Pavmed Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Figures are unaudited and, unless stated otherwise, in thousands of dollars. PAVmed consolidates Lucid Diagnostics, Veris Health and Solys Diagnostics. Its portfolio spans diagnostics, medical devices and digital health; commercialization is focused principally on EsoGuard and CarpX.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $189 | $0 |
| Cost of revenue | $369 | $0 |
| Gross loss (margin) | $(180) (approximately -95%) | $0 |
| Operating expenses | $19,280 | $8,077 |
| Operating loss | $(19,460) | $(8,077) |
| Net loss before noncontrolling interests | $(19,633) | $(10,110) |
| Net loss attributable to PAVmed common stockholders | $(16,940), or $(0.20) per share | $(9,506), or $(0.13) per share |
| Cash used in operating activities | $(12,263) | $(9,168) |
Cash was $64,737 at March 31, 2022, down from $77,258 at year-end 2021. Net cash decreased $12,521 during the quarter; investing activities used $574 and financing activities provided $316. Total assets were $84,334 and total liabilities $19,601. Current assets were $71,002 versus current liabilities of $17,493. The balance sheet lists no borrowing balance at March 31; the convertible-note financing described below closed after quarter-end.
Changes versus the prior comparable period
- Revenue began under the EsoGuard commercialization arrangement with ResearchDx (RDx); the reported $189 represents the minimum monthly fees through termination of the arrangement on February 25, 2022. Associated cost of revenue was $369.
- Operating expenses rose $11,203. Sales and marketing increased $2,538 to $3,925; general and administrative increased $6,048 to $9,423; and R&D increased $2,617 to $5,932.
- Management attributed expense growth to expanded staffing and commercialization, higher stock-based compensation, professional and consulting services, and product development and clinical work. Stock-based compensation increased to $4,814 from $1,436.
- Q1 2021 included a $1,682 noncash fair-value gain and a $3,715 debt-extinguishment loss related to convertible notes; there were no corresponding amounts in Q1 2022. Q1 2022 instead included a $173 fair-value expense on acquisition-related contingent consideration.
- Weighted-average common shares rose to 86.34 million from 73.95 million; reported basic and diluted loss per share increased from $0.13 to $0.20.
Outlook, financing, risks and unusual items
- Management expects recurring operating losses and continued reliance on debt and/or equity financing. It stated that cash on hand and other committed financing sources were expected to fund operations for one year from issuance of the financial statements; this is not a revenue or earnings forecast.
- On April 4, 2022, PAVmed entered into a senior secured convertible-note financing for $27.5 million principal and received $24.9 million cash proceeds on April 5 after lender fees. The notes bear 7.875% interest, have a stated $5.00 fixed conversion price and 24-month maturity, and are secured by specified assets. Up to another $22.5 million principal may be issued subject to conditions, including stockholder approval to increase authorized shares. The notes include cash, market-capitalization and debt-to-market-capitalization covenants, installment repayments and potential default-related repayment obligations.
- Lucid entered a committed equity facility allowing it to request purchases of up to $50 million of its common stock by a Cantor Fitzgerald affiliate, subject to the facility terms. This could provide capital but may dilute existing Lucid holders.
- Lucid acquired assets from RDx on February 25 to establish its own CLIA-certified, CAP-accredited EsoGuard laboratory. The stated purchase price is up to $6.2 million, including $1.0 million noncontingent consideration and up to $5.2 million contingent consideration. The preliminary fair value of the contingent component was $4.887 million at quarter-end; purchase-price allocation remained preliminary. A three-year management services agreement with RDx provides for approximately $1.8 million in quarterly payments over its term.
- Product development and commercialization remain subject to regulatory, clinical, adoption, financing and execution risks. EsoCheck has FDA 510(k) clearance; EsoGuard is a laboratory-developed test. CarpX has FDA 510(k) clearance but remained in limited-release commercialization, with device improvements planned. Other pipeline products described in the filing had not received U.S. marketing clearance or approval.
- Legal matters include a stockholder case awaiting court approval of a proposed settlement with no monetary damages contemplated for the class, and a separate New York state action by Benchmark Investments asserting claims related to financing engagement terms. PAVmed disputes the latter allegations and intends to contest the case.
- The filing identifies potential COVID-19 effects on operations, supply chains, healthcare resources, clinical work and demand. Management reported disclosure controls effective as of March 31, 2022 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated one-year liquidity expectation remains supportable after operating cash burn, debt-service requirements and planned commercialization and development spending.
- The conditions, covenants, dilution and repayment mechanics of the March 2022 notes, including whether the additional $22.5 million becomes available and whether the authorized-share increase is approved.
- The actual drawdown, pricing and dilution under Lucid’s up-to-$50 million equity facility.
- Final RDx acquisition accounting, milestone achievement and contingent consideration, as well as the costs and performance of operating Lucid’s own laboratory.
- Revenue growth, reimbursement and market adoption for EsoGuard and commercial progress for CarpX, alongside regulatory and clinical milestones for pipeline products.
- Outcomes of the pending legal proceedings and any material effect on cash, operations or financial position.