Rockwell Medical: 3 Investing Takeaways From 2013

2013 was a banner year for Rockwell Medical , the maker of hemodialysis concentrate solutions and dialysis kits. The stock soared nearly 70% over the past year, more than making up for its lackluster performance in 2012.

Let's take a look back at three key factors that fueled Rockwell's gains throughout the year.

Source: YCharts.

1. Solid revenue growth, narrowing losses
Throughout 2013, Rockwell's top line growth remained consistent as its losses narrowed through the year.

Source: SEC filings.

94% of Rockwell's revenue in 2012 was generated by sales of hemodialysis concentrates of dialysate -- the liquid used during hemodialysis that detoxifies the blood and replaces nutrients.

During the third quarter, the growth of Rockwell's core business of hemodialysis concentrates was substantially boosted by robust demand for CitraPure, a newer type of concentrate which uses citric acid.

Rockwell's primary consumers include DaVita Healthcare Partners and Fresenius Medical Care -- two of the largest dialysis product and service companies in the world.

2. Calcitriol and Triferic could be game changers
Although Rockwell's top and bottom growth are decent, they certainly don't justify a 70% year-to-date rally on their own.

There are two reasons that investors are excited about Rockwell's prospects -- iron and vitamin D. Patients on hemodialysis often suffer from iron deficiency, which causes anemia, and vitamin D deficiency, which causes an imbalance of calcium and phosphorous in the body.

Rockwell's Calcitriol is a vitamin D supplement that is administered with dialysate. Calcitriol has completed phase 3 trials and is currently under an expedited review by the FDA for a possible approval by the end of the year. Peak sales estimates for Calcitriol vary widely, from $20 million to $138 million.

Meanwhile, Triferic -- Rockwell's iron treatment -- is undergoing phase 3 trials and has showed promising results so far, with no anaphylactic (allergic) events occurring in 100,000 doses. Anaphylactic reactions are considered serious side effects of Amgen's Epogen, its market-leading anemia drug that generated $1.9 billion in U.S. sales in 2012.

If Triferic replaces Epogen and similar ESAs (erythropoiesis-stimulating agents) for the treatment of anemia, it could cut costs for dialysis service providers like DaVita and Fresenius by up to 35%, according to Rockwell's estimates.

However, let's not get ahead of ourselves -- Amgen still holds a seven-year supply agreement with DaVita, signed in 2011, which guarantees that Amgen will supply no less than 90% of ESAs for DaVita's services in the United States and Puerto Rico.

Nonetheless, analysts still have high expectations for Triferic and expect it to generate annual peak sales of $150 million to $250 million based on the fact that 20 million Americans currently suffer from some form of chronic kidney disease -- a key factor that should cause the demand for dialysis-related products and services to rise.

Therefore, adding the peak sales estimates of Calcitriol and Triferic to Rockwell's top line paints a bright future for a company that only generated $49.8 million in revenue past year.

3. Medicare's change of heart spurs a rally for dialysis stocks
Last but not least, an announcement from the Centers for Medicare and Medicaid Services in November spurred a rally for most dialysis-related stocks.

The CMS announced that it would only reduce payments to kidney dialysis providers by less than 1% over the next two years, scrapping a controversial proposal to reduce payments by 9.3%. That news came as a huge relief to DaVita and Fresenius, which were both expecting to report top line losses in the coming year as a result.

Source: YCharts.

Although the CMS decision helps DaVita and Fresenius more directly than Rockwell, it is also a positive development for Rockwell, since DaVita and Fresenius are two of its largest customers.

In other words, what hurts DaVita and Fresenius could have trickled down and affected orders of hemodialysis concentrates -- Rockwell's core source of revenue until Calcitriol and Triferic successfully launch.

The Foolish takeaway
Looking ahead into 2014, Rockwell investors should keep an eye on these three things:

• The market approval and launch of Calcitriol.

• The market approval and launch of Triferic.

• A continuing ability to steadily grow its top line while narrowing its losses.

If Rockwell can achieve all three of these things, it could easily surge higher in 2014. However, if it misses any of these goals, it could easily give up all of its gains from 2013.

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The article Rockwell Medical: 3 Investing Takeaways From 2013 originally appeared on Fool.com.

Fool contributor Leo Sun 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.

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