Q3 2020 Ra Medical Systems Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Ral Medical systems third quarter 2020 conference call. As a reminder, this call is being recorded November 12 2020.
This time, all participants are in listen only mode. After the speakers present.
Syndication, there will be an opportunity to ask questions <unk>.
Ask a question during the session juice you must send you must press the star and then one on your telephone if you require further assistance. Please press Star then zero I would now like to turn the call over.
You Jody Cain. Please go ahead.
This is Jody Cain with L.A.J.. Thank you for participating in todays call joining me for law medical or will Mcguire, Chief Executive Officer and.
Andrew Jackson, Chief Financial Officer earlier.
Earlier today, Ron Medical issued a news release.
Please announce your financial results for the third quarter of 2020, if you've not received this news release or Youd like to be added to the Companys email distribution list. Please contact L.A.J. in New York at 21283837, 77 and speak with Carolyn Curran Lou can also sign.
Sign up for email alerts and access the news release in the Investor Relations section of the wall Medical website at IR Grommet Dot 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 statements made by management are not descriptions of historical facts regarding raw medical. These are forward looking statements, reflecting the beliefs and expectations of management as of November 12, 2020.
You should not place undue reliance on these forward looking statements because they involve known and.
Unknown risk uncertainties and other factors that are in some cases beyond the company's control it could materially affect actual results.
In particular, there is significant uncertainty about the duration and contemplated the impact of the COVID-19 pandemic. This.
This means results could change at any time and.
And the contemplated impact of COVID-19, Ron Medical's operations financial results and outlook is the best estimate based on information for todays discussion.
For details about these risks please see the earnings release that accompanies this call and the Companys SEC filings.
Including while Medicals annual report on form 10-K for the year ended December 31, 29 team filed with the FCC on March seven 2020, and quarterly report on form 10-Q for the period ended September 32020 to be filed with the SEC Rabin medical Expressively disclaim.
So 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 Ron 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 very 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 first.
Emphasis there 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 well.
Thanks, Jody good afternoon, everyone and thank you for joining us.
I just have this opportunity to share our progress and provide an update on our business.
Before discussing our engineering and clinical efforts I'd like to I'd like to talk about our quality initiatives and improvements in the past 12 months from today key senior hires and added resources to the call.
Holly.
I think the results are showing with a more robust and effective quality system. As an example, following an internal audit late last year, our quality group initiated a quality improvement plan comprised of 116 items that needed addressing within the quality management system with a focus on standard.
Operating procedures.
Even if maintenance equipment status, some calibrations and supplier quality among others. This was a huge project and I'm proud to say, we've completed 115 of the items with the final item expected to be completed before year end.
I'm also pleased to announce that we have completed all actions related to.
Sure. The form 483, we received from the FDA last December and we submitted our final report to the agency in September.
Turning to our vascular business. We've recently noticed variations in the shelf life of our current Deborah catheter during internal testing procedures as a result and September 2020, we valeant.
All entirely pause commercial sales of Deborah catheters and was subsequently share this information with the FDA.
The FDA requested additional data to confirm the stability of the shelf life before we resume commercial shipments, which we believe should be resolved in the first quarter of 2021.
As you will recall, we have reduced our commercial.
The team to a handful of clinical specialist.
I have been focusing our efforts on the clinical trial sites. So the financial impact of our cost commercial shipments is not material to the company it.
It is important to note. However that this cost does not impact our ability to supply catheters for use in the atherectomy indication.
Pinnacle trial.
Now moving onto our engineering initiatives, we have made fantastic progress with efforts to extend the shelf life of our future catheters as well as with our development efforts related to those catheters first let's talk about shelf life.
Furthered our understanding of the issues that can cause our catheters to calibrate.
Sorry to not calibrate overtime, and thus limit their shelf life.
The issues involved one the introduction of unwanted elements into the catheters core water and to the degradation of the catheters inner coating.
Our efforts to mitigate those issues include material process and sterilization chain.
Arduous.
Recent data obtained from accelerated aging testing for our next generation Deborah catheters were very encouraging.
100% of the end specification manufactured catheters from the two most recent loss passing both too much real time test and even more challenging accelerated aging.
Yes, although.
Although our analysis is ongoing we believe this testing indicates that shelf life approaching six months, if not longer is feasible with this design we.
We will continue our accelerated aging tests to develop more conclusive data and remain confident that we will have a comprehensive plan in place by year end to extend the shelf.
Five to six months or longer.
In addition to the progress on extending shelf life, our engineering efforts continue to advance on schedule and our next generation with our next generation Deborah catheter.
As a reminder, this catheter incorporates operated over jacket to make the catheter more deliverable.
Heat resistant when navigating torturous anatomy.
The design will be evaluated later this month during a one day diaper hands on workshops with several vascular physicians, we still expect to complete the engineering work for this catheter in the first half of 2021 and will subsequently submitted to the FDA for clearance.
We also made substantial progress during the third quarter on the design of the Deborah catheter that is compatible with the standard Guidewire, we outsource the concept development to an experienced engineering firm and previously expected to have several guidewire compatible catheter prototypes available for in vitro evaluation by early 2021.
I'm pleased to report we are ahead of schedule and have their prototypes in house now this.
This design will also be evaluated later later this month during the dapper hands on workshops Im really excited about this event as it will allow us to incorporate input on the usability and performance features on our next generation catheters as we move for.
With finalizing designs, we still expect to complete the overall development project for a guidewire compatible catheter before the end of 2021.
Our clinical trial to obtain an FDA atherectomy indication for the Deborah platform has made significant progress since our last quarterly call as well Mr.
This study is approved.
For up to 10 clinical sites and 100 subjects, we enrolled the first subject in February 2020, starting in March 2020, the COVID-19 pandemic substantially impacted our ability to activate new sites and enroll additional subjects.
Many clinical sites are still operating at reduced capacity in.
Some potential study subjects are opting to postpone their procedures. During the pandemic. However, we are pleased to report that we have seen a significant increase in activity at our clinical sites over the past three months since our last investor call. We have enrolled an additional 12 subjects for a total of 13 subjects enrolled to date.
At least five sites have been clear to enroll subjects. In this study and we are actively evaluating two additional sites to five sites that are cleared are now operating under COVID-19 protocols and are expected to screen potential studies participants moving forward.
Due to the unpredictable impact of the COVID-19 pandemic on.
The study we cannot estimate when enrollment will be completed.
Our dermatology business has also been impacted by October 19th as many customers delay the acquisition or purchase of capital equipment, such as our Ferros laser however, with the recent increase in activity physician offices, we recorded a 20%.
Rent growth in product revenue versus Q2, which is predominately dermatology. We continue to believe there is an opportunity to further grow revenues and increased the dermatology businesses cash contribution in the future any.
Any changes to our dermatology business strategy as well as the timing of those potential changes will be influenced by our ability.
Revenue grow the business during the ongoing opened 19 endemic.
While 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 at physician offices as well as the overall uncertainty going forward due to the COVID-19.
As an example, we reduced our diverse salesforce from 34 employees last year to five employees as of today.
Also we are continuing to cooperate with the various government investigations and I believe the company has the appropriate strategy to navigate the legal issues facing us now.
Now I will turn the call over to Andrew too.
Discuss our financial results Andrew.
Thank you will.
Starting with Q3 financial results net revenue for the third quarter of 2020 with zero point $9 million and consisted of product sales of zero point $2 million and service and other revenue of zero point $7 million. This compares with net revenue of one point.
9 million for the third quarter of 2019, which consisted of product sales of $1.1 million in service and other revenue of zero point $8 million.
Revenue from the vascular segment for the third quarter of 2020 was zero point $1 million compared with zero point $2 million for the prior year period revs.
Revenue from the Dermot.
Our intelligence segment was zero point $8 million for the third quarter of 2020 and $1.7 million for the prior year period.
Gross loss decreased to 504000 in the third quarter of 2020 from 517000 in the third quarter of 2019.
Yes, DNA expenses for the third quarter of 2000.
From a $24.9 million compared with $15.9 million for the prior year period. This.
His DNA expenses for the third quarter of 2020, and 2019 included stock based compensation expense of zero point $8 million and 6.6 million respectively.
Yes, DNA expenses for the third quarter of 2020.
Included an increase of zero point $2 million in accrued estimated costs related to the government investigations for an aggregate accrual of $2.7 million to date.
R&D expenses for the third quarter of 2020 were $2.3 million compared with $1.2 million for the prior year period R&D.
R&D.
Expenses in the third quarter of 2020, and 2019 included stock based compensation expense of zero point $1 million and zero point $3 million respectively.
R&D expenses for the third quarter of 2020 included an increase of $1.3 million in personnel suppliers and consulting expenses compared with the third quarter.
<unk> of 2019 due to our efforts to remedy the inconsistency in our Deborah catheter performance and expand on our efforts on the next generation of products.
The GAAP net loss for the third quarter of 2020 was $7.8 million or 13 cents per share. This compares with a GAAP net loss for the prior year quarter of 70.
$18.4 million or $1.30 per share.
Adjusted EBITDA for the third quarter of 2020 was negative $6.2 million compared with negative $9.9 million for the prior year period.
A reconciliation of GAAP net loss to non-GAAP EBITDA is included in today's press release.
We used 18.9 million in cash to fund operating activities for the first nine months of 2020, which included $2.4 million for legal expenses related to Securities litigation and government investigations.
This compares with $23.6 million used to fund operating activities for the first nine months of 20.
Team, which includes zero point $9 million for legal expenses related to the Securities litigation and government investigations.
Finally, a few words in general about the continued COVID-19 pandemic.
Our manufacturing facility located in Carlsbad, California has been operational throughout the COVID-19 pandemic.
We have continued to manufacture lasers, and catheters without interruption and our personnel are practicing social distancing wearing masks and taking other safety precautions.
Employee travel is limited to essential travel only and many employees are working from home with when feasible.
We have experienced minor delays in receiving.
Amounts of parts, which has not had a material impact on the timing of our key engineering efforts or on our ability to support our atherectomy indication clinical trial.
The full extent to which COVID-19 will further impact our business will depend on future developments, which are highly uncertain and cannot be predicted this includes new and.
Information that may emerge concerning the severity of COVID-19, and the timing of the actions to contain it prevented or treated amongst others.
With that I'd like to turn the call back over to will.
Thank you Andrew.
So in closing I'm pleased with the progress we've made this past quarter with our engineering efforts accelerates.
Revenue enrollment the clinical study in addressing the robustness of our quality system.
We're fortunate to be operating in two large and growing markets and we are committed to our mission of saving lives and limbs.
With these comments I would like to open the call for questions operator.
Again as a reminder to ask a question you will lead.
Rating Press Star then one on you.
Hello.
Joining a question just press the pound key.
Please.
While we compile our culinary Ross.
Our first question is from.
Pardon me from Piper Sandler Goahead.
[music].
Hi, Good afternoon will Andrew Thanks for taking the questions.
I wanted to start on the the shelf life issue with Mr. Catheter. It sounds like you feel good about the progress that you've been making there.
I mean at this point are you solely focused on remedying those two issues that you identified in your.
Paired remarks or are you still looking at.
Other potential causes of shelf life here variability and then maybe just talk about you know what if anything is needed from a design change standpoint and regulatory standpoint.
You get the product back on the market. That's question, one and then I had a follow up or two thanks.
Right.
Adam This is well thanks for the question.
I would say.
But all of our efforts now are kinda centered on the two items that we outlined.
In prepared remarks, there's various things that we also reference that may contribute to those two items.
Everything right now.
I see and that we are working toward would be around the the fluid core and in the inner coating of the catheter I think if there was anything else we come across at this point it would be a minor contributor. So we feel like we've kind of got a.
We've kind of got a fence around what we need.
Well, Tom and ER, we feel like we've made great progress not only in our understanding Adam but also in the.
And the actual mitigations that we're putting in place and the results that we're seeing so far.
Okay. That's a that's good to hear well thanks for that.
And then.
I guess my my next question is.
He is on the Nexgen, you know Catherine technology, where you're adding the rate it over Jack yet.
Yeah, and I guess, we're also working on adding compatibility with Guidewire. So.
My question is you know what what.
You know what do you need from a a clinical data perspective, just anything to get those products to market and then will you incorporate.
You know that incremental technology into the atherectomy, an I'd study and then I had one more thanks.
Good questions I think.
At this point.
No we look at it as it's kind of two projects it'll come together one as you mentioned is where we're working on an operated over jacket and really it's just going to be a catheter that that doesn't work, where the guidewire, but will be more robust would be better.
Better able to navigate tortuous anatomy, and <unk> and more kink resistance at this.
Point, we don't see that being a.
Additional clinical data needed. So it would just be another regulatory filing our 10-K filing without clinical data and then the same for the.
For the next version, which would be basically taking that catheter and some of the improvements that we have added to that.
Catheter and we would then make.
Make it compatible or we are making it compatible with a guidewire are pretty much on our extra rapid exchange type design, there and again, we think we will be able to.
Do the necessary testing on a bench top just so to show that it has.
Same basic mechanism of action as well as a few other things and that would allow us to but can submit to the FDA without collecting additional clinical data you.
Now your question about would we.
Basically roll either one of these into the clinical study.
Thats it Thats a good question.
I think it really depends on how fast the study in rolls through.
The remainder of this year and the first half of next year and then also look at when.
When we actually complete these other products and have them available for use I would say this if we if we you.
You know if we have either one of those.
The products available for use or approved by the FDA and we're still enrolling patients we would take a very close look at it maybe have a discussion with the agency about rolling a new product into the study and collecting some additional data in that study with a new product but.
At this point, we don't have any formal plans and we have not discussed that with the agency right now were going down the path of using the current product and we expect to build to enroll the trial and enroll it successfully with the current product and then the atherectomy indication that we receive we would think.
But if we could leverage that and have that for the future products, but again, all future discussions with the FDA, but that's our working assumption now is that we don't necessarily have to and to include those in the clinical trial to get an atherectomy indication on those products, but once we get it on the first product.
Hope that helps.
That's very helpful. Thanks, so much for that and if I can just squeeze in one more on the atherectomy I'd East study it looks like on clinical trials that get all of it. It has a January 2022 primary completion date, you know so is that a good bill before the street.
We do measure you against.
Obviously, we're seeing COVID-19 case counts tick up here a that's a challenge for for any clinical trial, regardless of of industry and in terms of medical devices. So just trying to get you can give any thoughts and I realize it's challenging but any thoughts around.
Al timelines, there that would be much appreciated thanks, so much.
Yeah, you know its not something we've given in the past, but when we put a date on clinical trials Dot Gov.
Probably assumed a somewhat of a of a conservative enrollment rate without.
Potentially future locked down.
Pounds due to cope with it or anything like that so I think that's a.
Probably a fair date or conservative date to look at but again you know.
Any date like that or any estimate that we work to give would have.
Layers of assumptions in there about COVID-19ien, we can't predict so we're hesitant to really.
Really put out a a a prediction on the trial at this point.
Okay. That's totally fair. Thanks, so much for taking the questions I appreciate it.
Our next question is from Anthony Vendetti from Maxim Group go ahead.
Sure just on the.
On the I'd he trial just a.
More usage enrolled 512 patients at five sites.
How many physicians were involved in those for those for those 12 patients.
And.
Usage looking for two more sites, what's what's sort of the timeline for that.
Yes, so I think.
Little less for the if you look at the total enrollment to date of the five sites that we have activated I believe four sites have actually enrolled.
Enrolled subjects to date.
The next two sites I don't remember the exact timing, but they're both.
Kind of past the initial discussions now and we're moving down the path of.
Getting the appropriate IR be approvals and contracts and.
Other things in place. So we would be hopeful I don't have the exact timing, but I would be hopeful in the next.
90 days that perhaps both of.
It would potentially be activated but these things are with RBS and with some with sometimes with the contract negotiations. It can take much longer than you would think but but we're making good progress with both of those sites and there are other.
Other sites.
I would classify as being much earlier in the fall.
Funnel and not advanced so we didn't think Oh.
Worth mentioning those until they get further down the road.
Okay, and then just switching gears to the derm side of the business. Most of these companies that I follow have said that the dermatology offices here in the U.S. and have mostly reopened about.
90, 95% reopened in treating patients can you talk about.
Your particular derm business and then.
Just sort of the.
The breakout.
You asked versus versus us and what you're seeing between between those two.
Sure.
Maybe I'll make a couple of general comments, and then turn it over to.
Andrew you know we have relatively small team out there I think were three individuals and the on on our Durham team now and I think I would agree the feedback we're getting is similar to what you said that we're seeing.
The the Durham office.
Sure back up and running into in procedures based on who you talk to whether it's the derm area or even the vascular area.
Youre hearing numbers between 70 and 90%.
Volume of what was happening pretty cove. It. So the volumes are returning as far as procedures.
And then for US since you know, we don't have a pay per click model in the derm side.
We are getting Durham revenue based upon laser placements, whether it's sales or rentals, sometimes the it takes it takes a little more time for deals to work themselves through the funnel.
No as the offices get back up and running but I do know we're back negotiating again, we have laser sales in the funnel, but it's not like a pay per click model, where we would see instant revenue as soon as the offices are back up and running.
Andrew Yes, thank you will through.
Anthony Thanks for the question so I'll.
Product revenue was up 20%.
From Q2 to Q3, and it's predominantly dermatology. So so we have seen an increase in activity there.
Dominantly U.S., we do have distributors or U.S., but that activity has been lighter lately, but.
But we definitely have engagement there.
An implant and plan to ramp that up in the future.
Okay, Great and then.
It looks like he this morning. The the reverse split was was was approved days range can you just give a little more details about that and the expected timing of it.
Sure we expect.
Timing to be fairly shortly.
While aboard hasn't approved arrangements, we are expecting the board to approve the range at the lower end of that and that should be happening shortly.
Okay.
Okay. Thank you I'll hop back in the queue.
Thank you thanks.
[noise].
This concludes the question and answer session I would now like to turn the conference back to will Mcguire for closing remarks.
Thanks again to the team at Rob Medical for their continued work and dedication. Thank you to all of our investors for your continued support.
We look forward to speaking with you again in March.
Good afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.