PAVmed Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 14, 2023. Unless stated otherwise, financial amounts below are in millions of dollars. PAVmed is a commercial-stage medical technology company whose main near-term priorities are commercializing Lucid Diagnostics’ EsoGuard test and Veris Health’s cancer-care platform. The unaudited statements consolidate Lucid and Veris.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.166 | $0 | $0.612 | $0.189 |
| Cost of revenue | $1.685 | $0 | $3.030 | $0.369 |
| Operating loss | $(16.484) | $(23.484) | $(36.884) | $(43.119) |
| Net loss before noncontrolling interests | $(17.892) | $(29.101) | $(40.106) | $(48.734) |
| Net loss attributable to PAVmed common stockholders | $(14.612) | $(25.595) | $(32.617) | $(42.535) |
| Basic and diluted loss per share | $(0.14) | $(0.29) | $(0.32) | $(0.49) |
Cost of revenue exceeded revenue by approximately $1.5 million in Q2 and $2.4 million in the first half; the filing does not present a positive gross margin. Q2 revenue came primarily from EsoGuard tests performed in Lucid’s own laboratory. Revenue was still modest relative to operating costs.
- Q2 operating expenses were $16.7 million, down from $23.5 million. Lower general and administrative and research and development costs were principal contributors.
- For the first half, operating expenses were $37.5 million, down from $43.3 million. Lower R&D spending, particularly on CarpX, EsoCure and NextFlo, and reduced stock-based compensation and professional fees contributed to the decline.
- Interest and other expense included fair-value losses on convertible notes, debt-extinguishment losses, and, in the first half, a $1.2 million note issuance/offering-cost charge. Q2 debt-extinguishment loss was $0.7 million; first-half loss was $1.3 million.
Cash, liquidity and debt
- Cash was $37.2 million at June 30, 2023, versus $39.7 million at December 31, 2022. First-half operating cash use was $29.1 million; financing provided $25.5 million.
- Total liabilities were $54.5 million and total stockholders’ equity was a deficit of $0.8 million. Current assets were $43.1 million and current liabilities $50.8 million.
- Convertible notes had $40.9 million of face-value principal outstanding and a reported fair value of $43.0 million at quarter-end. The notes carry 7.875% stated interest and are convertible at $5 per share; PAVmed’s April and September 2022 notes mature in 2024, and Lucid’s March 2023 note matures in 2025.
- During the first half, approximately $3.2 million of PAVmed note principal and accrued interest was settled by issuing 9.5 million PAVmed shares. The conversions generated a $1.3 million extinguishment loss. PAVmed also raised about $1.2 million net through its ATM facility; Lucid raised $13.6 million gross from preferred stock and about $0.3 million net from its ATM.
- Management expects recurring operating losses and negative operating cash flows, and anticipates further debt or equity financing. It stated that cash on hand and other debt and equity committed sources were expected to fund operations for one year from the financial-statement issuance date.
Material changes, outlook and risks
- Lucid ended its ResearchDx management-services arrangement in February and assumed laboratory operations. Management reported improved EsoGuard assay performance and a $2.7 million reduction in amounts otherwise payable; the remaining $0.7 million obligation was settled with Lucid shares, not cash.
- Management’s January 2023 strategic initiative prioritized cash runway and focused near-term resources on EsoGuard and Veris. R&D on CarpX, EsoCure, NextFlo and PortIO was paused pending resources.
- Lucid expanded testing channels, including community testing events and a mobile testing unit. It also began a new claims-management-provider transition; management reported improved collection and claims-processing indicators. A direct-contracting initiative produced an employer contract announced in August 2023.
- Veris’ platform was live at six locations across three oncology practices. Management said its implantable monitor had completed an animal study and targeted commercial launch the following year, subject to regulatory progress.
- Covenant and listing concerns: PAVmed was out of compliance with financial tests under its senior notes at times from June 1 through August 14, 2023. The investor waived the noncompliance through November 30, 2023. The covenants include an $8 million minimum cash requirement, a debt-to-market-cap test and a $75 million minimum market capitalization. Lucid’s note has separate financial tests, including a $5 million minimum cash requirement; Lucid reported compliance as of June 30.
- Nasdaq bid-price notice: Nasdaq extended PAVmed’s deadline to regain the $1 minimum bid-price requirement to December 26, 2023. Shareholders authorized a possible 1-for-5 to 1-for-15 reverse split, but the company had not decided whether or when to implement it.
- Other risks include the early commercialization stage, limited revenue, reimbursement and market-acceptance uncertainty, need for additional financing, regulatory and clinical-development risks, potential dilution, and uncertainty in Level 3 fair-value estimates. The company reported no pending legal proceedings it believed reasonably likely to have a material impact, while noting litigation risks.
Important facts for investors to verify
- Whether operating cash burn and financing availability remain consistent with management’s stated one-year runway, and the status of financing commitments.
- Compliance with note covenants after the waiver expires, including the cash, market-capitalization and debt-to-market-cap tests.
- Progress toward Nasdaq bid-price compliance and whether a reverse split will be enacted.
- Whether EsoGuard test volumes, reimbursement, collections and revenue growth improve enough to narrow the substantial gap between revenue and operating costs.
- Potential dilution from convertible-note repayments, ATM sales, preferred securities, warrants and equity compensation; common shares outstanding were 108.5 million at June 30 and 111.4 million at August 10, 2023.