PAVmed Inc. — 2016 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016; it was filed February 16, 2017. PAVmed is a development-stage medical-device company with six lead projects and no products yet commercially available. Its strategy is to develop products with outsourced engineering and manufacturing, then commercialize through distributors or partners.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $3.93 million | $1.29 million |
| Research and development expenses | $1.72 million | $0.49 million |
| Net loss | $5.65 million | $1.78 million |
| Net loss per share, basic and diluted | $0.44 | $0.16 |
| Cash used in operating activities | $4.45 million | $1.25 million |
- Fourth-quarter 2016 revenue was zero and net loss was $1.71 million.
- At year-end, cash was $585,680; current assets were $741,170 and current liabilities were $1.19 million, producing negative working capital of $448,316. Total assets were $870,419.
- The filing reports no revenue, so operating margins are not meaningful. No borrowings or interest-bearing debt are listed in the balance sheet; current liabilities consist principally of accounts payable and accrued expenses.
- Financing cash flow was $4.30 million in 2016, primarily from the IPO. The IPO raised $5.3 million gross and approximately $4.2 million net. In January 2017, a preferred-stock private placement generated approximately $1.5 million gross and $1.2 million net, with additional closings possible.
Material changes and operating developments
- Net loss increased by $3.87 million year over year. General and administrative expense rose 205%, mainly due to public-company and professional-service costs, stock-based compensation, facilities and board fees. R&D expense rose 251% as development work broadened across the pipeline.
- PAVmed filed an FDA 510(k) premarket notification for PortIO in December 2016, its first regulatory submission. It anticipated further submissions in 2017, but clearance and commercialization were not assured.
- The company licensed exclusive rights to the DisappEAR resorbable ear-tube technology in November 2016, paying a $50,000 upfront fee; the agreement also includes milestone payments and royalties.
- At December 31, 2016, the accumulated deficit was $7.70 million and stockholders’ equity was negative $319,067. Outstanding common shares were 13,330,811 at year-end.
Outlook, risks and unusual items
- Going concern: Management and the auditor identified substantial doubt about PAVmed’s ability to continue as a going concern. The company estimated that year-end cash plus the January 2017 placement proceeds would fund operations only through March 2017, absent additional financing. It expected continued losses for several years and required additional capital beyond March 2017.
- Management’s plans included further fundraising, regulatory clearances, commercialization and expense control; success in raising sufficient capital was not assured. The financial statements were prepared on a going-concern basis without adjustments for a possible inability to continue.
- The preferred placement may issue up to 500,000 units at $6 each. Series A preferred shares carry an 8% annual dividend, compounded quarterly, and the units include warrants; conversion and exercise are subject to shareholder approval. Further issuance or conversion could dilute existing shareholders.
- Major risks include unproven product safety, efficacy and market acceptance; uncertain FDA and foreign regulatory paths; reimbursement and pricing uncertainty; limited cash and ongoing financing needs; dependence on contract manufacturers and outside distributors; intellectual-property risks; competition; and potential dilution. PAVmed had three employees and relied on outsourced providers.
- Related-party arrangements included management and advisory services, including $300,000 of 2016 fees to HCP/Advisors and $115,000 combined under HCFP/Strategy Advisors and Swartwood Hesse. The January 2017 placement agent, HCFP/Capital Markets, is also affiliated with directors and officers and is entitled to 7% of gross proceeds plus certain costs. The CEO waived his 2016 guaranteed bonus, and the vice chairman waived 2016 consulting compensation.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management stated disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether subsequent financing was secured in amounts sufficient to fund operations beyond the stated March 2017 runway, and the resulting dilution and financing terms.
- The FDA’s decision and timeline for PortIO, and whether any additional clinical, testing or regulatory requirements delay development or commercialization.
- Current cash, liabilities, burn rate and going-concern status, which may have changed after the reporting date.
- The fully diluted share count, including warrants, options and preferred-stock conversion rights. The filing gives differing common-share counts as of February 10, 2017 in separate sections (13,330,811 on the cover versus 13,311,811 in Item 5); confirm the correct figure.
- Progress, costs and milestone obligations for the six lead projects, and whether projected market, pricing and reimbursement assumptions are supported by evidence.
- Terms, payments and conflict-management disclosures for related-party service and financing arrangements.