PAVmed(US:PAVM)2024-03-25 21:26Part I Business PAVmed Inc. commercializes healthcare technologies through subsidiaries, focusing on EsoGuard, Veris Health, and other products via an incubator Background and Overview PAVmed is a multi-product life sciences company, leveraging a subsidiary structure for tailored financing and advancing EsoGuard, Veris Health, and incubator products - PAVmed's corporate structure allows for flexible financing, favoring subsidiary-specific financing16 - The company's multi-fold focus includes commercializing Lucid Diagnostics' EsoGuard, seeking partnerships for the Veris Health platform, and advancing other products through an incubator model17 EsoGuard and EsoCheck Lucid Diagnostics' EsoGuard and EsoCheck are noninvasive tests for early esophageal precancer detection, focusing on commercialization, reimbursement, and regulatory compliance EsoGuard Market Opportunity | Metric | Value | | :--- | :--- | | Target Patient Population (U.S.) | 30 million individuals | | Total Addressable Market (U.S.) | ~$60 billion | | Basis of Calculation | 30M patients at Medicare payment of $1,938 | - Commercialization efforts for EsoGuard are pursued through multiple channels: - A network of physical Lucid Test Centers - A satellite test center program, including a Mobile Testing Unit, to perform procedures in physician offices - On-site testing events with organizations like the San Antonio Fire Department - A Direct Contracting Strategic Initiative (DCSI) targeting self-insured employers and unions - An EsoGuard Telemedicine Program for direct-to-consumer marketing323334 - CMS granted EsoGuard a final Medicare payment determination of $1,938.01, effective January 1, 2021. However, a final Local Coverage Determination (LCD) for reimbursement is still pending, with the company planning to submit for a Technical Assessment243839 - The FDA has proposed a policy to phase out its general enforcement discretion for Laboratory Developed Tests (LDTs) like EsoGuard. The company anticipates finalizing its response by April 2024 and believes it can meet the new requirements without a material commercial impact5152 Veris Platform Veris Health's digital cancer care platform facilitates remote patient monitoring, pursuing strategic partnerships and a recurring-revenue SaaS model - The Veris Platform is a digital cancer care solution for remote patient monitoring, designed to detect early signs of complications and improve outcomes for cancer patients61 - The total addressable U.S. market for the Veris Platform is estimated to exceed $2 billion, based on cancer prevalence and the current SaaS business model63 - The commercialization strategy focuses on strategic partnerships with leading academic oncology systems and a recurring-revenue SaaS model where institutions pay monthly fees per patient64 Incubator Program PAVmed launched PMX, a wholly-owned incubator, to develop and commercialize PortIO, EsoCure, and CarpX through independent subsidiary financing - PAVmed launched a wholly-owned incubator, PMX, in a joint venture with Hatch Medical to advance development and commercialization of its PortIO, EsoCure, and CarpX technologies6987 - The strategy involves assigning the technologies to PMX and then seeking independent financing for separate subsidiaries to develop each product with the goal of engaging a strategic partner for acquisition or distribution7088 - CarpX, a device for treating carpal tunnel syndrome, has already received FDA 510(k) marketing clearance in April 2020 and European CE Mark Certification in May 202176 Recent Developments Recent corporate activities include a reverse stock split, special dividend of Lucid shares, Nasdaq compliance issues, and a significant Series B preferred stock offering by Lucid - On December 7, 2023, the company implemented a 1-for-15 reverse stock split to regain compliance with Nasdaq's $1 minimum bid price requirement7980 - On February 15, 2024, PAVmed distributed approximately 3.3 million shares of Lucid Diagnostics common stock to its shareholders as a special dividend83 - On March 7, 2024, the company received a notice from Nasdaq for its market value of listed securities (MVLS) falling below the $35 million minimum, with 180 days (until September 3, 2024) to regain compliance86 - On March 13, 2024, subsidiary Lucid Diagnostics raised aggregate gross proceeds of $18.16 million through a Series B Convertible Preferred Stock offering and exchange9192 Risk Factors The company faces substantial risks including financial instability, going concern doubts, Nasdaq delisting risk, intense competition, and regulatory hurdles for product reimbursement Risks Related to Financial Position and Capital Resources Critical financial risks include recurring operating losses, substantial doubt about going concern, high dependency on subsidiary capital, and Nasdaq delisting risk - The company has concluded there is substantial doubt about its ability to continue as a going concern, and its independent registered public accounting firm's report contains an explanatory paragraph expressing the same concern162 - Due to difficulties raising capital directly, PAVmed is highly dependent on its subsidiaries, particularly Lucid Diagnostics, to raise funds for their own operations and to fund PAVmed's operations through intercompany agreements163164 - On March 7, 2024, the company received a notice from Nasdaq for its market value falling below the $35 million minimum requirement, giving it until September 3, 2024, to regain compliance or face delisting166 Risks Associated with Our Business Operational risks include intense competition, market acceptance uncertainty, reliance on third-party manufacturers, and challenges in protecting intellectual property - The company faces intense competition from established medical device companies that have substantially greater financial, technical, marketing, and manufacturing resources181 - The company relies on a single laboratory facility in Lake Forest, CA, for its EsoGuard test. Any damage, disruption, or capacity constraints at this facility could materially harm the business194195 - The success of the new incubator financing structure is not guaranteed and may result in substantial direct costs without insulating the liabilities of its subsidiaries from each other or from PAVmed198199 Risks Associated with Healthcare Regulation, Billing and Reimbursement, and Product Safety and Effectiveness Significant regulatory and reimbursement risks include securing adequate payment for EsoGuard and potential increased FDA oversight of Laboratory Developed Tests (LDTs) - The commercial success of EsoGuard is highly dependent on securing adequate reimbursement from third-party payors. While CMS has set a payment rate, a final Medicare Local Coverage Determination (LCD) has not yet been granted, creating uncertainty227228 - The FDA has proposed a policy to phase out its general enforcement discretion for LDTs, which would subject EsoGuard to the same regulatory approach as other in-vitro diagnostics (IVDs). While the company is confident it can comply, failure to do so could materially impact its business235236 - The company's ability to commercialize future products depends on obtaining regulatory approvals (e.g., FDA 510(k) or PMA), which requires expensive and time-consuming clinical trials with uncertain outcomes237240 Risks Associated with Ownership of Our Common Stock Common stock ownership risks include significant dilution from outstanding securities, stock price volatility, no cash dividends, and high public company compliance costs - As of December 31, 2023, a significant number of shares are issuable upon the exercise or conversion of outstanding warrants, stock options, preferred stock, and convertible notes, which could lead to substantial dilution for existing stockholders263264 - The company does not intend to pay any cash dividends in the foreseeable future, meaning any investment gains will rely solely on stock price appreciation266 - The company and its subsidiary Lucid Diagnostics incur significant legal, accounting, and other expenses as public companies, requiring substantial management time for compliance with SEC and Nasdaq regulations269 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable280 Cybersecurity The board's audit committee oversees cybersecurity risk, managed by a third-party vendor, with no material incidents reported to date - Cybersecurity risk oversight is administered by the audit committee of the board281 - The company utilizes a third-party vendor, CyberTeam, to manage its cybersecurity program, which includes identifying, assessing, and mitigating risks282284285 - The company is not currently aware of any cybersecurity threats or incidents that have had or are reasonably likely to have a material effect on the company287 Properties The company leases corporate headquarters, an R&D facility, a CLIA lab, an office, and multiple Lucid Test Centers across several U.S. states - The company leases its corporate offices in New York, an R&D facility in Massachusetts, a CLIA lab in California, an office in Pennsylvania, and multiple Lucid Test Centers across the U.S288 Legal Proceedings The company is not aware of any pending legal proceedings likely to have a material impact on its business or financial position - The company is not aware of any pending legal proceedings that are reasonably likely to have a material impact on the company289 Mine Safety Disclosures This item is not applicable to the company - Not applicable291 Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and Series Z Warrants trade on Nasdaq, facing delisting risk, with no cash dividends planned but a recent Lucid stock special dividend - The company's common stock and Series Z Warrants trade on the Nasdaq Capital Market, but on March 7, 2024, the company received a notice of non-compliance for failing to meet the minimum market value of $35 million292 - The company has not paid cash dividends and does not plan to in the foreseeable future. However, on February 15, 2024, it paid a special dividend of Lucid Diagnostics common stock to its shareholders294297 - The Series B Convertible Preferred Stock accrues dividends at a rate of 8% per annum, which are cumulative and payable at the company's election in cash, common stock, or additional preferred stock299 Reserved This item is reserved Management’s Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased revenue from EsoGuard sales, reduced operating losses, critical liquidity concerns, and recent financing activities at the subsidiary level Results of Operations Revenue increased significantly to $2.5 million in 2023, improving operating loss to $68.8 million due to decreased general and administrative and R&D expenses Comparison of Operations (2023 vs. 2022) | Financial Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $2.5 | $0.4 | | Cost of revenue | $6.4 | $3.6 | | Sales and marketing | $17.6 | $19.3 | | General and administrative | $30.9 | $41.4 | | Research and development | $14.3 | $25.3 | | Operating loss | ($68.8) | ($91.1) | - The $10.5 million decrease in general and administrative expenses was principally related to an $8.1 million decrease in stock-based compensation and a $3.5 million decrease in third-party professional fees343 - The $11.0 million decrease in research and development expenses was primarily due to a $10.1 million decrease in development costs, particularly in clinical trial activities344 Liquidity and Capital Resources The company faces substantial doubt about going concern, with $19.6 million cash at year-end, relying on subsidiary capital raises and recent debt amendments for operations - The company's recurring losses and negative cash flows raise substantial doubt about its ability to continue as a going concern beyond March 2025349350 Cash Position and Burn Rate | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Cash at year-end | $19.6 | $39.7 | | Net cash used in operations | ($52.0) | ($71.0) | | Net cash from financing | $31.2 | $38.2 | - The company amended its Senior Secured Convertible Notes to extend maturity dates to 2025 and obtained a waiver for non-compliance with financial covenants through August 31, 2024, in exchange for a $2.0 million fee323353354 - In 2023, PAVmed raised approximately $1.8 million through its at-the-market (ATM) facility. Its subsidiary, Lucid, raised funds through its own committed equity and ATM facilities328329330 Critical Accounting Policies and Estimates Key accounting policies include Revenue Recognition (estimating variable consideration), Fair Value Option for convertible notes (complex valuation), and Stock-Based Compensation (Black-Scholes model estimates) - For revenue recognition, the company estimates variable consideration from insurance payers and constrains revenue until collection is probable, which may result in no revenue being recognized upon test delivery if historical experience is limited368369 - The company has elected the Fair Value Option (FVO) for its Senior Secured Convertible Notes. This requires remeasuring the debt at fair value each period using complex models like Monte Carlo simulations, with changes in value reported in the statement of operations371374 - Stock-based compensation is valued using the Black-Scholes model, which requires significant estimates for inputs such as expected stock price volatility and the expected term of the options378380 Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable389 Financial Statements and Supplementary Data The company's consolidated financial statements and independent auditor's report are included in the Annual Report starting on page F-1 - The company's consolidated financial statements and the independent auditor's report are included in the report391 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None392 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023393 - 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, 2023396 Other Information Material modifications include a 12-month extension of Series Z Warrants; no Rule 10b5-1 trading plans were adopted or terminated by directors or officers - The company extended the expiration date of its Series Z Warrants by 12 months to April 30, 2025401 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable403 Part III Directors, Executive Officers and Corporate Governance Information for this item will be incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 Proxy Statement406 Executive Compensation Information for this item will be incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 Proxy Statement407 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item will be incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 Proxy Statement408 Certain Relationships and Related Transactions, and Director Independence Information for this item will be incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 Proxy Statement409 Principal Accountant Fees and Services Information for this item will be incorporated by reference from the company's 2024 definitive proxy statement - Information is incorporated by reference from the 2024 Proxy Statement410 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including those incorporated by reference - This section lists all financial statements and exhibits filed with the Form 10-K413414415 Form 10-K Summary The company indicates that there is no Form 10-K summary - None417 Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor's report expresses a fair opinion but includes substantial doubt about the company's going concern and identifies convertible notes valuation as a critical audit matter - The auditor's report includes an explanatory paragraph highlighting substantial doubt about the Company's ability to continue as a going concern428 - The valuation of the company's Senior Secured Convertible Notes was identified as a Critical Audit Matter due to the complexity and high degree of subjectivity in the valuation methodology433434 Consolidated Financial Statements The consolidated financial statements show decreased cash, increased liabilities, and an improved net loss for 2023, with cash used in operations offset by financing activities Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash | $19,639 | $39,744 | | Total Assets | $33,119 | $53,980 | | Senior Secured Convertible Notes - at fair value | $44,200 | $33,650 | | Total Liabilities | $57,137 | $43,046 | | Total Stockholders' Equity (Deficit) | ($24,018) | $10,934 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $2,452 | $377 | | Operating loss | ($68,795) | ($91,087) | | Net loss attributable to PAVmed Inc. | ($64,175) | ($88,983) | | Net loss per share | ($9.16) | ($15.03) | Consolidated Cash Flow Highlights (in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($52,036) | ($70,985) | | Net cash provided by (used in) investing activities | $758 | ($4,740) | | Net cash provided by financing activities | $31,173 | $38,211 | Notes to Consolidated Financial Statements Notes detail liquidity issues, going concern uncertainty, the 1-for-15 reverse stock split, federal NOL carryforwards, and a recent special dividend of Lucid Diagnostics stock - Note 2 confirms that factors such as recurring losses, negative cash flow, and the need to raise additional capital raise substantial doubt about the company's ability to continue as a going concern beyond March 2025452455 - A 1-for-15 reverse stock split became effective on December 7, 2023. All share and per-share amounts in the financial statements have been retroactively adjusted to reflect this split459460 - As of December 31, 2023, the company had approximately $236.3 million in federal net operating loss (NOL) carryforwards available to reduce future taxable income, though a full valuation allowance has been recorded against the resulting deferred tax assets611 - Subsequent to year-end, on February 15, 2024, the company distributed 3,331,747 shares of Lucid Diagnostics common stock to its shareholders as a special dividend594602