RA Medical Systems Inc (NYSEAMERICAN: RMED) is our stock in focus on Tuesday, with its price having shot up by more than 50% in early trading.
This major jump in share price comes after the company announced it has received US Food and Drug Administration 510(k) clearance for its DABRA 2.0 catheter as part of the DABRA Excimer Laser System. This catheter is an improvement on the previous generation of the company's technology and provides improved mobility and a longer shelf life.
But does it make the stock a must have?
What is RA Medical Systems?
California-based RA Medical Systems is a medical device company which develops, manufactures, and markets excimer lasers for use in the treatment of vascular immune-mediated inflammatory diseases.
It offers destruction of arteriosclerotic blockages by laser radiation ablation, a minimally invasive excimer laser and single-use catheter system that is used by physicians in the endovascular treatment of vascular blockages resulting from lower extremity vascular disease.
DABRA
DABRA is RA Medical’s flagship product. It’s a minimally-invasive excimer laser and disposable catheter system. It is used by physicians as a tool in the endovascular treatment of vascular blockages resulting from lower extremity vascular disease, a form of peripheral artery disease (PAD).
DABRA breaks down plaque to its fundamental chemistry, such as proteins, lipids and other chemical compounds, eliminating blockages by essentially dissolving them without generating potentially harmful particulates.
The company notes that one of the technology’s key selling points is that, unlike many treatments for PAD, DABRA quickly, photochemically dissolves plaque without causing major damage to the arterial wall.
How Does RMED Make Money?
The company sells its products primarily through distributors in the United States. It has a number of competitors in this business, such as Philips, but RMED hopes that the light weight and lower cost of its DABRA laser system will help it to stand out from the competition.
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RMED Growth Opportunity
According to data provided by the company, an estimated 19-21 million people suffer from PAD in the US, with this resulting in up to 200,000 lower limb amputations annually. Laser treatment is currently dominated by Philips, while alternative treatment technologies are provided by the likes of Medtronic, Cardiovascular Systems Inc, and Boston Scientific.
In fact, these businesses collectively held an estimated 99% of the 2019 atherectomy revenue market share.
Even so, the peripheral atherectomy market is anticipated to be worth more than $770m in 2027, compared to just over $740m in 2022, with RMED hoping to capitalise on this growth.
RA Medical also has its sights set on an adjacent market. The company is currently engaged in trials to demonstrate how its technology can generate shockwaves that can fracture arterial medial calcium, a procedure known as intravascular lithotripsy.
RMED sees this as a strong opportunity for growth, claiming that 500,000 PAD procedures are performed globally each year with heavily calcified arteries.
RMED Stock Risks
While the company has clearly received positive news with the recent FDA approval, it has had its share of negatives over recent months.
May saw RMED announce a “reduction in force” in which approximately 65% of the Company’s full-time employees were terminated. This came as the board were examining strategic alternatives with a view of maximizing value for shareholders, with the company stating that the job cuts were necessary to preserve capital.
Looking ahead, the business seems likely to engage in further efforts to cut costs or raise capital, having indicated that it has sought the assistance of an investment bank. This could result in a dilution of share price.
Another key risk is that the business might not receive approval for other key progressions in its technology, such as improvements to its laser system.
Should You Invest in RA Medical?
Despite progress on evolving its flagship technology, the company’s recent job cuts are too significant to ignore. Product sales from the company’s most recent quarter consisted of just $9,000, with losses from continuing operations coming in at $5.5m.
The business does have significant cash on hand though, with cash and cash equivalents standing at $17.7m as of 31 March 2022. This comes after the business raised $9.7m off of a public offering in February.
As previously mentioned, RA Medical has engaged an investment bank as a part of a process of maximising shareholder value, as well as having cut its workforce by more than 60%. This means the business should have enough money in the bank to remain a going concern in the near future, though further efforts to raise funds could be around the corner.
In short, todays FDA approval announcement is an important step forwards for the business, but it doesn’t yet seem like enough to make long term growth a guarantee for this stock. Big sales seem a long way off considering that the key product is still under development and the market is already in the grips of much larger medical device industry players.