PAVmed Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statement amounts below are in thousands of dollars, except per-share data. PAVmed is a medical technology company with diagnostics, medical-device and digital-health businesses, including majority-owned Lucid Diagnostics and Veris Health.
Financial performance and liquidity
- Revenue: $76 for Q3 2022, down from $200 in Q3 2021; $265 for the first nine months of 2022, up from $200 in the comparable 2021 period. Revenue remains limited and primarily relates to EsoGuard testing and, in early 2022, the former ResearchDx commercialization agreement.
- Cost of revenue and gross result: Cost of revenue was $1,626 in Q3 and $1,996 year to date, versus $144 in each comparable 2021 period. This implies gross losses of approximately $1,550 for Q3 and $1,731 year to date, reflecting laboratory operations, supplies and costs incurred ahead of revenue.
- Operating expenses and losses: Operating expenses were $23,389 in Q3 and $66,688 for nine months. Operating loss was $23,313 and $66,423, respectively, compared with $13,668 and $34,714 in 2021. Net loss before noncontrolling interests was $29,932 in Q3 and $78,666 year to date; net loss attributable to PAVmed common stockholders was $26,197 and $68,732. Basic and diluted loss per share attributable to common stockholders was $0.29 for Q3 and $0.78 for nine months.
- Cash flow: Operating cash use was $54,162 for the first nine months, compared with $23,814 in 2021. Investing cash use was $4,442, including equipment and acquisition payments; financing provided $38,131. Cash declined by $20,473 from year-end 2021 to $56,785 at September 30, 2022.
- Balance sheet and debt: Current assets were $61,979 and current liabilities $41,911 at quarter-end. Cash was $56,785. Senior secured convertible notes had $33,761 face principal outstanding and a reported fair value of $35,500; the notes are secured and carry 7.875% stated interest. Total liabilities were $43,909, and total stockholders’ equity was $28,556.
Material changes versus the prior comparable periods
- Q3 revenue fell $124 year over year, while nine-month revenue rose $65. PAVmed transitioned from ResearchDx to its own commercial laboratory in February 2022; the former agreement generated $189 of nine-month revenue in 2022.
- Nine-month operating expenses increased $31,774 year over year, including higher sales and marketing, general and administrative, and research and development expenses. Management cited increased staffing, commercialization activity, consulting and professional services, and clinical and product-development work.
- Nine-month net loss before noncontrolling interests increased $42,219. Other expenses included $4,332 of note issuance and offering costs, $5,123 of debt-extinguishment loss, and $1,739 of fair-value expense on convertible notes.
- Cash was $20,473 lower than at December 31, 2021, while the Company raised net proceeds from new convertible notes. Common shares outstanding increased to 92,228,862 at quarter-end from 86,367,845 at year-end 2021.
Outlook, commentary, risks and unusual items
- Management expects recurring operating losses and continued reliance on debt and equity financing. It stated that cash on hand and other debt and equity committed sources were expected to fund operations and obligations for one year from issuance of the financial statements. This is not a specific revenue or earnings forecast.
- The notes require at least $8 million of available cash and include debt-to-market-capitalization and minimum-market-capitalization tests. The Company reported compliance as of September 30, 2022. Scheduled principal installments may be settled in shares, subject to conditions, or in cash at the Company’s election; share settlement could dilute existing holders.
- In August, approximately $5.0 million of note principal and accrued interest was settled with 5,013,908 PAVmed shares valued at approximately $10.1 million, producing a $5.1 million extinguishment loss. The notes are measured at fair value using significant unobservable inputs, so reported fair value can change materially.
- Commercialization and reimbursement remain key uncertainties. More than 2,000 EsoGuard claims had accumulated when claims processing began in August 2022; the filing says claims were being processed, including 1,088 tests in Q3. Variable reimbursement revenue is constrained where collection estimates are uncertain.
- Product, regulatory and execution risks include obtaining FDA clearances, achieving insurer reimbursement and market adoption, and funding clinical and development programs. The Company delayed the BE-1 study to prioritize reimbursement-supporting work while continuing BE-2 enrollment through Q2 2023. It described planned future regulatory steps for products including CarpX and Veris Mercury, which remain subject to FDA review and clearance.
- Subsequent developments included an October FDA expansion of EsoCheck’s cleared population to adults and adolescents aged 12 and older, and the start of EsoCheck manufacturing at a new supplier. These occurred after quarter-end.
- The Delaware stockholder case settlement and $450 fee award were approved November 3, 2022; the amount was accrued at September 30. A separate Benchmark-related lawsuit was being contested. Management warned that adverse legal outcomes could materially affect the business or financial results.
Important facts for investors to verify
- Whether EsoGuard claim processing converts into collected reimbursement and materially increases revenue relative to laboratory and commercialization costs.
- Cash burn, funding runway, availability and terms of remaining financing sources, and ongoing compliance with note covenants.
- Potential dilution from note conversions or installments, equity financing, warrants and stock-based awards.
- Progress and timing of clinical studies, FDA submissions or clearances, and payer coverage decisions for key products.
- Changes in the fair value and repayment terms of the secured convertible notes, and the outcome of the Benchmark litigation.