PAVmed Inc. (PAVM) Earnings Call Transcript & Summary

Thanks, operator, and good morning to all of you. We appreciate you joining today's business update call. With me on the call today are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed, and Dennis McGrath, Chief Financial Officer of PAVmed. Our press release, which announces the business update and financial results, can be found on PAVmed's website. I'd ask you to take a moment to review the disclaimer regarding forward-looking statements in that press release. Forward-looking statements are included in the business update press release and on this conference call, and those statements carry known and unknown risks and uncertainties that could cause actual results to differ materially from what is stated. Factors that might cause actual results to differ are set out in the disclaimer and in our SEC filings. A list and description of these and other important risks and uncertainties that could affect future operations appears in Part 1, Item 1A, entitled Risk Factors, in PAVmed's most recent annual report on Form 10-K filed with the SEC, along with any subsequent updates filed in quarterly reports on Form 10-Q and subsequent Forms 8-K. Other than as required by law, PAVmed disclaims any intention or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations, or in events, conditions or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. At this point, I'd like to hand the call over to Dr. Lishan Aklog, Chairman and CEO of PAVmed.

Thank you, Matt, and good morning everyone. We're glad you could join us for this quarterly update call. We're quite optimistic about what we're seeing throughout our pet portfolio. The most notable item, of course, is that Lucid has secured Medicare reimbursement for EsoGuard — a pivotal and transformative achievement. Meanwhile, Veris continues to expand enrollment at a higher rate while advancing its implantable monitor toward an FDA submission. In addition, we are now working actively with the FDA on our two other portfolio units, PortIO and Actaris. We believe this momentum puts PAVmed in a solid position to generate real long-term value for shareholders. So I'll start with Lucent. The key development at Lucid is that EsoGuard is now reimbursed by Medicare. Lucid began sending claims via the Texas lab in late September, and from October onward it has been reimbursed reliably at the complete Medicare rate. That interaction with the contractor, followed by this steady pattern, amounts to Medicare coverage determined through adjudication on a claim-by-claim basis, and it holds for two Medicare patients across the country. Now that Medicare reimbursement is in place, Lucid at once and forcefully redirected its commercial efforts toward securing access to EsoGuard among the Medicare population. This shift is going remarkably well. October also set a record for test volume. We anticipate rapidly expanding Lucid's commercial operations to capitalize on its enormous revenue opportunity and to build out its commercial infrastructure aggressively yet responsibly. Since PAVmed is Lucid's biggest investor, this short-term chance should pay off for us directly. That recent call from yesterday goes into this and other updates in much more depth, and I'd suggest you give the recording a listen; let's turn to Veris now. Our strategic partnership with Ohio State keeps gaining speed on the commercial side. Enrollment each month rose over the course of the quarter and almost doubled between July and September; the clinical rollout is now running across the majority of departments at the James Cancer Center, while the rest are working through the last stage of implementation. We're still focused on cutting down the friction of onboarding and disruption to workflows, and the leadership teams at OSU and the James continue to back us strongly. We've kept making improvements to the software platform as well, which include an upgraded EHR integration plus a range of software updates. Our implantable physiologic monitor is still on schedule for an FDA 50k submission in early 2027. As planned, we reached design freeze in August. Then in October we began the 90-day GLP animal study, an essential piece of the verification of validation testing that the FDA 510(k) submission requires. By year-end, we expect to finish both the app design freeze and the skin validation study, which are two more components of the FDA submission. Let's now turn to the rest of our medical device portfolio, beginning with PortIO. Just to remind everyone, PortIO is an implantable intraosseous sport intended to give long-term vascular access via the bone marrow cavity, especially for patients whose venous access is difficult or compromised. We had our first call with the FDA in late October, and it went well. A formal in-person presubmission meeting will come in January. The main subject will be the regulatory pathway; we believe the first-in-human results we've published could support a 510(k) pathway through the FDA rather than a de novo one. That would mean a shorter timeline and lower capital requirements to reach commercialization. Now let's wrap up with Actaris. Just to remind everyone, Actaris is our multimodal endoscopic imaging platform. It's licensed from Duke University and designed to spot esophageal dysplasia or late-stage precancer during upper endoscopy, and to help guide biopsy and treatment more accurately. The next-generation probe is finished and ready for clinical testing. This month, we expect to file our initial FDA presubmission package. The clinical validation study at the University of North Carolina is getting underway—it's in the IRB phase and going through contracting at the 2 universities—and we expect enrollment to start in January. With that, I'll hand the call over to Dennis for an update on our financials.

Appreciate that, Lishan, and morning, everyone. The press release we issued contains our preliminary Q3 financial results; across the next three slides I'll call out a few third-quarter items, but please consider those remarks together with the full disclosures that our quarterly report on Form 10-Q will cover — we expect to file that with the SEC on Monday. Turning to the balance sheet, a few notable items deserve mention. Cash as of September 30 was $8.9 million, including $5.3 million in restricted cash. Within that restricted cash, $5 million is held in a collateral account, providing extra security for the senior debt we funded in August through the note amendment. In the quarter, we brought in $2.8 million from our ATM, which was the cap permitted at that point under the; in September, we set up a fresh at-the-market program with AGP covering as much as $9.4 million, and it remains entirely undrawn and available to us. Our core burn during the third quarter was about $2.8 million, compared with $2.7 million in the second quarter. Our balance sheet cash figure does not include two additional amounts. The first is the $30 million we anticipate receiving if the Series D warrants are exercised; those warrants are currently out of the money, though the company may call them at some point down the road. The second is roughly $2.5 million of Veriswarrants, which became callable once the FDA cleared the virus implantable device. Turning to the equity method investment balance of $23.5 million: it reflects the $31.3 million Lucid shares mark-to-market, based on Lucid's September 30 closing price of $0.75, versus $1.07 at June 30. That $10 million decline is a noncash mark-to-market adjustment, and it is the largest single item in our third-quarter P&L, which I will come back to. Right now, PAVmed is still Luca's biggest common shareholder, holding roughly 15% of the common shares outstanding. Even though PAVmed has lost voting control of Lucid, PAVmed plus its board and management continue to wield considerable influence over Lucid, with about 25% of the voting interest. Shares outstanding today, counting unvested RSAs, come to approximately $8 million. The GAAP quarter-end outstanding shares figure of 6.9% appears on the slide and will also show on the face of the balance sheet in the 10-Q. GAAP shares leave out unvested RSA amounts. A quick note on our $15 million senior secured note: it carries a 15% interest rate, is interest-only with payments made quarterly, and matures in February of '29. That note carries financial covenants. One of them sets a minimum cash requirement, and we met it as of September 30. Another covenant concerns collateral coverage, which is tied to the market value of the Lucid shares we hold. Because the locate share price fell during the quarter, we were not in compliance with that collateral coverage covenant as of September 30. The noteholder has agreed to waive that covenant through the date of our SEC filing, and we keep working constructively with the noteholder on covenants going forward, just as we consistently have in the past. Note 9 of the financial statements in our 10-Q will contain the details. The note must be carried at fair value. As of September 30, the preliminary figure stands at $14.2 million, versus $15.1 million on June 30, following the $600,000 interest payment for the quarter. That produces a $300,000 gain in the P&L, which is a noncash accounting item, and neither of these affects the $15 million in principal that we hold. These noncash amounts may change once we finish the final valuation analysis ahead of filing the 10-Q. As you'd expect, yesterday's Microsoft outage, like for others, delayed completion of that work. As in prior presentations on this P&L slide, we're giving some quarterly year-over-year comparisons on both a GAAP and a non-GAAP basis. This slide, on a pro forma basis and only for illustration, adds together the different revenue streams and the Lucid management fee income—altogether over $3 million each quarter—simply to give a visual comparison of where PAVmed's income comes from against what it spends on operations; when it comes to SEC reporting, that management service income sits below the line. Looking at the third quarter, the slide shows a preliminary GAAP net loss of $13 million prior to noncontrolling interest and preferred dividends, compared with a loss of $6 million the year before. That gap is mainly driven by how the fair value of the Lucid shares and the senior note moved — both are noncash items, and together they produced a net charge of roughly $9.6 million this quarter, versus $4.5 million in the same quarter a year ago. Apart from those fair value movements, the biggest shift period over period is higher R&D spending, mostly tied to the Verus implantable device. For the third quarter, preliminary GAAP net loss attributable to Padman common stockholders comes to $11.8 million, though that figure could still change pending the final debt valuation analysis. The non-GAAP loss stands at $1.2 million, better than the $1.7 million recorded in the second quarter. Moving to the next slide, please. Regarding non-GAAP operating expenses, this slide provides a graphic illustration of our operating expenses over time, as presented in more detail in our press release. Non-GAAP OpEx for the third quarter was $5.6 million, which is roughly $480,000 lower than the second quarter and in line with the $5.7 million average over the previous 4 quarters. The sequential decrease reflects about — future OpEx changes, whether up or down, are likely to be tied mostly to R&D efforts to get versus and plan of the device submitted to and cleared by the FDA. With that, operator, let's open it up for questions.

So the first thing is probably about the various Platform. — commercialization, it sounds like you mentioned enrollment had been doubling. Could you perhaps expand a bit on why you believe commercialization is doubling? Is it simply natural as the platform rolls out to additional departments? Or is there something else behind that strong growth in enrollment?

Yes. So perhaps to take a step back for a moment and just give a little explanation about our engagement with OSU and honestly, the bigger picture when it comes to be implantable. Our goal has always been—and continues through the submission and clearance of the implantable—to leverage the strategic partnership with OSU so we can truly optimize and figure out how to drive adoption at cancer centers, particularly these large ones. That's really where we've concentrated our efforts over roughly the last six months, ever since the EHR integration wrapped up. What addresses your question comes down to the internal rollout. We've got strong buy-in and backing from the top levels of the James Cancer Center—the CEO and the Chief Operating Officer—and there are more than a dozen separate departments; since this is a major cancer center, those departments are really divided up by individual cancer types. We kicked off this commercial stage with the apartment communities that were part of the pilot that worked well, and from there it's simply been a gradual expansion—onboarding every single department, getting the team trained, getting the physicians up to speed, and training the nurses on how to bring patients aboard. And once more, the core objective here, beyond simply generating uptake, is genuinely to figure out how to fine-tune the workflow so there's as little friction as possible when it comes to enrolling patients onto the platform, plus a whole range of inventive approaches for weaving our platform into the intricate workflow of these cancer centers. So the speedup comes from adding more centers, but also from a strong level of uptake inside each department. This fits into the strategic engagement, which involves creating a registry of the initial 1,000 patients at OSU. The goal had been to complete that by the close of next year's first quarter, and we're on track to achieve it, especially as things speed up going forward. After we receive clearance for the implantable, we can apply what we've learned and use the template — in a sense — for how we worked with the James at OIC, the country's third-largest cancer center, and then Rincon can replicate that at other commercial centers. Yet in this case, the implantable functions as a significant multiplier—an enhancer—of what the platform can do.

Okay, right, understood, excellent. And perhaps — yes — you raised that point right at the close, which flows nicely into my next question. Are other major cancer centers expressing interest, and are you actively making overtures? Or would you rather wait until you've collected sufficient data from this one on the SU before possibly taking it commercial into other institutions? And what do you expect the timeline to be?

Yes, we aren't the ones receiving interest. A handful of contacts have come in. We have talked with a few parties, though we have not been pushing hard on that front. The reason is that, ultimately, this offering brings together Veris and the value opportunity—its clinical benefit stems from pairing a platform built around cancer, intended specifically for oncology patients receiving systemic therapy or chemotherapy, with the implantable component as the proprietary element capable of supplying continuous data to that platform. We’ve talked with a few other centers, and there’s significant interest. Still, our strategy for this business has been to concentrate on the data—and not only the data, but the institutional expertise at Veris about how to maximize engagement and how to maximize adoption—and to bundle all of that so that once the implantable is cleared and we move into full commercialization, we can do so with a strong chance of success at each individual cancer center.

Alright, got it. Great. So perhaps we can turn to PortIO next. I know you touched on this briefly during your prepared remarks regarding the possible regulatory routes, whether that's 510(k) or de novo. Could you maybe expand a bit on what each of those would involve in terms of timeline and possibly capital requirements?