Morgan Stanley: Time To Sell Rockwell Medical

Morgan Stanley initiated coverage on Rockwell Medical Inc (NASDAQ: RMTI), with analyst Andrew Berens warning investors of the company's prospects. Berens advised investors to be Underweight the stock, which he pegged with a $7 price target – almost 50 percent below Wednesday's closing price of $13.74.

Morgan Stanley's thesis revolves around its opinion that Rockwell's Triferic, a drug for patients on dialysis, will take longer to grab hold in the market than many currently expect. "Triferic is likely to have an anemic launch," the note warned, adding that its conviction on this view was "high" following discussions with external clinicians, dialysis center visits, and a survey of nephrologists.

All the evidence points to a 12 to 18 month delay in Triferic's adoption as dialysis centers conduct tests on whether Triferic is worth switching current protocols. Berens said that Rockwell's management has not given any indication that any "large dialysis providers" will be early Triferic adopters. Notably, Morgan Stanley said that, "we have confirmation that Fresenius, which comprises 35% of the market, as of June, had no plans to test or use Triferic."

The market, however, does not share Berens' view. In 2015 and 2016, Berens modeled Rockwell's revenue at 15 and 30 percent below Wall Street expectations.

If Berens is wrong, a widespread adoption of Triferic could see shares rise to $20. On the opposite side, if Triferic only penetrates to "small and independent dialysis centers," shares could dip to $4.

Year-to-date, Rockwell has gained 34 percent, though shares were up more than 80 percent a month ago. Since then, shares fell from $18.90 to current levels at $13.74.