PAVmed Inc. — Q2 2018 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the quarter and six months ended June 30, 2018; balance-sheet comparisons are with December 31, 2017. PAVmed is an early-stage medical-device developer with no recognized revenue to date. Its portfolio includes CarpX, PortIO, DisappEAR, NextFlo and, through majority-owned Lucid Diagnostics, EsoCheck. None had received regulatory approval as of the filing.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2018 and 2017 | $0 in 2018 and 2017 |
| Operating expenses | $2.74 million vs. $2.02 million | $4.68 million vs. $4.18 million |
| Net loss attributable to PAVmed | $5.07 million vs. $0.99 million | $7.89 million vs. $5.26 million |
| Net loss attributable to common stockholders | $5.13 million vs. $1.04 million | $8.54 million vs. $5.34 million |
| Basic and diluted loss per common share | $0.27 vs. $0.08 | $0.48 vs. $0.40 |
| Cash used in operating activities | Not provided for the quarter | $3.90 million vs. $2.65 million |
At June 30, cash was $11.14 million, total assets $11.24 million, total liabilities $4.72 million and stockholders’ equity $6.52 million. The balance sheet reports the senior secured note at a $2.75 million carrying value after unamortized discount; its principal balance was $5.38 million and is due June 30, 2019. The note bears 15% annual interest. Management reported working capital of $3.88 million using the note’s principal balance in its calculation; this differs from current assets less current liabilities on the balance sheet.
Financing cash flow was $13.50 million for the first half, primarily from the January common-stock offering and June rights offering. The June offering generated about $10.4 million gross and $9.21 million net proceeds; the January offering generated $4.39 million before offering costs. No gross margin is reported because there was no revenue. Operating expenses increased 35% in Q2 and 12% in the first half year over year. First-half R&D rose 26%, including a $272,553 EsoCheck license fee; G&A increased 5%.
Material changes versus prior periods
- Cash increased from $1.54 million at year-end 2017 to $11.14 million, mainly due to equity financing. Common shares outstanding rose from 14.55 million to 26.51 million by June 30.
- Operating cash use increased by $1.25 million year over year for the first half. The company reported an accumulated deficit of $26.52 million.
- Q2 and first-half reported losses include substantial financing- and warrant-related expense. First-half other expense was $3.29 million, including $1.00 million of note interest and warrant exchange/modification expenses. The Q2 warrant exchange and exercise-price modification expenses were $766,456 and $1.14 million, respectively.
- Management’s non-GAAP adjusted loss was $2.35 million for Q2 2018 versus $1.77 million in Q2 2017, and $4.02 million for the first half versus $3.65 million. These measures exclude specified items and are not GAAP results.
Outlook, commentary and key risks
- Management expects operating losses and negative operating cash flows for the next several years and does not expect positive operating cash flow in the near term. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Continued operations depend on additional financing, refinancing the note at maturity, regulatory progress, commercialization and expense control; success is not assured.
- CarpX: the company reported submitting a response to FDA requests, including animal-study results and physician usability testing, and expected FDA feedback shortly. It was also preparing a European CE Mark submission and an initial clinical series outside the U.S.
- PortIO: the company shifted from a 510(k) approach to pursuing broader use through the FDA de novo pathway. A seven-day animal study was planned, with a human safety trial potentially following.
- EsoCheck: Lucid obtained an exclusive worldwide license from Case Western Reserve University (CWRU). Management targeted an FDA 510(k) submission by year-end 2018 and an initial commercial launch early in 2019, subject to development, regulatory and laboratory validation. CWRU may require transfer of up to 100% of PAVmed’s Lucid shares if specified milestones are missed; royalties and milestone payments may also apply.
- The note is secured by PAVmed’s assets and includes covenants restricting additional debt, liens and dividends, subject to exceptions. If PortIO is sold, noteholders may require repayment from the sale proceeds, up to those proceeds.
- A former financial advisor sued on July 2, 2018, seeking at least $125,400. The company disputes the claim; no loss provision was recorded because the outcome and any payment estimate were considered highly uncertain.
- Nasdaq notified the company on July 3, 2018 that it had regained compliance with listing rules. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash burn, available financing and the company’s plan to address the $5.38 million note principal due June 30, 2019, including the note’s 15% rate and security provisions.
- Regulatory progress and timing for CarpX, PortIO and EsoCheck, and whether management’s stated submission and commercialization targets were achieved.
- EsoCheck license milestones, potential Lucid ownership transfer, remaining license-fee payments, royalties and other contingent obligations.
- The dilution and potential share impact of outstanding securities: 16.82 million Series Z warrants, 975,568 Series B preferred shares and other warrants/options were outstanding at June 30; conversion or exercise effects are excluded from diluted loss per share when anti-dilutive.
- Outcome of the former advisor litigation and any subsequent change in the company’s going-concern assessment or capital needs.