Company Achieves Record Quarterly and 2005 Revenues, Positive Cash
Flow Generated From Operations, Company Takes a $5.5 Million
Impairment Charge FREMONT, Calif., Feb. 23 /PRNewswire-FirstCall/
-- RITA Medical Systems, Inc. (NASDAQ:RITA), a publicly-traded
medical device company focused solely on cancer therapies, today
reported financial results for the fourth quarter and full year
ended December 31, 2005. Revenue grew 8% sequentially to $12.1
million for the fourth quarter ended December 31, 2005, compared to
$11.2 million in the third quarter of 2005, and grew 10% compared
to revenue of $11.0 million in the fourth quarter of 2004. The GAAP
net loss for the fourth quarter of 2005 was $7.2 million, or a GAAP
net loss per fully diluted share of $0.17, compared with a GAAP net
loss in the third quarter of 2005 of $705,000 or a GAAP net loss
per fully diluted share of $0.02, and a GAAP net loss for the
fourth quarter of 2004 of $1.9 million or a GAAP net loss per fully
diluted share of $0.05. The fourth quarter 2005 GAAP net loss
included a non-cash charge of $5.5 million related to the
impairment of certain intangible assets arising from the 2004
acquisition of Horizon Medical Products and inventory related
charges of approximately $600,000. In addition, the fourth quarter
GAAP net loss included expenses related to operations of (i)
$300,000 of unabsorbed manufacturing overhead associated with the
introduction of manufacturing processes to reduce levels of
inventory, (ii) $300,000 arising from outside services performed
during the quarter related to the Company's Sarbanes-Oxley
compliance efforts, and (iii) $180,000 associated with terminating
certain distributor arrangements in order to implement direct
selling in certain European markets. Revenue was $46.4 million for
the year ended December 31, 2005, compared with revenue of $28.2
million for the year ended of December 31, 2004. The GAAP net loss
for the year ended December 31, 2005 was $10.9 million or a GAAP
net loss per fully diluted share of $0.26, compared with a GAAP net
loss of $9.3 million for the year ended December 31, 2004 or a GAAP
net loss per fully diluted share of $0.35 Cash and cash equivalents
were $5.5 million at December 31, 2005, compared with $3.2 million
at September 30, 2005, an increase of 74% sequentially. The
increase was primarily due to stock option exercises by former
officers of Horizon and RITA, and positive cash flow from
operations. Recent Highlights -- Completed revolving loan agreement
-- Began selling direct in three of RITA's European markets -- New
CPT code (Current Procedural Terminology) reimbursement guideline
established by the American Medical Association (AMA) for RFA
treatment of kidney tumors -- Re-launched the HABIB(TM) 4X
resection device -- Encouraging Radiofrequency Ablation (RFA)
Assisted Lumpectomy data presented at American College of Surgeons
(ACS) Annual Clinical Congress "We think that we accomplished a
number of our key goals during 2005 and that we are well positioned
to reach our long-term growth objectives," said Joseph DeVivo,
President and Chief Executive Officer of RITA Medical Systems.
"From a financial perspective we achieved record sales and
generated positive cash from operations for the first time in the
history of RITA Medical, completed a restructuring of our existing
debt, and in January 2006 entered into a new credit facility. "From
an operational perspective, during the fourth quarter we began to
sell directly in three strategic European markets: the United
Kingdom, Germany and France," continued Mr. DeVivo. "In undertaking
this effort we added direct sales personnel in Europe and
implemented a European logistics partnership to manage
administrative functions. While this strategy requires incremental
spending, we believe that it will result in improved growth and
margin contribution from sales in these markets, and we further
expect this strategy to enhance RITA's strategic value as a
potential licensing and distribution partner. "During the quarter,
we believe we continued to make steady progress in gaining
awareness for our RFA product line as evidenced by our record RFA
sales for a fourth quarter," added Mr. DeVivo. "We were pleased to
see the AMA assign a new CPT code for percutaneous RFA of renal
tumors, a fact that we believe further expands the market potential
for RFA. While our specialty access catheter business was down for
the fourth quarter of 2005, we believe that a new product launch
planned for the first quarter of 2006 will improve our potential
for moderate growth with this product line as the year unfolds,"
continued Mr. DeVivo. "This business has been a steady performer
and is expected to continue to contribute a significant portion of
our operating margin. "We resumed shipments of the HABIB 4X device
during the fourth quarter and believe we regained momentum in the
market," Mr. DeVivo continued. "Additionally, we are aware of the
use of the device expanding to kidney resection procedures as well
as other new applications. We believe that the initial success of
the HABIB 4X demonstrates the effectiveness of the RITA platform
for bringing new technologies to the oncology marketplace," said
Mr. DeVivo. RFA Breast Cancer Treatment and Additional HABIB
Opportunities "Given all of our positive accomplishments including
record annual and fourth quarter 2005 revenues, improving growth
rates, and particularly the increased level of our available cash
balances, we believe it is now appropriate to increase our
investments in additional opportunities for future growth,"
continued Mr. DeVivo. "In October 2005, a paper was presented at
the ACS Annual Clinical Congress based on the research of clinical
investigators at the University of Arkansas Cancer Research Center
on radiofrequency ablation-assisted lumpectomy," continued Mr.
DeVivo. "Based on what we believe are very positive clinical
results from this and other research on the use of RFA technology
to reduce the re-occurrence of certain breast cancers after
lumpectomy surgery, we have decided to move forward with the
internal funding of a 510k Investigational Device Exemption (IDE)
study which is planned for the second half of 2006. We estimate the
potential market size for RFA technology if used in this therapy to
be in excess of $400 million. "We have also decided to initiate the
development of a laparoscopic version of the HABIB 4X resection
device in order to capitalize on increasing trends towards
minimally invasive surgery," continued Mr. DeVivo. "We believe that
such a device may enable advanced laparoscopic techniques, and
potentially allow us to penetrate what we believe is an
approximately $300 million annual market opportunity for resection
devices. "Primarily as a result of these opportunities we currently
intend to increase 2006 R&D and clinical marketing spending by
approximately $2 million compared to 2005 to pursue the
RFA-assisted lumpectomy opportunity and the development of the
Habib 4X laparoscopic resection device," concluded Mr. DeVivo.
Outlook The current outlook for the first quarter of 2006 is for
revenue to be between $12.0 million and $12.5 million. The Company
expects the GAAP net loss for the first quarter of 2006 to range
between $1.7 million and $2.4 million, including the estimated
impact of FASB 123R implementation of $600,000 to $800,000.
However, since the Company has not yet completed its evaluation of
the full impact on its 2006 financial results of implementing FASB
123R, this estimated impact is considered preliminary. The Company
expects its non-GAAP pro-forma loss for the first quarter of 2006
to range between $700,000 and $1.2 million. The non-GAAP pro-forma
loss outlook excludes the approximately $400,000 estimated impact
of amortization of acquisition related intangible assets and the
aforementioned estimated impact of the adoption of FASB 123R or
other stock compensation charges. The current outlook for 2006 is
for annual revenue to range between $50 million and $53 million.
The Company expects the GAAP net loss for 2006 to range between
$4.0 million and $6.5 million, including the preliminary estimated
impact of FASB 123R of $2.5 million to $3.5 million. The Company
expects its non-GAAP pro-forma results for 2006 to range between
breakeven and a non-GAAP pro-forma loss of $1.5 million. The
non-GAAP pro-forma loss outlook for the full-year 2006 excludes the
approximately $1.5 million estimated impact of amortization of
acquisition related intangible assets and the aforementioned
estimated impact of the adoption of FASB 123R or other stock
compensation charges. In order to provide a more meaningful
historical comparison with the non-GAAP pro-forma loss presentation
of the 2006 outlook and the historical numbers, the pro-forma
statement of operations for the quarter and year ended December 31,
2005 and the quarter and year ended December 31, 2004 is included
in the accompanying tables, together with a separate table that
provides a reconciliation between the GAAP net loss and the
non-GAAP pro-forma loss in each of those periods. Conference Call
today RITA management will host a conference call and webcast
today, Thursday, February 23, 2006, at 2 PM Pacific Time to discuss
the Company's fourth quarter 2005 results and its outlook for 2006.
The dial-in number for the conference call is 800-219-6110 for
domestic participants and 303-262-2211 for international
participants. A live audio webcast is available at the Company's
website http://www.ritamedical.com/ by clicking the "audio webcast"
link; no password is required to access the webcast, although
webcast participants are encouraged to go to the site at least 15
minutes prior to the start of the call to register, download and
install any necessary audio software. An audio replay of the
conference call will also be available beginning approximately one
hour after the call's conclusion and will remain available for 7
days. The audio replay can be accessed by dialing 800-405-2236 for
domestic callers and 303-590-3000 for international callers; the
passcode for both is 11053235#. An online replay of the audio
webcast will be available for one year immediately following the
broadcast by accessing the same link. Information regarding the
Company's sales by product line and region for the quarters and
years ended December 31, 2004 and 2005 is presented in an
accompanying table. Any additional financial and other statistical
information discussed during the call can be accessed from the home
page of RITA's website at http://www.ritamedical.com/ . Use of
Non-GAAP Financial Measures The Company uses, and this press
release contains and the related conference call will include, the
metrics of non-GAAP pro-forma loss for the quarter and year ended
December 31, 2005 and the quarter and year ended December 31, 2004,
and non-GAAP pro-forma loss outlook for the quarter ended March 31,
2006 and year ended December 31, 2006. The calculation of non-GAAP
pro-forma loss has no basis in GAAP. Additionally, the Company may
use in the conference call related to this press release non-GAAP
measures of revenue for the fourth quarter ended December 31, 2004
and for the year ended December 31, 2004, and the metric earnings
before interest, taxes, depreciation and amortization ("EBITDA")
for the quarter and year ended December 31, 2005. The periods ended
December 31, 2004 include the revenue of Horizon Medical Products,
Inc. for the period from July 1, 2004 through July 28, 2004, and
for the period from January 1, 2004 through July 28, 2004,
respectively. Horizon's revenue for these periods is not included
in the Company's GAAP revenue for the fourth quarter ended December
31, 2004 or for the year ended December 31, 2004, because its
merger with Horizon was not completed until July 29, 2004. This
non-GAAP measure of revenue may be used in the conference call
because management believes it facilitates a more meaningful
comparison with revenue for the quarter and the year ended December
31, 2005. The calculation of EBITDA has no basis in GAAP. The
Company believes that all of these non-GAAP measures provide useful
information to investors, permitting a better evaluation of the
Company's ongoing business performance, including the evaluation of
its performance against its competitors in the healthcare industry.
A complete reconciliation of the non-GAAP financial measures for
historical periods to the most directly comparable GAAP measures
and EBITDA is presented in the accompanying tables, while this
reconciliation for the Company's 2006 outlook is presented above.
About RITA Medical Systems, Inc. RITA Medical Systems develops,
manufactures and markets innovative products for cancer patients
including radiofrequency ablation (RFA) systems for treating
cancerous tumors as well as percutaneous vascular and spinal access
systems. The Company's oncology product lines include implantable
ports, some of which feature its proprietary Vortex(R) technology;
tunneled central venous catheters; and safety infusion sets and
peripherally inserted central catheters used primarily in cancer
treatment protocols. The product line also includes the HABIB 4X
resection device, which coagulates a "surgical resection plane" and
is designed to facilitate a fast dissection in order to minimize
blood loss and blood transfusion during surgery. The proprietary
RITA RFA system uses radiofrequency energy to heat tissue to a high
enough temperature to ablate it or cause cell death. In March 2000,
RITA became the first RFA Company to receive specific FDA clearance
for unresectable liver lesions in addition to its previous general
FDA clearance for the ablation of soft tissue. In October 2002,
RITA again became the first company to receive specific FDA
clearance, this time for the palliation of pain associated with
metastatic lesions involving bone. The RITA Medical Systems website
is at http://www.ritamedical.com/ The statements in this news
release related to the use of the Company's technology and the
Company's future financial and operating performance, including
without limitation the Company's final financial results for the
quarter and year ended December 31, 2005, the impact of the
implementation of FASB 123R on the Company's results of operations,
the Company's ability to improve ASP, margin and revenue growth by
selling direct in certain European markets, physician adoption of
the Company's products for treatment of types of cancer other than
liver and bone cancers, including breast cancer, the Company's
ability to achieve its revenue goals, the Company's ability to
achieve profitability, the Company's ability to meet its future
guidance, the Company's ability to achieve future improvements in
operating performance and the market opportunity for the
application of RFA in the treatment of breast cancer and of a
laparoscopic HABIB device, are forward-looking statements involving
risks and uncertainties that could cause actual results to differ
materially from those in such forward-looking statements. Such
risks and uncertainties include but are not limited to: the
Company's material weaknesses in its internal control over
financial reporting which were reported in its 2004 Form 10K; the
Company's limited experience selling directly in certain European
markets; the Company's limited experience in manufacturing its
products in substantial quantities and its reliance on a sole
source supplier of the HABIB products; the Company's historical and
future operating results and its lack of profitability; the timing
of product introductions or modifications; market acceptance of the
Company's products for existing or new indications; the Company's
dependence on international sales; competitive pressures; the
ability of users of the Company's products to receive reimbursement
from third-party payors, governmental programs or private insurance
plans; and general economic and political conditions. Information
regarding these and other risks and uncertainties is included in
the Company's filings with the Securities and Exchange Commission.
RITA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data, unaudited) Three
Months Ended Twelve Months Ended December 31, December 31, 2005
2004 2005 2004 Sales $12,090 $10,961 $46,441 $28,215 Cost of goods
sold 5,769 5,094 19,719 11,200 Impairment of intangible assets
3,595 -- 3,595 -- Gross profit 2,726 5,867 23,127 17,015 Operating
expenses: Research and development 999 1,035 3,931 3,787 Selling,
general and administrative 6,799 6,114 27,281 20,637 Impairment of
intangible assets 1,947 -- 1,947 -- Restructuring charges -- 220 60
1,309 Total operating expenses 9,745 7,369 33,219 25,733 Loss from
operations (7,019) (1,502) (10,092) (8,718) Interest expense (182)
(362) (886) (604) Interest income and (other expense), net 6 (8) 3
19 Net loss $(7,195) $(1,872) $(10,975) $(9,303) Net loss per
common share, basic and diluted $(0.17) $(0.05) $(0.26) $(0.35)
Shares used in computing net loss per common share, basic and
diluted 42,302 38,574 41,778 26,465 RITA MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, unaudited)
December 31, December 31, 2005 2004 Assets Current assets: Cash and
cash equivalents $5,522 $12,978 Marketable securities -- 880
Accounts and note receivable, net 7,264 6,410 Inventories 5,380
7,126 Prepaid assets and other current assets 940 792 Total current
assets 19,106 28,186 Long term note receivable, net 58 177 Property
and equipment, net 1,960 1,966 Goodwill 91,339 91,339 Intangible
assets 23,502 30,600 Other assets 502 41 Total assets $136,467
$152,309 Liabilities and stockholders' equity Accounts payable and
accrued liabilities $5,397 $6,731 Current portion of long term debt
113 7,200 Total current liabilities 5,510 13,931 Long term
liabilities 9,762 9,722 Stockholders' equity 121,195 128,656 Total
liabilities and stockholders' equity $136,467 $152,309 RITA MEDICAL
SYSTEMS, INC. SALES BY REGION AND PRODUCT LINE (In thousands,
unaudited) Three Months Twelve Months Ended Ended December 31,
December 31, 2005 2004 2005 2004 Domestic Sales Radiofrequency
Products $4,898 $3,667 $16,075 $13,865 Specialty Access Catheter
Products 5,451 5,723 23,268 9,747 Total 10,349 9,390 39,343 23,612
International Sales Radiofrequency Products 1,181 1,013 4,407 3,688
Specialty Access Catheter Products 560 558 2,691 915 Total 1,741
1,571 7,098 4,603 Total Sales Radiofrequency Products 6,079 4,680
20,482 17,553 Specialty Access Catheter Products 6,011 6,281 25,959
10,662 Total $12,090 $10,961 $46,441 $28,215 RITA MEDICAL SYSTEMS,
INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per share data, unaudited) Three Months Twelve
Months Ended Ended December 31, December 31, 2005 2004 2005 2004
Sales $12,090 $10,961 $46,441 $28,215 Cost of goods sold 5,625
4,854 19,144 10,960 Gross profit 6,465 6,107 27,297 17,255
Operating expenses: Research and development 999 1,035 3,931 3,787
Selling, general and administrative 6,390 5,775 25,601 19,835
Restructuring charges -- 220 60 1,309 Total operating expenses
7,389 7,030 29,592 24,931 Loss from operations (924) (923) (2,295)
(7,676) Interest expense (182) (362) (886) (604) Interest income
and (other expense), net 6 (8) 3 19 Net loss $(1,100) $(1,293)
$(3,178) $(8,261) Net loss per common share, basic and diluted
$(0.03) $(0.03) $(0.08) $(0.31) Shares used in computing net loss
per common share, basic and diluted 42,302 38,574 41,778 26,465
Reconciliation of GAAP Net Loss to Non-GAAP Pro Forma Loss Three
Months Twelve Months Ended Ended December 31, December 31, 2005
2004 2005 2004 GAAP Net Loss $(7,195) $(1,872) $(10,975) $(9,303)
Add: Impairment Charge 5,542 -- 5,542 -- Add: Stock Compensation 13
40 98 143 Add: Amortization of Acquisition Intangibles 540 539
2,157 899 Non-GAAP Pro Forma Loss $(1,100) $(1,293) $(3,178)
$(8,261) Reconciliation of GAAP Loss to Earnings before Interest,
Taxes, Depreciation and Amortization ("EBITDA") Three Months Twelve
Months Ended Ended December 31, December 31, 2005 2004 2005 2004
GAAP Net Loss $(7,195) $(1,872) $(10,975) $(9,303) Add:
Depreciation 408 293 1,225 1,074 Add: Amortization 714 717 2,836
1,523 Add: Impairment 5,542 -- 5,542 -- Add: Interest Expense 182
362 886 604 Add / (Deduct): Interest Income net of other expense,
primarily taxes (8) 8 (3) (19) EBITDA $(357) $(492) $(489) $(6,121)
Reconciliation of GAAP Sales to Pro Forma Sales (Includes sales of
Horizon Medical Products for the period January 1, 2004 through
July 28, 2004) Three Months Twelve Months Ended Ended December 31,
December 31, 2005 2004 2005 2004 GAAP Sales $12,090 $10,961 $46,441
$28,215 Add: Horizon Medical Product sales prior to merger date --
-- -- 15,864 Pro Forma Sales $12,090 $10,961 $46,441 $44,079
DATASOURCE: RITA Medical Systems, Inc. CONTACT: investors, Doug
Sherk, , or Jennifer Beugelmans, +1-415-896-6820, or media, Steve
DiMattia, +1-646-277-8706, or , all of EVC Group for RITA Medical
Systems, Inc.; or Joseph DeVivo, President and CEO of RITA Medical
Systems, Inc., +1-510-771-0400 Web site:
http://www.ritamedical.com/
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Rita Medical (NASDAQ:RITA)
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