Take Long View

What: After Morgan Stanley initiated coverage with an underweight rating and set a price target of just $7, shares in Rockwell Medical (NASDAQ:RMTI) dropped by 10% earlier today.

So what: Analyst recommendations should always be taken with a grain of salt; however, what is interesting about Morgan Stanley's take is that it seems to be based on conversations with big potential prescribers of Rockwell Medical's new iron replenishing drug, Triferic.

Triferic won FDA approval in January as an iron replacement option to maintain desirable hemoglobin levels in chronic kidney disease patients requiring hemodialysis.

Currently, low iron levels are treated primarily with IV infusions of iron or drugs that boost red blood cell production, or with iron supplements, but because IV infused drugs have been associated with complications, optimism for Rockwell Medical's Triferic has been steadily growing since its approval.

However, Morgan Stanley's conversations with dialysis centers, including those operated by market leader Fresenius, seem to suggest that there are little in the way of plans to change from current procedures to Triferic. If that's true, then there's little likelihood that Triferic will be an immediate success for Rockwell Medical.

Now what: Morgan Stanley's pessimism has it thinking that Rockwell Medical's shares are still overpriced by about 45%, including today's drop. That's a scary thought for Rockwell Medical's investors, but before pressing the sell button, investors need to remember that Wall Street forecasts, especially for newly launched drugs, often fail to miss the mark. Because projections can vary widely from analyst to analyst, determining how successful Triferic will be is at best a guessing-game.

The company, obviously, is optimistic. In its second quarter earnings report, Rockwell Medical affirmed that its commercialization efforts, including the obtainment of reimbursement from payers, is progressing and that small pilot trials of Triferic at large dialysis providers could get under way soon. If reimbursement is in place and large providers expand pilot trials to all of their centers, Rockwell Medical could have a money-making drug on its hands. However, given all the uncertainty, I'm content to wait this one out until we get better insight into how likely that is. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies 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.