PAVmed Inc. — Q1 2020 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2020. PAVmed is a pre-revenue medical-device and diagnostics company with majority-owned subsidiaries Lucid Diagnostics and Solys Diagnostics. Its pipeline includes EsoCheck/EsoGuard, CarpX, PortIO and NextFlo. The company relied on the SEC’s COVID-19 filing relief after pandemic-related operating disruptions delayed its reporting process.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $5.253 million | $3.144 million |
| Operating loss | $5.253 million | $3.144 million |
| Net loss before noncontrolling interest | $14.911 million | $3.704 million |
| Net loss attributable to PAVmed common stockholders | $14.545 million; $0.33 per share | $3.600 million; $0.13 per share |
| Operating cash flow | $(3.791) million | $(3.870) million |
Amounts in the table are in U.S. dollars. No operating margin is meaningful because the company reported no revenue. General and administrative expense rose to $2.625 million from $1.693 million, mainly due to commercial-launch staffing, consulting and public-company costs. Research and development expense increased to $2.628 million from $1.451 million, principally from higher EsoGuard clinical-trial costs.
At March 31, cash was $8.731 million, versus $6.219 million at December 31, 2019. Cash increased by $2.512 million in the quarter, supported by $6.305 million of net financing cash flow, including $6.3 million from the November 2019 note financing. Cash used in operations was $3.791 million. Current assets were $9.423 million; reported current liabilities and total liabilities were $26.343 million, including $20.663 million of convertible notes measured at fair value. Note face value was $14.050 million. Stockholders’ deficit totaled $16.229 million.
Fair-value changes on convertible notes produced an $8.008 million noncash expense; debt extinguishment produced a $1.188 million loss. The company issued approximately 2.0 million common shares to settle about $1.6 million of note principal, with the difference between share fair value and debt value contributing to the extinguishment loss. Basic and diluted weighted-average shares were 43.5 million, up from 27.1 million in Q1 2019; potential shares were excluded as anti-dilutive.
Material changes, outlook and risks
- Funding and going concern: Management reported substantial doubt about PAVmed’s ability to continue as a going concern within one year after issuance of the statements. It expects continued losses and says existing liquidity is insufficient to fund operations through significant revenue; further financing is needed, and may not be available on acceptable terms or at all.
- Debt and subsequent financing: November 2019 convertible notes had a 7.875% stated rate and $1.60 conversion price, with maturities in September 2021. PAVmed reported compliance with a covenant requiring at least approximately $1.8 million of available cash at quarter-end. After quarter-end, it issued an April 2020 note with $4.1 million principal, approximately $3.7 million net proceeds, 7.875% interest and a $5.00 conversion price. Subsequent note payments were also settled partly in shares, creating dilution.
- COVID-19 effects: The pandemic disrupted reporting operations and delayed elective procedures, clinical-trial activity and EsoGuard commercialization efforts. Management said the pandemic could materially adversely affect operations, supply chains, regulatory timing, demand and cash flows, but could not estimate the financial impact.
- Product milestones and plans: EsoCheck had FDA 510(k) clearance and EsoGuard was commercially available as an LDT. EsoGuard received FDA Breakthrough Device designation in February 2020. CarpX received FDA 510(k) clearance on April 20, after quarter-end. Management planned commercial efforts for EsoGuard and CarpX, subject to reopening and other conditions, and continued development of other products. NextFlo was subject to an active search for a strategic partner or acquirer.
- Other subsequent items: PAVmed received approximately $0.3 million in PPP proceeds, recorded as short-term debt; forgiveness was uncertain pending approval. In April, the company also granted approximately 1.0 million restricted stock awards and 1.1 million options to employees and directors.
- Controls and contingencies: Disclosure controls were deemed ineffective because of a material weakness in the control environment and risk assessment. Management intended to engage a consultant and strengthen controls; remediation had not been established. Office lease payments from April 2020 through March 2021 were estimated at approximately $0.159 million.
Important facts for investors to verify
- Cash runway, forecast spending and the timing, terms and availability of additional financing, in light of the going-concern warning.
- Convertible-note balances, fair-value assumptions, repayment and conversion terms, covenant compliance and dilution from subsequent share settlements.
- Commercial adoption, reimbursement and revenue prospects for EsoGuard/EsoCheck and CarpX, including the practical effects of COVID-19 on launches and clinical studies.
- Progress and timing of clinical, regulatory and development work for the remaining pipeline, and the outcome of the NextFlo strategic-partner process.
- Progress in remediating the disclosed material weakness and the status of the PPP loan forgiveness application.