Catheter Precision(VTAK) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed financial statements for the quarter ended March 31, 2019, show a net loss of $14.7 million, a significant increase from the $2.7 million loss in the prior-year period. Total assets decreased to $69.3 million from $74.0 million at year-end 2018, primarily due to a decrease in cash and cash equivalents. The company adopted new accounting standards for revenue (ASC 606) and leases (ASC 842) during the period Condensed Balance Sheets Condensed Balance Sheet Data (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $55,129 | $64,315 | | Total current assets | $60,453 | $69,233 | | TOTAL ASSETS | $69,280 | $74,035 | | Liabilities & Equity | | | | Total current liabilities | $5,085 | $5,950 | | Total liabilities | $9,483 | $7,330 | | Total stockholders' equity | $59,797 | $66,705 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $69,280 | $74,035 | Condensed Statements of Operations Condensed Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Total net revenue | $1,748 | $969 | | Gross (loss) profit | $(194) | $233 | | Total operating expenses | $14,760 | $2,925 | | Operating loss | $(14,954) | $(2,692) | | Net loss | $(14,674) | $(2,693) | | Basic and diluted net loss per share | $(1.16) | $(0.34) | Condensed Statements of Cash Flows Condensed Statement of Cash Flows (in thousands) | Activity | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,944) | $(2,425) | | Net cash used in investing activities | $(165) | $(120) | | Net cash (used in) provided by financing activities | $(77) | $1,391 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $(9,186) | $(1,154) | Notes to Condensed Financial Statements Key notes detail the company's reincorporation and IPO in 2018, and the adoption of new accounting standards for revenue (ASC 606) and leases (ASC 842) in Q1 2019. Stock-based compensation expense was significant at $7.7 million for the quarter, largely due to the modification of replacement awards. The company operates in two segments: Vascular, which saw revenue growth to $0.5 million but incurred a gross loss, and Dermatology, with revenue of $1.3 million and a gross profit of $0.5 million - The company adopted ASC Topic 606 (Revenue from Contracts with Customers) on January 1, 2019, using the modified retrospective method. The adoption did not have a material effect on the results of operations for the three-month period[28] - The company adopted ASC Topic 842 (Leases) on January 1, 2019, recognizing right-of-use assets and lease liabilities of $3.2 million. The new standard did not change the accounting for leases where the company is the lessor[47] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | | :--- | :--- | :--- | | Selling, general and administrative | $6,319 | $370 | | Research and development | $910 | $78 | | Total in operating expenses | $7,229 | $448 | Segment Performance (in thousands) | Segment | Net Revenue (Q1 2019) | Gross (Loss) Profit (Q1 2019) | Net Revenue (Q1 2018) | Gross Profit (Q1 2018) | | :--- | :--- | :--- | :--- | :--- | | Vascular | $461 | $(706) | $90 | $(161) | | Dermatology | $1,287 | $512 | $879 | $394 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's commercial-stage status, focusing on its DABRA and Pharos excimer laser systems. The significant increase in net loss to $14.7 million in Q1 2019 from $2.7 million in Q1 2018 was driven by a $10.6 million rise in SG&A expenses and a $1.2 million increase in R&D, primarily due to higher stock-based compensation and costs associated with being a public company. While total net revenue grew 80% to $1.7 million, gross profit turned into a loss of $0.2 million. The company believes its cash of $55.1 million is sufficient to fund operations for at least the next 12 months Overview - Ra Medical is a commercial-stage medical device company with two main products: DABRA for vascular diseases (PAD) and Pharos for dermatological conditions[81] - The company is pursuing an expanded FDA indication for DABRA to include atherectomy, with a clinical trial expected to start in Q3 2019 and have final results in Q1 2020[81][82] - Recent challenges included production limitations in catheter manufacturing (remediated in March 2019) and the need for a more robust training program for new sales personnel, which impacted Q4 2018 and Q1 2019 revenue[89] Results of Operations Comparison of Results for Three Months Ended March 31 (in thousands) | Item | 2019 | 2018 | Change $ | | :--- | :--- | :--- | :--- | | Total net revenue | $1,748 | $969 | $779 | | Gross (loss) profit | $(194) | $233 | $(427) | | Selling, general and administrative | $13,229 | $2,639 | $10,590 | | Research and development | $1,531 | $286 | $1,245 | | Net loss | $(14,674) | $(2,693) | $(11,981) | - Vascular segment revenue increased by $0.4 million year-over-year due to higher catheter sales following the commercial launch[103] - SG&A expenses increased by $10.6 million, primarily due to a $5.9 million increase in stock-based compensation, $2.5 million in personnel costs for sales and public company functions, and $0.8 million in outside services[111] - R&D expenses increased by $1.2 million, mainly from a $0.8 million rise in stock-based compensation and a $0.4 million increase in supplies[112] Liquidity and Capital Resources - As of March 31, 2019, the company had cash and cash equivalents of $55.1 million and an accumulated deficit of $74.9 million[120] - Management believes that existing cash will be sufficient to fund operations for at least the next 12 months[121] - Net cash used in operating activities was $8.9 million for the three months ended March 31, 2019, a significant increase from $2.4 million in the prior-year period, driven by a higher net loss[123][124] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are related to interest rate sensitivity, foreign currency exchange, and inflation. Management believes that exposure to these risks is not material. Cash and cash equivalents of $55.1 million are held in short-term instruments, minimizing interest rate risk. As international operations expand, foreign currency risk may increase, but its current effect is not material. Inflation is not believed to have had a material effect on the business - The company does not believe it has material exposure to changes in interest rates due to the short-term nature of its cash and cash equivalents[133] - As international operations expand, results may become subject to fluctuations in foreign currency exchange rates, but the current risk is not material[134] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2019. They concluded that these controls were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2019, the company's disclosure controls and procedures were effective at the reasonable assurance level[138] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a legal action with Strata Skin Sciences, Inc. and its director, Uri Geiger, filed in August 2018. Strata is seeking declaratory relief regarding non-liability for statements made about Ra Medical. Ra Medical believes the action lacks merit and plans to vigorously oppose it. Management does not believe any current legal proceedings are likely to have a material adverse effect on the business - The company is in a legal dispute with Strata Skin Sciences, Inc. regarding statements made by a Strata director. The company believes Strata's action lacks merit and is vigorously opposing it[143] - Management opines that no current legal proceedings are likely to have a material adverse effect on the company's business, financial condition, or results of operations[144] Item 1A. Risk Factors The company outlines extensive risks across its business, regulatory environment, intellectual property, and stock ownership. Key business risks include dependence on the successful commercialization of the DABRA system, potential manufacturing issues, competition from larger players, and the need for market acceptance. Regulatory risks involve the complex and costly FDA compliance and approval process for new indications. Intellectual property risks center on the ability to obtain and defend patents. Financial risks include a history of losses, the potential need for additional capital, and stock price volatility Risks Related to Business and Products - The company's success is highly dependent on the successful marketing and sale of its DABRA product[147] - The company has experienced manufacturing problems, such as production limitations in catheter production in Q4 2018 and Q1 2019, which could limit revenue growth[156] - The company has a history of net losses, incurring $14.7 million in Q1 2019, and may not achieve profitability in the future[162] - The company faces substantial competition from larger, more established medical device companies with greater financial and marketing resources[167][174] Risks Related to Regulatory Approval and Industry - The company's products are subject to extensive and ongoing regulation by the FDA and other agencies, and failure to comply can lead to significant enforcement actions[214][215] - Obtaining regulatory clearance or approval for new products or new indications for existing products is a costly, lengthy, and uncertain process[221][222] - Healthcare reform, cost-containment pressures, and changes in reimbursement practices by third-party payors could decrease demand for the company's products[242][249] Risks Related to Intellectual Property - The company's ability to compete depends on its success in obtaining, maintaining, and enforcing patent protection for its products, which is an expensive and uncertain process[265][267] - The company may become involved in costly intellectual property litigation, either by asserting its own rights or defending against claims of infringement from others[290][295] - The company relies on trade secrets and confidentiality agreements to protect proprietary information, but these measures can be breached and may not provide adequate protection[286] Risks Related to Reliance on Third Parties - The company depends on a limited number of third-party suppliers for key components and sub-assemblies, and the loss of these suppliers could harm the business[311][312] - Failure by the company or its component suppliers to meet regulatory quality standards (like FDA's QSR) could lead to manufacturing disruptions and enforcement actions[314] Risks Related to Ownership of Common Stock - The company's stock price may be volatile, and an active, liquid trading market may not be sustained[319] - Principal stockholders and management own a significant percentage of the company's stock (approx. 37% as of March 31, 2019), allowing them to exert significant control over matters subject to stockholder approval[332] - As an "emerging growth company," the company can take advantage of reduced reporting requirements, which may make its common stock less attractive to some investors[333] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period. It provides details on its Initial Public Offering (IPO), which closed on October 1, 2018. The IPO generated aggregate net proceeds of approximately $67.3 million after deducting underwriting discounts and offering expenses. There has been no material change in the intended use of these proceeds - The company's IPO, which closed on October 1, 2018, raised approximately $67.3 million in net proceeds[354] - There has been no material change in the expected use of the net proceeds from the IPO as described in the final prospectus[355] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[356] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[357] Item 5. Other Information The company reported no other information for this item - None[357] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's certificate of incorporation, bylaws, an offer letter with an executive, and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - The exhibits filed include corporate governance documents, a management contract, and required CEO/CFO certifications[359]