Business Context and Reporting Period
Filing identification: The supplied 10-Q is for Ra Medical Systems, Inc., not Catheter Precision, Inc. It covers the quarter ended March 31, 2020, and was filed May 13, 2020. Ra Medical develops and markets excimer lasers and related catheters for vascular and dermatology applications, including DABRA and Pharos.
The company was focused on servicing existing accounts, addressing DABRA catheter performance and shelf-life issues, pursuing an atherectomy indication, and controlling costs. The atherectomy trial received IDE approval in January 2020, and the first patient was enrolled in February 2020.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $1.374 million | $1.748 million | Down $0.374 million, approximately 21% |
| Product sales | $0.586 million | $0.894 million | Down $0.308 million |
| Service and other revenue | $0.788 million | $0.854 million | Down $0.066 million |
| Gross loss | $0.210 million | $0.194 million | Loss widened $0.016 million |
| Gross margin | Approximately negative 15.3% | Approximately negative 11.1% | Reduced |
| Operating loss | $7.790 million | $14.954 million | Improved $7.164 million |
| Net loss | $7.701 million | $14.674 million | Improved $6.973 million |
| Basic and diluted loss per share | $0.56 | $1.16 | Improved |
| Adjusted EBITDA | $(6.165) million | $(6.825) million | Improved $0.660 million |
| Net cash used in operating activities | $7.043 million | $8.944 million | Improved $1.901 million |
SG&A expense declined to $6.285 million from $13.229 million, primarily due to lower stock-based compensation, reduced personnel and lower sales and marketing costs. These savings were partly offset by higher legal expenses and insurance costs. Research and development expense declined to $1.295 million from $1.531 million.
Vascular revenue declined to $0.113 million from $0.461 million, primarily because of lower catheter sales. Dermatology revenue was $1.261 million versus $1.287 million. The vascular segment generated a $0.548 million gross loss, while dermatology generated $0.338 million of gross profit.
Balance Sheet, Liquidity and Debt
- Cash and cash equivalents were $18.437 million at March 31, 2020, compared with $14.584 million at December 31, 2019.
- Short-term investments were $5.003 million, down from $15.993 million. Total cash, cash equivalents and short-term investments were $23.4 million.
- Total assets were $36.300 million and stockholders’ equity was $26.474 million.
- Total liabilities were $9.826 million, including $0.482 million of equipment financing and $2.860 million of operating lease liabilities.
- Accumulated deficit was $124.858 million.
- Operating cash burn was $7.043 million for the quarter. Investing cash inflow of $10.972 million was primarily from maturities of available-for-sale securities.
- Management stated that there is substantial doubt about the company’s ability to continue as a going concern within 12 months from issuance of the financial statements. Additional equity or debt financing is required, but may not be available on acceptable terms or at all.
- In May 2020, after quarter-end, the company entered into a $2.0 million Paycheck Protection Program loan bearing interest at 1.0%. Principal and interest may be forgiven if used for eligible purposes.
Material Changes Versus the Prior Comparable Period
- Revenue declined approximately 21%, driven primarily by the vascular business and lower DABRA catheter sales.
- Gross loss increased modestly despite lower product-related costs; the gross margin remained negative.
- Operating and net losses improved substantially because of cost-reduction initiatives and lower stock-based compensation.
- Operating cash burn improved by approximately $1.9 million, but remained significant relative to available liquidity.
- The DABRA sales force was reduced from 34 employees at June 30, 2019 to five clinical specialists at December 31, 2019, reflecting the company’s effort to conserve cash and focus on priority accounts.
- The company adopted several accounting updates in January 2020, including guidance concerning nonemployee share-based payments, fair-value disclosures and expected credit losses; management reported no material impact.
Guidance, Outlook, Risks and Unusual Items
- COVID-19: Management expected near-term revenue declines and slower atherectomy trial enrollment because patients were postponing elective procedures and physician offices were closed or operating at reduced capacity. The manufacturing facility remained operational and no material supply shortages were reported at the filing date.
- Product and regulatory execution: The company was working on extended catheter shelf life, a braided overjacket, a rapid-exchange catheter and a larger-diameter catheter. These initiatives may require FDA clearance. Management expected to complete shelf-life engineering by year-end 2020 and anticipated completing atherectomy trial enrollment in the first half of 2021, subject to substantial uncertainty.
- Recalls and quality: A September 2019 DABRA catheter recall replaced 12-month shelf-life labeled catheters with two-month shelf-life labeled products; 97% of affected product had been returned by March 31, 2020. A January 2020 DABRA laser software correction was ongoing and expected to be completed in August 2020. The company also disclosed prior Pharos recalls and FDA inspection observations.
- Investigations and litigation: The SEC and DOJ were conducting active investigations involving alleged disclosure, 510(k) clearance, off-label promotion, physician payments and Anti-Kickback Statute issues. The company had accrued $0.5 million for the DOJ-related contingency, but stated that the ultimate outcome and potential additional exposure could not be estimated.
- A securities class action, shareholder derivative action, litigation involving Strata Skin Sciences, and arbitration brought by a former CEO were pending. Potential losses from several matters could be material, although the company stated that many outcomes could not be predicted.
- NYSE listing: The company received a deficiency notice related to market capitalization and stockholders’ equity. Its compliance plan was accepted, but the company disclosed a risk of delisting. Market capitalization was reported at approximately $14.6 million as of May 12, 2020.
- Internal controls over financial reporting had previously contained material weaknesses related to control environment, tone at the top and staffing; management stated that these weaknesses had been remediated as of December 31, 2019. Disclosure controls and procedures were deemed effective as of March 31, 2020.
Investor Verification Checklist
- Confirm that the filing relates to Ra Medical Systems rather than Catheter Precision, Inc.
- Verify the company’s ability to raise capital and its projected cash runway in light of the going-concern disclosure and quarterly operating cash burn.
- Track DABRA catheter calibration, shelf-life, recall completion, warranty costs and any additional product corrections or recalls.
- Verify atherectomy trial enrollment, COVID-19-related delays, engineering milestones and the timing of required FDA clearances.
- Monitor the SEC and DOJ investigations, related litigation, accrued contingencies and any potential fines, settlements, penalties or operating restrictions.
- Review NYSE compliance status and the risk of delisting or equity dilution.
- Assess whether revenue recovery and gross-margin improvement are achievable with the reduced vascular sales force and continuing regulatory constraints.