PAVmed Inc. (PAVM) Earnings Call Transcript & Summary

Good morning, and welcome to the PAVmed Second Quarter 2025 Business Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Mr. Matt Riley, PAVmed's Senior Director, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and CEO of PAVmed; along with Dennis McGrath, CFO, PAVmed. The press release announcing our business update and financial results is available on PAVmed's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release and the conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC. For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A entitled Risk Factors in PAVmed's most recent annual report on Forms 10-K filed with the SEC and any subsequent updates filed in the quarterly reports on Forms 10-Q and subsequent Forms 8-K. Except as required by law, PAVmed disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which the expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of PAVmed. Lishan?

Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. As always, I'd like to thank our long-term shareholders for your ongoing support and commitment. We'll be diving into our operational highlights in a bit. But before doing that, just a reminder that we've taken some critical steps over the past year to stabilize PAVmed's corporate structure and balance sheet. There's some -- still work to be done on that front. But despite that, we believe we're now -- we remain well positioned to operate as a diversified commercial life sciences company with multiple independently financed subsidiaries that operate under our shared services model. Let me just give a brief overview of PAVmed's portfolio. So PAVmed is a vehicle to deliver innovative medical technologies. As I mentioned, we operate under a shared services model. And as our subsidiaries succeed, PAVmed will also succeed. So Lucid is our publicly traded diagnostics company. It's obviously our strongest, most advanced asset, and it's on the cusp of key reimbursement milestones, including Medicare, which we'll talk about in a little more detail later. And Lucid has been able to raise its own capital and has sufficient runway to accelerate commercialization once we secure Medicare coverage. Veris Health is our digital health company that has a cancer care platform that enhances personalized care, and I'll go over some of the updates in a bit. Veris has also been able to secure some financing, and that has given us the ability to restart development of the device, the implantable physiologic monitor, which works in conjunction with the cancer care platform. PMX, our incubator, which houses some internal projects like PortIO, we've been working to try to raise capital for these internal projects. That really remains an ongoing challenge. However, we also, in parallel, continue to be solicited regarding other very promising assets, which we continue to aggressively pursue. So we do remain active in this front and are trying to find -- trying to balance incorporating new assets with the availability of capital. And on the biopharma side, we talked a bit last -- on our last call about us exploring opportunities within the biopharma space. At our last call, we thought we were close with regard to one asset that fits well within our shared services model and could leverage our clinical research team, which is one of the reasons why we did -- we have decided in conjunction with one of our Board members to explore in this space. Unfortunately, that asset fell through, but the pipeline actually remains robust, and we continue to explore interesting assets in this vertical. And so, let's just do a brief update on Lucid. Obviously, I encourage you to listen to yesterday's Lucid business update call for greater detail on each of these areas. But the main takeaway is that Lucid is now better positioned than ever to capitalize on the large market opportunity that the EsoGuard provides. And there are some real concrete near-term milestones that we believe will drive Lucid's success and therefore, will positively impact PAVmed. Just to highlight some numbers, EsoGuard test volume was 2,756 tests, which was within the target range of 2,500 to 3,000 tests per quarter. And revenue was up about 40% from Q1 at a record level of $1.2 million for the quarter. As I went through in a lot of detail on our call yesterday, the big event is -- the upcoming event for Lucid is this MolDX Contractor Advisory Meeting, the CAC meeting, which is a critical step in the LCD process for Medicare coverage. We believe we're in the final stages of that and indicates a strong evidence of progress towards positive Medicare coverage policy. Lucid also announced a partnership with Hoag, a world-class health system in Southern California to launch a comprehensive integrated EsoGuard esophageal pre-cancer testing program across the entire hospital health care delivery network, including gastroenterologists, primary care physicians and concierge medicine. And we're very excited about this model -- we're excited about this engagement, which really provides a model for additional health systems, which we are now engaging with to try to replicate the Hoag model. As Dennis will talk about in more detail, we've also strengthened our -- Lucid also strengthened its balance sheet with an underwritten public offering and has sufficient capital to get through these upcoming milestones. And consistent with the PAVmed model, Lucid continues to succeed at raising its own capital. Finally, on the commercial side, Lucid secured its first private commercial coverage policy from Highmark Blue Cross Blue Shield, and that became effective in late May. And as I noted on the call, this has been a very positive experience for us. It establishes a precedent, both with regard to our commercial insurance engagements and with Medicare as well. And it really points to the value of our clinical evidence, clinical validity, utility as well as the economic argument supporting EsoGuard. So we remain deeply engaged with our commercial payers and are already seeing traction within the Highmark coverage area. Let's move on to Veris Health. Some recent highlights include that Veris completed a second financing, a $2.5 million direct equity financing that supplemented an earlier $2.4 million financing at a very attractive pre-money valuation of $35 million. We're very excited about that. It really shows investor confidence in Veris' commercial potential and the progress we've made to date. And most importantly, it provides sufficient capital to fund the development of the implantable physiologic monitor, which had been on pause and to get that through FDA clearance and subsequent commercial launch, so it can service a purpose as a value-add in conjunction with the platform. That development has restarted as soon as we completed that financing, and we have a clear path with FDA. We had our final meeting with FDA, many, many meetings we've had with them. That feedback was favorable. We were actually able to bypass an in-person meeting, and we look forward to completing the development work and filing for FDA in 2026. Our long-term strategic partnership with Ohio State University, the James Cancer Center, really progressed nicely during this quarter. We completed our partnership agreement with them and are heading towards a commercial launch. Right now, the electronic health record integration step is in process. It's gone a little bit slower than we expected, but should be wrapping up, and it will allow us to do a broad launch across the Cancer Center to onboard patients across a variety of condition-specific groups with a target of enrolling over 1,000 patients within the first year. We've also begun on a variety of components of a longer-term strategic plan that we will look to start implementing upon completion of the submission and clearance of the implantable. This includes a commercial strategy that builds on the model that we have established with the James Cancer Center at Ohio State and continue to target new accounts. It also includes the commercial model for the implantable, and we're working through pricing and our commercial strategy on the implantable. And so far, that looks very attractive from a pricing point of view. And then we look towards commercial expansion after the implantable is clear beyond that. We're also hard at work at developing an internal program to put us in a position where we can expand beyond simple remote patient monitoring to embrace AI, artificial intelligence-based clinical decision support tools that are targeted towards cancer care. And we really believe we have a good opportunity to do that and are putting in the resources and the effort to develop a strategic plan that we would seek to launch upon completion of the implantable. Our focus right now, as I mentioned, is to complete the OSU engagement and to get the implantable across the finish line, and that's the primary focus of our team, but there's a lot of strategic work going on behind the scenes to make sure when that's completed, that we'll be in a position to really create some significant value over the long term. So with that, I'll pass the call on to Dennis.

Thanks, Lishan, and good morning, everyone. Our summary of financial results for the second quarter were reported in our press release that has been distributed. On the next 3 slides, I'll emphasize a few key highlights from the second quarter. I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q as filed with the SEC. A couple of reminders as our financials, particularly the income statement with year-over-year comparisons will, for the next couple of quarters, illustrate periods before September 10, 2024, with Lucid's operating results being consolidated into the presented PAVmed results versus this year's, the 2025 period, without Lucid's operating results being consolidated into PAVmed financials. We do present some supplementary information in the footnotes of the financial statements, particularly in Footnote 4 of the 10-Q that helps with some of the comparisons. With regard to the balance sheet, you will recall from our last 3 investor update calls in November, March and May that the company was engaged in a multistep process to regain compliance with NASDAQ listing standard for the minimum equity level, which it did in February and also position the company for longer-term financial stability. The 2 key components were deconsolidating Lucid from PAVmed's consolidated financial statements and restructuring our debt, whereby we exchanged about 80% of our outstanding debt for a new Series C preferred equity. The slide reflects the balance sheets for the second quarter and the first quarter, both after deconsolidation, again, that occurred on September 10, 2024. But now the March balance sheet also reflects the impact of the debt exchange, which occurred after December 31. Notably, the liability reduction of about $25 million coming in large part from a significant reduction in the convertible notes in exchange for an increase of approximately $25 million in preferred stock and the balance sheet inclusion for the first time of the equity value of PAVmed's 31.3 million shares of Lucid stock. The June 30 balance sheet reflects the impact during the second quarter of the Lucid stock price changes on the value of the Lucid shares mark-to-market as well as any conversions of the preferred securities to common stock. So a couple of key things to point out on each of these balance sheets. Cash does not include any Lucid cash. However, it does include the 2 Veris-related financings, namely the $2.4 million in the first quarter and the $2.5 million in the second quarter to support the development of the FDA submission of Veris' implantable device. The equity method investment balance of $36 million at June 30 reflects again the 31.3 million Lucid shares mark-to-market, representing a $10 million gain since year-end from a 40% rise in the Lucid stock price between the periods. This amount was previously eliminated from PAVmed's balance sheet prior to deconsolidation. Note, there's plenty more information in the 10-Q on both the debt exchange, the Series C preferred stock and the equity method treatment of PAVmed's investment in Lucid shares. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics with an ownership of approximately 29% of the common shares outstanding. Although PAVmed no longer has voting control of Lucid, PAVmed, its Board and management still have significant influence over Lucid with more than 27% voting interest. Shares outstanding today, including unvested RSAs are approximately 21.9 million shares. The GAAP quarter ending outstanding shares of 20.1 million are reflected on the slide as well as the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested RSA amounts. Additionally, we issued 25,000 Series C preferred shares as part of the debt restructure at the beginning of the year. To date, approximately 1,850 Series C have been converted to approximately 4.7 million common shares. If the balance of the Series C were converted at the contractual $1.07 conversion price, an additional 21.7 million shares would be issued. The Z warrants after having been extended for 1 year beyond their initial 5-year term expired on April 30. Next slide, please. Similar to past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year and quarterly and annual comparisons. As cautioned earlier in my comments, there are some significant differences in how the information is compiled between the comparative periods given the changes in PAVmed's financial control of Lucid. Importantly, the GAAP construct for deconsolidating Lucid on September 10 of last year somewhat blurs the historical understanding of the information for PAVmed as a stand-alone entity, and GAAP does not allow the presentation for the prior periods on the face of the financial statements to be similarly adjusted. Although as mentioned, there is some supplementary information in the footnotes. On a pro forma basis and purely for illustrative purposes of this slide only, the Veris revenue and the Lucid management fee are combined, collectively more than $3 million per quarter, to visually align PAVmed's income sources versus operating expenses. For SEC reporting purposes, the MSA income is below-the-line item. Furthermore, for the second quarter, you see on the slide and in the 10-Q, a large GAAP net loss of $12.3 million before NCI, the noncontrolling interest and preferred dividends, opposed to the 6-month total reflecting $6.3 million of income. This results from the mark-to-market of the 31.3 million Lucid shares for the periods resulting in a second quarter noncash expense of $10.6 million in the line item titled Change in Fair Value of Equity Investment and an income pickup of $21 million in the first quarter. Happy to answer any detailed questions on the slide in the Q&A, but I think it's more informative to look at the second quarter stand-alone information presented in this slide and the full second quarter information presented in our press release that shows a company baseline bias of operating at cash flow breakeven and incurring incremental PAVmed expenses for development activities that are offset by the dedicated funding. So in the second quarter, you see a non-GAAP loss of $845,000, which has been funded in part by the NIH grant proceeds of $900,000 in the fourth quarter and a PAVmed-Veris $2.4 million financing in the first quarter and a Veris direct subsidiary financing of $2.5 million in the second quarter. Non-GAAP operating expenses for the first quarter and second quarter were nearly identical at $4.5 million, a change of $53,000 between the 2 quarters. Next slide, please. With regard to non-GAAP operating expenses, on this slide, you see a graphic illustration of our operating expenses over time as presented in more detail in our press release. The non-GAAP OpEx since the Lucid deconsolidation has been nearly flat for the last 9 months. OpEx increases moving forward are likely tied directly to the R&D efforts to get the Veris implantable device submitted and cleared by the FDA for which the recent Veris-related financings are supporting. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question comes from Anthony Vendetti from Maxim Group.

So a couple of things, on the rollout with OSU, I know there has to be integration with EHRs, and I used to follow the health care information technology industry very closely and having those integrations with different systems within a hospital, sometimes takes longer than expected. Where is that specific process with integrating Veris' remote monitoring in with that EHR? And is that what's taking a little bit longer? Or have you overcome that? And then the AI component, just a little more clarity on that clinical decision support piece of it, it sounds like that's early stage but could be very interesting going forward to add to the Veris platform.

Yes. Both great questions, Anthony. Thanks for the opportunity to flesh those out a little bit. So the EHR integration has been a bit of a gating item for us to kind of transition to a full commercial expansion across the network. It's not -- I don't think it's -- yes, it is challenging. It takes some work. It's not quite as onerous as I think the models that you were talking about where you're really in effect, altering their EHR. There are third-party vendors that -- one of which we're using that have a sort of an established turnkey way to take an external platform and have it communicate with various hooks and links within the EHR system. So it's not really built into the EHR. It's just getting these third-party applications that can interrogate and deliver information bidirectionally to the EHR in a streamlined way. So the amount of work is modest or moderate. It's mostly just the challenge of overcoming kind of bureaucratic hurdles within an academic medical center. But we're making progress. We expect it to get wrapped up soon, and then we'll be able to launch. We're actually considering seeing about -- the goal was to kind of get it up and running before launching it all, but we may actually proceed with an early rollout as the EHR integration process is proceeding. But -- so it's coming, but it's just taking a little bit longer than we had hoped for. On the strategic side, you're right. When we founded this company, the platform itself, the software platform itself and even the implementation and the platform's utilization of data from an implantable monitor were really firmly rooted in the remote patient monitoring or RPM paradigm, where the patient's physiologic information, whether through the external devices that they currently have or through the implantable, are relayed effectively just directly into the platform for the clinical team to see and for them to make clinical decisions. There are some elements of highlighting and color coding, things to give folks a sense of prioritization of different alerts. But it's really just that. RPM is literally remote patient monitoring. It does include some patient -- the patient's own reported symptoms and incorporates that in a nice -- in an interface that is very user-friendly and allows the clinical team to view the information and utilize it in their decision-making. But obviously, I don't think it's a mystery to anyone that over the years since we launched Veris that there's been an explosion of power, expertise and activity in the health care space with regard to AI tools. And so we've initiated really a formal process within Veris to map out how that can -- we can incorporate more AI into the process in a way to enhance the care of these patients even further. And our target really is not sort of just sort of just throwing out an incredibly wide net around operational efficiency or other elements. There are plenty of other companies that are doing that, and that doesn't -- that's not on our wheelhouse. Our wheelhouse here is really in the clinical care of cancer patients who are being exposed to treatments that can lead to complications, and it's more narrowly focused on clinical decision support tools. And that can go anywhere from smart alerts. So you're not just simply saying, hey, this -- the temperature is rising, patients getting a fever or there's some reports of certain symptoms that might trigger just an alert based on the value of the data, but making alerts smarter so they can provide some level of clinical risk or information -- additive information through AI that would be useful to the clinicians. And then it goes all the way to more advanced tools that are actually propping out quite extensively in other areas and other specialties. But here within cancer, it would be tools that could predict, that could utilize data and could train off of data. And one of the expectations with regard to this partnership at OSU, which is the third largest cancer center in the country is to be able to work with them on using their vast data resources to train models that can provide clinical decision support. So let me -- sort of concrete example of that would be their pay -- one of the dreaded complications of patients undergoing chemotherapy, for example, is neutropenic sepsis, white blood count gets low from the chemo, and they have a risk of developing infection. So algorithms that are trained on data in cancer patients undergoing chemotherapy that utilize the data that our system provides to provide a more comprehensive risk profile, where a patient -- where the risk of sepsis can be predicted well in advance of the typical clinical picture and interventions can be made in order to prevent those complications from going further. So it's tools like that rather than narrowly focused on cancer care in these patients who are -- the opportunity to get sick and to provide a layer of clinical decision support on top of just the reporting of the physiologic monitor. So we are working internally, mapping it out, identifying potential products and tools, and we'll be working with ASU on mapping out ways to use their data and potentially other data sources to start to train models. So that's something that we're pretty excited about and will be a real value added to the platform. Just to maybe -- just in closing, the platform now is really great. It's an excellent tool. Even though we are doing EHR integration, frankly, when we've deployed our platform, the clinicians typically use our platform as the kind of the front end for the way they care for their patients. And that will be supplemented by the physiologic data from the monitor. And then the next step in that would be to supplement the value proposition further by adding AI-based clinical decision support tools. So hopefully, that answers your question, Anthony.

Yes. No, that's great. And then just on the funding component, is Veris still funded at this point through FDA submission and expected clearance? And then any additional color around that time line in '26 would be...