SEC Form 10-Q Summary
Filing identity: The provided filing is for Ra Medical Systems, Inc., not Catheter Precision, Inc. It covers the quarter and nine months ended September 30, 2018. The financial statements are unaudited and amounts are in thousands unless otherwise noted.
Business Context and Reporting Period
Ra Medical Systems was a commercial-stage medical device company developing and selling excimer laser systems for vascular and dermatological applications. Its principal products were the DABRA vascular laser and catheter system and the Pharos dermatology laser. The company completed its 12-month DABRA commercial launch period in June 2018 and reported 34 signed U.S. DABRA usage agreements as of September 30, 2018.
The company reincorporated in Delaware in July 2018 and completed its initial public offering on October 1, 2018, after the reporting date. The filing therefore excludes the IPO from the September 30, 2018 balance sheet and statements of operations.
Key Financial Metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $2.064 million | $1.291 million | $4.269 million | $3.933 million |
| Gross profit | $0.784 million | $0.598 million | $1.263 million | $1.426 million |
| Gross margin | 38.0% | 46.3% | 29.6% | 36.3% |
| Operating loss | $(4.806) million | $(1.719) million | $(15.890) million | $(14.665) million |
| Net loss | $(4.807) million | $(1.720) million | $(15.895) million | $(14.669) million |
| Basic and diluted loss per share | $(0.59) | $(0.23) | $(1.97) | $(1.96) |
- Q3 revenue increased 59.9% year over year; nine-month revenue increased 8.5%.
- Q3 product sales rose to $1.248 million from $0.587 million, while service and other revenue rose to $0.816 million from $0.704 million.
- Q3 SG&A increased to $5.366 million from $1.904 million. Nine-month SG&A increased to $15.621 million from $11.932 million.
- Research and development expense declined to $0.224 million in Q3 and $1.532 million for the nine-month period, compared with $0.413 million and $4.159 million, respectively, in the comparable periods.
- Stock-based compensation expense in operating expenses was $1.453 million in Q3 and $6.320 million for the nine months.
Liquidity, Cash Flow, Debt and Balance Sheet
- Cash and cash equivalents were $4.915 million at September 30, 2018, down from $8.237 million at December 31, 2017.
- Net cash used in operating activities was $10.109 million for the first nine months of 2018, compared with $4.018 million in the prior-year period.
- Net cash used in investing activities was $0.424 million, primarily for manufacturing equipment, facility improvements, computers and vehicles.
- Net cash provided by financing activities was $7.211 million, including $7.901 million from private-placement common stock issuance, partially offset by IPO-related payments and equipment-financing payments.
- Current liabilities were $6.833 million and long-term liabilities were approximately $0.875 million. Equipment financing totaled $30,000 current and no long-term equipment financing remained.
- Accumulated deficit was $45.284 million. Stockholders’ equity was $6.481 million, compared with a deficit of $7.615 million at December 31, 2017.
- Management stated that September 30 cash plus the subsequent IPO proceeds would fund operations for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Vascular revenue increased substantially to $0.789 million in Q3 from $43,000 and to $0.973 million for the first nine months from $68,000, driven primarily by increased DABRA catheter sales following completion of the commercial launch period.
- Dermatology revenue was broadly stable in Q3 at $1.275 million versus $1.248 million, but declined to $3.296 million for the nine months from $3.865 million as sales resources were redirected toward DABRA commercialization.
- Vascular gross profit improved to $0.210 million in Q3 from a $9,000 gross loss, but the nine-month vascular segment reported a $77,000 gross loss versus $8,000 of gross profit in the prior-year period because staffing and capacity costs preceded customer adoption.
- Consolidated gross margin declined because vascular production costs increased ahead of scale and product mix shifted toward the developing vascular business.
- Operating and net losses widened materially in Q3, primarily because of increased SG&A associated with sales-force expansion, public-company preparation, legal and consulting costs, marketing, travel and stock-based compensation.
- The company replaced previously communicated, liability-classified option awards with equity-classified awards. The former $15.376 million stock-based compensation liability at December 31, 2017 was eliminated through a non-cash settlement and replacement awards.
Guidance, Outlook, Risks and Unusual Items
- No quantitative revenue or earnings guidance was provided. Management expected continued near-term losses while expanding sales and marketing, manufacturing capacity, research and development, and regulatory efforts.
- The October 1, 2018 IPO issued 4.485 million shares at $17.00 per share, generating approximately $67.3 million of net proceeds. The company expected the funds to support operations for at least 12 months.
- Management intended to pursue expanded DABRA indications, including atherectomy, in-stent restenosis and other vascular applications. Additional clinical data or an FDA Investigational Device Exemption could be required, and clearance was not assured.
- DABRA was FDA-cleared for crossing chronic total occlusions and creating a channel in occlusive peripheral vascular disease, but not specifically for atherectomy. The filing identifies potential regulatory and litigation exposure from alleged off-label promotion.
- An FDA Form 483 following a May 2018 inspection included observations concerning complaint evaluations and potential medical-device reporting. The company stated it modified procedures and found no complaints requiring FDA submission in its retrospective review.
- Strata Skin Sciences and an associated individual filed a Pennsylvania declaratory action seeking non-monetary relief related to alleged statements concerning patent infringement and a prior settlement agreement. The company considered the action meritless and intended to oppose it.
- The company disclosed a material weakness in internal control over financial reporting related to the administration of capital-stock transactions and unauthorized communicated option awards. Management concluded disclosure controls were ineffective as of September 30, 2018 and remediation was ongoing.
- The company identified potential claims arising from defects in certain stock issuances, a reverse stock split and option awards. Management believed losses related to the capital-stock defects were remote, but stated that the scope of potential liability remained uncertain.
- Other principal risks include continued operating losses, dependence on DABRA adoption and reimbursement, regulatory clearance and compliance, product liability, competition, single-site manufacturing, limited suppliers, intellectual-property disputes, international operations and potential future capital needs.
Most Important Facts for an Investor to Verify
- Confirm the issuer identity: the supplied filing is Ra Medical Systems, Inc., whereas the request identifies Catheter Precision, Inc.
- Verify the post-quarter IPO proceeds, share count and resulting liquidity, since the $67.3 million net proceeds were received after September 30, 2018 and are not reflected in the quarter-end balance sheet.
- Assess whether DABRA usage agreements and recurring catheter volumes converted into sustainable revenue and positive vascular gross margins.
- Monitor cash burn, continuing losses and the timing of any additional financing requirement.
- Track remediation of the material weakness and the resolution of potential claims related to defective corporate acts and option awards.
- Review FDA inspection follow-up, complaint-reporting compliance and any developments concerning DABRA’s atherectomy or other expanded indications.
- Evaluate the Strata litigation and any related intellectual-property or off-label-promotion claims.