PAVmed(PAVM) - 2022 Q4 - Annual Report

Part I Business PAVmed is a commercial-stage medical technology company focused on Diagnostics, Medical Devices, and Digital Health, prioritizing EsoGuard and Veris commercialization Background and Overview - PAVmed is a multi-product, commercial-stage medical technology company focused on capital efficiency and speed to market[17] - The company's current primary focus is on the commercial expansion of its leading products, EsoGuard and the Veris Cancer Care Platform[18] - PAVmed operates in three main business lines: Diagnostics, Medical Devices, and Digital Health[19] EsoGuard and EsoCheck EsoGuard is a diagnostic DNA test for early esophageal precancer detection, targeting a $60 billion U.S. market with a $1,938.01 Medicare payment - EsoGuard is the first and only commercially available diagnostic test for widespread screening of esophageal precancer in at-risk GERD patients, using samples from the FDA-cleared EsoCheck device[20] - The target market for EsoGuard screening is estimated at 30 million U.S. individuals, representing a total addressable market opportunity exceeding $60 billion[25][26] - CMS granted EsoGuard a final Medicare payment determination of $1,938.01, effective January 1, 2021[37] - Commercialization efforts include a network of Lucid Test Centers, a satellite program for physician offices, community testing events, and a telemedicine program for self-referrals[33][34][35] - The company has delayed its BE-1 and BE-2 clinical trials to prioritize studies that more efficiently generate clinical utility data to drive commercialization[42] Veris Cancer Care Platform The Veris Cancer Care Platform is a digital health solution for remote patient monitoring in oncology, operating on a SaaS model with a U.S. market exceeding $2 billion - Veris Health is a majority-owned subsidiary focused on digital health, built upon the acquisition of Oncodisc's remote patient monitoring technology for cancer care[55] - The Veris Cancer Care Platform uses connected devices to collect physiologic data and patient-reported symptoms, integrating with Electronic Health Records (EHR) to help care teams detect complications early[57] - The business model is a B2B, software-as-a-service (SaaS) recurring-revenue model targeting oncology practices and hospitals[58] - The total addressable U.S. market opportunity is estimated to exceed $2 billion, with future expansion planned for cardiovascular diseases, renal disease, and COPD[61][59] Product Pipeline PAVmed's product pipeline, including EsoCure, CarpX, and PortIO, is secondary to EsoGuard and Veris commercialization, with CarpX having FDA 510(k) clearance - The company is deprioritizing its development pipeline, including EsoCure, CarpX, and NextFlo, to focus resources on the commercialization of EsoGuard and the Veris Cancer Care Platform[69] - CarpX, a minimally invasive device for carpal tunnel syndrome, received FDA 510(k) marketing clearance in April 2020 and European CE Mark Certification in May 2021[72] Recent Developments Recent developments include terminating the RDx agreement for $2.7 million savings, Veris Health signing first customers, securing $34.4 million from convertible notes, and addressing NASDAQ compliance - Lucid terminated its Management Services Agreement with RDx, bringing lab operations fully in-house, which is expected to improve efficiency and result in a net savings of $2.725 million[77][78] - Veris Health signed its first customer, New Jersey Cancer Care, in December 2022 and has since signed two additional cancer centers[80] - The company received a NASDAQ notice on December 29, 2022, for its stock price being below the $1.00 minimum. It is seeking shareholder approval for a reverse stock split to regain compliance[81] - PAVmed raised a total of $34.4 million in net proceeds from the sale of Senior Secured Convertible Notes in April and September 2022[84][85] - Lucid Diagnostics raised $13.625 million in gross proceeds from a Series A Preferred Stock offering on March 7, 2023[89] Intellectual Property The company protects its proprietary technologies through patents, trademarks, and trade secrets, owning or licensing 55 domestic and foreign patents across 11 product families - The company owns or has rights to 55 domestic and foreign patents across 11 product families[95] Patent Expiration Timeline for Key Technologies | Technology | First Expiration Year | | :--- | :--- | | EsoCheck | May 2034 | | EsoGuard | August 2024 | | Veris Health | November 2038 | | EsoCure | March 2036 | | CarpX | November 2037 | | PortIO | November 2035 | Government Regulation PAVmed's products are subject to extensive FDA regulation, including device classification, 510(k) or PMA clearance, post-market compliance, CLIA certification, and adherence to healthcare laws like HIPAA - Products are subject to extensive FDA regulation, with medical devices classified into three classes (I, II, III) requiring different levels of control, from general controls to pre-market notification (510(k)) or pre-market approval (PMA)[110][111][117] - EsoGuard received FDA "Breakthrough Device Designation" in February 2020, which may expedite its development, assessment, and review as an in-vitro diagnostic (IVD) device[47] - Lucid's clinical laboratory is subject to U.S. and state laws, including CLIA (Clinical Laboratory Improvement Amendments), which imposes certification and quality standards[123] - The company is subject to other key U.S. regulations including the Federal Anti-Kickback Statute, False Claims Act, Physician Payment Sunshine Act, and HIPAA for data privacy[127][129][131] Risk Factors The company faces significant financial risks including operating losses and funding needs, business risks like competition and market acceptance, regulatory hurdles, and stock-related risks such as potential NASDAQ delisting and dilution - The company has a history of operating losses and expects them to continue, requiring substantial additional funding to support business growth and commercialization[163][164][174] - Servicing debt requires significant cash, and restrictive covenants, including minimum cash and market capitalization requirements, could adversely affect operations. The company has previously been out of compliance with certain financial covenants[165][167] - The company's products, particularly EsoGuard and Veris, face intense competition and may never achieve market acceptance, which is dependent on factors like regulatory approval, physician adoption, and third-party reimbursement[175][183] - The company received a notice from Nasdaq on December 29, 2022, for its stock price falling below the $1.00 minimum requirement, posing a risk of delisting if compliance is not regained[246] - Significant dilution risk exists due to a large number of outstanding warrants, stock options, and convertible securities, including Senior Convertible Notes that can be converted into a substantial number of shares[251][252] Property The company leases its corporate headquarters in New York, an R&D facility in Massachusetts, a CLIA lab in California, and multiple Lucid Test Centers across 11 states totaling 11,429 square feet - The company's corporate headquarters are at 360 Madison Avenue, New York, NY, under a lease that commenced on February 1, 2023[268] - Key leased facilities include a 7,375 sq. ft. R&D facility in Massachusetts, a 21,019 sq. ft. CLIA laboratory in California, and approximately 11,429 sq. ft. across various Lucid Test Centers in 11 states[268] Legal Proceedings The company resolved two legal matters, settling a stockholder complaint for $450,000 and a Benchmark Investments complaint for $450,000 - A stockholder complaint in Delaware Court of Chancery regarding the 2020 Annual Meeting was settled, with a court-approved plaintiff's fee award of $450,000 paid by the company in December 2022[272] - A complaint from Benchmark Investments, Inc. regarding alleged violations of an engagement letter was settled in February 2023 for a payment of $450,000[273] Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PAVmed's common stock and Series Z Warrants trade on Nasdaq, with the company addressing a $1.00 minimum bid price notice, and no cash dividends paid on common stock - The company's common stock (PAVM) and Series Z Warrants (PAVMZ) are traded on the Nasdaq Capital Market[277] - On December 29, 2022, the company received a Nasdaq notice for its closing bid price being below the $1.00 minimum for 30 consecutive business days and has until June 27, 2023, to regain compliance[277] - As of March 9, 2023, there were 98,419,795 shares of common stock outstanding held by an estimated 214 holders of record[278] - The company has not paid cash dividends on common stock and does not intend to in the foreseeable future. Dividends on Series B Convertible Preferred Stock accrue at 8% annually and are paid in-kind[279][282] Management's Discussion and Analysis of Financial Condition and Results of Operations PAVmed's 2022 financial results show $0.4 million revenue and a widened net loss of $89.0 million, driven by increased operating expenses, with $34.4 million raised from convertible notes Results of Operations In 2022, revenue decreased to $0.4 million, while total operating expenses surged to $91.3 million, resulting in a net loss from operations of $90.9 million Comparison of Operations (in millions) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $0.4 | $0.5 | | Cost of Revenue | $3.6 | $0.6 | | Sales and Marketing | $19.3 | $8.9 | | General and Administrative | $41.0 | $25.4 | | Research and Development | $25.5 | $19.8 | | Total Operating Expenses | $91.3 | $54.9 | | Net Loss from Operations | ($90.9) | ($54.4) | | Net Loss Attributable to PAVmed Inc. | ($89.0) | ($50.3) | - Sales and marketing expenses increased by $10.4 million, primarily due to a $7.4 million increase in compensation costs from higher headcount to support commercial activities[326] - General and administrative expenses rose by $15.6 million, driven by a $9.2 million increase in consulting services (patents, legal, regulatory) and a $3.5 million increase in compensation costs[326] - Research and development expenses grew by $5.7 million, mainly due to a $3.2 million increase in development and clinical trial costs for key products and a $2.5 million increase in compensation for clinical and engineering staff[327] Liquidity and Capital Resources The company finances operations through equity and debt, raising $34.4 million from convertible notes in 2022, and asserts sufficient liquidity for one year despite debt covenants and past non-compliance - The company believes its cash on-hand and committed debt and equity financing sources are sufficient to fund operations for one year from the date of the financial statements[336][434] - In 2022, the company issued Senior Secured Convertible Notes with a total face value of $38.75 million, receiving net proceeds of $34.4 million[338][339] - The convertible notes contain financial covenants requiring a minimum cash balance of $8.0 million, a maximum debt-to-market cap ratio, and a minimum market capitalization of $75 million. The company was not in compliance with certain tests at times, including as of December 31, 2022, but received a waiver from the investor[341][547] - Subsidiary Lucid Diagnostics raised approximately $1.8 million through a committed equity facility in 2022 and an additional $13.625 million from a Series A Preferred Stock offering in March 2023[348][343] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes in Q4 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[373] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[376] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the company's 2023 proxy statement, to be filed within 120 days - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the company's 2023 proxy statement[382][383][384] Part IV Exhibits and Financial Statement Schedules This section presents the consolidated financial statements for 2022 and 2021, including balance sheets and statements of operations, with the auditor's report highlighting convertible notes valuation as a critical audit matter Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash | $39,744 | $77,258 | | Total Current Assets | $43,926 | $82,637 | | Total Assets | $53,980 | $86,976 | | Senior Secured Convertible Notes - at fair value | $33,650 | $0 | | Total Current Liabilities | $41,200 | $7,558 | | Total Liabilities | $43,046 | $7,558 | | Total Stockholders' Equity | $10,934 | $79,418 | Consolidated Statement of Operations Data (in thousands, except per share data) | Account | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Revenue | $377 | $500 | | Total operating expenses | $91,304 | $54,893 | | Net loss from operations | ($90,927) | ($54,393) | | Net loss attributable to PAVmed Inc. | ($88,983) | ($50,347) | | Net loss per share attributable to PAVmed Inc. - basic and diluted | ($1.00) | ($0.65) | - The independent auditor, Marcum LLP, identified the valuation of the Senior Secured Convertible Notes as a critical audit matter due to the complex methodology and significant management assumptions involved, such as debt yield and implied volatility[407][408]