Business Context and Reporting Period
This summary covers Ra Medical Systems, Inc.’s Form 10-K for the fiscal year ended December 31, 2019. The request identifies Catheter Precision, Inc., but the supplied filing is for Ra Medical Systems, Inc. (NYSE: RMED).
Ra Medical is a commercial-stage medical device company with two reportable segments: vascular, centered on the DABRA excimer laser and single-use catheter system for peripheral artery disease, and dermatology, centered on the Pharos excimer laser for psoriasis, vitiligo, atopic dermatitis and leukoderma.
Financial Performance and Liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $7.2 million | $6.3 million | +$0.9 million |
| Product sales | $3.9 million | $3.2 million | +$0.7 million |
| Service and other revenue | $3.3 million | $3.1 million | +$0.2 million |
| Gross profit (loss) | $(1.7) million | $2.1 million | $(3.7) million |
| Operating loss | $(57.7) million | $(31.2) million | $(26.6) million |
| Net loss | $(57.0) million | $(30.8) million | $(26.1) million |
| Adjusted EBITDA | $(32.4) million | $(15.8) million | $(16.6) million |
| Cash used in operating activities | $(33.2) million | $(18.5) million | $(14.7) million |
Gross margin deteriorated from approximately 33% in 2018 to approximately negative 23% in 2019, primarily because cost of revenue increased substantially faster than revenue. SG&A increased to $51.5 million from $30.4 million, and research and development increased to $4.5 million from $2.8 million. Stock-based compensation expense was $23.5 million for 2019.
At December 31, 2019, cash and cash equivalents were $14.6 million and short-term investments were $16.0 million, for total cash, cash equivalents and short-term investments of $30.6 million. Total assets were $44.1 million, total liabilities were $10.9 million and stockholders’ equity was $33.2 million. The accumulated deficit was $117.2 million.
Debt was limited primarily to $0.6 million of equipment financing, including $0.3 million current, and operating lease liabilities totaling $2.9 million. Contractual obligations included $3.8 million of operating lease payments and $0.6 million of equipment financing payments.
Investing activities used $16.0 million, including $36.5 million of short-term investment purchases and $21.0 million of investment maturities. Financing activities used $0.5 million in 2019, compared with $75.2 million provided in 2018, primarily from the $67.3 million of net IPO proceeds and $7.9 million of private-placement proceeds.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 15% to $7.2 million, but vascular revenue declined to $1.3 million from $1.6 million as catheter unit sales decreased.
- Dermatology revenue increased to $5.9 million from $4.7 million, but dermatology gross profit declined to $1.1 million from $2.0 million because of higher service costs, depreciation and stock-based compensation.
- Vascular gross profit shifted to a $2.8 million loss from a $31,000 profit, reflecting catheter performance remediation costs, replacement and warranty costs, recall-related costs and customer-site laser expenses.
- Beginning in the third quarter of 2019, the company reduced its DABRA sales force from 34 employees at June 30 to five clinical specialists at December 31, while implementing cost-saving measures.
- In September 2019, the company initiated a voluntary recall to replace DABRA catheters labeled with a 12-month shelf life with catheters labeled with a two-month shelf life. The company reported lower non-calibration rates after the recall.
- SG&A rose by $21.1 million, driven principally by stock-based compensation, legal expenses related to investigations and securities litigation, personnel costs, insurance and public-company expenses.
- Cash declined from $64.3 million at December 31, 2018 to $14.6 million at December 31, 2019, although short-term investments of $16.0 million were held at year-end.
Guidance, Outlook, Risks and Unusual Items
Management did not provide quantified revenue or earnings guidance. It expects continuing operating losses and negative operating cash flow in the foreseeable future and states that additional financing will be required. The financial statements include a going-concern disclosure expressing substantial doubt about the company’s ability to continue as a going concern within 12 months from issuance.
The near-term strategy is to service core DABRA accounts while improving catheter reliability and preparing a broader commercial relaunch. Planned or developing enhancements include longer shelf life, a braided overjacket, rapid-exchange functionality and an atherectomy indication. The FDA granted final IDE approval for the atherectomy study in January 2020, and the first patient was enrolled in February 2020. The filing does not establish that the atherectomy indication has been cleared.
Significant legal and regulatory matters include:
- An SEC investigation notified in November 2019.
- A DOJ Civil Investigative Demand concerning potential False Claims Act, off-label promotion, 510(k) clearance and Anti-Kickback Statute issues, together with a related DOJ criminal investigation whose target status was unclear at the filing date.
- Findings from an Audit Committee investigation involving catheter failures and overheating, delayed Medical Device Reports, undocumented recalls, approximately $300,000 of physician payments with inadequate documentation, and instructions to characterize DABRA as atherectomy and encourage use of atherectomy billing codes despite the cleared indication.
- A December 2019 FDA inspection that resulted in a Form 483 citing deficiencies involving equipment maintenance schedules, the device master record index and document controls.
- A securities class action, a stayed shareholder derivative action, litigation involving Strata Skin Sciences and a former CEO’s arbitration demand. The company could not meaningfully estimate potential losses from the securities litigation, derivative action or governmental investigations.
Management reported that previously identified material weaknesses in internal control over financial reporting had been remediated as of December 31, 2019. The independent auditor was not required to provide an internal-control attestation because the company remained an emerging growth company.
Additional risks include dependence on DABRA, product recalls and liability, reimbursement uncertainty, regulatory enforcement, reliance on a sole manufacturing facility, limited sales resources, substantial competition, potential dilution from future financing and NYSE listing compliance. The company received an NYSE deficiency notice related to market capitalization and stockholders’ equity; its compliance plan was accepted in February 2020, with 18 months to cure the deficiency, subject to immediate delisting risk if market capitalization falls below the stated threshold.
Most Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is Ra Medical Systems, Inc., not Catheter Precision, Inc.
- Confirm the $30.6 million liquidity figure includes both cash and short-term investments, while cash alone was $14.6 million.
- Assess the pace of cash burn against available liquidity and the company’s stated need for additional financing.
- Monitor DABRA catheter reliability, recall completion, shelf-life improvements and any additional recall or regulatory action.
- Track the FDA atherectomy study, subsequent regulatory submissions and whether an atherectomy indication is ultimately cleared.
- Follow the SEC and DOJ investigations, potential False Claims Act or Anti-Kickback exposure, and related litigation because potential losses were not estimable.
- Evaluate the December 2019 FDA Form 483 observations and whether remediation is accepted by the FDA.
- Review NYSE listing compliance, future equity or debt financing terms and the resulting dilution risk.