Q2 2020 Ra Medical Systems Inc Earnings Call
My during this call is being recorded today August 11 2020.
Time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to answer your question. During the section you will need to press star one on your telephone if you require any further assistance. Please press star zero I'd now like to turn the call over to Jody Cain. Please go ahead.
This is Joe that came with L.A.J. picture for participating in today's call. Joining me from medical overwhelm acquired Chief Executive Officer, and Andrew Jackson, Chief Financial Officer.
Earlier today, why medical issued a news release announcing financial results for the second quarter 2020, if not we see if this news release, where you'd like to be added to the Companys email distribution list. Please contact L.A.J. in New York add to what you. It's me 3777 that's.
With Carolyn Curran.
You can also signed up for email alerts and access the news release in the Investor Relations section of the law medical website, <unk> IR, Rob that dot com.
During this call management will be making a number of forward looking statements within the meaning that the private Securities Litigation Reform Act of nature 95.
To the extent to statements made by management or not descriptions of historical facts regarding medical there are forward looking statements, reflecting a beliefs and expectations of management.
August 11, 2020, you should not place undue reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that or in some cases beyond the company's control and could materially affect actual results.
In particular, there are significant uncertainty about situation and contemplated impact of the cobot, 19th and Debbie.
This means results could change in Utah, and the contemplated impact of cope with 19, a lot medical's operations financial results and outlook.
Is the best estimate based on information for today's discussion.
For details about these lists she sees the earnings release that accompanies this call and the company's S. You see filings, including bomb Medical's annual report on form 10-K for the you ended December 31, 2019 filed with the S., We see a March 720 20, that's totally.
<unk> form 10-Q for the period ended June Thirtyth 2022, we filed with yes, you see.
Well I'm medical expressly disclaims any intention or obligation to update forward looking statements, except as required by law.
Todays call Swissqual remarks, well with both GAAP and non-GAAP financial results.
Medical believes the non-GAAP financial results provide investors with useful supplemental information about the financial performance.
Business.
Enables a comparison of financial results between periods for certain items Mayberry independently of business performance and allow for greater transparency with respect to key metrics used by management, an operating the business. These non-GAAP financial measures for said is solely for informational.
Comparative purposes.
Should not be regarded as replacements 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 love to talk about polls were to will acquire well.
Thanks, Jody good afternoon, everyone and thank you for joining us I'm pleased to have this opportunity to share our progress and provide an update on our business first I'll say a few words in general.
The continued coated 19 pandemic.
Manufacturing facility located in Carlsbad, California husband operational during the Qubic 19 pandemic.
We have continued to manufacture lasers and cokers without interruption.
Our personnel, a practicing social dispensing wearing masks and taking other safety precautions.
Employee trouble is limited to a central trouble only how many employees are working from home when feasible.
We are not currently experiencing any shortages of supplies that would impact our ability to manufacture products sufficient to supplier dermatology accounts for the limited number of U.S. past work.
As a reminder, we're primarily supporting basket, we were counts ball.
Okay got it has to be involved in.
Correct me clinical study.
The full extent to whats cobot 19 were further impact our business will depend on future developments, which are highly uncertain and cannot be predicted.
This concludes the new information that may emerge concerning the severity of cope with my team and the timing of the actions to contain or treat its impact among others.
Despite the pandemic, we successfully raised additional capital during the second and third quarters.
Through two public stock offerings and are grateful for investors who participated.
We also received alone through a government program, which may be per given if you use for specified purposes with these financings completed we can now focus 100% of our attention on the operations of the business.
Starting with the vascular business as you will recall, we have multiple engineering efforts underway to address specific limitations in the current dub Accommodator design.
Which we believe will help us better penetrate atherectomy market.
Our clinical trial, it's also underway to obtain FDA indication to pro forma correct.
Extending our catheters shelf life is the number one project for the engineering team.
This is essential to all future products developed from the Deborah platform.
The team has made good progress since our last update and has identified aspects of the characters fluid core encoding that are contributing to the shelf life limitations.
We are pursuing mitigations on both fronts. As we also continue additional work to identify other potential mitigations required to obtain sufficient shelbourne.
We remain confident that we will have a comprehensive plan in place by yearend.
To extend the shelf life of our innovative and differentiated copper platform.
We're also increasing the robustness of our catheter to make it more crude system when navigating torturous anatomy.
As discussed in the past we expect to achieve this objective with the addition, braided over jacket or similar design.
We currently expect to complete the necessary engineering work in the first half of 2021.
It was subsequently pursuit FDA clearance for this improved catheter.
Another project moving forward, it's the development of a version of our Deborah Keller said its compatible with an interventional guidewire.
Physicians are typically more comfortable forming a procedure, while using guidewire <unk>.
Makes this an important component of our product portfolio.
We are outsourcing.
The concept development to an experienced engineering firm and expect to have several guidewire compatible catheter prototypes are available in vitro evaluation by early 2021.
We anticipate completing the overall development project for this Guidewire compatible version of the Deborah Carpenter before the end 2021.
Lastly, we are in the feasibility stage of exploring the development of larger diameter counters to target atherectomy procedures in larger vessels, which are more commonly found above the knee.
Early results from this feasibility work are encouraging and I look forward to providing further updates as we advance this project.
So we have reduced cost inputs to the organization. We have added substantial engineering resources. This year to hiring skilled personnel and engaging experience consultants I'm confident that we had the right team in place to achieve our engineering goals.
To obtain an F.D.A. atherectomy indication for the double platform, we initiated a clinical trial in late 2019.
This study is approved for up to 10 clinical sites and 100 subjects.
We enrolled the first subject can February 2020.
Since that time to cobot 19, pandemic have substantially impacted our ability to activate new sites and enroll additional subjects.
He sites or potential sites are currently operating at reduced capacity and some have even closed their operations from time to time.
Any sites are also prioritizing patients with a more advanced disease state.
Those patients may not fit the enrollment criteria for trial in addition.
Potential study subjects, maybe voluntarily opt to postpone their procedures during the cold in 19 pandemic.
[noise] currently three sites have been clear to enroll subjects. This study into additional sites or in the final stages of being cleared to enroll.
The three sites that are cleared are now operating under coated 19 protocols and are expected to screen potential study participants moving forward.
Due to the unpredictable impacted the coated 19 pandemic come to study. We currently cannot estimate when enrollment will be completed.
One final note relative to the vascular business, we do not anticipate significantly rebuilding our vascular sales team to most of our current engineering projects have been completed.
And we have a more definitive timeline.
14 uptick a clearance for the Oxford indication.
As we progress our efforts we will update you accordingly.
Our dermatology business has also been impacted by coded 19, as many customers to lay the acquisition or purchase a capital equipment, such as our parallels laser.
Unlike Deborah this business does not have a disposables component.
And we augment our capital equipment sales with recurring revenue derived from Serbia's indoor led to our lease agreements.
Such we're experiencing less of an impact on this business than would otherwise be expected.
We continue to evaluate our overall strategy for the dermatology business.
I believe there is an opportunity to grow revenues an increase its cash contribution into future broken the U.S. and internationally.
Changes to our dermatology business strategy as well as the timing of those potential changes will be influenced by the impact of the code in 19 and Timok.
Well, we invest in our key strategic initiatives, we have continued with our spending reduction initiatives to adjust to the reduced level of procedures being performed physician offices.
As well as the overall uncertainty going forward due to cope with 19.
Also we are continuing to cooperate with the various government investigations.
I believe the company has the appropriate strategies to navigate could legal issues facing us.
Now I will turn the call over to Andrew to discuss our financial results Andrew.
Thank you will.
In May we secured a 2 million dollar learn through commercial lender under the Patric protection program.
Under the terms of the program proportion or learn maybe forgiven proceeds are used for forgivable purposes.
We believe that we have used the proceeds for such purposes under the terms of America.
Also in May we completed the public offering of common stock and warrants.
Received approximately 8.7 million in net proceeds.
We reported cash and cash equivalents as of June Thirtyth, 2020, or 29.4 million.
On August food Twentytwenty, we completed another public offering of common stock and warrants and received approximately 10.6 million in net proceeds.
Turning now to Q2 financial results.
Net revenue for the second quarter of 2021 0.9 million or consisted of products sales of 0.2 million and service and other revenue or 0.7 million.
This compares with net revenue of 2.2 million for the second quarter of 2019, which consisted of products sales of one point Threemillion and service and other revenue of 0.9 million.
Revenue from the vascular segments for the second quarter was 2021 0.1 million compared with <unk> point Fourmillion for the prior year period.
Revenue from the Dermatology segment was 0.8 million for the second quarter of 20 21.8 million for prior year period.
Gross profit margin for the second quarter of 2020 was negative 30% compared with a negative 27% for the second quarter of 2019.
<unk> expenses for the second quarter, or 2020 were 7.9 million compared with 13.8 million for the prior year period.
<unk> expenses for the second quarters of 2020, and 29 team included stock based compensation expense or <unk> point Eightmillion at 6.4 million respectively.
<unk> expenses for the second quarter or 2020 included an increase of 2.0 million and accrued estimated costs related to the government investigations.
R&D expenses for the second quarter off 2020 were 2.0 million compared with 1.0 million for the prior year period.
R&D expenses in the second quarter of 2020, and 29 team, including stock based compensation expense from 0.1 million zero point Threemillion, respectively. R&D expenses for the second quarter 2020 included an increase of zero point Sevenmillion personnel costs and consulting expenses compared with a second quarter.
29 team in order to better understand inconsistencies in our Deborah catheter performance and expand our efforts on the next generation or products.
The GAAP net loss for the second quarter of 2020 was 10.1 million of 43 cents per share. This compares with the GAAP net loss for the prior year quarter of 15.1 million well $1.16 per share.
Adjusted EBITDA for the second quarter, 2020 was negative 8.4 million compared with negative 7.8 million for the prior year period.
A reconciliation table of GAAP net loss to non-GAAP EBITDA is included in todays press release.
We used 12.8 million in cash to fund operating activities for the first half of 2020, which includes one point fourmillion for legal expenses related to the Securities litigation and government investigations. This compares with 15.7 million use for the first half of 29 seem to fund operating activities with that's all back.
Turn the call back over to will.
Thank you Andrew So in closing I'm pleased with the progress we've made this quarter on our engineering efforts and I'm confident we have the right team in place to deliver quality products and product improvements in a consistent manner.
Operating in two large and growing markets, we are committed to our mission of saving lives and limbs.
With these comments I'd like to open the call for questions operator.
As a reminder to asking question do you want me to press Star one on your telephone.
Your question press the pound key.
Standby.
Hey roster.
Your first question comes from the line of Adam.
Hi.
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Hi, Good afternoon, guys. This is actually drawn for Adam. Thank you for taking the question.
You know I appreciate the commentary and the.
Remediation side for the shelf life to the catheters, you know, maybe you could share a little bit more detail as far as the progress in the quarter I think.
If I remember correctly last quarter, you're working on the diagnostic side.
Sounds like I feel like issue and sort of ended down here.
Maybe just kinda give us an idea of what you're confident that you have the issue it might have been able to isolate and replicated.
And.
Your confidence in being able to fix it.
Sure Yeah. Thanks for the question this is well I'll take that.
Let me about back up you know what we've been looking at.
Lets if somebody just to the shelf life issue as you know if you step back we're looking at the design. We're looking at the materials, we're looking at the consistency of or manufacturing processes.
And as we've done that as we as we sit in the prepared remarks, we've identified a few aspects one related to the catheters fluid core and another related to the coding and to be clear when we say the coding we're talking about him coding on the I'd of the catheter. So we know there's certain aspects there.
That are leading to some of these limitations that we had we are pursuing mitigations for those two aspects and but at the same time.
We want to do a really thorough job here and make sure we understand anything and everything that could hamper us achieving the shelf life that we won't so we are continuing to do some additional work to see if there's other factors that are contributing to a short coming there and then pursued mitigations there I do.
You think.
The two that we've outlined we think those are fundamental contributors to our limitations.
And we still feel very confident that by the ended the year. We will have finished our root cause analysis will understand all the factors that are contributing to our shelf life limitations and not only that we'll have the plan in place to address all of those and mitigate it so.
Good progress I'd say, our confidence is higher now than it was three months ago, and we still expect to.
Really have a full understanding and have a plan in place to resolve it by ended the year.
Okay. That's helpful and then on the spending side, the spending a little bit higher than we had bod old, especially and that's unique side, maybe you could kind of break out some of the components. There is that primarily on the the derm side with some your sales effort.
I think you mentioned, there's a chance to litigation expense in there as well.
And then what should we anticipate for kasper into the right here.
Yeah. Good question drew this is Andrew.
So if you look at that at our cash used in operations for the first six months of this year, which was 12.8 million that contrasts with 15.7 million for the first six months of last year. So we have decreased our cash burn if you remove the 1.4 million Vectrus for litigation in the government investigations, it's 11.4.
Normally and for the first six months of this year. So that's an average of about 5.7 million Acorda. So we have brought down our cash burn quite a bit.
We have increased spending in the irrs of quality and R&D, we've hired some very quality resources in both areas to mitigate some of these challenges that goodwill discussed.
No we're not really guiding to true cash spending ahead, but with the 29.4 million. We had at the end of June and you add the 10.6 from the rate that we just did the net proceeds that gives you give this 40 million. So it gives you an idea that we had a bit of cash runway ahead of us.
Okay. That's helpful and then and last one for me here.
As you start to kind of think about the environment.
Post covert assuming you're able to get the manufacturing on the vascular site up and running.
You know you should have a product price did a nice discount to some of your competitors there.
Have you had a chance to speak to any exact is regarding their there.
Second is there reception for that type of value proposition lately sort of especially as it is kind of led to some financial pressure at some institution.
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Hi, this is well.
Yeah, we've heard a few conversations you know primarily we are in the office Spacelabs Ob Elds and I think going forward.
Our primary target on the on the vascular side will be these ob else.
And they are I'd say, even pre U.K. did they are especially cost conscious regarding the therapies that they use some that are used in their lives because the cost, especially coming right out of pocket as they are either complete owners or partial owners in the business and the feedback I think continues to be probably what it was evident.
Last year or two is if we can for <unk>. If we can deliver a product. This reliable it's predictable and it's safe and has comparable outcomes to other.
Atherectomy devices on the market that there will be very interested and given us a shot and giving us some of the business, especially if we can come in at attractive price point, because again, it's a it's a struggle everyday for them to to make sure that there are running an efficient and profitable business and we think.
We can help them into.
Thank you.
You bet. Thank you.
Thanks drew.
Your next question is from Anthony Vendetti with Maxim Group.
Okay. Thank you.
Okay.
Little bit more about.
The taciturn I know Pepsimoji right now.
But.
Yeah.
Second half.
Yeah.
Hi, it's improving.
Yeah. Good progress made me talk about.
Thank you.
No.
Okay.
Any other.
Mitigation efforts or any other.
Movements and hearing equipment, they can get it up to you don't actually 12 month cellphone.
Sure. Yeah. This is well at the best for the question that's it on the shelf life.
You know we've identified.
A couple of things related to the fluid core into the into the.
In our coating that we are addressing we think those will improve shelf life.
There's a host of other things that we're looking at I can't really articulate right now the impact that those will have but we are confident that overtime you know probably our first our first a goal. If you will be to get at least six months of shelf life that would allow us to start some commercialization activities at some point.
And then at least domestically our ultimate goal would be 12 months. So far we haven't seen anything that would prevent us from getting to six months in 12 months I just don't have all of the testing in hand.
That would validate that right now, but but so far we feel good we think we're on the right truck.
Back to to hit our shelf life goals, you know as far as the other catheter improvements and how they may play into this or just play into it is getting a more desirable catheter. The over jacket is it's really a separate element or separate effort from shelf life in that we need this oh.
Over jacket really what we need as a more robust catheter.
Allows the physician to work to push it and tool kit and to really deliver the catheter toward tortuous anatomy with a reduced.
Risk of kicking or any other complications and again good progress on that we think that project.
Well, we complete the engineering work in the first half of next year.
And then let's assume that we understand shelf life. We've we can see the the robustness of the catheter. The last piece, we need Anthony is the ability for the Catherine Workover Guidewire.
And as we said in her prepared remarks, we kind of outsource the concept development there to a very experienced engineering firm that has a years of experience Oh.
Developing catheters interventional catheters that are guidewire compatible we expect that from to provide us a couple of concepts that would be available for testing early in the year and then we would make a decision to go forward with a design and we'd expect to have that design.
Actually complete from an engineering perspective by the end of 2021. So at the end of 2021, what we want to have is we want to have shelf life.
Minimum six months.
Being towards a year, we want to have a more robust capital that can be delivered and torturous anatomy without risk for cancun, and we want the catheter to be compatible overdone and eventual guidewire. So thats why weve got each one of these projects moving forward in parallel.
Okay great.
That's a good update can you talk a little bit about the atherectomy trial I know from.
Numerous companies I've spoken with center in various stages of.
For the trial at one of the issues drink overtime.
Having sorry, Oh, and then even if the site is up.
Yes.
No.
All right and I mean, the golf and some companies have.
Ended up.
Contracting with additional sites by the.
Walnut talk a little bit about.
What's your problem.
[music].
Yep Yep good question.
Agree with your comments as we said.
No. Unfortunately, we can't really predict the timing as far as completion of the trial right now and as we said a couple of times you know just to reiterate I think it's important that.
The impact of coded 19 has caused most of these sites and again, we were primarily in the in the office Spacelabs. Most of these sites are upgrading I have been operating at a reduced capacity.
Top of that with this reduced capacity. They are prioritizing cases are patients that are more severe.
Especially ones that are at risk of losing of them some of your.
You are you most advanced Phd cases, and in many cases those may not be Oh cases that would fall within our inclusion criteria. So we've got a lower volume we've got more severe cases, many of those would drop out because or there are too severe for inclusion exclusion criteria and then also the patients are star.
Turning to or have been opting out.
Anyone that has an elective procedure.
At least thinks twice before they go to a medical facility now and is there risk of getting koby 19.
So those are kind of the <unk> restraint sort of constraints that we've had on the positive side.
We do have three sites that are now clear to enroll.
And we believe each one is now actively screening.
For study participants to your point about adding sites. We have two additional sites that are now and the final stages of getting cleared so that they can start screening for patients.
And we have in addition to those two additional than we have other sites that are earlier in the process. So we do want to continue adding.
Sites as feasible.
To enroll patients.
So I'd say on the positive side.
We've heard from our sites that their volume is returning so they're getting they're not back to where they were pretty cold with 19 patients are coming back their volume is wrapping up and I've also heard reports from other interventional companies larger firms out there.
Again are reporting that they're seeing procedural volume starting to rebound. So we're hopeful that that trend continues.
Internally what else are we doing one is you know we do have.
A handful of individuals out there who are clinical specialists for us and the vascular side. We have made there number one priority now to support the clinical trial sites and to support enrollment or screening efforts at the site.
We're in constant communication with each one of these sites regarding potential study participants and their screening activities.
I think we mentioned in our last call that we amended the protocol and as a sites can now look at Weatherford five patients. So when classification of more severe patients that we believe we can do safely and effectively so now they can include those as their screening.
Then finally, we didn't make one I think significant personnel had.
And that we hired a new director of clinical affairs.
Who came on board.
In the last 30 days and ER and that person along with some other members of senior staff here have been out visiting our trial sites not potential trial sites. So we're going out in person and spending time with them and really just asking the question what else can we do to help you right now.
So hopefully that answers your question.
It just quick on well if you could just given.
Uh huh.
At this point I know, but anyway.
Okay.
Any update on what's the timeline could be.
When we enroll.
[music].
Suncoke at night.
It's really tough assays.
Yeah, we just can't say that right now it might be a little bit irresponsible for me to give you a timeline.
No what I'll say as in the last call.
When we were assuming really no further impact or a diminishing impact from closed at night 19 by say June.
We were expecting to complete enrollment in the first half.
2021, so thank you can push it out from there, but you know it's hard to say right now hopefully over the next 30 60 days.
As we see the three sites there screening into two additional sites that we hope to get up.
We see their performance is certainly by the next call we could give.
More definitive timeline did I could support with some data.
I understand the important we just we just can't really give you much of a timeline with any confidence right now.
Understood and then just last question on the on the dermatology side.
Obviously, a lot of dermatologists offices were closed.
In the second quarter.
Yeah, some have exactly the open.
Can you talk a little bit about that side of business and and as.
Okay the strategy.
Interface.
Yeah, well up maybe I'll make a few comments and Andrew can jump in you know we have been looking at our strategy there and I would agree with your comments that.
Volumes were definitely down given the elective.
Number of elective procedures are the percentage of I'd like to procedures you'd see on the derm business like everyone else. They are trying to get back to work now and they would like to get back to work. So we know that procedures are happening again, if you just look at our business, which has driven.
The new business driven by laser sales, we are seeing interest in and new laser placements and other things like that so we're hopeful that there will be a rebound.
As far as our strategy, we are still working through that we don't have anything we want to say publicly now about our strategy but.
Suffice to say, we still see an opportunity.
To to grow the business to grow the revenue and to grow the cash contribution from that business and so we're still working three what that looks like as far as when we would start executing a strategy.
And investing in the business if that is our strategy.
That would be as we're kind of going to back in appropriate 19 in that we think we've got that behind us.
Probably would we would probably not get.
Much of a return right now given the law the restrictions in the lower case volumes, but we're certainly working through that and again hopefully we'll have more to say about that as we get code that 19 in the rear view mirror.
Okay, great actually up they appreciate it.
Sure. Thank you.
No further questions at this time, Mr. Mcguire I'll turn the call back over to you for closing remarks.
Great. Thanks again for your questions today I also want to thank everyone at Rob medical for the continued hard work and dedication.
Look forward to providing an update on our next quarterly call. So once again, thanks for joining us today. Thank you very much appreciate your support.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[noise].