Business Context and Reporting Period
The filing is Ra Medical Systems, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The request metadata identifies Catheter Precision, Inc.; however, the filing text identifies the registrant as Ra Medical Systems, Inc. The company develops, manufactures and markets excimer laser systems and related catheters for vascular and dermatology applications, primarily DABRA and Pharos.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|---|---|
| Net revenue | $0.9 million | $2.2 million | $2.3 million | $3.9 million |
| Gross loss | $(0.3) million | $(0.6) million | $(0.5) million | $(0.8) million |
| Operating loss | $(10.1) million | $(15.3) million | $(17.9) million | $(30.3) million |
| Net loss | $(10.1) million | $(15.1) million | $(17.8) million | $(29.8) million |
| Basic and diluted loss per share | $(0.43) | $(1.16) | $(0.95) | $(2.32) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(12.8) million | $(15.7) million |
Gross margin remained negative at approximately 29.7% in the second quarter and 21.0% for the first six months. Cash and cash equivalents were $29.4 million at June 30, 2020, compared with $14.6 million at December 31, 2019. The company also held $2.7 million of inventory and $0.5 million of accounts receivable.
Total liabilities were $13.7 million, including a $2.0 million PPP promissory note, $0.4 million of equipment financing, $2.8 million of operating lease liabilities and $2.7 million of deferred revenue. The company had an accumulated deficit of $135.0 million and total stockholders’ equity of $27.0 million.
Six-month cash flow consisted of $12.8 million used in operations, $16.0 million provided by investing activities primarily from investment maturities, and $11.7 million provided by financing activities. Financing inflows included approximately $8.7 million of net proceeds from the May 2020 equity offering, $0.8 million from warrant exercises and $2.0 million from the PPP note.
Material Changes Versus the Prior Comparable Period
- Revenue declined 58% in the quarter and 42% for the six-month period. Product sales declined 88% in the quarter and 66% year to date, while service and other revenue declined 14% and 11%, respectively.
- Vascular revenue declined to $78,000 in the quarter and $191,000 year to date, primarily because of reduced catheter sales and the company’s limited commercial footprint.
- Dermatology revenue declined to $822,000 in the quarter and $2.1 million year to date, primarily because of lower direct laser sales and COVID-19-related reductions in customer activity.
- Operating expenses decreased 33% in the quarter and 41% year to date, principally because of lower stock-based compensation, reduced personnel, sales and marketing activity, and lower public-company expenses. These savings were partly offset by higher legal and insurance costs.
- Research and development expense increased 99% in the quarter and 29% year to date as the company funded engineering initiatives and its atherectomy clinical trial.
- Shares outstanding increased from 13.8 million at December 31, 2019 to 38.2 million at June 30, 2020, primarily due to the May 2020 offering and warrant exercises. The company reported 72.5 million shares outstanding as of August 7, 2020.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued operating losses and negative operating cash flow and states that substantial doubt remains about the company’s ability to continue as a going concern within 12 months from issuance of the financial statements.
- COVID-19 adversely affected revenue, customer activity and enrollment in the atherectomy trial. Three sites were cleared to enroll subjects, two additional sites were nearing clearance, and the company could not estimate when enrollment would be completed.
- The company is focused on improving DABRA catheter shelf life, calibration reliability and kink resistance, developing a guidewire-compatible catheter, and evaluating larger-diameter catheters. It expected to complete the braided-overjacket project in the first half of 2021 and the guidewire-compatible development project by the end of 2021.
- The DABRA catheter remained subject to a voluntary recall changing labeled shelf life from 12 months to two months. The filing states that 98% of affected product had been returned as of July 2020. Additional DABRA laser recalls and field corrections were also ongoing.
- The company accrued $2.5 million for a DOJ False Claims Act investigation. The SEC, DOJ and DOJ Criminal Division investigations remained active, and potential additional losses could not be estimated.
- A securities class action and shareholder derivative action remained pending. The company also disclosed an arbitration demand by its former chief executive officer. The Pennsylvania and California cases involving Strata were subsequently settled in August 2020 and were expected to be terminated.
- In August 2020, after the reporting period, the company completed an equity offering of 34.3 million shares and accompanying warrants and received approximately $10.6 million of net proceeds. The offering materially increased potential dilution.
- The company received NYSE deficiency notices relating to market capitalization and share price requirements. The filing states that compliance with the $1.00 average closing share price requirement was required by December 31, 2020 unless suspended or tolled.
Facts an Investor Should Verify
- Confirm the correct registrant and whether the filing is applicable to Catheter Precision, Inc. or Ra Medical Systems, Inc.
- Assess the company’s going-concern status, cash runway and need for additional financing despite the May and August 2020 equity offerings.
- Review the final outcomes and potential financial exposure from the SEC, DOJ civil and criminal investigations and related litigation.
- Verify the status and effectiveness of the DABRA catheter and laser recalls, product performance remediation and FDA-related actions.
- Evaluate dilution from outstanding warrants, stock options, restricted awards and the August 2020 offering.
- Monitor enrollment and results of the atherectomy clinical trial and the timing and likelihood of FDA clearance for an atherectomy indication.
- Verify continued NYSE listing compliance and the company’s ability to restore sustainable revenue and positive gross margins.