESRD patients. Rockwell has stated that the study will have an approximate duration of 9-12 months and enroll between 400-650 patient. We expect the study to conclude sometime in 2012, depending on enrollment rates and duration of the study. The Phase IIb study results will inform Rockwell of the optimal dosage of SFP to be queried in Phase III. We believe that the study will look at both hemoglobin maintenance and required dosages of EPO throughout the duration of the study. By using this type of composite

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primary endpoint, Rockwell hopes to establish SFP as an adequate form of iron supplementation in patients with ESRD. Furthermore, data from this study should support the hypothesis that SFP usage yeilds cost-savings from lower EPO usage. Given the safety profile observed for SFP to date, we anticipate that SFP will continue be a biologically safe form of iron treatment.

ASN Conference. In November of 2009, Rockwell Medical presented new in-vitro data on their SFP. This data details the ability of SFP-delivered iron to bind to the sites on apo-transferrin (apo-Tf), which then will ultimately be delivered to the bone marrow to aid in the production of hemoglobin and more red blood cells. In examining the kinetics of SFP-delivered binding to apo-Tf, 50% of iron uptake was complete within 1 minute and 90% of apo-Tf binding-site saturation was attained by 10 min. This details that iron ions associated with delivery of SFP can bind to both binding sites on apo-Tf rapidly and efficiently. The previously discussed data is shown in Figure 7 below. In this experiment, researchers measured uptake of iron from SFP and Ferric-NTA by apo-Tf over time (10 min). SFP was compared to ferric-nitrilotriacetic acid (NTA), which is known to deliver iron to apo-Tf rapidly and completely.

Figure 7: Fe (III) Transfer from Soluble Ferric Pyrophosphate (SFP) to Human Apo-transferrin

Source: Rockwell Medical

Results from this experiment suggest not only that SFP delivers iron that is bound to apo-Tf rapidly and completely, but that its kinetics detail an increased rate of iron binding to apo-Tf relative to Ferric-NTA, a well-known compound for iron delivery. Rockwell proposes that SFP’s ability to deliver iron rapidly and efficiently to apo-Tf can possibly help overcome inflammation-induced reticuloendothelial (RE) blockade, untoward iron reduced-redox reactions, and iron acquisition by bacteria. These in-vitro results, which detail that SFP-delivered iron is bound rapidly and completely to apo-Tf and has characteristics that may help it prevent anemia-associated events, may help in understanding the clinical properties of SFP.

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NIH Study: analysis of hemoglobin, iron parameters, and oxidative stress markers. This NIH-funded study that has recently been sponsored by Rockwell is being performed to analyze oxidative stress markers in patients receiving SFP versus IV iron sucrose (Venofer- licensed and manufactured by Vifor Inc). This is a multi-center trial expected to last 12 months. Rockwell will examine ESA change, hemoglobin maintenance, iron parameters, IV iron need, and oxidative stress markers in both SFP-treated and non-iron-treated groups. We believe that data from the hemoglobin, iron parameters, and ESA use from this study may provide additional insights into SFP. We look forward to examining this new data, particularly the data generated on ESA use and how it will fit in to the bundled reimbursement system effective in January 2011. Positive results from this study have the potential to further enhance SFP’s profile. Interim results from this study may be disclosed in at any time.

Competitive Landscape

Currently, ~65% of the dialysis patients are cared for by DaVita and Frensenius, where Venofer and Ferrlecit are the largest players in the ESRD iron market. In 2009, Frensenius signed a 10-year US Manufacturing sublicense for Venofer with Luitpold. They also signed a sublicense for a new iron drug called Injectafer. Watson pharmaceuticals distributed Ferrlecit through the end of 2009, before Sanofi-Aventis, who owns the rights to Ferrlecit, decided to manage and distribute the drug. Last year the FDA approved the iron drug Feraheme by AMAG Pharmaceuticals, for intravenous use. As AMAG Pharmaceuticals’ Feraheme is the most recent entrant into the marketplace, much can be learned about the major market-changing trends. Perhaps the most important lesson is that successful commercialization depends on the ability of the drug to receive insurance coverage, coding and reimbursement, in a price competitive environment. Feraheme is not price competitive with Venofer and Ferrlecit and has made almost no inroads into DaVita and Fresenius. We think SFP has the potential to be a disruptive technology, and is unlike the current IV iron products. If SFP reaches market, then we believe it will realize significant market penetration as the need for traditional IV iron therapies is supplanted by SFP iron maintenance therapy.

Rockwell is Established in ESRD. Rockwell is poised to benefit from SFP in the dialysis markets given Rockwell’s established presence in dialysis centers. Rockwell currently has ~27% market share of hemodialysis concentrates and solutions. Their market share is actually ~40% when excluding Fresenius Medical Care (FMC) dialysis centers. Rockwell has a broad distribution channel already established to deliver dialysis products, so SFP market penetration could occur rapidly, with little additional SG&A expense should FDA approve the product. Rockwell also has the capacity to support large manufacturing operations for SFP with 3 manufacturing facilities already in place in the United States. It is clear that Rockwell is an established business with a 15-year track record of commercialization and that it has the necessary tools in place to commercialize SFP.

Bundling. The Centers for Medicare and Medicaid (CMS) is proposing changes to the economics of dialysis reimbursement, which SFP can benefit from. First, CMS is proposing to limit the number of dialysis sessions paid per week to three times, unless under extraordinary circumstances. They also are lowering the amount they will reimburse Medicare patients for hemodialysis and increasing the

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beneficiary coinsurance amount of the total treatment payment up to 20%. The major change starting in 2011 will begin by phasing in what is called bundled reimbursement. Dialysis providers will have the option to phase in the “bundle” over 4 years or simply convert to it day one. At this time, there seems to be a consensus that the largest providers will convert to the “bundle” on day one and the others will most likely follow. Bundled reimbursement or single rate reimbursement will be based on a monthly payment for dialysis treatments and promote additional cost savings. In a bundled environment SFP should have a substantial competitive advantage since it is expected to cost less that the IV iron products, lower the amount of EPO doses required, and reduces ancillary IV iron administration costs.

Intellectual Property & Licensing

Rockwell holds the exclusive worldwide license to SFP, which gives them the rights to deliver SFP via dialysate in hemodialysis and peritoneal dialysis patients. They have the composition of matter and method of delivery patents for SFP. The patent expires in 2015/16 and was issued in the United States, Europe, and Japan, which are the three largest ESRD markets in the world. Rockwell estimates, however, that these patents will be valid through 2020/21 with Hatch-Waxman extension. Rockwell has another patent filed for SFP-GMP grade formulation that covers hemodialysis and peritoneal dialysis. It covers the oral over the counter (OTC), prescription (Rx), total parenteral nutrition (TPN), and intravenous (IV) drugs markets. Upon issuance, this patents is expected to expire in the year 2028. A patent has also been issued to Rockwell for iron delivery via intravenous (IV) administration, which may be beneficial should Rockwell attempt to commercialize in patients not receiving dialysis. This patent will expire in 2022. We see value in Rockwell’s intellectual property as they appear to have worldwide exclusive rights in the biggest markets and the most relevant market spaces.

Financial Discussion

Rockwell generated net sales of $43.0MM, $51.7MM, and $54.7MM in 2007, 2008, and 2009, respectively. Gross profit was $2.9MM, $2.5MM, and, $7.9MM in 2007, 2008, and 2009, respectively. EBITDA was ($3.6MM), ($8.1MM), and ($5.5MM), in 2007, 2008, and 2009 respectively. Net Income was ($3.8MM), ($7.9MM), and ($5.3MM) in 2007, 2008, and 2009, respectively.

For the last three years, nearly all of Rockwell’s R&D expense was attributed to SFP. In 2009, 2008 and 2007, Rockwell incurred aggregate expenses related to the commercial development of SFP of approximately $6.5 million, $3.8 million and $3.3 million, respectively. If we subtract out the SFP-related R&D expense, EBITDA (less SFP-R&D expense) was ($0.3MM), ($4.3MM), and $1.0MM in 2007, 2008, and 2009, respectively. This gives us some visibility into the last three-year performance of Rockwell Medical’s base business.

Cash Balance. The company ended 1Q10 with $24.6MM in cash, which should enable the company to fund Phase III development of SFP.

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Management Team

Robert L. ChioiniFounder, Chairman, Chief Executive Officer and President

Robert L. Chioini, 45, is the founder of Rockwell Medical and currently serves as Chairman, Chief Executive Officer and President. Mr. Chioini has served as the Chairman since March 2000, as well as the President and Chief Executive Officer since January 1995. In addition Mr. Chioini is a Board Member of Medical Main Street, an alliance of world-class hospitals, universities, medical device and biopharmaceutical companies creating a global center of innovation in health care, research and development, education and commercialization in the life sciences industry in Oakland County, Michigan. Prior to founding Rockwell, Mr. Chioini served as Regional Sales Manager for Dial Medical of Florida, Inc., from 1993 to 1995, which was then acquired by Gambro HealthCare, Inc. Early in his career, Mr. Chioini served in sales, management and marketing capacities with various medical manufacturing companies. Mr. Chioini is a graduate of Michigan State University and earned his Bachelor's degree in 1987.

Thomas E. KlemaVice President, Chief Financial Officer and Secretary

Thomas E. Klema, 55, is the Vice President of Finance, Chief Financial Officer and Secretary of Rockwell Medical and has served in that position since March of 1999. Prior to joining Rockwell, Mr. Klema served as the Vice President of Finance and Administration for Whistler Corporation. Previously, Mr. Klema held senior management roles at Molson's Diversey subsidiary, which was acquired by Unilever. While at the Molson Companies and Unilever, Mr. Klema served as Vice President of Finance, Administration and Business Development. Mr. Klema earned his Bachelor's Degree in 1976 and his Master of Business Administration Degree in 1977 from Michigan State University.

Ajay Gupta, M.D.Chief Scientific Officer

Ajay Gupta, 51, is the Chief Scientific Officer and has served in that position since he joined the company in June of 2009. Dr. Gupta has been a member of Rockwell’s Scientific Advisory Board since November, 2005. From 2002 to 2005, Dr. Gupta was an Associate Professor of Medicine at UCLA and Charles Drew University Schools of Medicine in Los Angeles; while at UCLA, he has had an active nephrology practice. Dr. Gupta is the inventor of dialysate iron therapy using Soluble Ferric Pyrophosphate (SFP) as well as the inventor of intravenous (IV) iron therapy using slow continuous infusion of SFP. He has filed a number of patents in the areas of drugs, medical devices and diagnostic tests. Dr. Gupta earned his MBBS degree and completed his residency in Internal Medicine from All India Institute of Medical Sciences (AIIMS), New Delhi. In 1990, he completed a Nephrology Clinical/Research Fellowship from Washington University, St. Louis, Missouri. He has served on the faculty at Washington University, St. Louis; State University of New York, Syracuse;

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University of Alabama, Birmingham and Henry Ford Hospital, Detroit, MI. Dr. Gupta is the founder and Chairman of the Indian Society for Bone and Mineral Research.

Richard C. Yocum, M.D.Vice President, Drug Development and Medical Affairs

Richard L. Yocum, 53, is the Vice President of Drug Development and Medical Affairs and has served in that position since he joined the company in February, 2009. Prior to Rockwell, Dr. Yocum was Vice President, Clinical Development & Medical Affairs at Halozyme Therapeutics. Previously, Dr. Yocum had been Vice President, Clinical Development & Medical Affairs at Chugai Pharma USA and Executive Medical Director of Clinical Research at Ligand Pharmaceuticals, where during his tenure, he oversaw the approval of seven new drug registrations. Dr. Yocum was also the Associate Director of Clinical Research at Gensia. Dr. Yocum graduated summa cum laude from Dartmouth College and earned his medical degree from Johns Hopkins University School of Medicine. He later completed his internal medicine residency at the University of California, San Diego and had a General Medicine practice for 11 years.

Risk to an Investment

Rockwell Medical sells products into a highly regulated and competitive market place. Rockwell Medical’s operating business of selling dialysis concentrates and ancillary items may not perform as it has in past years particularly if there should be significant changes in the regulatory and commercial landscape. Furthermore, Rockwell Medical is highly dependent on transportation costs, which are subject to change. Increased transportation costs may have a significant impact on Rockwell Medical’s performance. Rockwell Medical’s performance is also dependant on the development of its pipeline product candidates, including SFP. These candidates, including SFP, may fail to demonstrate adequate efficacy and/or safety in one or more clinical studies. These products, including SFP, may fail to successfully complete clinical development or achieve regulatory approval. These pipeline products, including SFP, may not be granted marketing approval by the Food and Drug Administration or by foreign regulatory authorities. Should any of these pipeline products, including SFP, make it to market, there is no guarantee that they will be commercialized successfully. Future changes to the competitive landscape for any of Rockwell Medical’s pipeline products, including SFP, such as new entrants, could materially alter the market potential of Rockwell’s products, including SFP. Rockwell Medical may need to raise additional capital either through an equity offering or another transaction, which could result in dilution of existing shareholder value.

Conclusion

Rockwell Medial has both an established base business and an potential game-changing pipeline product in SFP. Rockwell currently has ~27% share of hemodialysis concentrates and solutions market and is expected to generate approximately $3MM in cash this year from this business (excludes SFP-related R&D). Related to this business, Rockwell has distribution channels, a fleet of trucks, and three manufacturing plants. These operations can be leveraged as Rockwell adds

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additional products to their commercial portfolio. For example, should SFP successfully navigate clinical development and achieve FDA approval, Rockwell should have little trouble commercializing SFP utilizing their established operations. We think SFP could transform iron therapy in the ESRD segment of the market, particularly as bundling takes effect. SFP has the potential to reduce ESA use, a trend in the community due to mortality risks, supplant IV iron administration and reduce the associated administration costs.

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DISCLOSURESThe material presented in this report is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by LifeSci Advisors and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by LifeSci Advisors, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be read as part of a broader analysis and should not be relied upon on a stand-alone basis. Past performance should not be taken as an indication or guarantee of future performance, and we make no representation or warranty regarding future performance. The opinions expressed in this report reflect the judgment of LifeSci Advisors as of the date of this report and are subject to change without notice. This report is not an offer to sell or a solicitation of an offer to buy any securities. The offer and sale of securities are regulated generally in various jurisdictions, particularly the manner in which securities may be offered and sold to residents of a particular country or jurisdiction. Securities discussed in this report may not be eligible for sale in some jurisdictions. To the full extent provided by law, neither LifeSci Advisors nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No LifeSci Advisors directors, officers or employees are on the Board of Directors of a covered company and no one at a covered company is on the Board of Directors of LifeSci Advisors. Neither the analyst who authored this report nor any of LifeSci Advisors’ directors, officers, employees invest in the securities of the company that is the subject of this report. LifeSci Advisors has been compensated by the company that is the subject of this report for this and future research reports, investor relations services, and general consulting services.

LifeSci Advisors

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)$

(1.1

)$

(2.5

)$

(3.1

)$

(7.9

)$

(1.7

)$

(1.7

)$

(1.5

)$

(0.5

)$

(5.4

)$

(0.4

)$

EP

S - B

asic

(0.4

1)

$

(0.3

2)

$

(0.0

9)

$

(0.0

8)

$

(0.1

8)

$

(0.2

2)

$

(0.5

7)

$

(0.1

2)

$

(0.1

2)

$

(0.1

1)

$

(0.0

3)

$

(0.3

8)

$

(0.0

2)

$

EP

S - D

ilute

d(0

.41)

$

(0.3

2)

$

(0.0

9)

$

(0.0

8)

$

(0.1

8)

$

(0.2

2)

$

(0.5

7)

$

(0.1

2)

$

(0.1

2)

$

(0.1

1)

$

(0.0

3)

$

(0.3

8)

$

(0.0

2)

$

Share

s O

ut - B

asic

11.2

11.8

13.8

13.8

13.8

13.9

13.8

14.0

14.0

14.1

17.6

14.9

17.6

Share

s O

ut - D

ilute

d11.2

11.8

13.8

13.8

13.8

13.9

13.8

14.0

14.0

14.1

17.6

14.9

17.6

Rockwell life_sci_advisors_initiation_6-10-10__clientinfo[1]

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