PAVmed Inc. — FY 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing was signed April 14, 2020. PAVmed is an early-stage medical-device company developing products across GI Health, minimally invasive interventions, infusion therapy, and emerging innovations. It operates as one reportable segment, including majority-owned subsidiaries Lucid Diagnostics and Solys Diagnostics.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $14.30 million | $10.56 million |
| Loss from operations | $14.30 million | $10.56 million |
| Net loss before noncontrolling interest | $17.27 million | $18.17 million |
| Net loss attributable to PAVmed common stockholders | $16.73 million | $18.75 million |
| Loss per share attributable to common stockholders, basic and diluted | $0.55 | $0.84 |
| Net cash used in operating activities | $13.36 million | $8.79 million |
| Cash at year-end | $6.22 million | $8.22 million |
- Gross margin and operating margin are not meaningful because the company reported no revenue.
- General and administrative expense rose 21% to $7.66 million; research and development expense increased 56% to $6.63 million.
- At December 31, 2019, total assets were $7.24 million and current liabilities were $11.88 million. Working capital was negative by approximately $5.3 million.
- The balance sheet carried approximately $8.14 million of convertible notes at fair value, representing $8.69 million of face principal. The filing separately describes aggregate debt as approximately $8.7 million. Notes were secured by substantially all assets, including those of Lucid.
- Financing cash flow was $11.38 million, primarily from $5.48 million of registered common-stock offerings and $6.3 million of proceeds from the funded Series A November 2019 convertible note.
Material changes and business developments
- Operating expenses and operating cash use increased year over year as the company expanded product development and commercial preparation. Common-stockholder loss and loss per share improved, while operating loss worsened; changes in other income and expense, including debt-related items, affected the comparison.
- Lucid received FDA 510(k) clearance for EsoCheck in June 2019. EsoGuard completed CLIA/CAP certification at a contract laboratory and launched as a laboratory-developed test in December 2019. Neither product had generated reported revenue by year-end.
- Solys was formed in October 2019 and licensed technology for non-invasive glucose monitoring. PAVmed held a 90.3% interest in Solys at year-end; its ownership of Lucid was 81.875%.
- The company issued 5.48 million common shares in registered offerings and 7.77 million shares to settle principal and other payments on its 2018 convertible note. Year-end common shares outstanding increased to 40.48 million from 27.14 million. The filing reports 44.13 million shares outstanding in April 2020.
- Management reported a $1.83 million 2019 loss on extinguishment of debt, related to settling 2018 note obligations with common stock. Remeasurements of convertible notes also affected reported other income or expense.
Outlook, commentary, risks, and unusual items
- Management expects continued operating losses and negative operating cash flows for the next several years while developing products, pursuing regulatory pathways, and building commercialization capabilities. No numerical revenue or earnings guidance is provided.
- Management and the auditor concluded that substantial doubt exists about PAVmed’s ability to continue as a going concern. Management cited recurring losses, cash used in operations, negative working capital, and the need for additional capital. Continued operations depend on financing, refinancing debt, regulatory progress, commercialization, and expense control; success is not assured.
- In March 2020, investors funded the Series B portion of the November 2019 notes, providing $6.3 million after lender fees; a $409,500 placement-agent fee was also paid. The notes carry 7.875% stated interest when funded, scheduled twice-monthly payments, conversion features, and cash-redemption provisions. The company is subject to a minimum unrestricted-cash covenant of $2.0 million under the 2019 notes.
- The November notes are convertible at an initial $1.60 per share and may be repaid in shares subject to conditions, creating potential dilution. PAVmed agreed to seek stockholder approval to increase authorized common shares from 100 million to 150 million and to approve note-related share issuance. Warrants, preferred stock, options, and convertible debt add further potential dilution.
- Major execution risks include regulatory and clinical delays, reimbursement uncertainty for EsoGuard, market acceptance, dependence on contract manufacturers and service providers, competition, intellectual-property protection, and the company’s ability to raise capital. COVID-19 could disrupt clinical trials, operations, suppliers, and healthcare resources.
- Management identified a material weakness in internal control over financial reporting, involving insufficiently precise design of controls to identify key risk areas and assess their operating effectiveness. Disclosure controls were also deemed ineffective at year-end. Remediation was planned, including hiring a consultant; completion was not established in this filing.
- EsoGuard’s commercial reimbursement was uncertain: no payer had adopted a positive coverage policy, and Medicare pricing was to be determined through a regional gapfill process. The LDT regulatory framework could also change.
- Product milestones disclosed after year-end included FDA Breakthrough Device designation for the combined EsoGuard/EsoCheck screening system in February 2020, first enrollment in the EsoGuard clinical trial in February 2020, and FDA receipt of CarpX’s resubmitted 510(k) in March 2020. These are not final marketing approvals for the combined test or CarpX.
Most important facts for investors to verify
- Cash runway, current obligations, covenant compliance, and whether further financing or refinancing is available on acceptable terms.
- The status and terms of the Series B note funding, required repayments, potential cash-redemption exposure, and dilution from conversions and other securities.
- Commercial adoption and realized revenue from EsoCheck and EsoGuard, including reimbursement decisions, test volumes, pricing, and collections.
- FDA and clinical progress for the combined EsoGuard/EsoCheck system, CarpX, PortIO, and other pipeline products; distinguish designations and submissions from clearances or approvals.
- Whether management remediates the material weakness and restores effective disclosure and financial-reporting controls.
- Effects of COVID-19 and other operational, regulatory, and supply-chain risks on trial timelines, product launches, and liquidity.