Ra Medical Systems (NYSE:RMED) reported third-quarter losses of $17.4 million last week amidst an internal investigation into failures surrounding its Dabra laser catheters and other shortcomings.
That investigation, announced in August, recently revealed deficiencies in its internal controls that constitute a material weakness and could have resulted in material misstatements or omissions to its financial statements or disclosures, the Carlsbad, Calif.-based company said in a regulatory filing. Ra Medical told the Securities & Exchange Commission it is taking remedial activities, including:
- Separation of certain unnamed employees.
- Hiring qualified personnel including a VP quality, regulatory and clinical affairs.
- Implementing additional and enhanced policies and training, including with respect to its code of business ethics and conduct.
- Strengthening its quality and regulatory systems.
- Bolstering documentation requirements for certain third-party consulting, advisory and training agreements.
- Adopting certain enhanced controls related to the matters investigated by the audit committee.
Ra Medical’s investigation was spurred by allegations raised by an employee and additional issues uncovered over time. The investigation is largely complete, the company said in a separate SEC filing.
Ra Medical had delayed its Q2 and Q3 2019 earnings reports due to the investigation. The company reported a loss of -$1.30 per share, on sales of $1.9 million for the three months ended Sept. 30, 2019, for a bottom-line loss of 7.56% in sales compared with Q3 2018.
Adjusted to exclude one-time items, earnings per share were –$1.30, 41¢ behind The Street, where analysts were looking for sales of $2.06 million.
“We are committed to maintaining a strong internal control environment, and we believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls,” the company said in one of the SEC filings. “The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.”
The company’s investigation revealed that Ra Medical’s Dabra catheter frequently failed to calibrate and occasionally overheated, causing a risk of injury to physicians and patients. The probe also discovered that the company did not explicitly reference Dabra’s inconsistencies, or other catheter failures, when explaining its sales for 4Q 2018 and 1Q 2019, causing confusion.
In September, Ra Medical began a voluntary Dabra recall due to the calibration problem but, according to the company’s probe, failed to document the call-back as a recall. The probe also found that Ra Medical sales staff were instructed to market the Dabra device off-label, for use in atherectomy procedures, and to encourage doctors to use atherectomy codes to seek reimbursement.
Ra Medical also failed to report at least two adverse events to the FDA within statutory deadlines, according to the investigation, which also turned up evidence of potentially improper payments to doctors. The company failed to sufficiently document the payments, and in once case involving three physicians couldn’t adequately account for some $300,000 in payments “which could be perceived as an improper attempt to obtain business or to gain special advantage.”
The company ousted CEO, co-president & CTO Dean Irwin without cause in August. On Oct. 31, the company said it had it parted ways with co-funder and VP Melissa Burstein.
Ra Medical voluntarily contacted the SEC and plans to cooperate with the agency and U.S. Justice Dept. as inquiries and investigations into improper marketing of the Dabra devices may continue.
Shares of RMED fell to $1.23 on Nov. 29, but had recovered $1.32 in early-afternoon trading today.