PAVmed Inc

NASDAQ:PAVM

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and welcome to PAVmed's Second Quarter 2024 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 Director of Investor Relations. Please go ahead.

[Michael Parks, executive]

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 of PAVmed.

The press release announcing our business update and financial results is available on PAVmed's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release and the 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 the statements made.

Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission. 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 the quarterly reports on Forms 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 the 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, Chairman and CEO of PAVmed. Take it away, Lishan.

[Lishan Aklog, executive]

Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. Before proceeding, I'd like to thank long-term shareholders for your ongoing support and commitment.

As we discussed in recent calls, our updated strategy for PAVmed has been to strengthen its finances and long-term stability by seeking to have each of its subsidiaries be independently financeable and well positioned to leverage PAVmed's shared infrastructure. I'm pleased at the progress we've made on this front.

Lucid remains PAVmed's strongest asset and has been able to independently finance its operations and, as we discussed in yesterday's Lucid earnings call, is making solid progress over multiple fronts towards fulfilling its large commercial potential. PAVmed's 2 other subsidiaries are also headed in a positive direction, consistent with this strategy. As we'll discuss later, Veris Health is close to securing an independent financing round and the PMX incubator is deep in the process of securing financing for PortIO. Both of these at attractive valuations.

Let's start with some highlights from the second quarter and recent weeks. Again, starting with Lucid Diagnostics, just briefly. Second quarter EsoGuard revenue was flat but test volume increased approximately 31% quarter-on-quarter and 44% year-on-year, and it was a record quarter for us. An important highlight is that we had a productive meeting with the CMS Medicare contract for MolDX program and look forward to being able to follow up on that meeting with the submission of our data. We held our first large CheckYourFoodTube event with upfront contracted payments, an important milestone with regard to us being able to translate test line growth and CheckYourFoodTube events with revenue and revenue growth.

At Veris Health, our focus has been on our pilot program with the Ohio State's James Cancer Center, and we have, as we'll discuss later, our first patients onto the platform. As I mentioned, we are in the process of raising capital into Veris, and we expect the first tranche to close very soon. Concurrent with that we're preparing to relaunch the development of our implantable monitoring, which we will begin once we have secured that financing.

And as I mentioned for -- under the PMX incubator, we're focused on raising capital for PortIO.

Just a quick overview for those of you who might be new to the PAVmed story. Here's our corporate structure. PAVmed operates by offering shared services, entire infrastructure of shared services on behalf of its subsidiaries. The subsidiaries include, as I mentioned, Lucid Diagnostics, our publicly traded diagnostic company; Veris Health, a privately held digital health company; our incubator, PMX, which was recently launched, which is focusing on one of the products in our portfolio, PortIO. And the structure is designed to allow us to bring in other assets, other technologies under this umbrella and in shared services model.

So let's start with Lucid. Again, I'll be brief here. I would really encourage you to refer to the webinar from yesterday as well as our press release for further details. As you can see here, Lucid's test volume grew to a record level in the last quarter, and our revenues have held up and have remained flat quarter-on-quarter. The numbers are shown here: revenue flat quarter-on-quarter, up 500% annually; test volume, up 31% quarter-on-quarter and a record quarter and up 44% annually. As we mentioned yesterday, we held over 50 high-volume health fair events that we refer to as CheckYourFoodTube pre-cancer testing events. And we had the first one of those which allowed us to get upfront contracted payment.

The key strategic accomplishments, as I emphasize later, really relate to our clinical evidence Phase 2 studies, the ENVET-BE clinical utility study and the EsoGuard-BE-1 clinical validation study, had new data released and are pending peer review publications. And another critical study, the Cleveland VA clinical validation study, completed peer review publication. Our meeting with the MolDX program was very productive until last month, and we look forward to submitting our data and working with the MolDX team to secure Medicare coverage for EsoGuard.

I'll transition now to a bit of an overview on Veris Health. So Veris Health is a commercial-stage digital health company that seek -- we seek to enhance personalized cancer care and consists of 2 components. One is the Veris Cancer Care platform. This is a software platform, which includes a patient care module and a physician or a caretaker module. And they interface with a box of connected devices, Bluetooth-connected devices that provide physiologic information for the clinicians to improve the care of the patient.

We have an implantable monitor that's under development that will seek to provide continuous data for the patient and interface with the platform. The vision of the company is to utilize modern remote patient monitoring tools to improve care through early detection of complications, establish longitudinal trends and risk management. The implantable was on hold pending financing. And as I mentioned, we're close to securing financing and look forward to restarting the implantable monitor project.

As we discussed on previous calls, our focus has been on large academic center strategic accounts. We have been engaged with The Ohio State University under a memorandum of understanding. And this past June, we launched our pilot program consistent with that MOU, was launched in the Bone Marrow Transplant and Gynecology Oncology units. Approximately 26 patients have been onboarded to date. And we've had our first patient success story in mid-July that demonstrated that our platform's ability to pick up signs of clinical deterioration resulted in a patient returning to the hospital and getting care, avoiding complications. Our plan is, upon completion of this pilot study, to transition to a full clinical engagement and seek other potential strategic partnerships with the University. And based on the success of this pilot on this engagement, we look to continue our strategy to identify other large academic cancer centers to partner with in a similar fashion.

So I briefly mentioned the Veris implantable monitor, but here's some further details. The goal here is to have a monitor that can be implanted in conjunction with a vascular access port. You could see on the right there, the purple structure is a typical vascular access port, and our implantable monitor is designed to be implanted in conjunction with that. It has a variety of key features and can detect continuous cardiac monitoring activity, have the patient-triggered event monitor. It can attract temperature, respiratory rate and has Bluetooth connectivity so we can -- it can deliver that information without any involvement of the patient and assures 100% compliance with the requirements for billing under remote patient monitoring.

So we've had a clear path to FDA clearance at commercial launch. We've completed multiple meetings with the FDA. And we have been poised to relaunch this development and pursue FDA clearance, and we expect to do so shortly once this upcoming financing is closed. We did have some final pre-submission meetings with the FDA that went well, and we already started the process of reengaging with vendors to plan the relaunch upon the completion of this financing.

Moving on to our incubator. We talked about this briefly over the last call. Well, the incubator is a partnership between PAVmed and a experienced group in the med tech space called Hatch Medical. We've decided within this incubator to focus on one product that we have been developing, but put on pause a couple of years ago, and that's PortIO. PortIO is a direct long-term access to the bone marrow that can reduce complications and infection rates as an alternative for venous access. It addresses a very large unmet need and a very diverse target population, including patients with poor venous access and renal failure, large -- a large total addressable market, really solid IP protection. And it's been used in humans. We've successfully completed our first-in-human study, and we have a clear path to FDA clearance. So we are now actively raising capital to fund PortIO and fund the completion of the IDE study as well as completion of the second-generation version. We're looking forward to procuring that financing and getting this project off the ground again.

With that, I'll pass the baton over to Dennis to give us our financial update.

[Dennis McGrath, executive]

Thanks, Lishan, and good morning, everyone. Our summary financial results for the second quarter reported in our press release was published last night. On the next 3 slides, I'll emphasize a few key highlights from the quarter. But I encourage you to consider those remarks in the context of full disclosures covered in our quarterly report on Form 10-Q.

With regard to the balance sheet, cash at quarter end June 30 was $25.5 million. During the quarter, we added $11.6 million to that amount with the Lucid financing previously announced. The average quarterly burn rate for the trailing 4 quarters is $11.6 million per quarter.

We disclosed in the 10-Q that our ability to fund operations be on 1 year from today is largely dependent on how revenues ramp over the next 4 quarters, which is dependent on how the reimbursement landscape for both government and private health insurers continues to improve for EsoGuard. Additionally, our direct contracting efforts with self-insured employers and our corporate finance activities, including refinancing any outstanding debt at the time, can also work to exceed that threshold. Furthermore, as we advance the initiatives, both with PMX incubator and Veris Health, particularly in connection with The Ohio State University Cancer Care Center, any direct financing into either of these subsidiaries will further satisfy that threshold. The change in other assets is largely related to the 3-year lease renewal for Lucid Lab in California, which is accompanied by a similar increase in other current and long-term liabilities.

The sequential decrease in the fair value of the convertible notes is largely related to principal reductions in the Lucid convertible note through conversion notices and issuances of Lucid shares in satisfaction of that note. As mentioned on our Lucid call yesterday, during the quarter, Lucid issued 2.1 million shares in satisfaction of conversion notices during the quarter. Shares outstanding included -- including unvested restricted stock awards as of last week are 10.3 million shares outstanding. The GAAP outstanding shares of 9.6 million are reflected from the slide as well as the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested restricted stock awards.

With regard to the P&L, this slide compares this year's second quarter to last year's second quarter on certain key items. Trust you'll review the information in my comments in light of the cautionary disclosure on the bottom of slide about supplemental information, particularly non-GAAP information. Revenue of approximately $1 million for the second quarter is about even with the previous 2 quarters and reflects a sixfold increase over the prior year second quarter.

As detailed on our Lucid quarterly call yesterday, Lucid performed nearly 3,200 tests in the quarter, representing approximately $8 million in billable claims submitted for insurance reimbursement. However, Lucid cash collections generally limit the amount of recognized revenue from the amounts billed to insurance companies. Consequently, Lucid's portion of PAVmed's consolidated revenue is approximately $965,000 after elimination of intercompany transactions.

For those of you that are new to our PAVmed earnings call, comment on Lucid revenue recognition is worth repeating. The key determinant in the amount of billable revenue that can be recognized is the probability of customer payment. Therefore, due to the fact that we are in the early stages of reimbursement process means revenue recognition claims submitted to traditional government or private health insurers will be recognize when the claim is actually collected versus when the patient report is delivered, invoiced and submitted for reimburse. As you'll see in our 10-Q, this is called variable consideration in the normal jargon of GAAP's ASC 606 revenue recognition guidelines, and presently, there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. For billable amounts contracted directly with employers and are fixed and determinable will be recognized as revenue when our contracted service is delivered, generally means when the report is delivered to the referring physician.

The second quarter year-over-year reduction of operating expense of about $2 million is primarily related to noncash charges in the prior year flowing through OpEx, including stock-based compensation expense, about $650,000 of R&D expenses paid in stock. Our non-GAAP loss for the second quarter of $7.7 million reflects about $1 million sequential improvement compared to the first quarter loss and about a $2.5 million improvement year-over-year from the prior year quarter. The non-GAAP loss per share for the second quarter was $0.84 per share. On a GAAP EPS basis, out of the $1.19 loss per share, noncash charges accounted for approximately $0.35 per share in the second quarter, and that's largely related to the convertible debt charges and the stock-based compensation expense.

With regard to non-GAAP operating expenses on this slide, you'll see a graphic illustration of our operating expenses over time and -- of which are also presented in detail in our press release. Total non-GAAP operating expense is $12.3 million for the second quarter 2024 and, as you can see, is in line with the first quarter levels and the year-over-year amounts. Also worthy of repeating are some reimbursement stats related to the first 6 months of 2024, as mentioned on our Lucid call yesterday.

In the second quarter of this year, we billed 3,174 tests, reflecting just under $8 million in pro forma revenue. During the second quarter, we collected $976,000. Of that amount collected, about 35% of the $976,000 claims paid were from those submitted in the current quarter, about 45% from claims submitted in the first quarter and the balance of the claims were submitted last year with the longest-dated item from about 12 months ago.

Our revenue cycle manager is reporting that turnaround times have been increasing for the largest payers. We've seen an increase in claims being designated medically not necessary. The revenue cycle manager is a mitigation plan for both issues, including increasing the speed to follow up with late payers and proactively soliciting medical records for using appeals at an earlier stage in the process.

We submitted reimbursement claims for nearly 5,600 claims during the first half of this year, representing just under $14 million in pro forma revenue. About 77% have been adjudicated, and 23% are pending. Out of the 77% that have been adjudicated, about 25% resulted in an allowable amount by the insurance company with a weighted average of about $1,540 per test. Of those denied, about 43% are deemed not medically necessary or require a prior authorization. Additionally, about 26% were deemed to be noncovered.

With that, operator, let's open it up for questions.

[Operator]

[Operator Instructions]. And your first question comes from the line of Ross Osborn with Cantor Fitzgerald.

[Junwoo Park, analyst]

This is Matthew Park on for Ross. I was just hoping if you could provide more color in terms of the scale of the pilot launch and I guess your time line to full launch and when we should start to see revenue coming forward.

[Lishan Aklog, executive]

Yes. So the pilots going on pace. We've -- since we're about 1/3 of the way through, it's designed to follow to have 100 patients enrolled on the platform. And it's going well. The purpose of the pilot was -- so this is a large medical center. They are the third largest cancer center in the country. And it's really about making sure that we're aligned with logistics, with regard to how they handle calls and incoming notifications, and all of that is really going very well.

So we expect the pilot to wrap up in several months. And then we'll look to, based on the success of that, transition to not just a full commercial engagement, but we're really looking forward to finding ways to engage strategically with the institution on a variety of fronts, consistent with what we described in the memorandum of understanding and then, of course, using this as a prototype to engage with other large academic cancer centers along the way.

[Junwoo Park, analyst]

Got it. That's helpful. And then I guess following up on that, would you walk us through your pipeline of additional contracts? And any conversations you guys are having right now with large centers?

[Lishan Aklog, executive]

Yes. We do have a pipeline of a dozen or so large centers and have active conversations with several of them. We expect those to move forward and accelerate really upon completion of this pilot. Sorry, Veris has been -- we've been careful with our expenditures and our operating expenses to focus on this particular account as a driver to be able to secure financing to drive -- to restart the development of the implantable monitoring and so forth. And as I've mentioned, that strategy is working, and we're close to securing some additional financing. I believe once we do and once we complete this pilot, we'll be able to start securing additional accounts.

[Junwoo Park, analyst]

Got it. That's helpful. And then I guess just one more on my end. Coming from the implantable under pending additional financing, have you guys provided longer-term guidance on when you expect to submit the monitor for approval and I guess the steps that you guys take to get there?

[Lishan Aklog, executive]

Yes. The time line for submission, the pathway to clearance has all been pretty well worked out. We've had -- as I said before, we had multiple meetings with FDA. We've done a variety of preclinical studies at their request. And so we feel like we're in pretty good shape, have a pretty predictable path.

And if we are able to secure that financing soon and to be able to relaunch the development of the product, that'll take some time. It takes some time to bring vendors back online and to get back to where we left off. But we're looking at sometime mid-next year 2025 as a reasonable target for FDA submission. And once we're submitted, we believe the clearance path is pretty straightforward.

[Operator]

[Operator Instructions]. Your next question comes from the line of Anthony Vendetti with Maxim Group.

[Anthony Vendetti, analyst]

I think you may have answered the question, but I just want to clarify. So when you're talking about the financing, you were talking about for Veris, not for the incubator, correct?

[Lishan Aklog, executive]

Well, for both. Yes, we mentioned that for both. The Veris one is furthest along. And again, just to maybe use this as an opportunity to reiterate that's PAVmed's new model, right? We have a shared services model. We have subsidiaries, and we're seeking to raise capital into each of the subsidiaries. Obviously, Lucid has done that well over the past couple of years. And we're looking for the first time really to raise capital directly into Veris. And the incubator that we launched a couple of quarters ago is designed also to raise capital, not just into the incubator itself, but into individual corporate entities that hold individual assets, such as PortIO.

[Anthony Vendetti, analyst]

Okay. Great. And at this point, though, it's not a spinoff into an IPO like Lucid, correct?

[Lishan Aklog, executive]

No. No. We don't think that the markets are really amenable to that right now. This is just simply where do we raise the capital to advance these technologies. And our conclusion earlier this year was that to take advantage of PAVmed's shared services model and the infrastructure that we've created and to advance other assets beyond Lucid, that each of those assets would have to raise its own capital privately, but not at the -- the public markets really are not the place right now for these early-stage assets.

[Anthony Vendetti, analyst]

Agreed. Yes. No, that makes sense. So based on your best estimate, you expect Veris -- you expect to have funding for Veris in place before the end of the year and then submit to the FDA by mid-'25. Is that correct?

[Lishan Aklog, executive]

Yes. That sounds about right. I think -- as I said, I think the financing is -- that effort is going well. We're hopeful to close on an initial tranche that will allow us to get things off the ground actually pretty soon. So that's -- those broad estimates with regard to timeline are reasonable.

[Operator]

And your next question comes from the line of Ed Woo with Ascendiant Capital.

[Edward Woo, analyst]

I had a very general question about valuations. Have you seen valuations change significantly in terms of when you're going out trying to raise funding for the incubator as well as for Veris?

[Lishan Aklog, executive]

Yes. I mean, I think, obviously, it depends on the individual asset. Veris is further along, although PortIO has actually been advanced quite far and was just waiting the launch of the clinical study, IDE study. So we've been -- again, these are not closed yet, so I don't want to speak prematurely. But we -- yes, they're both strong assets, and we've been pleasantly surprised at the interest and valuations that we believe we can close these transactions.

[Operator]

And I'm showing no further questions at this time. I would like to turn it back to Dr. Lishan Aklog for closing remarks.

[Lishan Aklog, executive]

Great. Thank you very much, operator, and I'd like to thank our colleagues for their excellent questions. Again, we're really, really excited about this important transition point for PAVmed and for our subsidiaries, Veris and the incubator, in particular. And we look forward to keeping you abreast of our progress via news releases or periodic calls, such as this one, and encourage you to keep up with our news updates and events by signing up for e-mail alerts on our PAVmed Investor Relations website and to follow some social media on Twitter and LinkedIn.

So thank you, everybody, and have a great day.

[Operator]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.