Pavmed Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited consolidated results. Pavmed is an early-stage medical-device company developing a pipeline of products; it has not generated revenue.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.968 million | $1.929 million | $6.146 million | $3.940 million |
| Net loss | $5.129 million | $1.929 million | $10.389 million | $3.940 million |
| Net loss attributable to common stockholders | $5.370 million | $1.929 million | $10.708 million | $3.940 million |
| Loss per common share, basic and diluted | $0.40 | $0.14 | $0.80 | $0.31 |
| Operating cash used | Not separately reported for quarter | Not separately reported for quarter | $5.021 million | $3.252 million |
Q3 G&A declined 6% to $1.263 million, while R&D increased 22% to $705,000. For the nine-month period, G&A rose 44% to $4.082 million and R&D rose 85% to $2.063 million, reflecting higher professional, public-company, and product-development costs. Revenue-based margins are not meaningful because revenue was zero.
- Cash and assets: Cash was $3.111 million at September 30, 2017, versus $586,000 at December 31, 2016; total assets were $3.233 million.
- Cash flows: Nine-month financing cash provided was $7.552 million; investing cash used was $5,000. Cash increased $2.526 million over the period.
- Liquidity: Management reported $1.681 million of working capital after excluding $6.030 million of Series A warrant and embedded-derivative liabilities. Including those current liabilities, reported current assets of $3.215 million were below current liabilities of $7.563 million.
- Debt: The Scopia senior secured note has $5.0 million initial principal, bears 15% interest, is secured by all company assets, and is due June 30, 2019. Its balance-sheet carrying amount was $1.583 million net of $3.417 million unamortized discount; accrued interest was $188,000. The discount is amortized as interest expense.
Material changes and unusual items
- Nine-month common-stockholder loss increased to $10.708 million from $3.940 million. Operating expenses increased $2.205 million, and 2017 included $4.243 million of other expense, versus none in the comparable 2016 period.
- The 2017 other expense included a $3.124 million loss on issuing Series A preferred-stock units, $681,000 of Series A warrant fair-value expense, $76,000 of embedded-derivative fair-value expense, and $362,000 of interest expense. In Q3 alone, warrant and derivative remeasurement expenses were $2.216 million and $584,000, respectively. These fair-value charges are valuation-sensitive and do not represent operating cash outlays in the same period.
- 2017 financing included approximately $2.2 million net from Series A preferred units, $500,000 from Series A-1 units, and $4.843 million net proceeds from Scopia. The Scopia financing also included 2.66 million immediately exercisable Series S warrants with a $0.01 exercise price, creating substantial potential dilution.
- Preferred-stock dividends accrue at 8% annually. Accumulated undeclared Series A and A-1 dividends were $130,000 and $6,000, respectively; a $183,000 deemed dividend on Series A-1 also increased the loss attributable to common stockholders.
Outlook, risks, and contingencies
- Going concern: Management stated that available cash, absent additional funding, was expected to support operations only through the quarter ending June 30, 2018. The company expects continuing losses and negative operating cash flow and said it must raise additional capital; substantial doubt about its ability to continue as a going concern exists.
- Regulatory and product development: The FDA determined PortIO was not substantially equivalent to its proposed predicate for the 510(k) pathway and encouraged a de novo pathway for a broader indication of up to seven days. Pavmed filed a de novo pre-submission package October 30, 2017. CarpX was in final testing and application preparation for 510(k) clearance, according to management. Development and regulatory outcomes remain uncertain.
- Financing and dilution: The 15% secured note restricts additional debt, liens, and dividends, subject to exceptions; up to half of semiannual interest may be deferred and added to principal. Series A securities have anti-dilution provisions and are classified as liabilities because of their terms. Warrant and derivative valuations depend on Level 3 assumptions and can materially affect reported earnings.
- Post-quarter developments: In October 2017, 532,000 Series S warrants were exercised for $5,320; additional cashless exercises and preferred-stock conversion were reported in November. An October exchange offer for Series A holders was due to expire November 17, 2017. The filing does not state the final participation in that offer.
- Other exposures: The filing disclosed registration-statement effectiveness obligations that could require recurring payments to certain investors if effectiveness is not maintained. It reported no currently pending legal actions and no off-balance-sheet arrangements. Related-party advisory fees and placement-agent relationships are also disclosed.
Most important facts for investors to verify
- Actual cash runway, subsequent capital raised, and the terms and availability of any additional financing.
- PortIO’s de novo review timeline and outcome, and the timing and cost of CarpX’s regulatory submission and clearance.
- Scopia note principal, interest accrual, security, covenants, and any subsequent repayments or amendments.
- Outstanding and exercised warrants, preferred-stock exchange-offer results, and the resulting fully diluted share count.
- Assumptions behind the Series A warrant and derivative fair values, and whether registration obligations or related-party arrangements create additional costs.