Ra Medical Systems, Inc. (RMED) Q1 2022 Earnings Conference Call May 16, 2022 4:30 PM ET

Company Participants

Bruce Voss - LHA
Will McGuire - Chief Executive Officer
Andrew Jackson - Chief Financial Officer

Conference Call Participants

Jeffrey Cohen - Ladenburg Thalmann

Operator

Good day, and welcome to the Ra Medical Systems First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Bruce Voss. Please go ahead.

Bruce Voss

Thank you. This is Bruce Voss with LHA. Thank you all for participating in today's call. Joining me from Ra Medical are Will McGuire, Chief Executive Officer; and Andrew Jackson, Chief Financial Officer. Earlier this afternoon, Ra Medical issued a news release announcing financial results for the first quarter of 2022. If you've not received this news release or if you'd like to be added to the company's e-mail distribution list, please contact LHA at (310) 691-7100 and speak with Danny Chertock. You can also sign up for e-mail alerts and access the news releases in the Investor Relations section of the company's 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, they are forward-looking statements reflecting the beliefs and expectations of management as of May 16, 2022, including financial, regulatory, product development and clinical trial expectations. 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 and the military action by Russia and Ukraine as well as the impact other global economic conditions, including any economic effect stemming from adverse geopolitical events, an economic downturn and changes to inflation or interest rates may have on Ra Medical's business and results of operations, including its supply chain. This means that results could change at any time and the impact of any of these events 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 company's SEC filings, including Ra Medical's report on Form 10-Q for the quarter ended March 31, 2022, which will be filed with the SEC later this afternoon and other filings by the company, including its annual report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 24, 2022. 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, enable the comparison of financial results between periods for certain items that may vary independently of business performance and allow 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. A reconciliation between GAAP and non-GAAP financial measures can be found at the end of the financial news release that was issued earlier today. With that, I'd now like to turn the call over to Will McGuire. Will?

Will McGuire

Thanks, Bruce. Good afternoon, everyone, and thank you for joining us. We are reporting good progress in developing a competitive and differentiated vascular product portfolio targeting the large and growing market for treating peripheral artery disease or PAD. Our team's performance has been exceptional in the face of multiple challenges as COVID-19 continues to impact our industry's ability to conduct clinical studies and persistent supply chain issues affect our engineering project schedules. This is in addition to other economic uncertainty resulting from rising inflation and interest rates and the ongoing conflict in Ukraine.

Today, I'll provide updates on the key objectives for 2022 we outlined during our conference call in late March, beginning with our pivotal clinical study to obtain an FDA atherectomy indication for the DABRA excimer laser system. Enrollment continues to proceed at a steady pace. I am pleased to report that as of today, 107 of the planned 125 subjects have been enrolled. That's 9 additional subjects joining our trial since our last update in late March and 18 additional subjects being enrolled since the beginning of this year.

I'm also pleased to announce the qualification last week of a new trial site with a highly regarded interventional cardiologist serving as principal investigator. As a reminder, our trial is approved for up to 10 sites. And as of today, we have 8 sites cleared for enrollment. Three of these sites have reached their quota while active subject screening is underway at the other 5, including our newest site. We are still unable to predict the exact date for enrollment completion due to the impact of COVID-19. However, given the pace of enrollment over recent months and the addition of the new site, we continue to target full enrollment by the end of Q3 2022.

As I've said before, obtaining FDA clearance for an atherectomy indication continues to be a top priority for Ra Medical and a critical part of our business strategy. The atherectomy clearance will significantly expand our addressable market beyond our existing clearance for crossing chronic total occlusions, or CTOs. A third-party research group estimates the value of the combined CTO and atherectomy markets in the U.S. at approximately $900 million for the current year.

Turning to our engineering initiatives. We are actively working with the FDA to support the review of the 510(k) application we submitted in February for our next-generation DABRA 2.0 catheter. This catheter features a braided overjacket design and a 6-month shelf life. We believe the more robust design of the DABRA 2.0 improves deliverability and kink resistance when navigating tortuous anatomy. We continue to expect 510(k) clearance for the DABRA 2.0 in Q3 2022. The DABRA 2.0 510(k) filing represents a major engineering and regulatory milestone in our endeavor to commercialize our flagship DABRA RX catheter. The DABRA RX will incorporate many of the DABRA 2.0 features for robustness and improved deliverability in a guidewire-compatible version of the DABRA catheter. We selected the DABRA RX design following our preclinical study last December with interventionalists evaluating its use, handling and overall performance. We anticipate finalizing the -- sorry, the engineering work for the DABRA RX later this year and are targeting a 510(k) application seeking regulatory clearance at the end of this year.

I would also like to update you on a few other important engineering initiatives underway. First, we continue to make very good progress on the DABRA laser development front and are on track to submit a 510(k) to the FDA in Q3 2022 that incorporates various upgrades to the laser system, including a new CPU. Second, we are building upon preliminary work that we believe shows our laser system can be utilized to create shock waves of sufficient magnitude to fracture calcium in arteries in a procedure known as intravascular lithotripsy. We have fabricated several new prototype systems, putting us on track to conduct further preclinical studies in the next few months to verify our initial bench-top and preclinical findings. We anticipate completing the design concept work and initiating a development project in the second half of this year. This is an exciting application for our technology given the potential to create significant shareholder value with a competitive product in the emerging intravascular lithotripsy market.

Before opening the call to questions, I want to announce that Andrew Jackson has tendered his resignation as CFO at Ra Medical. Andrew has accepted a position as CFO of another company and will be leaving Ra Medical later this quarter. Andrew has been a valued member of the Ra Medical management team, including seeing the company through the IPO and multiple financings and seamlessly stepping in as interim CEO prior to my appointment.

I'm currently in discussion with potential interim CFO candidates, and Andrew has committed to assist us through the transition. We wish Andrew well in his future endeavors. And lastly, given the challenges faced by micro-cap companies when raising capital in the current economic environment, management and our Board of Directors are currently reviewing strategic alternatives to our current path with the goal of maximizing shareholder value. That review is being conducted along with an investment bank and could result in changes to our business strategy and future operations. At this time, I cannot commit as to the timing of our determination or the strategy we may adopt if different from the current path. Certain alternatives may require us to refocus our efforts or rebuild Ra Medical around a new strategic initiative and may require us to raise additional capital. Again, I'm unable to provide further details at this time because the review is still ongoing. In the meantime, the team and I continue to be committed to advancing our business under the current strategy and against the current time tables.

Now I will turn the call over to Andrew Jackson to review our financial results. Andrew?

Andrew Jackson

Thank you, Will, and thank you for those kind words. As a reminder, Ra Medical completed the divestiture of its dermatology business in August 2021 in a transaction that provided non-dilutive cash to fund our initiatives in the large and growing vascular market. We are reporting Q1 2021 operating results and related assets and liabilities of the dermatology business as discontinued operations.

Unless otherwise noted, the financial results I'll discuss today relates to continuing operations. Also recall that in late 2020, we paused our commercial shipments of catheters and are only supplying catheters to support our atherectomy clinical study. We do, however, recognize revenue on product used in that study. Revenues for the first quarter of 2022 consisted of product sales of $9,000. This compares with product sales of $4,000 for the first quarter of 2021. Gross loss was $86,000 for the first quarter of 2022 compared with $0.4 million for the first quarter of 2021.

SG&A expenses for the first quarter of 2022 were $2.3 million versus $3.7 million for the prior year period. The $1.4 million decline includes $0.7 million in legal expenses, $0.2 million in personnel costs and $0.8 million in stock-based compensation, partially offset by a $0.5 million decrease in the gain on sale of assets. SG&A expenses for the first quarter of 2022 and 2021 included stock-based compensation expense of $0.1 million and $0.9 million, respectively. R&D expenses for the first quarter of 2022 were $3.1 million compared with $2.8 million for the prior year period. The $0.4 million increase reflects costs associated with engineering efforts on our next-generation catheters, including increased shelf life and improved deliverability and also progress on the atherectomy clinical study.

R&D expenses for the first quarter of 2022 and 2021 included stock-based compensation expense of $49,000 and $0.1 million, respectively. The GAAP net loss from continuing operations for the first quarter of 2022 was $5.5 million or $0.27 per share on 20 million weighted average shares outstanding. This compares with a GAAP net loss from continuing operations for the prior year quarter of $6.9 million or $2.36 per share on 2.9 million weighted average shares outstanding. Adjusted EBITDA for the first quarter of 2022 was negative $5.1 million compared with negative $6.0 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 $8.6 million in cash to fund operating activities during the first quarter of 2022. This compares with $8.1 million used to fund operating activities for both continuing and discontinued operations during the first quarter of 2021. We exited the quarter with cash and cash equivalents of $17.7 million. In February 2022, we completed a public offering that resulted in net cash proceeds to Ra Medical of $9.7 million after deducting offering costs paid and payable.

With that, I'd like to open the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]

Will McGuire

While we're waiting for the first question, I'd like to again thank the Ra Medical team for their hard work and perseverance and continuing to make progress in a challenging environment. Okay. Operator, I think we're ready for the first question.

Operator

The first question comes from Jeffrey Cohen with Ladenburg Thalmann.

Jeffrey Cohen

So firstly, a couple for Andrew. I just want to clarify, what's the latest share count currently?

Andrew Jackson

It will be in the 10-Q, it's around 31 million. That will be in the 10-Q.

Jeffrey Cohen

Okay. Got it. And then could you talk about the -- so the OpEx was $5.5 million and the cash use was $8.6 million. What comprised most of that differential for the quarter?

Andrew Jackson

The cash used in Q1 included the $600,000 securities litigation settlement and also $300,000 from the [PAGA] settlement that we had accrued in prior years. So the cash from operations included expenses that were accrued in prior quarters.

Jeffrey Cohen

Okay. Got it. And then when you called out the legal, personnel and stock, the $0.7 million, $0.2 million and $0.8 million was inclusive on the GAAP SG&A, correct? The $2.3 million?

Andrew Jackson

Just repeat that question, Jeff?

Jeffrey Cohen

The legal expense, personnel expense and stock expense of approximately $1.7 million was included in the SG&A for this quarter, and it was partially offset by a $0.5 million gain, correct?

Andrew Jackson

That's correct.

Jeffrey Cohen

Okay. Got it. And then, Will, could you talk a little bit about the laser system itself and the time frame and the engineering involved? And are you adding dual energies to that being the ultrasound as well? And could you talk a little bit about the versatility of the power as well?

Will McGuire

Sure. Yes. So for the laser system right now, what we are -- the next regulatory filing that we are planning in Q3, as I mentioned, it includes an upgraded CPU as well as some other improvements of the laser system, Jeff, to increase the reliability. And then the CPU starts allowing us to do things such as a touch screen and other more user-friendly type interfaces going forward.

We also -- we haven't talked much about it from a flexibility and power perspective. If you look at the power output of the laser system in the past years, the team has identified different things that can be done from an engineering and gas -- kind of looking at the gas as well perspective to increase the power and to give it -- our systems an overall higher power output. But that's not something that we've really quantified and can share right now. But we do know that we have abilities to increase the power output. And one thing we're looking at in conjunction with the intravascular lithotripsy is trying to make a determination if we do need to kind of tweak up the average power output of the laser system to be successful. That's something that we'll determine as we do some more preclinical studies in the coming months. But right now, I would say, we're comfortable with the output, and we're also comfortable that if we need to raise the output, that we have the ability to do that in the coming months.

Jeffrey Cohen

Okay. And that would be somewhat in line with similar offerings out there as far as the output of power for the shockwaves?

Will McGuire

That's right. Yes. When we're looking at our output right now, we're measuring against some of the outputs that are quoted in the literature, for example, for Shockwave Medical. So we think we're close to being the same, if not greater than them. But what we want to do, Jeff, is do some actual more testing in a preclinical setting and just make sure we're getting the expected results with our system and determine if we need to increase the power output. But right now, we're pretty comfortable with where we are.

Jeffrey Cohen

Got it. And the RX system that you're going to be filing, say, the end of this year will be laser only or it will be laser as well as the capability for shockwaves?

Will McGuire

This system would just be -- would be the atherectomy-only system. It will be the laser and the catheter. At this point, though, we don't have any reason to think that our same laser system would not be able to power eventually the lithotripsy catheters. It will just require some additional work on the interface and things like that. But really, the base laser system, we would envision one day being used for atherectomy as well as for lithotripsy. But just to be clear, the lithotripsy interface and some of the other things required to do lithotripsy would not be in the filing later this year. That would be in a subsequent filing, Jeff.

Jeffrey Cohen

Okay. Got it. That does it for us. Thanks for all your help, Andrew.

Andrew Jackson

You're welcome, Jeff. Just to follow up on that, on your question real quick. So the shares outstanding at March 31 was 32,301,000. And thank you, Jeff.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Will McGuire for any closing remarks.

Will McGuire

Thank you again for joining us this afternoon and for your interest in Ra Medical. As always, we are committed to our mission of saving lives and limbs. Have a nice afternoon.

Operator

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