PAVmed Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Dollar amounts below are in millions unless stated otherwise. The consolidated company includes majority-owned Lucid Diagnostics and Veris Health.
Business context
PAVmed is a commercial-stage medical technology company focused primarily on commercializing Lucid’s EsoGuard esophageal precancer test and Veris Health’s cancer-care remote patient monitoring platform. Management said it was prioritizing these products and had paused R&D on CarpX, EsoCure, NextFlo and PortIO.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.791 | $0.076 | $1.403 | $0.265 |
| Cost of revenue | $1.779 | $1.626 | $4.809 | $1.996 |
| Gross loss | $(0.988) | $(1.550) | $(3.406) | $(1.731) |
| Operating expenses | $16.319 | $23.443 | $53.815 | $66.751 |
| Operating loss | $(15.528) | $(23.367) | $(52.412) | $(66.486) |
| Net loss before noncontrolling interests | $(21.750) | $(29.932) | $(61.855) | $(78.666) |
| Net loss attributable to PAVmed common stockholders | $(17.748) | $(26.197) | $(50.365) | $(68.732) |
| Loss per share, basic and diluted | $(0.16) | $(0.29) | $(0.48) | $(0.78) |
Revenue primarily reflected EsoGuard test results. Revenue rose from a small prior-year base, but cost of revenue exceeded revenue in each period. No positive gross margin was reported.
Cash flow, liquidity and debt
- Cash was $26.408 at September 30, 2023, down from $39.744 at December 31, 2022.
- For the first nine months, operating cash use was $40.162; investing activities provided $0.941, including $1.0 of intellectual-property sale proceeds; financing activities provided $25.885. Net cash decreased $13.336.
- Current assets were $32.461 and current liabilities were $54.505, implying negative working capital of approximately $22.044 and a current ratio of about 0.60. Total liabilities were $57.848; total stockholders’ equity was a deficit of $15.828.
- Senior secured convertible notes had $38.664 face-value principal outstanding and a $44.990 fair value at quarter-end, with stated interest of 7.875% and conversion prices of $5 per share. The notes mature in 2024 and 2025. The reported fair value is subject to significant valuation assumptions.
- PAVmed issued 20.4 million common shares in the first nine months to settle approximately $5.1 of principal and $0.3 of interest on its notes; the shares’ reported fair value was approximately $8.4. The company recorded a $3.032 debt-extinguishment loss for the period.
Material changes and management commentary
- Q3 revenue increased by approximately $0.7 year over year, while the nine-month increase was approximately $1.1. Management attributed growth chiefly to more EsoGuard testing in Lucid’s own laboratory.
- Nine-month operating expenses declined by approximately $12.9, led by lower R&D, general and administrative, and sales and marketing costs. Management attributed much of the reduction to lower clinical-trial and outside development spending and reduced stock-based compensation; it also reported higher cost of revenue.
- Management expects recurring operating losses and negative operating cash flows and said it expects available cash, committed financing sources, and planned debt conversions or refinancing to fund operations for one year from the financial statements’ issuance date. This depends on financing, conversions and refinancing being available and completed.
- Management reported progress in Lucid’s clinical evidence efforts, direct contracting, testing events and claims processing. Lucid had contracted with Ancira Automotive Group to offer testing to employees at 12 locations. Veris had expanded its platform to six locations across three oncology practices and continued development of its implantable monitor, for which submission and commercial launch were targeted for 2024.
- After quarter-end, Lucid raised $5.0 through a Series A-1 preferred-stock offering on October 17, 2023. The filing also reports subsequent stock-option and restricted-stock grants.
Risks, contingencies and unusual items
- PAVmed was out of compliance with certain financial tests under its senior-note agreements from time to time between June 1 and August 14, 2023. The lender waived the noncompliance through November 30, 2023; the company reported compliance as of September 30 based on that waiver. The notes include an $8.0 minimum cash covenant and market-capitalization tests.
- Lucid’s note requires at least $5.0 of available cash and includes debt-to-market-capitalization and minimum market-capitalization tests. The company reported compliance as of September 30, 2023.
- Nasdaq had extended the deadline to regain the $1 minimum bid-price requirement to December 26, 2023. Shareholders authorized a possible 1-for-5 to 1-for-15 reverse split, subject to board action.
- Risks include limited commercialization history, uncertain revenue and reimbursement, market acceptance, financing needs, regulatory uncertainty—including potential FDA action concerning laboratory-developed tests—and product, operational and litigation risks. The company reported no pending legal matter reasonably likely to have a material impact, while noting litigation outcomes could be material.
- Q3 included $4.392 of noncash expense from fair-value changes in convertible notes and $1.764 of debt-extinguishment losses. The company also recorded a $0.291 fair-value derivative liability related to a service-provider stock-price protection provision.
Important facts for investors to verify
- Whether cash use, committed financing and planned note conversions or refinancing support the stated one-year operating runway.
- Current covenant compliance and any lender waiver extensions beyond November 30, 2023.
- Nasdaq bid-price compliance status and whether the board authorized a reverse split before the deadline.
- EsoGuard testing volumes, reimbursement and collections, and progress toward improving gross margins.
- Potential dilution from convertible notes, preferred stock, warrants, equity facilities and employee awards.
- Veris and Lucid commercialization, regulatory and product-development milestones, including the implantable monitor timeline.