Pavmed Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; financial statements are unaudited. Pavmed is an early-stage medical-device company developing products that have not yet received regulatory approval and has generated no product revenue.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $1.38 million | $1.50 million |
| Research and development expense | $563,000 | $657,000 |
| Total operating expenses / operating loss | $1.94 million | $2.16 million |
| Net loss | $2.83 million | $4.27 million |
| Net loss attributable to common stockholders | $3.41 million | $4.30 million |
| Loss per share attributable to common stockholders | $0.21 | $0.32 |
| Cash at period end | $3.63 million | $1.54 million at Dec. 31, 2017 |
| Working capital | $2.48 million | Not provided here |
| Senior secured note principal | $5.19 million | $5.19 million at Dec. 31, 2017 |
Operating cash use was $2.20 million, up from $1.83 million a year earlier. Financing provided $4.30 million, primarily from a January common-stock offering that generated $4.39 million before $113,000 of offering costs. Cash increased by $2.10 million during the quarter. The note’s balance-sheet carrying amount was $2.25 million, net of $2.94 million of unamortized debt discount; its face principal included $188,542 of deferred interest. The note bears 15% interest, is secured by all company assets, and is due June 30, 2019. Q1 interest expense was $500,000, including debt-discount amortization.
Profit margins are not meaningful because the company had no revenue. Total assets were $3.76 million and total liabilities were $3.51 million at March 31. The company reported no income-tax provision.
Material changes versus the prior comparable period
- Operating expenses declined 10%: G&A fell 8% and R&D fell 14%. Management attributed the decreases mainly to lower outside professional-services costs.
- Net loss narrowed by $1.44 million, substantially because Q1 2017 included a $3.12 million noncash loss on issuing Series A preferred-stock units. The comparison also reflects Q1 2018 interest expense and preferred-security exchange-related charges.
- Operating cash use increased by about $375,000 year over year, despite the lower reported net loss, including because of working-capital movements and the different noncash items in each period.
- The March 15 exchange offer replaced all outstanding Series A and A-1 preferred shares and warrants with 975,568 Series B preferred shares and 2,739,190 Series Z warrants. A $726,531 deemed dividend related to the exchange increased the loss attributable to common stockholders; the exchange also extinguished the related derivative liabilities.
- Common shares outstanding rose to 17,509,654 from 14,551,234 at year-end, primarily reflecting the January offering and warrant exercises.
Outlook, risks and unusual items
- Going concern: Management states substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. The company expects continued operating losses and negative operating cash flows for several years and depends on additional capital, regulatory progress, commercialization, and expense control; success is not assured.
- Product and regulatory execution: CarpX had a 510(k) submission pending, with additional nonclinical support requested by the FDA. For PortIO, management shifted toward a broader de novo pathway for up to seven-day vascular access and planned a seven-day animal study; a human safety trial may follow. DisappEAR, NextCath, NextFlo, and other pipeline products remain at various development stages.
- Nasdaq listing: The company received notice that its market value of listed securities had been below the $35 million minimum. It had until September 4, 2018 to regain compliance by maintaining the threshold for at least ten consecutive business days; otherwise securities could face delisting, subject to appeal.
- Financing and dilution: A proposed rights offering, subject to an effective registration statement, contemplated one unit—one common share and one Series Z warrant—for $2.25 per right. Separately, after quarter-end, holders exchanged 10,151,682 Series W warrants for 5,075,849 Series Z warrants. The board subsequently approved a reduction in the Series Z exercise price to $1.60, subject to notice requirements. These instruments may create dilution; the rights-offering terms were proposed, not completed, in the reported period.
- Subsequent development: In May 2018, majority-owned subsidiary Lucid Diagnostics licensed EsoCheck technology from Case Western Reserve University. Terms include equity for the university, royalties and milestone obligations, and reimbursement of approximately $273,000 in accumulated patent costs. The university may require transfer of some or, depending on missed milestones, up to all of Pavmed’s Lucid shares. The Scopia lender waived certain requirements and limited Pavmed’s investment in Lucid to $100,000.
- Other material obligations: The Scopia note restricts additional debt, liens, and dividends, subject to exceptions. A sale of PortIO could permit noteholders to require repayment from sale proceeds. The company also disclosed potential preferred-stock dividends, but these were not recognized as liabilities because they had not been declared.
- Unusual accounting: Fair-value changes and exchange-related charges use Level 3 assumptions and may be sensitive to share price, volatility, and financing expectations. Management reported effective disclosure controls; the auditor had not attested to internal-control effectiveness.
Most important facts for investors to verify
- Available cash, actual monthly cash burn, and the timing and terms of any additional financing; the filing does not assure that current resources will fund operations through key milestones.
- Progress on the CarpX and PortIO FDA pathways, including the PortIO animal study and any subsequent clinical requirements.
- Whether Pavmed regained Nasdaq’s market-value compliance and the status and final terms of the proposed rights offering and warrant repricing.
- The Scopia note’s face balance, 15% interest burden, June 2019 maturity, security and covenants, and any required repayment tied to a PortIO sale.
- Lucid’s financing needs and ability to meet EsoCheck development, regulatory, commercialization, royalty, and milestone obligations without triggering potential equity-transfer provisions.
- Potential dilution from outstanding options, preferred shares, and warrants; at March 31, 2018, the filing reported 3,007,032 options and 14,525,073 warrants outstanding, in addition to convertible Series B preferred shares.