Rockwell Medical Technologies, Inc.

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Rockwell Medical Technologies, Inc.

30142 Wixom Road
Wixom, Michigan 48393
U.S.A.
Telephone: (248) 960-9009
Toll Free: (800) 449-3353
Fax: (248) 960-9119
Web site: http://www.rockwellmed.com

Public Company
Incorporated: 1996
Employees: 150
Sales: $28.6 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: RMTI
NAIC: 334510 Navigational, Measuring, Electromedical, and Control Instruments Manufacturing

Rockwell Medical Technologies, Inc., is a Wixom, Michigan-based full-line supplier of hemodialysis products used to treat end-stage renal disease (ESRD), when a patient’s kidneys are no longer able to excrete waste, concentrate urine, or regulate electrolytes. In lieu of a kidney transplant, ESRD patients receive dialysis treatments from Rockwell’s primary customers, hospitals, and independent hemodialysis clinics. They use dialysis machines relying on acid concentrate and bicarbonate to make dialysate, which is then introduced into the patient’s bloodstream through an artificial kidney (dialyzer) to provide nutrients and minerals while at the same time the patient’s wastes are removed.

Mixed onsite, Rockwell concentrates include Dri-Sate Dry Acid Concentrate, SteriLyte Liquid Bicarbonate, and RenalPure Liquid Acid. In addition, Rockwell provides ancillary products used by hemodialysis providers: filtration salts, cleaning agents, fistula needles, blood tubing, sterile dressing kits, syringes, tape, gauze sponges, and other items such as drapes and chairs. Rockwell also packages its products into custom dialysis kits that help customers save money while improving efficiency. Rockwell serves about 35 states as well countries in Latin America, Asia, and Europe. Most domestic sales are delivered by subsidiary Rockwell Transportation, Inc., which operates a fleet of about 50 trucks. Rockwell is a public company with a NASDAQ listing. The company’s chairman, president, chief executive, and cofounder, Robert L. Chioini, owns approximately 18 percent of the stock.

COMPANY FOUNDED 1995

Rockwell Medical was founded in 1995 by Robert Chioini. He graduated from Michigan State University with an undergraduate degree in advertising in 1987. He then went to work for different medical manufacturing and distribution firms, primarily involved in sales and marketing, before becoming regional sales manager for Dial Medical of Florida, Inc., in 1993. While Chioini sold dialysis products, he soon became convinced that he could accomplish the same task more efficiently and profitably on his own. In 1995 he used his savings to launch a medical supplies company devoted to the distribution of hemodialysis supplies and equipment. Because Chioini was relatively young to be starting his own business, he sought to reflect stability in the company’s name. He supposedly glanced at his home bookshelf where a book on the great American painter, Norman Rockwell, caught his attention. He liked the sound of Rockwell and believed it embodied the image he wanted to convey. Hence, he called the new company Rockwell Medical Supplies LLC. A second company, Rockwell Transportation LLC, would also be formed to operate the distributor’s delivery trucks.

In January 1995 Chioini began his business in a corner of his father’s commercial cleaning business in Ferndale, Michigan, a Detroit suburb. With just four employees he was able to package and sell about $100,000 worth of dialysis kits in the first year. In order to move into manufacturing as well, Chioini began recruiting investors and clinicians. His primary backer was Gary D. Lewis, 14 years his senior, whose presence helped to reassure potential customers that despite the relative youth of its CEO, Rockwell was a reliable supplier. In the early 1980s Lewis had founded Somanetics Corporation, a medical device manufacturer that he headed until 1995. He also served as the president of a medical device supplier, Omnisource, Inc., and operated Wall Street Partners, Inc., to provide management consulting services. Chioini hired Wall Street Partners to help grow Rockwell.

Chioini moved out of his father’s facility in January 1996 when Rockwell opened a new 35,000-square-foot manufacturing plant to make its own acid concentrate and bicarbonate. Ancillary dialysis products were also shipped from the new facility. All told, the company distributed more than 120 products used by dialysis providers, positioning Rockwell as a one-stop shop for its customers. In October 1996 Chioini and Lewis cofounded Rockwell Medical Technologies Inc., with Lewis serving as chairman of the board and Chioini as a director. Several months later, in February 1997, the corporation acquired Rockwell Medical Supplies and Rockwell Transportation, and Chioini remained president and CEO of the reorganized company.

IPO: 1998

In 1997 Rockwell generated $3.3 million in sales and posted a net loss of $1.9 million. While these results were a bit disappointing, the company showed promise. It upgraded production and testing equipment to cut costs and also received improved pricing from its suppliers. More importantly Rockwell improved its prospects further in June 1997 when it received 510(k) approval from the Food and Drug Administration (FDA) to market a dry power that could be converted into liquid form on site. It was a breakthrough on a number of levels. No longer would Rockwell have to transport 55-gallon drums back and forth; instead it could allow its trucks to make money carrying freight from other companies on their return trips. As a result, the company turned the cost of delivery into a new profit source. The clinics and hospitals would also be pleased to save on storage space. As the company geared up to manufacture this product it also prepared for an initial public offering of stock. The offering was completed in January 1998, raising about $5 million to be used to bring new products to market. Later in 1998 Rockwell introduced Dri-Sate Dry Acid Concentrate and SteriLyte Liquid Bicarbonate. Rockwell grew revenues to $5.3 million in 1998 and $6.7 million in 1999 while making steady progress toward achieving profitability.

In early 2000 Rockwell severed its consulting agreement with Wall Street Partners, and a week later Lewis was removed as chairman, succeeded by Chioini. The company then sued Wall Street Partners and Lewis individually in September 2000, alleging breach of contract. The matter went to trial a year later and a jury found in favor of Rockwell, awarding $350,000 plus interest. Lewis appealed the decision, and finally in the first quarter of 2005 the two parties agreed to a settlement price of approximately $241,000.

COMPANY PERSPECTIVES

Rockwell Medical Technologies, Inc., is the innovative leader in delivering high quality hemodialysis solutions, powders and ancillary products to dialysis providers in the healthcare industry.

Rockwell outgrew the capabilities of its Michigan plant and in 2000 took steps to add capacity by leasing a 51,000-square-foot manufacturing facility in Grapevine, Texas, near Dallas. After renovations designed to incorporate more efficient manufacturing processes were completed, the plant became operational in October 2001, and two months later the first products were shipped. In the meantime, Rockwell also replaced its original headquarters and manufacturing facility in Wixom with a new 52,000-square-foot plant that incorporated a new production procedure and streamlined distribution system, which cut labor costs and improved margins. In the short-term, delays in opening the plants as quickly as expected led to in an increase in the company’s operating loss from $1 million in 2000 to nearly $1.6 million in 2001.

Revenues increased to $9 million in 2001 and $11.5 million in 2002, when the operating loss fell to $981,000. Rockwell also positioned itself for even greater growth through a number of developments that year. Early in January 2002 the company reached an agreement with Japan’s Nipro Medical Corporation to market and distribute hemodialysis blood tubing sets. Later in the month another deal was struck with Ann Arbor, Michigan-based Ash Medical Systems, Inc., and Indiana-based Charak, L.L.C., to manufacture, market, and distribute liquid and dry dialysate compositions that contain water-soluble iron. (Many hemodialysis patients suffer from iron deficiency because the medication they take helps the body to make red blood cells but at the same time creates an increased need for iron.) Next, in March, Rockwell received a patent on its “Dri-Sate” brand dry dialysate system. Furthermore, Rockwell added a major customer in 2002, Nashville-based National Nephrology Associates, Inc., the country’s sixth largest provider of dialysis services.

Rockwell continued in 2003 to add important customers. In March of that year it signed a supply contract with DaVita Inc. Based in Torrance, California, DaVita was the United States’ largest independent provider of dialysis services, serving some 45,000 patients in 33 states and Washington, D.C. Rockwell also continued to make inroads with other national regional dialysis providers over the course of the year. Although sales growth leveled off in 2003, only increasing to $15 million, for the first time in its history Rockwell achieved profitability, netting less than $5,000, but nonetheless marking a milestone achievement for the company.

THIRD PLANT OPENS: 2005

The company enjoyed another successful year in 2004. Sales grew 20 percent to nearly $18 million, with improvement in all product lines, while net income increased by $207,000. In the early weeks of 2005 Rockwell signed a series of contracts that added significantly to its roster of customers, especially in the mid-Atlantic and south Atlantic states. New customers included Independent Dialysis Foundation, Health Systems Management, Central Florida Kidney Centers, Inc., Dialysis Clinics Inc.–Southeast Region, and Dialysis Corporation of America, Inc. Tallied together, the contracts supplying dialysis concentrate covered about 6,000 patients in 80 clinics, adding about $2.5 million in annual sales. Coupled with other contracts signed the prior year, Rockwell had 12,000 patients in 160 clinics to supply in this region. To meet the demand, which had until this time had been met by the Michigan and Texas plants, Rockwell opened its third plant, which became operational at the end of the first quarter in 2005, to greatly reduce distribution costs in the Southeast. Located in Hodges, South Carolina, the new 61,000-square-foot plant was leased. In this way, Rockwell bought time to evaluate the long-term viability of maintaining a company-owned plant in the region.

In other developments in 2005, Rockwell received a patent in Europe for its proprietary iron delivery product, Soluble Ferric Pyrophosphate (SFP), covering Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Later in the year the company formed a scientific advisory board to provide guidance as the iron delivery product moved through the more rigorous FDA approval process in the United States. In 2006 the product entered the pivotal phase III clinical trials. SFP also made advancements elsewhere in 2006, receiving patents in Poland and Hong Kong.

KEY DATES

1995:: Robert Chioini begins a business selling dialysis kits.
1996:: Rockwell Medical Technologies Inc. is incorporated.
1998:: Initial public offering of stock completed.
2001:: Two new plants open in Michigan and Texas.
2005:: Third plant opens in South Carolina.

In 2005 Rockwell increased sales 54 percent to $27.7 million, although start-up costs resulted in a net loss for the year. Rockwell continued to position itself for future growth on a number of fronts in 2006. The company grew its Latin America business with a $13 million contract for dialysis concentrate and supplies. It also added an important new product by obtaining an exclusive license for the U.S. patent for a new mixture of vitamin and carnitine (an amino acid formed by the kidney) for dialysis patients, to be delivered in Rockwell’s Dialysate. The product, estimated to have a $200 million market in the United States, promised to be a significant contributor to Rockwell’s revenues. The company looked to increase sales to Canada as well, signing a distribution agreement with Toronto’s Genpharm to sell several of Rockwell’s products in Canada’s $25 million dialysis market. A few weeks later a similar deal was struck with another supplier to distribute Rockwell’s Dri-Sate Dry Acid Concentrate Mixing System into Europe, the third largest dialysis market following the United States and Japan. At the same time, Rockwell did not neglect its business in the United States. In May 2006, it added the country’s fourth largest provider of dialysis services, Brentwood, Tennessee-based Renal Advantage Inc., as a customer.

Rockwell enjoyed a modest increase in sales in 2006 to $28.6 million, but the company again posted a net loss, which increased to $4.6 million. Nevertheless, the company appeared to be well placed for the future. Not only did Rockwell’s SFP product offer a great deal of promise, the dialysis market was growing because the number of people in the United States requiring treatment was growing 6 percent each year.

Ed Dinger