Ra Medical Systems, Inc.
Q2 2021 Earnings Call Transcript

Published: 16 Aug 2021

[Operator:]

Welcome to the Ra Medical Systems Second Quarter 2021 Financial Results Conference Call. All participants are now in a listen-only mode. Please note this event is being recorded. I'd now like to turn the conference over to Jody Cain. Please go ahead.

[Jody Cain:]

This is Jody Cain with LHA. Thank you for participating in today's call. Joining me from Ra Medical are Will McGuire, Chief Executive Officer; and Andrew Jackson, Chief Financial Officer. Earlier today, Ra Medical issued two news releases, one announcing the sale of its Pharos business and the another announcing financial results for the second quarter of 2021. If you've not received these news release or you'd like to be added to the Company's e-mail distribution list, please contact LHA at 310-691-7100 and speak with Daniel Chertock. You can also sign up for e-mail alerts and access the news releases in the Investor Relations section of Ra Medical website at ir.ramed.com. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent the statements made by management are not descriptions of historical facts regarding Ra Medical, the forward-looking statements reflecting the beliefs and expectations of management as of August 16, 2021. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and could materially affect actual results. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means that results could change at any time and the impact of COVID-19 on Ra Medical's operations, financial results and outlook is the best estimate based on information for today's discussion. For details about these risks, please see the news release that accompanies this call and the Company's SEC filings, including Ra Medical's annual report on Form 10-K for the year ended December 31, 2020 and Form 10-Q for the period ended June 30, 2021 which was filed with the SEC on August 11. Ra Medical expressly disclaims any intent or obligation to update forward-looking statements except as required by law. Today's conference call remarks will include both GAAP and non-GAAP financial results. Ra Medical believes the non-GAAP financial results provide investors with useful supplemental information about the financial performance of the business, enables the comparison of financial results between periods for certain items that may vary independently of business performance and allows for greater transparency with respect to key metrics used by management in operating the business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliation between GAAP and non-GAAP financial measures can be found at the end of the financial results news release that was issued earlier today. With that, I'd like to turn the call over to Will McGuire. Will?

[Will McGuire:]

Thanks, Jody. Good afternoon, everyone, and thank you for joining us. I am pleased to have this opportunity to discuss the transaction we announced today and to update you on our progress and developing a competitive vascular product portfolio targeting the large and growing market for medical devices to treat peripheral artery disease or PAD. I'll begin with the sale of our Pharos dermatology business. As discussed during last quarter’s conference call, we have been evaluating multiple strategic options for the business with the goal of building value for Ra Medical shareholders the result of this extensive evaluation with the decision to explore a sale of the Pharos business with the assistance of a financial advisor. As a result, we are very pleased to have closed a transaction in which we sold assets specifically related to the Pharos business to STRATA Skin Sciences. The transaction provides immediate cash proceeds to further our vascular initiatives and allows us to reduce our cash burn in the future. We believe this transaction is in the best interest of the company and our shareholders as we intend to maximize value with a strategy focused on the PAD market. An estimated 19 million to 21 million people in the U.S. have PAD and third-party research places the U.S. market for atherectomy and CTO devices at more than $900 million in 2021. In addition, many products in this space have robust gross margins and pure-play peer companies enjoy a relatively high valuation multiples. From the patient perspective, I am also confident that we are putting the Pharos product line in very good hands. STRATA is a company focused on the therapeutic dermatology market with a commitment to individuals with chronic skin conditions. I want to sincerely thank the Pharos team for their sustained performance during the past year, managing the business and tackling the ever-evolving challenges posed by the COVID-19 pandemic. Our decision to sell this business was in no way a reflection of their performance. In fact, it's because of their performance that we had expressions of interest to buy this business. I would like to make several points relative to the transaction and our path forward. First, we have a clear strategic focus on the vascular business and we will continue to allocate the majority of our resources on the achievement of value creating milestones associated with our next generation DABRA catheter products and the completion of our clinical study to obtain an FDA atherectomy indication. Second, we have begun to explore a possible application of our DABRA technology to create shock waves that can fracture arterial calcium, sometimes referred to as intravascular lithotripsy. This application of our technology represents an exciting potential growth opportunity to treat calcified vessels in the PAD and coronary artery disease markets. I will talk more about this application in a minute. Third, as mentioned earlier, this divestiture provides immediate cash to fund our vascular initiatives while also reducing our future cash burn and extending our cash runway. And fourth, becoming a pure-play vascular company should provide more clarity to investors in terms of evaluating our potential and valuing our company. Turning now to our DABRA business. I'll start with our clinical study to obtain an FDA atherectomy indication. As a reminder, the study is approved for up to 10 clinical sites and 100 subjects. Four sites are currently cleared to enroll subjects and a fifth site, which was previously cleared, has moved locations and is in the process of being reactivated. Since our last Investor Call in early May, we have enrolled an additional 20 subjects in this trial, bringing total enrollment to date to 70 subjects. I continued to be pleased with the pace of enrollment and appreciate the work of our clinical team to navigate summer vacations and continued challenges due to COVID-19. Yet given the unpredictable impact of the pandemic on the study, we are still unable to estimate with precision when enrollment will be completed. Next, I would like to provide an update on our engineering initiatives for next generation DABRA catheters. The FDA completed their review of our recent submission and granted us an additional 510(k) clearance for the DABRA catheter currently being used in the atherectomy clinical study. The submission incorporated various changes we've made to the DABRA system and included data to support a two-month shelf life. We are still evaluating plans for a potential limited commercial release of this catheter and are very pleased to receive this clearance from the agency. In addition, we have generated accelerated aging and real-time aging data for various catheter configurations that we believe support the achievement of a six-month shelf life for future catheters. In short, our mitigation efforts, including material process and sterilization changes have produced the desired outcomes. Later this year, we will finalize a plan to develop the requisite data needed to support a shelf life of at least 12 months for future generation catheters. Our team also continues to make good progress on our catheter development projects. We achieved the design freeze milestone for our next generation DABRA catheter in Q2. As you will recall, this next gen catheter incorporates a braided overjacket to make it more deliverable and kink-resistant when navigating tortuous anatomy. While we have encountered some supplier and manufacturing process-related challenges during our design verification builds, I am confident these will be resolved. I now expect we will complete all engineering work and file with the FDA for regulatory clearance in the first quarter of 2022 rather than the fourth quarter of 2021. The Ra Medical team is proceeding on schedule with an improved DABRA catheter that is compatible with standard 014 interventional guidewires. This project leverages the work of the previously described next gen DABRA catheter with the added guidewire compatibility design goal. We evaluated the performance of various prototypes of this catheter during our workshop in June with physicians experienced in performing peripheral interventions. The feedback we received was extremely valuable and exactly what we were looking for. In summary, the new catheter design is a clear improvement over our first generation DABRA catheter. In response to physician feedback, our engineering team is making a few design changes to increase the overall robustness even further. We intend to conduct another hands-on workshop with interventional physicians later this year. With this progress, we are tracking well against our previous expectation that the overall design work for the guidewire compatible catheter will be completed by the end of 2021. Before leaving R&D, I want to address two additional initiatives. First, we continue to execute on the laser development front with various upgrades to the DABRA system and anticipate completing design work for a new CPU by the end of this year. Second, we have conducted some early promising research over the past several months in conjunction with experts who are external to the company. Our work has demonstrated that the DABRA laser system can be utilized to create shock waves of sufficient magnitude to fracture calcium in arteries. This type of procedure is commonly referred to as intravascular lithotripsy. Fracturing calcium and coronary or peripheral arteries can help make the arteries less rigid thus making subsequent procedures easier and/or safer to perform. Our next step is to fabricate several prototypes systems and conduct a preclinical study to confirm our initial benchtop results. Although it's still very early, I am quite excited about this potential application of the DABRA system given the huge unmet clinical need and the potential to create significant additional shareholder value. I will provide updates on our activities during future calls. Lastly, I'd like to thank the entire team at Ra Medical for their continued hard work and dedication during a period of significant change at the company and uncertainty in the world around us. Everyone has done an amazing job of focusing on the needs of our customers and their patients, enrolling a clinical study and continuing to achieve critical engineering milestones. Now, I will turn the call over to Andrew to discuss our financial results and provide additional details about the Pharos transaction. Andrew?

[Andrew Jackson:]

Thank you, Will. The Pharos transaction provided us with net cash proceeds of approximately $3.6 million after deducting financial advisor fees and allows us to reduce our cash burn in the future from recurring operations. We will continue to provide certain transitional services to STRATA as part of the agreement, however, our R&D efforts and strategic focus will be 100% on the vascular business. In the second quarter, we bolstered our cash position by raising approximately $10.7 million in net proceeds from an at-the-market facility. We also received confirmation from the FDA that our $2.0 million PPP loan has been a 100% forgiven. We exited the second quarter of 2021 with cash and cash equivalents of approximately $20.2 million. Turning to our Q2 financial results. Net revenue for the second quarter of 2021 was $1.0 million and consisted of product sales of $0.3 million and service and other revenue of $0.7 million. This compares with net revenue of $0.9 million for the second quarter of 2020, which consisted of product sales of $0.2 million and service and other revenue of $0.7 million. Net revenue from the Vascular segment for the second quarter of 2021 was de minimis compared with $0.1 million for the prior year period. Net revenue from the Dermatology segment was $1.0 million for the second quarter of 2021 and $0.8 million for the second quarter of 2020. Gross loss was $0.5 million for the second quarter of 2021 compared with $0.3 million for the second quarter of 2020. SG&A expenses for the second quarter of 2021 were $3.7 million versus $7.9 million for the prior year period. SG&A expenses for the second quarters of 2021 and 2020 included stock-based compensation expense of $0.5 million and $0.8 million, respectively. SG&A expenses for the second quarters of 2021 and 2020 included legal expense of $0.4 million and $3.1 million, respectively. R&D expenses for the second quarter of 2021 were $3.0 million compared with $2.0 million for the prior year period. The 2021 quarter included an increase of $0.9 million in personnel, supplies and consulting expenses related to our efforts on the next generation catheters, including increased shelf life and improved deliverability and also progress on the atherectomy clinical study. R&D expenses in the second quarters of 2021 and 2020 each included stock-based compensation expense of $0.1 million. The GAAP net loss for the second quarter of 2021 was $5.2 million or $1.28 per share on 4.1 million weighted average shares outstanding. This compares with a GAAP net loss for the prior year quarter of $10.1 million or $10.71 per share on $0.9 million weighted average shares outstanding. Adjusted EBITDA for the second quarter of 2021 was a negative $6.1 million compared with negative $8.4 million for the prior year period. The reconciliation of GAAP net loss to non-GAAP adjusted EBITDA is included in today's press release. We used $6.6 million in cash to fund operating activities during the second quarter of 2021. This compares with $5.8 million used to fund operating activities during the second quarter of 2020. The increase in cash used to fund operating activities over the prior year period was primarily due to increased spending in R&D and compliance. And finally, we were pleased to get noticed earlier this month from the SEC that they had concluded their investigation and decided to not to recommend an enforcement action against us relating to their investigation. With that, I'd like to turn the call back over to Will.

[Will McGuire:]

Thank you, Andrew. Before answering questions, I want to mention that we will be presenting at the H.C. Wainwright Global Investment Conference being held September 13 through 15. The webcast of our presentation will be available on our website at ramed.com. With that, I'll turn the call back over to Jody Cain. Jody?

[Jody Cain:]

Thanks, Will. I've compiled a few questions that I'd now like to submit to management. Can you tell us more about the impact of the Pharos business sale? You're losing revenue as a result of the sale, but your cash burn is actually decreasing. Is that correct? Are you giving guidance on the cash runway?

[Andrew Jackson:]

Hi, Jody. This is Andrew. That's right. With the restructuring associated with the Pharos sale, we expect the net effect to be a reduction in cash burn in the coming quarters. This is important because with this reduction in cash burn and the proceeds from our at-the-market facility, we can extend our cash runway while we pursue value creating milestones for the vascular business. We are not giving cash runway guidance at this stage.

[Jody Cain:]

Okay. Thank you for that. Next, what is your anticipated timeline for the completion of the atherectomy study and when can we expect FDA submission for approval?

[Will McGuire:]

This is Will. Good question, Jody. We continue to believe that we will enroll a hundreds subjects, complete the requisite six-month follow-up for all subjects and submit our application for an atherectomy indication to the FDA by the end of 2022. It is also worth noting that we reported enrollment of 20 additional subjects on each of the past two Investor calls, so enrollment has been progressing at a fairly consistent pace. Unfortunately, as I mentioned earlier, given the unpredictable nature of COVID-19 and the concerns related to the Delta variant, we’re unable to provide precise guidance regarding enrollment completion of the atherectomy study.

[Jody Cain:]

Great. Thank you. Next, can you tell us more about lithotripsy or the market for treating calcified artery? How big is this market our physicians currently using lithotripsy?

[Will McGuire:]

Sure. This is Will again. The market is quite large. If you look at publicly available data, it indicates that it's about 500,000 PAD procedures that are performed globally each year with heavily calcified arteries. The coronary market is even larger with approximately a 100 million procedures globally involving calcified vessels. There are a few companies focused on treating calcified arteries. One is CSI, which is also in the atherectomy space with their Orbital Atherectomy System. CSI has done a great job building their businesses – or building their business over the years, and now generates over $250 million in annual revenue with a market cap of approximately $1.5 billion. And then ShockWave Medical is the pioneer in intravascular lithotripsy. And ShockWave has systems on the market for coronary and peripheral vessels. So physicians are using ShockWave’s intravascular lithotripsy systems now, and they have done an amazing job building the market for intravascular lithotripsy with customer education and a strong clinical program to develop compelling data. ShockWave recently reported about $55 million in quarterly revenue, and they have a market cap of approximately $6 billion. Again, the market is really large though and the market potential is just quite large and plenty of room for additional players like Ra Medical…

[Q -:]

[Jody Cain:]

All right. Thank you, Will and Andrew, for those updates. Please proceed with closing remarks.

[Will McGuire:]

So thank you again for joining us this afternoon and for your interest in Ra Medical. I believe focusing our resources on the large growing PAD market with our advanced excimer laser-based technology puts us on our path to building shareholder value. As always, we are committed to our mission of saving lives and limbs. We look forward to speaking with you again in November when we report third quarter 2021 results. Have a nice afternoon.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.