PAVmed Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 15, 2019. PAVmed is an early-stage medical-device company developing products for regulatory clearance and commercialization. It reported no revenue in the quarter or since inception.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $1.69 million | $1.38 million |
| Research and development expense | $1.45 million | $0.56 million |
| Total operating expenses / operating loss | $3.14 million / ($3.14 million) | $1.94 million / ($1.94 million) |
| Net loss before noncontrolling interest | ($3.70 million) | ($2.83 million) |
| Net loss attributable to PAVmed common stockholders | ($3.60 million); ($0.13) per share | ($3.41 million); ($0.21) per share |
| Cash used in operating activities | $3.87 million | $2.20 million |
| Cash at quarter-end | $4.19 million | $3.63 million |
No gross profit or operating margins are meaningful because the company had no revenue. Operating expenses rose 62% year over year, led by a 158% increase in R&D; management attributed the R&D increase principally to advancing lead products and related external services. G&A rose 23%. Operating cash use increased approximately 76%.
At March 31, 2019, total assets were $4.36 million, total liabilities $10.02 million, and stockholders’ deficit $5.67 million. Working capital was negative approximately $5.7 million, including the $8.25 million fair value of the Senior Secured Convertible Note classified as current. The note’s face principal was $7.70 million. The note is secured by the assets of PAVmed and Lucid Diagnostics, bears 7.875% stated interest, and matures December 31, 2020. It is remeasured at fair value; a $559,000 Q1 fair-value charge reduced reported earnings.
Changes and notable developments
- Compared with Q1 2018, operating loss increased $1.20 million. The net loss attributable to common stockholders increased about $186,000, while reported loss per share improved as weighted-average shares increased to 27.15 million from 16.54 million. The 2018 comparison included legacy note interest and preferred-stock and warrant exchange-related items; Q1 2019 included the new note’s fair-value charge.
- Cash declined $4.03 million during Q1, principally reflecting operating cash use and $159,000 of note payments. Common shares outstanding were 27.19 million at quarter-end.
- After quarter-end, the company raised approximately $3.7 million gross through April and May common-stock offerings. By May 14, note conversions had reduced its original $7.75 million face principal by approximately $599,000 and issued 553,648 shares in aggregate from the Q1 and subsequent conversions described in the filing. Common shares outstanding were 31,376,627 as of May 14.
- Under an April 11 note amendment, scheduled note installments and interest beginning June 28, 2019 could be paid in shares subject to conditions. If share conversion conditions are not met, the holder may elect cash redemption at 115% of the applicable installment amount. Further conversions and share issuance may materially dilute existing holders.
Outlook, risks and contingencies
- Management stated that substantial doubt exists about PAVmed’s ability to continue as a going concern within one year after issuance of the financial statements. The company expects operating losses and negative operating cash flows for the foreseeable future and depends on additional financing, debt refinancing, regulatory progress, commercialization and expense control. Success is not assured.
- Management reported CarpX’s first-in-human study parameters were agreed with the FDA; trial initiation had been delayed by logistics and a temporary elective-surgery freeze in New Zealand. EsoCheck’s FDA submission had received requests for additional manufacturing verification and an animal study, which management said were completed; clearance was expected, not guaranteed. EsoGuard’s laboratory test validation was complete, and its reimbursement-code application had been received by the AMA. PortIO and other pipeline products remained in development.
- Key risks include regulatory approval and clinical-study outcomes, product-market acceptance, dependence on future financing, debt repayment and conversion terms, potential dilution, intellectual-property protection, and reliance on outside development and manufacturing providers. CWRU license terms include milestone-related payments and potential transfer of Lucid shares if specified milestones are missed; royalties may apply after commercialization.
- The company disclosed no other pending legal proceedings it believed material, while noting ordinary-course claims could arise. Its office lease is month-to-month; estimated minimum payments for April 2019–March 2020 were approximately $133,000. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Cash runway and whether subsequent equity proceeds and note conversions are sufficient to meet near-term obligations and the note’s scheduled payments.
- Progress on CarpX and EsoCheck FDA review, clinical-study execution, and expected timing and requirements for any clearance.
- Terms and remaining principal of the secured convertible note, including installment-conversion conditions, potential cash-redemption exposure, and the effect of further conversions on dilution.
- Actual timing and amount of future financing needs, and whether management can refinance debt and advance products without substantial additional dilution.
- Potential CWRU milestone obligations, Lucid ownership consequences, and the commercial and reimbursement pathway for EsoGuard.