Business Context and Reporting Period
The filing is Ra Medical Systems, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019. The request identifies Catheter Precision, Inc.; investors should verify the issuer identity because the filing text names Ra Medical Systems, Inc. (NYSE: RMED). The company develops, manufactures and markets excimer laser systems and related products for vascular and dermatological applications, primarily DABRA and Pharos.
As of March 31, 2019, Ra Medical had 69 DABRA lasers at customer sites under signed usage agreements and 114 full-time employees. DABRA revenue is expected to be driven primarily by recurring catheter sales, while Pharos is a mature dermatology product line.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total net revenue | $1.748 million | $0.969 million |
| Product sales | $0.894 million | $0.235 million |
| Service and other revenue | $0.854 million | $0.734 million |
| Gross profit (loss) | $(0.194) million | $0.233 million |
| Operating loss | $(14.954) million | $(2.692) million |
| Net loss | $(14.674) million | $(2.693) million |
| Basic and diluted loss per share | $(1.16) | $(0.34) |
| Adjusted EBITDA | $(6.825) million | $(2.072) million |
Revenue increased 80% year over year, but gross margin declined to approximately negative 11.1% from approximately 24.0%. Product cost of revenue was $1.395 million against $0.894 million of product sales, while service and other cost of revenue was $0.547 million against $0.854 million of related revenue.
Operating expenses were $14.760 million, including $13.229 million of selling, general and administrative expense and $1.531 million of research and development expense. Stock-based compensation totaled $7.745 million and was a significant non-cash expense.
Cash Flow, Liquidity and Debt
| Metric | March 31, 2019 | December 31, 2018 |
|---|---|---|
| Cash and cash equivalents | $55.129 million | $64.315 million |
| Total assets | $69.280 million | $74.035 million |
| Total liabilities | $9.483 million | $7.330 million |
| Accumulated deficit | $(74.874) million | $(60.221) million |
- Operating cash flow was $(8.944) million, compared with $(2.425) million in Q1 2018.
- Investing cash flow was $(0.165) million, primarily for property and equipment.
- Financing cash flow was $(0.077) million, reflecting equipment-financing payments.
- Cash decreased by $9.186 million during the quarter.
- Equipment financing totaled $0.961 million, including $0.367 million classified as current. Operating lease liabilities totaled $3.153 million, including $0.292 million current.
- Management stated that cash and cash equivalents were expected to fund operations for at least the next 12 months, but also noted that additional funding may be required.
Material Changes Versus the Prior Comparable Period
- Total revenue increased by $0.779 million, or approximately 80%, driven by a $0.659 million increase in product sales and a $0.120 million increase in service and other revenue.
- Vascular revenue increased to $0.461 million from $0.090 million, primarily from increased DABRA catheter sales. Dermatology revenue increased to $1.287 million from $0.879 million.
- Gross profit changed to a $0.194 million loss from $0.233 million of profit. The vascular segment generated a $0.706 million gross loss, partly due to stock-based compensation and costs associated with scaling catheter production.
- SG&A increased by $10.590 million, principally because of stock-based compensation, expanded personnel and sales infrastructure, public-company costs, travel, training, insurance and marketing.
- R&D increased by $1.245 million, primarily from higher stock-based compensation and supplies.
- Cash used in operating activities increased by $6.519 million year over year.
- The company adopted ASC 606 and ASC 842 in 2019. ASC 606 produced a $21,000 cumulative adjustment to accumulated deficit; ASC 842 resulted in recognition of approximately $3.2 million of operating lease right-of-use assets and lease liabilities.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued net losses in the near term while commercializing DABRA, expanding manufacturing, building sales and marketing capabilities, conducting research and development, and pursuing additional regulatory clearances.
- Manufacturing limitations encountered while scaling catheter production affected fourth-quarter 2018 and first-quarter 2019 revenue; the filing states these limitations were remediated in March 2019.
- The company projected enrollment of the first subject in its DABRA atherectomy IDE trial in the third quarter of 2019 and expected final results in the first quarter of 2020. The filing provided no revenue or earnings guidance.
- DABRA was not cleared by the FDA for an atherectomy indication at the filing date. Expanded indications, reimbursement, physician adoption, sales-force execution and manufacturing scale-up remain key commercial uncertainties.
- A May 2018 FDA inspection resulted in a Form 483 concerning evaluation of complaints for potential medical-device reporting. The company stated that it modified complaint-review procedures and found no complaints requiring FDA submission in its retrospective review.
- Strata Skin Sciences and Uri Geiger filed a Pennsylvania declaratory-relief action involving alleged statements and a prior settlement agreement. The action sought no monetary damages. The company stated that no loss was probable or reasonably possible as of March 31, 2019; the court overruled preliminary objections on April 29, 2019.
- Stock-based compensation expense was unusually high at $7.745 million, with $7.229 million recorded in operating expenses. Approximately $29.0 million of additional unrecognized compensation expense remained at March 31, 2019.
- The company faces substantial risks related to regulatory compliance, reimbursement, competition, intellectual property, reliance on a single manufacturing facility, third-party suppliers, product liability, litigation, internal controls and potential future capital needs.
Important Facts for Investors to Verify
- Confirm whether the intended issuer is Ra Medical Systems, Inc. or Catheter Precision, Inc.; the supplied filing is clearly for Ra Medical Systems.
- Assess whether DABRA catheter revenue can grow sufficiently to offset continuing operating losses and negative vascular gross margins.
- Review cash burn, projected commercialization spending and the timing and terms of any future financing.
- Track progress and regulatory outcomes for the planned DABRA atherectomy trial and any additional indications.
- Evaluate the effect of the FDA Form 483 observations and the company’s complaint-handling remediation.
- Monitor stock-based compensation, dilution from outstanding options and restricted stock units, and the remaining unrecognized compensation expense.
- Review the Strata litigation, intellectual-property claims and any developments affecting the company’s ability to market DABRA and Pharos.