PAVmed Inc. (PAVM) Earnings Call Transcript & Summary

Thank you. Good morning, and welcome to the PAVmed second quarter 2026 Business Update conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matt Riley, PAVmed's Vice President of 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 Chief Executive Officer of PAVmed, along with Dennis McGrath, Chief Financial Officer. The press release announcing our business update and financial results is available on PAVmed's website. Please take a moment to read the disclaimer statements in the press release. The business update, press release, and 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 Form 10-K filed with the SEC, and any subsequent updates filed in quarterly reports on Form 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 these 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.

Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. So we're seeing tangible progress across each of our core businesses. Lucid continues to advance key reimbursement and commercialization initiatives. Veris is building commercial momentum while advancing its implantable towards FDA submission, and our relaunched medical device portfolio is moving forward under Joe Virgilio's leadership. We believe this progress across our portfolio positions PAVmed to create meaningful long-term shareholder value. So let me walk through the key developments, beginning with Lucid. Lucid continues to advance its reimbursement and commercial initiatives. As Lucid's largest shareholder, PAVmed remains well-positioned to benefit from Lucid's continued progress and future value creation. I encourage you to listen to yesterday's Lucid Business Update call for greater detail on these developments. Of course, Medicare coverage remains Lucid's most important near-term milestone, and we're confident that we will ultimately secure positive draft coverage. Commercial coverage expanded recently with a new positive EsoGuard coverage policy from the Laboratory Benefit Manager, [ VN Concert ]. Multiple health plans of Concert have already adopted the policy. VA commercialization is progressing well, and we expect success as the new federal budget cycle progresses. Continued progress across health systems and health economics is further strengthening the foundation for future growth. Let's now move on to Veris. The commercial phase of our Ohio State University strategic engagement is accelerating with patient onboarding steadily increasing since EHR integration went live. We also secured a large purchase order to support ongoing commercial patient onboarding for the rest of the year. The clinical rollout is continuing across additional departments. Approximately two-thirds of the planned departments have now been onboarded. Additional departments continue to move through the implementation process. Our current efforts are focused on reducing workload friction and driving adoption within participating departments. Our implantable physiologic monitor development is also progressing well. We're targeting an early 2027 FDA 510(k) submission. The design enhancements have now increased the project battery life beyond the 2-year target, and design freeze remains targeted for this month, with full verification and validation testing to follow. The long lead time biocompatibility testing has already been initiated in line with our FDA pre-submission guidance. Our new contract manufacturer has successfully completed this trial build with devices performing well in preliminary verification testing, and we completed our first phase of animal testing. This was also successful. So now let's move on to our medical device portfolio, starting with PortIO. As a reminder, PortIO is an implantable intraosseous port that's designed to provide long-term vascular access through the bone marrow cavity, particularly for patients with difficult or compromised venous access. The positive first-in-human results were published in the Journal of Vascular Access, supporting continued advancement of our regulatory strategy. Briefly, the first-in-human study evaluated PortIO in 10 patients across multiple clinical sites, and it demonstrated 100% device patency, with 90% of patients completing the full intended implant duration. No device-related adverse events were reported. Peer review publication now provides us with an important foundation as we advance PortIO towards its next development and regulatory milestones. The primary focus right now is on the FDA pre-submission process, and we expect to submit a meeting request in the fourth quarter. The history has been that the regulatory pathway, based on our prior engagement with FDA, it was our expectation that PortIO would be subject to the De Novo pathway. However, engagements with outside regulatory consultants suggest that the publication of our first-in-human studies may give us a shot at proceeding to a straight 510(k). This would create a much shorter timeline and lower capital requirements to get to commercialization. And now let's finish up with [ Octaris ]. As a reminder, [ Octaris ] is developing a multimodal endoscopic imaging platform licensed from Duke University that's designed to identify esophageal dysplasia during upper endoscopy and help guide more accurate biopsy and treatment. The multimodal imaging probe development work is ongoing at Duke. There's continued refinement of the probe. Processing speeds have improved substantially. And these improvements are intended to support real-time imaging and analysis during the procedure. These technical advances set the stage for our upcoming clinical validation work at USC, which we're preparing for. IRB approval is expected in October. And our initial FDA pre-submission draft is completed, and the regulatory work is now focused on preparing for that submission. With that, I'll hand the call over to Dennis for an update on our financials.

Thanks, Lishan. Good morning, everyone. Our summary 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, but 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. With regard to the balance sheet, you will recall from our last investor update that in February we completed a $30 million Series D preferred stock offering. Concurrently, the company issued a $15 million senior secured note to an existing investor. The company used the proceeds from these financings, consisting of a $22.3 million cash payment and a $15 million senior secured note with a February 2029 maturity date, to redeem all the outstanding shares of its Series C convertible preferred stock and fully retire its previously existing convertible debt. The $15 million replacement note nominally has a conversion price of $4.50 per share. It was done this way to protect the investor's tax status, but in every substantive sense, this is a long-term 3-year term note with interest-only quarterly payments and a balloon payment at maturity in February 2029. Upon shareholder approval obtained on March 27, the Series D preferred shares were mandatorily converted into PAVmed common stock. As a result, the Series D preferred stock has been eliminated. In connection with this financing, the company also issued $30 million in warrants now convertible into common stock, which are callable by the company upon publication of a positive EsoGuard LCD. So, a couple of key things to point out on the balance sheet. Cash at June 30 is $3.8 million, which obviously is not inclusive of the expected $30 million to be received upon the warrants being exercised post-LCD publication, nor does it reflect the $2.5 million from the Veris warrants issued last year that are callable upon the Veris implantable device being cleared by the FDA. The equity method investment balance of $33 million reflects the 31.3 million Lucid shares mark-to-market, indicative of a closing price of $1.07 on June 30, down from $1.09 at year-end and $1.15 at March 31. At present, PAVmed continues to be the single largest common shareholder of Lucid Diagnostics, with ownership of approximately 15% of the common shares outstanding. Although PAVmed no longer has voting control, PAVmed, together with its board and management, still has significant influence over Lucid, with approximately 25% voting interest. Shares outstanding today, including unvested RSAs, are approximately 7.3 million shares. The GAAP quarter-end outstanding shares of 6.3 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. Similar to past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year quarterly comparisons. On a pro forma basis and purely for illustrative purposes on 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 its operating expenses. For SEC reporting purposes, the MSA, the Management Services Agreement, that income is recorded below the line. Furthermore, for the second quarter, you'll see on the slide a GAAP net loss of $6.6 million, both before the NCI and preferred dividends, versus the prior year loss of $12.3 million. The driving force of this difference is the change in the fair value of the Lucid shares and the convertible debt, both non-cash amounts, reflecting a charge of approximately $3.1 million in the current quarter compared to $10.8 million in the prior year quarter. Other than the fair value changes, the most significant change between the reflected periods is the increased R&D expenses, largely for the Veris implantable device. R&D on a non-GAAP basis increased by approximately $650,000 sequentially and $1.3 million year-over-year. The GAAP net loss attributable to PAVmed as reflected in the 10-Q is $5.5 million for the second quarter, or $0.87 per share. On a non-GAAP basis, the loss is $1.7 million, or $0.27 per share. Next slide, please. With regard to the non-GAAP operating expenses on the slide, you'll see a graphic illustration of our operating expenses over time as presented in more detail in our press release. Second quarter non-GAAP OpEx of $6.1 million is above the previous quarter by about $200,000 and above the average of the last 4 quarters by about $400,000, all of which reflects incremental Veris R&D expenditures. OpEx increases moving forward are likely to be tied mostly to the R&D efforts to get the Veris implantable device submitted and cleared by the FDA. With that, operator, let's open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from Ed Woo with Ascendant Capital.

Good morning.

Good morning, Ed.

Yes, congratulations on all the progress. You mentioned that you're going to have a FDA meeting with PortIO in the fourth quarter. Do you anticipate news shortly thereafter? And what do you think the regulatory pathway may be in 2027?

Yes, so we'll be ready to submit for a request for a pre-submission meeting. So the actual meeting may end up leaking into the beginning of 2027. But I will take the opportunity to kind of flesh out a little bit what I said in my prepared comments about the regulatory pathway. Those of you who have been with us before and saw the progress we've made on PortIO prior to pausing that project, our previous engagement with FDA prior to our publication of the first-in-human data was firmly in the De Novo pathway framework, which is longer and takes more capital. As we've been preparing with the relaunch of the portfolio and the relaunch of PortIO, as we've been preparing to update our regulatory strategy and in consultation with some outside consultants as well as our very strong internal team, it appears that we may, there's no certainty yet, but that we may be able to pursue a 510(k) pathway with existing short-term intraosseous devices as a predicate. This would, again, based on the fact that we've, in the interim, had a successful first-in-human study, this would be, and this is how we're going to pursue our re-engagement with the FDA. If that's successful, well, then, as I mentioned in my comments, that would be a big win as we'll still need a clinical trial, but the cost and the time associated with that would be significantly less.

That sounds good. The last question I would have is on PortIO and also the probe with Duke, does those include global rights or are they only rights in the U.S.?

Yes, the PortIO is an internal IP, so it's not a license. PAVmed owns the full rights to that. And the license with Duke University for the [ Octaris ] technology includes worldwide rights as well.

Great. Well, thanks for answering my questions, and I wish you good luck.

Thank you. Thanks.

[Operator Instructions] Your next question comes from Jeremy Pearlman with Maxim Group.