PAVmed Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited consolidated results include majority-owned subsidiary Lucid Diagnostics. PAVmed is a pre-revenue medical-device company developing products for regulatory clearance and commercialization.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.24 million | $2.57 million | $9.71 million | $7.25 million |
| Net loss attributable to PAVmed | $3.08 million | $3.25 million | $10.21 million | $11.14 million |
| Net loss attributable to common stockholders | $3.15 million | $3.31 million | $10.41 million | $11.85 million |
| Basic and diluted loss per common share | $0.10 | $0.12 | $0.36 | $0.57 |
| Cash used in operating activities | — | — | $9.27 million | $5.77 million |
At September 30, cash was $4.10 million, down from $8.22 million at December 31, 2018. Current assets were $4.35 million and current liabilities $6.81 million, a working-capital deficit of approximately $2.46 million. Total liabilities were $6.81 million; stockholders’ deficit was $2.41 million. No revenue or gross margin was reported.
The December 2018 senior secured convertible note had $4.37 million face principal outstanding and a $4.47 million estimated fair value at quarter-end, compared with $7.75 million face principal at year-end 2018. It bears 7.875% interest and matures December 31, 2020. In the first nine months, $3.38 million of principal was repaid through stock conversions, issuing 3.85 million shares; the company also paid $279,002 in cash note payments. Debt conversions generated a $666,670 extinguishment loss for the nine-month period.
Changes versus prior comparable periods
- Q3 operating expenses rose 26% year over year; nine-month operating expenses rose 34%. Nine-month general and administrative expense increased 22% to $5.33 million, and research and development expense increased 52% to $4.38 million, reflecting personnel, professional services, clinical and development work, and other costs.
- Q3 net loss attributable to PAVmed narrowed year over year, while nine-month loss also narrowed. The comparison includes different financing-related items: 2018 included substantial interest and exchange/modification expenses; 2019 included note fair-value movements and conversion-related extinguishment losses.
- Operating cash use increased to $9.27 million from $5.77 million for the first nine months, and cash fell by $4.12 million. Financing provided $5.17 million, primarily from $5.38 million net proceeds from registered stock offerings, versus $13.50 million in the prior-year period.
- Common shares outstanding increased from 27.14 million at December 31, 2018 to 36.56 million at September 30, 2019, including registered offerings and note conversions.
Outlook, developments, and risks
- Management expects continuing operating losses and no positive operating cash flow while it develops products, pursues regulatory clearances, and prepares commercialization. It states that these conditions raise substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements are issued. Additional capital, debt refinancing, regulatory progress, commercialization, and expense control are among management’s plans; success is not assured.
- EsoCheck received FDA 510(k) clearance in June 2019 as an esophageal cell-collection device. EsoGuard is being offered as a laboratory-developed test; an FDA in-vitro diagnostic approval has not been obtained. Its PLA billing code became effective October 1, 2019, but CMS preliminarily recommended gap-fill pricing, with a final determination expected by year-end 2019.
- CarpX’s 20-patient first-in-human study reported successful procedures and no device-related adverse events. Patient follow-up and compilation of study data remained before a planned FDA 510(k) resubmission; clearance was not yet obtained.
- In September, Lucid entered a clinical research organization agreement for two EsoGuard studies, with a required refundable $643,000 deposit. $200,000 had been paid by quarter-end; the remainder was scheduled for payment in Q4.
- After quarter-end, on November 4, 2019, PAVmed issued $14.0 million aggregate face value of senior secured convertible notes. The Series A generated $6.3 million cash proceeds before a $409,500 advisory fee. The Series B consideration was $6.3 million of investor promissory notes, not cash received at closing; its availability depends on subsequent payment terms. The notes are secured by a lien on company assets.
- The December 2018 note requires at least $1.75 million of unrestricted cash at each quarterly balance-sheet date. Other risks include financing needs, potential dilution, uncertain regulatory outcomes and market acceptance, development costs, and the company’s limited operating history. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
No quantified revenue or earnings guidance is provided. Management discusses planned product development and commercialization, but timing and regulatory outcomes remain uncertain.
Investor verification points
- Review the full terms, cash proceeds, fees, collateral, conversion and repayment provisions, and investor-note funding mechanics of the November 2019 financing.
- Assess liquidity and the going-concern disclosure, including operating cash burn, the $1.75 million minimum-cash covenant, and debt maturity and repayment requirements.
- Track dilution from note conversions, future equity issuance, preferred-stock dividends, options, and warrants; compare share counts after quarter-end with the reported September 30 balance.
- Verify FDA and clinical milestones for CarpX and EsoGuard, CMS pricing decisions for code 0114U, and whether planned trials and commercialization proceed as described.
- Review the CRO deposit and clinical-trial commitments, as well as other contractual obligations and potential litigation or product-liability exposure.