PAVmed Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial amounts below are in thousands of dollars unless noted. PAVmed is a pre-commercial medical technology company with majority-owned subsidiaries Lucid Diagnostics and Solys Diagnostics. The filing reports no revenue for the quarter or first half of 2020 or 2019.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $2,881 | $1,914 | $5,566 | $3,607 |
| Research and development expense | $2,133 | $1,405 | $4,702 | $2,856 |
| Operating loss | $(5,014) | $(3,319) | $(10,268) | $(6,463) |
| Net loss attributable to PAVmed common stockholders | $(5,649) | $(3,660) | $(20,194) | $(7,261) |
| Loss per common share, basic and diluted | $(0.13) | $(0.13) | $(0.46) | $(0.27) |
| Net cash used in operating activities | Not separately presented | Not separately presented | $(9,346) | $(6,389) |
- Operating expenses increased year over year, reflecting commercial-launch staffing and related costs for EsoGuard, higher professional and public-company expenses, and increased clinical and development costs across several programs.
- Six-month net loss was substantially affected by non-cash fair-value changes in convertible debt and debt-extinguishment losses. For the first half, the company recorded a $5,888 fair-value expense and a $3,937 debt-extinguishment loss. In Q2, a $2,120 fair-value gain partly offset a $2,750 extinguishment loss and $200 of offering costs.
- Cash was $7,080 at June 30, 2020, compared with $6,219 at year-end 2019. First-half financing cash flow of $10,251, including convertible-note proceeds and a $300 PPP loan, exceeded operating and investing cash use; cash increased by $861 during the period.
- At June 30, total assets were $8,882, total liabilities $21,687, and stockholders’ deficit $12,805. Current assets of $8,154 were below current liabilities of $21,537.
- Convertible notes had $12,416 of face principal and $16,200 of reported fair value at June 30. The notes’ fair-value accounting and conversion-related share issuance contributed to earnings volatility and dilution. Common shares outstanding increased from 40.479 million at December 31 to 47.919 million at June 30; 49.639 million were outstanding as of August 11.
Business developments and outlook
- EsoCheck had FDA 510(k) clearance; EsoGuard was commercially available as a laboratory-developed test following CLIA certification and CAP accreditation. CarpX received FDA 510(k) clearance in April 2020. Other products, including EsoGuard IVD, PortIO, DisappEAR, NextFlo, and EsoCure, remained in development or subject to regulatory steps.
- Management planned to expand commercial efforts for EsoGuard and CarpX. For EsoGuard, preliminary Medicare gapfill payment recommendations were $1,938.01 in 38 states and $2,690 in 12 states and two territories; final payment decisions were pending and expected to apply from 2021 through 2023.
- COVID-19 disrupted elective procedures and clinical-trial activity, potentially delaying enrollment, product development, regulatory review, and commercialization. Management said the financial impact could be material but could not be estimated.
- The filing gives no quantified revenue or earnings guidance. Management expected continued losses and research and development spending, and anticipated higher general and administrative costs as commercial operations expanded.
- Management stated that recurring losses and operating cash deficits raised substantial doubt about the company’s ability to continue as a going concern within one year of issuance. It expected to seek additional debt or equity financing, but could not assure availability on acceptable terms or at all.
Debt, contingencies, and controls
- In March 2020, the company received $6,300 from the Series B November 2019 secured convertible notes; the notes carry a 7.875% stated rate when funded, a $1.60 conversion price, and a September 2021 maturity. The December 2018 note was paid in full during the first half, with repayments partly settled in shares.
- In April 2020, PAVmed issued a convertible note with $4,111 face principal, receiving $3,700 net of lender fees. It carries a 7.875% rate, a $5.00 conversion price, and an April 2022 maturity.
- After quarter-end, PAVmed issued an August 2020 secured convertible note with $7,750 face principal and $7,000 cash proceeds after fees. It carries a 7.875% rate, a $5.00 conversion price, an August 2022 maturity, and security over company assets. Its quarterly minimum-cash covenant is $2,000; the company reported compliance with its $1,800 covenant at June 30.
- The $300 PPP loan bears 1% interest and may qualify for forgiveness, but the company could not determine the amount, if any, that would be forgiven. It reported compliance with the loan provisions as of the filing date.
- Management concluded disclosure controls were ineffective at June 30 because of a material weakness in the control environment and the precision of control-risk identification. The company had engaged a consultant to assist with remediation; management had not determined the weakness was remediated.
Most important facts for investors to verify
- Whether additional financing is available and sufficient to address the going-concern doubt and ongoing operating cash burn.
- Actual commercialization, sales, reimbursement, and market adoption of EsoGuard and CarpX, including final Medicare payment determinations.
- Convertible-note terms, fair-value effects, cash covenants, repayment requirements, and potential dilution from conversions and warrants.
- COVID-19 effects on clinical trials, regulatory timelines, supply chains, and commercial activity.
- Progress and independent confirmation of remediation of the disclosed material weakness in internal controls.
- Outcome of PPP loan forgiveness review and any other material contingencies.