Ra Medical Systems, Inc. (RMED) Q1 2021 Earnings Conference Call May 11, 2021 4:30 PM ET

Company Participants

Jody Cain - LHA Investor Relations
Will McGuire - Chief Executive Officer
Andrew Jackson - Chief Financial Officer

Conference Call Participants

Operator

Welcome to the Ra Medical Systems First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]

At this time, I'd like to turn the conference call 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 a news release announcing financial results for the first quarter of 2021. If you've not received this news release or you'd like to be added to the company's e-mail distribution list, please contact LHA in New York at 212-838-3777 and speak with Carolyn Curran. You can also sign up for e-mail alerts and access the news release on the Investor Relations section of the Ra Medical Web site 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 May 11, 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 around the duration and contemplated impact of the COVID-19 pandemic. This means results could change at any time and the contemplated 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 March 31, 2021 to be filed with the SEC. 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 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. 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 share our progress on developing a competitive atherectomy product line targeting the large peripheral artery disease, or PAD market as well as our work to secure the appropriate FDA atherectomy indication required for market success.

I'll begin with an update on our clinical study to obtain an atherectomy indication for the DABRA platform. As a reminder, this study is approved for up to 10 clinical sites and 100 subjects. Currently, 5 sites have been cleared for enrollment into study, and two additional sites are at varying stages of the qualification process. A third site that was in the advanced stages of being qualified is no longer being considered for participation in the study.

Since our last Investor Call in mid March, we have enrolled an additional 20 subjects and we are now at the halfway point in enrollment with a total of 50 subjects to date. I'm very pleased with our enrollment rate and appreciate the work of our clinical team as well as the clinical investigators who are prioritizing this study in their practices. Due to the unpredictable impact of the COVID-19 pandemic on the study, we are still unable to estimate with precision when enrollment will be completed.

Now I would like to update you on our engineering initiatives for the DABRA catheters. We continue to make great progress with efforts to extend the shelf life of our future catheters as well as with our development efforts to enhance those catheters. As previously discussed, we have identified the root causes of the limited shelf life and are in the process of implementing mitigation efforts, including material, process and sterilization changes.

I'm pleased to report that we recently obtained real time ageing data to support a 6-month shelf life of our next generation catheters. This data confirms previously reported in-house accelerated ageing test results, and as a significant milestone for our engineering team and for our company.

Our team also continues to execute on our catheter development projects. We now expect to reach the design freeze milestone for our next generation DABRA catheter later this quarter. As you will recall, this next gen catheter incorporates a braided over jacket to make it more deliverable and kink resistant when navigating torturous anatomy.

Given our progress and the pending design freeze, I expected team to complete all engineering work and file a submission with the FDA seeking regulatory clearance for this next gen DABRA catheter in the fourth quarter of 2021. The team is also proceeding on schedule to develop an improved DABRA catheter that is compatible with standard interventional guidewires. This project leverages the work of the previously described next gen DABRA catheter and has the added guidewire compatibility design goal.

We are planning to evaluate this catheters performance during another workshop next month with physicians experienced and performing peripheral interventions. Specifically, we want to confirm the usability and performance features of this catheter by allowing physicians the opportunity to use prototypes in simulated interventional cases. I look forward to sharing the results with you on our next quarterly call.

We continue to expect the overall design work for the guidewire compatible catheter will be completed by the end of 2021. Finally, on the laser development front, we are advancing various upgrades that would benefit both the Pharos and DABRA systems. In the near-term, we anticipate completing design work for a new CPU by the end of 2021.

Turning to our Pharos dermatology business, the commercial team has performed well in the past year, managing the business and overcoming the many challenges posed by COVID. Our first quarter revenue this year is approaching the pre-pandemic revenue of the first quarter of 2020. As stated in the past, we believe there's an opportunity to grow this business in a capital efficient manner in a post-COVID environment.

With that being said, we are evaluating multiple strategic options for the dermatology business to best position RA Medical for success and increased shareholder value. These options include, but are not limited to investments in the commercial organization, additional improvements to the Pharos laser system, commercial partnerships and alliances or a divestiture of the business. We will update you on this process periodically or as appropriate.

Before turning the call over to Andrew. I'd like to thank the entire team at RA Medical for their continued hard work and dedication during a period characterized by significant change at the company. We have become a stronger, more capable organization that remains committed to saving lives, limbs and improving patient's quality of life.

Now, I will turn the call over to Andrew to discuss our financial results. Andrew?

Andrew Jackson

Thank you, Will. Starting with our Q1 financial results, net revenue for the first quarter of 2021 was $1.1 million and consisted of product sales of $0.4 million and service and other revenue of $0.7 million. This compares with net revenue of $1.4 million in the first quarter of 2020, which consisted of product sales of $0.6 million and service and other revenue of $0.8 million.

Net revenue from the Vascular segment for the first quarter of 2021 was de minimis compared with $0.1 million for the prior year period. Net revenue from the Dermatology segment was $1.1 million for the first quarter of 2021 and $1.3 million for the first quarter of 2020. Gross loss was $255,000 for the first quarter of 2021 compared with $210,000 in the first quarter of 2020.

SG&A expenses for the first quarter of 2021 were $4.1 million versus $6.3 million for the prior year period. SG&A expenses for the first quarters of 2021 and 2020 include a stock-based compensation expense of $1.0 million and $0.9 million, respectively. R&D expenses for the first quarter of 2021 were $2.8 million, compared with $1.3 million for the prior year period.

The 2021 quarter included an increase of $1.4 million in personnel, supplies and consulting expenses related to our efforts to remedy the in consistencies with our DABRA catheter performance, and to expand our efforts with the next generation of products. R&D expenses for the first quarter of 2021 and 2020 each included stock-based compensation expense of $0.1 million.

The GAAP net loss for the first quarter of 2021 was $7.2 million or $2.48 per share on 2.9 million weighted average shares outstanding. This compares with a GAAP net loss for the prior year quarter of $7.7 million or $13.98 per share on 0.6 million weighted average shares outstanding.

Adjusted EBITDA for the first quarter of 2021 was negative $6.1 million, compared with negative $6.2 million for the prior year period. The reconciliation of GAAP net loss to non-GAAP EBITDA is included in today's press release.

Finally, regarding the continued COVID-19 pandemic, while we are encouraged by increase in dermatology revenue in the fourth quarter of 2020 and first quarter of 2021. The full extent to which COVID-19 will impact our business will depend on future developments, which are highly uncertain and cannot be predicted.

We use $8.1 million in cash to fund operating activities during the first quarter of 2021, which included $0.7 million for the payments of settlements and legal expenses related to the securities litigation and government investigations. This compares with $7.0 million used to fund operating activities during the first quarter of 2020, which included $1.2 million for legal expenses related to the securities litigation and our internal and government investigations.

The increase in cash use to fund operating activities over the prior year period was primarily due to increased spending in R&D compliance, and one-time employee separation charges. We exited the first quarter of 2021 with cash and cash equivalent of $16.0 million.

With that, I'd like to turn the call back over to Will.

Will McGuire

Thank you, Andrew. In closing, I'm pleased with the enrollment uptick in our effort to make clinical study and our validation of the DABRA shelf life with the real time ageing results. As I said earlier, we are committed to our mission of saving lives, limbs and improving patient's quality of life.

With that, I'll turn the call back over to Jody Cain. Jody?

Jody Cain

Thanks, Will. I've compiled a few questions posed by shareholders that I'd now like to submit to management. First, when will the FDA complete its review of the DABRA catheter with the 2-months shelf life? And will you resume commercial shipments with that catheter?

Will McGuire

Thanks for the question. The FDA is currently reviewing our submission. And we would expect a response in the next 60 days. We're not planning a commercial reintroduction of this first gen catheter other than perhaps making it available to our clinical study sites.

Jody Cain

Great. Thanks for that. Next, is your anticipated timeline for the completion of the atherectomy trials and when can we expect FDA review and approval?

Will McGuire

This question, given the unpredictable nature of COVID-19, we're unable to provide a precise guidance regarding enrollment of the atherectomy study. But that being said, we continue to believe that we will enroll 100 subjects, complete the requisite 6 months follow-up for all subjects, and submit our application for an atherectomy indication to the FDA by the end of 2022.

Jody Cain

Great. And next, what is your goal for the catheter shelf life? And do you have an anticipated time for achieving that goal?

Will McGuire

Yes, well, we will be submitting data that supports a 6-month shelf life when we file for approval of the next gen DABRA catheter. We think this will be sufficient for the initial phases of commercialization. Ultimately, we would like a 12-month shelf life in the U.S that the team will be developing a plan for generating the needed data to obtain a 12 months shelf life later this year. But I would not anticipate having the necessary data before late 2022.

Jody Cain

Okay. Thank you, Will for those updates. Please proceed with closing comments.

Will McGuire

Thank you again for joining us this afternoon and for your interest in Ra Medical. We look forward to speaking with you in August when we report second quarter 2021 results. Have a nice afternoon.

Operator

Ladies and gentlemen, with that we will conclude today's conference. We thank you for attending today's presentation. You may now disconnect your lines.

Question-and-Answer Session

Q -

[No formal Q&A for this event]