PAVmed(PAVM) - 2021 Q4 - Annual Report

PART I Business PAVmed Inc. is a commercial-stage medical technology company advancing innovative technologies across four divisions, notably expanding EsoGuard®/EsoCheck® commercialization and forming Veris Health™ in 2021 - PAVmed operates as a multi-product medical technology company with four main divisions: Medical Devices, Diagnostics, Digital Health, and Emerging Innovations[20] - The company's majority-owned subsidiary, Lucid Diagnostics, Inc. (LUCID), completed an Initial Public Offering (IPO) on October 14, 2021, raising gross proceeds of $70.0 million[21] - In May 2021, PAVmed formed Veris Health, a new majority-owned subsidiary focused on digital health, by acquiring Oncodisc Inc. to improve personalized cancer care through remote patient monitoring[27][50] - Key commercial products include the EsoGuard®/EsoCheck® diagnostic platform for esophageal precancer detection and the CarpX® minimally invasive device for carpal tunnel syndrome, which received FDA 510(k) clearance in April 2020[23][27] Product Portfolio and Business Lines PAVmed's diversified portfolio spans Diagnostics (EsoGuard®, EsoCheck®), Medical Devices (CarpX®, PortIO™), Digital Health (Veris Health™), and Emerging Innovations (DisappEAR™), targeting various medical needs PAVmed Lines-of-Business and Key Products | Line-of-Business | Key Products | | :--- | :--- | | Diagnostics | EsoGuard® Esophageal DNA Test, EsoCheck® Esophageal Cell Collection Device, EsoCure™ Esophageal Ablation Device | | Medical Devices | CarpX® Minimally Invasive Device, PortIO™ Implantable Vascular Access Device, NextFlo™ IV Infusion Platform | | Digital Health | Veris™ cancer healthcare platform and intelligent implantable vascular port | | Emerging Innovations | NextVent™ ventilators, DisappEAR™ resorbable ear tubes, Solys™ noninvasive glucose monitoring | - EsoGuard® received a final Medicare payment determination of $1,938.01, effective January 1, 2021[28] - The company is expanding its commercialization efforts for EsoGuard® by targeting primary care physicians and consumers, supported by a network of Lucid Test Centers and a telemedicine partnership with UpScript[31][32] - The Veris Health™ business model aims for 100% recurring revenue through subscriptions from oncology practices and hospitals for its remote monitoring platform[54] Growth and Commercialization Strategy The company's growth strategy focuses on expanding EsoGuard® commercialization across multiple channels, building clinical evidence for regulatory approval and reimbursement, and scaling manufacturing and laboratory capacity - The total addressable U.S. market for EsoGuard is estimated to exceed $25 billion, based on the Medicare payment rate and the 13 million at-risk GERD patients recommended for screening[86] - Key growth strategies include expanding EsoGuard commercialization to PCPs and consumers via Lucid Test Centers and DTC marketing, aggressively expanding clinical evidence for reimbursement and regulatory approvals, scaling manufacturing and establishing an in-house CLIA-certified laboratory, and expanding the product portfolio with synergistic technologies like EsoCure™[87][90][92][93] - EsoGuard received FDA "Breakthrough Device Designation," which may expedite its development, assessment, and review for an in-vitro diagnostic (IVD) indication[34][96] - On February 25, 2022, LucidDx Labs Inc., a subsidiary, acquired assets from ResearchDx, Inc. to operate its own CLIA-certified, CAP-accredited clinical laboratory in Lake Forest, CA[92] Recent Financing Activities In 2021, PAVmed and its subsidiaries raised approximately $117.0 million in gross proceeds, including Lucid Diagnostics' IPO, and secured additional financing commitments in early 2022 - PAVmed and its subsidiaries raised approximately $117.0 million in gross proceeds during the year ended December 31, 2021[149] - In March 2022, PAVmed entered into a Securities Purchase Agreement for up to $50 million in Senior Secured Convertible Promissory Notes, with an initial closing for $27.5 million in principal[151] - In March 2022, Lucid Diagnostics established a committed equity facility with Cantor Fitzgerald for up to $50 million of its common stock[157] Government Regulation The company's products are subject to extensive FDA regulation, including 510(k), De Novo, or PMA pathways, and ongoing compliance with QSR, healthcare fraud laws, and international certifications like the EU CE mark - Products must be cleared or approved by the FDA before marketing in the U.S., through pathways like 510(k), De Novo, or PMA, with varying levels of required data and scrutiny[170][172] - EsoGuard received FDA "Breakthrough Device Designation," which provides for a more collaborative and expedited review process[96][177] - The company is subject to federal and state healthcare laws, including the Anti-Kickback Statute, False Claims Act, and the Physician Payment Sunshine Act, which regulate business practices and relationships with healthcare providers[183][185][187][189] - For international marketing, particularly in the European Union, the company must obtain CE mark certification, which is subject to the new, stricter European Medical Device Regulation (EU MDR 2017/745)[194] Risk Factors The company faces significant risks including historical operating losses, the need for substantial future funding, intense competition, reliance on third-party manufacturers, complex regulatory approvals, and potential stock price volatility - The company has a history of operating losses since its 2014 inception and may not achieve profitability[208] - Significant additional funding may be required to support R&D, clinical trials, and commercialization, and the company may be unable to raise capital when needed[218] - The business is dependent on third-party manufacturers and a single laboratory facility for its EsoGuard test, posing risks related to capacity, quality control, and operational disruptions[236][238] - The regulatory approval process for medical devices is expensive, time-consuming, and uncertain, and failure to obtain approvals would prevent commercialization[280] - The COVID-19 pandemic has impacted and may continue to adversely affect operations, supply chains, clinical trials, and demand for products[268][272] Properties The company's corporate headquarters is in New York, NY, with additional leased properties for Lucid Test Centers and, post-year-end, expanded facilities for R&D, laboratory, and manufacturing - Corporate headquarters are located at One Grand Central Place, New York, NY on a month-to-month lease[336] - Subsequent to December 31, 2021, the company has expanded its physical footprint by leasing a 21,019 sq. ft. CLIA laboratory in California and a 22,288 sq. ft. light manufacturing facility in Utah, among other properties[337] Legal Proceedings The company is involved in two legal proceedings: a pending settlement for a 2020 stockholder complaint regarding vote counting, and a contested complaint from Benchmark Investments, Inc. concerning financing activities - A stockholder lawsuit from November 2020 concerning vote counting at the 2020 annual meeting has a proposed settlement pending court approval[338] - Benchmark Investments, Inc. filed a complaint alleging violations of an engagement letter related to financings in late 2020 and early 2021; the company is vigorously contesting the allegations[339] 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 87.7 million shares outstanding as of March 2022, and the company does not anticipate paying common stock cash dividends - As of March 29, 2022, there were 87,667,406 shares of common stock outstanding[344] - The company has not paid cash dividends on common stock and does not intend to in the foreseeable future[345] - Dividends on Series B Convertible Preferred Stock accrue at 8% per annum and were paid-in-kind (PIK) through October 1, 2021; in 2021, dividends of approximately $288 thousand were declared and settled via the issuance of 96,292 additional Series B shares[347][349] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, PAVmed recognized its first revenues of $0.5 million but incurred a $50.3 million net loss due to surging operating expenses, funded by significant financing activities including Lucid's IPO, with management asserting sufficient liquidity for at least one year Results of Operations In 2021, the company reported $0.5 million revenue and a gross loss, with operating expenses surging to $54.3 million due to increased sales, marketing, G&A, and R&D, resulting in a $50.3 million net loss attributable to PAVmed Inc. Consolidated Results of Operations (in thousands) | | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $ 500 | $ — | | Cost of revenue | $ 585 | $ — | | Gross profit (loss) | $ (85) | $ — | | Sales and marketing | $ 8,895 | $ 2,789 | | General and administrative | $ 25,566 | $ 9,599 | | Research and development | $ 19,847 | $ 10,963 | | Total operating expenses | $ 54,308 | $ 23,351 | | Loss from operations | $ (54,393) | $ (23,351) | | Net loss attributable to PAVmed Inc. | $ (50,347) | $ (34,276) | - The $16.0 million increase in G&A expenses was primarily due to an $8.5 million increase in stock-based compensation, a $4.2 million increase in consulting services, and a $2.2 million increase in compensation costs[383] - The $8.9 million increase in R&D expenses was mainly driven by a $7.8 million increase in development costs for clinical trials and professional fees for key projects like EsoCheck, CarpX, and digital health initiatives[384] Liquidity and Capital Resources The company's 2021 financing activities provided $104.3 million in net cash, primarily from Lucid's IPO and common stock offerings, with management asserting sufficient liquidity for at least one year through existing cash and subsequent financing commitments - The company ended 2021 with $77.3 million in cash, a significant increase from $17.3 million at the end of 2020[470] - Net cash used in operating activities was $40.6 million in 2021, up from $21.9 million in 2020, reflecting increased spending on commercialization and R&D[482] - Net cash provided by financing activities was $104.3 million in 2021, primarily from Lucid's IPO ($62.0 million gross) and PAVmed's common stock offerings ($55.0 million)[482] - All convertible notes were repaid in full during the first three months of 2021[398][579] Critical Accounting Policies Key critical accounting policies include Revenue Recognition (ASC 606), Stock-Based Compensation (Black-Scholes model), Financial Instruments (fair value option for convertible notes), and Income Taxes (full valuation allowance on deferred tax assets due to operating losses) - Revenue Recognition: Follows ASC 606, recognizing revenue as performance obligations are met; for 2021, this related to a commercialization agreement with a fixed monthly fee[408][494] - Stock-Based Compensation: Uses the Black-Scholes model for stock options, requiring estimates for inputs like stock price volatility and expected term; the fair value of Lucid's stock prior to its IPO was estimated using a PWERM methodology[506][607] - Financial Instruments Fair Value: Convertible notes were measured at fair value (Level 3 inputs) using a Monte Carlo simulation, with changes in value recognized in earnings[411][577] - Income Taxes: A full valuation allowance has been established against net deferred tax assets due to the company's history of operating losses, making it more-likely-than-not that these assets will not be realized[420][519] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported during the fiscal year - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[432] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[435] PART III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, security ownership, and accountant fees, is incorporated by reference from the company's definitive 2022 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's upcoming 2022 proxy statement[440][441][442][443][444] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, corporate governance documents, material contracts, and Sarbanes-Oxley certifications - This section contains the list of all exhibits filed with the 10-K, including the company's articles of incorporation, bylaws, material agreements, and executive certifications[449][451] Financial Statements Report of Independent Registered Public Accounting Firm Marcum LLP issued an unqualified opinion on the consolidated financial statements, noting the valuation of Lucid Diagnostics Inc. common stock prior to its IPO as a critical audit matter due to complex judgments - The auditor, Marcum LLP, expressed an unqualified opinion on the company's consolidated financial statements[460] - A Critical Audit Matter was identified concerning the valuation of Lucid Diagnostics Inc. common stock prior to its IPO, due to the subjective and complex judgments required for Level 3 fair value inputs[466][467] Consolidated Financial Statements The consolidated financial statements show $87.0 million in total assets and a $50.3 million net loss for 2021, with $40.6 million net cash used in operations offset by $104.3 million from financing activities Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $ 77,258 | $ 17,256 | | Total current assets | $ 82,637 | $ 18,941 | | Total assets | $ 86,976 | $ 19,778 | | Liabilities & Equity | | | | Total liabilities | $ 7,558 | $ 20,251 | | Total Stockholders' Equity (Deficit) | $ 79,418 | $ (473) | | Total Liabilities and Stockholders' Equity | $ 86,976 | $ 19,778 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenue | $ 500 | $ — | | Loss from operations | $ (54,393) | $ (23,351) | | Net loss attributable to PAVmed Inc. | $ (50,347) | $ (34,276) | | Net loss per share (basic and diluted) | $ (0.65) | $ (0.72) | Consolidated Cash Flow Data (in thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (40,591) | $ (21,914) | | Net cash used in investing activities | $ (3,716) | $ (55) | | Net cash provided by financing activities | $ 104,309 | $ 33,006 | | Net increase in cash | $ 60,002 | $ 11,037 |