Business Context and Reporting Period
Company: Pavmed Inc. (formerly Paxmed Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2016
Business Overview: Pavmed is an early-stage, emerging growth medical device company focused on advancing a pipeline of innovative technologies from concept to commercialization. The company operates in a single segment and has not yet generated revenue. As of the filing date, the company was in the process of consummating its Initial Public Offering (IPO).
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenues | $0 | $0 |
| Net Loss | $(696,880) | $(146,337) |
| Net Loss Per Share (Basic & Diluted) | $(0.06) | $(0.01) |
| Cash and Cash Equivalents (End of Period) | $236,052 | $729,203 |
| Accumulated Deficit | $(2,747,864) | $(2,050,984) |
| Total Assets | $781,297 | $1,214,090 |
| Total Current Liabilities | $844,259 | $580,172 |
| Working Capital | $(517,357) | $195,857 |
Cash Flow Summary (Three Months Ended March 31, 2016):
- Net cash used in operating activities: $(518,688)
- Net cash used in investing activities: $(12,528)
- Net cash used in financing activities: $0
- Net decrease in cash: $(531,216)
Material Changes vs. Prior Period
The company experienced a significant increase in operating expenses and net loss compared to the prior year quarter, driven by the scaling of operations and preparation for the IPO.
- Formation and Operating Costs: Increased by 297.2% to $517,739 from $130,337. This was primarily due to higher executive compensation ($85,251 increase), increased professional fees ($234,270 increase, including patent prosecution), and higher facility and travel costs.
- Research and Development (R&D) Costs: Increased by 1,019.6% to $179,141 from $16,000. The increase reflects the active development of all five product candidates (PortIO, Caldus, CarpX, NextCath, and NextFlo) compared to limited activity on a single candidate in the prior year.
- Liquidity Position: Cash reserves decreased by approximately $531,000 during the quarter. The company moved from positive working capital in Q1 2015 to negative working capital of $(517,357) in Q1 2016.
Guidance, Outlook, and Material Events
Recent Developments (Post-Period):
On April 28, 2016, the company consummated its IPO, selling 1,060,000 units (one share and one warrant) at $5.00 per unit. This generated gross proceeds of $5.3 million and net proceeds of approximately $4.35 million. The units were approved for listing on the Nasdaq Capital Market under the symbol "PAVMU".
Outlook and Liquidity:
Management anticipates incurring losses for the foreseeable future as it continues product development and seeks regulatory clearances. The company expects the net proceeds from the IPO, combined with existing cash, to fund operations into early 2017. However, the company may need to raise additional capital sooner if assumptions regarding expenses or development timelines prove incorrect.
Risks and Contingencies:
- Going Concern: The company has an accumulated deficit and negative cash flows. Continued operations depend on raising additional capital and achieving regulatory clearance.
- Related Party Transactions: The company entered into a management services agreement with HCP/Advisors LLC (an affiliate of a director) with monthly fees of $25,000 (after an initial $35,000 month).
- Employment Agreements: Significant contingent liabilities exist for the CEO's salary and bonus, which were recognized as probable upon the IPO.
Key Investor Verification Points
- Capital Runway: Verify the sufficiency of the $4.35 million IPO net proceeds to fund operations through early 2017 given the high burn rate (~$500k+ per quarter).
- Product Pipeline Progress: Confirm the status of the five lead projects (PortIO, Caldus, CarpX, NextCath, NextFlo) regarding FDA submission timelines and prototype validation.
- Related Party Fees: Monitor the ongoing monthly fees paid to HCP/Advisors LLC and the status of compensation agreements for key executives (Vice Chairman and Chief Medical Officer) expected to be finalized in Q3 2016.
- Regulatory Risks: Assess the risks associated with obtaining FDA clearance for medical devices, which is a prerequisite for any future revenue generation.