SEC Form 10-Q Summary
Filing issuer: Ra Medical Systems, Inc. (the request identifies Catheter Precision, Inc.; the provided filing is for Ra Medical Systems, Inc.). Reporting period ended September 30, 2020; filed November 13, 2020. The company develops, manufactures and markets excimer laser systems, including DABRA for vascular applications and Pharos for dermatological conditions.
Business Context and Reporting Period
- The company operated through vascular and dermatology segments.
- DABRA commercial catheter shipments were paused, except for the atherectomy clinical trial, while the company addressed catheter shelf-life and performance issues and awaited additional FDA review.
- The atherectomy trial had five activated sites and 13 enrolled subjects out of a planned 100 subjects at the filing date. COVID-19 materially delayed site activation and enrollment.
- COVID-19 reduced elective procedures, physician-office activity and demand for capital equipment and delayed clinical development.
Key Financial Metrics
| Metric | Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 |
|---|---|---|---|---|
| Net revenue | $0.9 million | $1.9 million | $3.2 million | $5.8 million |
| Gross loss | $0.5 million | $0.5 million | $1.0 million | $1.3 million |
| Operating loss | $7.8 million | $17.6 million | $25.7 million | $47.9 million |
| Net loss | $7.8 million | $17.4 million | $25.6 million | $47.2 million |
| Basic and diluted loss per share | $0.13 | $1.30 | $0.79 | $3.63 |
| Adjusted EBITDA | $(6.2) million | $(9.9) million | $(20.8) million | $(24.4) million |
Revenue declined approximately 52% year over year in both the quarter and nine-month period. Gross margin remained negative at approximately 55% of revenue in the quarter and 31% for the nine-month period. The filing does not present a positive operating or net margin because the company remained loss-making.
Liquidity, Cash Flow and Capitalization
- Cash and cash equivalents were $33.6 million at September 30, 2020, compared with $14.6 million at December 31, 2019. Short-term investments declined from $16.0 million to zero as investments matured or were converted to cash.
- Operating activities used $18.9 million during the first nine months of 2020, versus $23.6 million in the comparable 2019 period.
- Investing activities provided $15.9 million, primarily from $16.0 million of investment maturities.
- Financing activities provided $22.0 million, including $19.9 million from 2020 public offerings, $2.0 million from a PPP promissory note and $0.8 million from warrant exercises.
- Total liabilities were $12.9 million, including $2.0 million of PPP debt, $2.7 million of operating lease liabilities and $0.3 million of equipment financing.
- The PPP note bears interest at 1.0%; principal and interest may be forgiven subject to Small Business Administration approval. The filing contains inconsistent references to the maturity date, so the final loan terms should be verified.
- Accumulated deficit was $142.8 million and stockholders’ equity was $30.5 million at September 30, 2020.
- Shares outstanding increased to 72.5 million from 13.8 million at December 31, 2019. The May and August offerings also left 58.6 million warrants outstanding, creating substantial potential dilution.
Material Changes Versus the Prior Comparable Period
- Product sales fell to $0.2 million from $1.1 million in the quarter and to $0.9 million from $3.3 million for the first nine months, primarily reflecting lower catheter and laser sales.
- Service and other revenue decreased modestly to $0.7 million in the quarter and $2.3 million year to date.
- SG&A declined 69% in the quarter and 55% year to date, mainly due to lower stock-based compensation, reduced personnel and sales and marketing activity, and lower legal costs compared with the prior-year periods.
- Research and development expense increased 97% in the quarter and 51% year to date as the company incurred higher personnel, consulting, supplies and clinical-development costs.
- Vascular revenue declined to $0.1 million in the quarter and $0.3 million year to date. Dermatology revenue declined to $0.8 million and $2.9 million, respectively.
- The company completed May and August equity offerings, receiving approximately $19.1 million in combined net proceeds, and issued common shares and warrants at materially lower prices than its IPO price.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued operating losses and negative operating cash flow for the foreseeable future and concluded that substantial doubt exists regarding the company’s ability to continue as a going concern within 12 months from issuance of the financial statements.
- Management expects to seek additional equity or debt financing if necessary. Additional equity could materially dilute existing holders, while financing may not be available on acceptable terms or at all.
- Management expected additional catheter shelf-life testing and FDA approval to permit resumed commercial shipments in the first quarter of 2021; no assurance was provided that this timing would be achieved.
- The company expected to complete a more kink-resistant catheter project in the first half of 2021, produce guidewire-compatible prototypes in early 2021 and complete development of a guidewire-compatible catheter before the end of 2021.
- The company accrued $2.7 million for the DOJ False Claims Act investigation. The SEC investigation, DOJ civil and criminal investigations, securities class action and shareholder derivative litigation remained unresolved, and potential additional losses could be material but could not be estimated.
- Prior internal-investigation findings included catheter calibration and overheating concerns, untimely medical-device reports, inadequately documented recalls, physician-payment documentation issues and potential off-label promotion and reimbursement practices.
- The company settled litigation with Strata Skin Sciences and related parties in August 2020, with mutual releases and termination of the Pennsylvania and California cases. An arbitration demand by former CEO Dean Irwin remained pending.
- NYSE listing compliance remained a significant risk. The company had received notices concerning market capitalization and minimum share price requirements and expected to rely on a reverse stock split approved by shareholders in November 2020, with a ratio between 1-for-25 and 1-for-75 to be selected by the board.
- Subsequent events included shareholder approval of 9 million additional shares under the equity incentive plan, grants of restricted and performance awards, and the announced resignation of President Jeffrey Kraws effective January 15, 2021.
Most Important Facts for Investors to Verify
- Whether the company resumed commercial DABRA catheter shipments and obtained FDA clearance for the required shelf-life data.
- Actual enrollment progress, site activation and timing of the atherectomy trial and any resulting FDA submission or clearance.
- Cash-burn trends, financing needs and the company’s ability to remain a going concern without additional capital.
- Status, settlement exposure and potential penalties related to the SEC and DOJ investigations and the $2.7 million contingency accrual.
- Outstanding warrants, equity-plan shares, reverse-split terms and the resulting potential dilution.
- Compliance with NYSE listing requirements and whether the reverse stock split restored or maintained compliance.
- Final terms, forgiveness status and maturity date of the PPP promissory note.
- Whether catheter quality, recall, calibration, overheating and regulatory-compliance issues have been fully remediated.