PAVmed Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated results include PAVmed and majority-owned Lucid Diagnostics and Solys Diagnostics. PAVmed is a pre-revenue medical technology company developing and commercializing medical devices and diagnostics.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $5.53 million | $3.24 million | $15.80 million | $9.71 million |
| Operating loss | $5.53 million | $3.24 million | $15.80 million | $9.71 million |
| Net loss attributable to PAVmed common stockholders | $5.56 million | $3.15 million | $25.75 million | $10.41 million |
| Loss per common share, basic and diluted | $0.11 | $0.10 | $0.57 | $0.36 |
Gross margin is not meaningful because the company reported no revenue. Q3 G&A was $2.91 million versus $1.72 million; R&D was $2.62 million versus $1.52 million. For the first nine months, G&A was $8.47 million versus $5.33 million and R&D was $7.32 million versus $4.38 million. Management attributed the increases primarily to commercial staffing and launch costs, professional and public-company services, and higher clinical-trial and development spending.
Cash flow: Operating cash use was $15.19 million for the first nine months of 2020, compared with $9.27 million in 2019. Investing cash use was $0.05 million. Financing provided $17.31 million, primarily from convertible-note issuances. Cash increased by $2.07 million to $8.29 million.
Balance sheet at September 30, 2020: Current assets were $9.78 million, including cash of $8.29 million; current liabilities were $25.17 million. Total liabilities were $25.27 million, including convertible notes carried at fair value of $20.22 million and a $0.30 million PPP loan. Total stockholders’ deficit was $14.76 million. The company reported compliance with its minimum-cash covenant as of quarter-end.
Material changes and unusual items
- Nine-month net loss attributable to common stockholders increased to $25.75 million from $10.41 million. The increase includes substantial non-cash and financing-related costs: a $5.52 million loss from changes in convertible-note fair value and a $4.60 million debt-extinguishment loss, compared with $0.34 million and $0.67 million, respectively, in 2019.
- Convertible-note face principal outstanding was $17.87 million at September 30, 2020, with fair value of $20.22 million. Notes issued or funded during 2020 generated cash proceeds, but included lender fees; the notes generally bear 7.875% interest and are convertible into common stock. The August note is secured by substantially all company assets.
- Common shares outstanding rose from 40.48 million at December 31, 2019 to 49.66 million at September 30, 2020, including shares issued in note conversions. The filing reports 52.25 million shares outstanding as of November 4, 2020.
Business outlook, risks, and contingencies
- Management expects continued operating losses and says existing liquidity is insufficient to fund operations and working capital until significant revenue is achieved. The filing states there is substantial doubt about the company’s ability to continue as a going concern within one year; additional financing may not be available on acceptable terms or at all. No quantified revenue or earnings guidance is provided.
- EsoCheck had FDA 510(k) clearance and EsoGuard was commercially available as a laboratory-developed test. CarpX received FDA 510(k) clearance in April 2020 and launched commercially in August 2020. Other pipeline products remain in development and may require regulatory clearance, approval, or clinical testing.
- Medicare payment recommendations for EsoGuard were preliminary at $1,938.01 in 38 states and $2,690 in 12 states and two territories; finalization by CMS was pending. EsoGuard IVD clinical trials were enrolling, and the product had FDA Breakthrough Device designation.
- After quarter-end, on November 6, 2020, the holder of the April and August 2020 notes waived certain redemption rights through November 30, subject to no continuing event of default; the waiver may extend in additional one-month periods unless terminated by the holder.
- The PPP loan was $0.30 million, bears approximately 1% interest, and may qualify for forgiveness; the company said it could not yet determine any forgiveness amount and was in compliance with the loan terms.
- COVID-19 could disrupt operations, suppliers, distribution, clinical trials, regulatory review, and demand; management said the potential financial impact could be material but could not be estimated.
- Management determined disclosure controls were ineffective due to a material weakness in the control environment and control-risk assessment. Remediation work was planned; the weakness had not been declared remediated.
Important facts for investors to verify
- Cash runway, projected operating needs, and the availability and terms of future financing, given the going-concern warning.
- Convertible-note redemption, conversion, collateral, covenant, and dilution terms, including the status of the post-quarter waiver.
- Actual commercial adoption and revenue generation for EsoGuard, EsoCheck, and CarpX; final CMS reimbursement decisions for EsoGuard.
- Clinical, regulatory, and commercialization milestones, costs, and timelines for products still in development.
- Progress in remediating the material weakness and the effectiveness of disclosure controls.
- The share-count figures: the balance sheet reports 49,655,915 shares at September 30, while a note reports 49,655,951; confirm the correct figure and subsequent dilution.