PAVmed Inc. Q3 FY2023 Earnings Call

Good day, and welcome to the PAVmed Third Quarter 2023 Business Update Conference Call. All participants will be in a listen-only mode. After today's remarks, there will be an opportunity to ask questions. Please also note that today's event is being recorded. I would now like to turn the conference over to Michael Parks, Vice President of Investor Relations. Please go ahead, Michael.

Thank you, Operator. Good morning, everyone, and thank you for participating in today's third quarter 2023 business update call. The press release announcing our business update for the company and financial results for the three and nine months ended September 30, 2023 is available on the PAVmed website. Please take a moment to read the disclaimer about forward-looking statements. The business update press release and this conference call both 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 statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. Securities and Exchange Commission. For a list and description of these and other important risk factors or risk factors and uncertainties that may affect future operations, see Part 1, Item 1A entitled Risk Factors, and PAVmed's most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed in quarterly reports on Form 10-Q and any subsequent Form 8-K filings. 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, PAVmed Chairman and CEO.

Thanks, Mike, and thanks everyone for joining us this morning. We look forward to providing you with this update on PAVmed's business and finances. First, a quick reminder that we held a separate business update call for PAVmed subsidiary Lucid Diagnostics yesterday. Today I will limit my comments on Lucid's business to key highlights. I would encourage you to view the recording of yesterday's call, which is available on the Lucid website, for further details from Lucid's business update. First some quick background. PAVmed is a commercial-stage medical technology company with two subsidiaries, which are marketing commercial products, privately held Veris Health and NASDAQ-listed Lucid Diagnostics. As the parent company, PAVmed provides a shared services infrastructure, including management services to each subsidiary. The model drives substantial economies of scale and an infrastructure which facilitates licensing or acquisition of high-value assets, such as Lucid and Veris. We implemented a strategic restructuring in early 2023 to focus substantially all of our resources and efforts on our two commercial enterprises, Lucid and Veris. And this update will reflect that strategy. That said, I'll briefly note that we have one active internal R&D project in partnership with Novosound to develop a next-generation intravascular ultrasound device. That progress is progressing very well, having completed two of three milestones. I will also note, as I have in recent calls, we remain very active on the business development side since current market conditions offer a plethora of high-value assets which may provide real opportunities to enhance PAVmed shareholder values. Let me start with some highlights for Veris and Lucid before proceeding to a deeper dive on Veris update. Veris Health is undergoing a commercial restructuring and expansion that is currently underway under the leadership of our President, Gary Manning, who started several months ago. We have active strategic discussions with large academic medical centers and feel there's great promise there. Our next generation of Veris Cancer Care Platform is scheduled to launch this quarter. And we have active discussions with large biopharma companies on the Cancer Care Platform's biopharma module to serve as a digital companion for novel cancer therapeutics. Finally, the implantable monitor is progressing towards FDA submission and commercial launch in 2024. As I mentioned yesterday, Q3 has been the most important quarter in Lucid's history as we've crossed several critical milestones in translating study test volume growth into revenue and revenue growth. Briefly, quarterly EsoGuard test volume grew 17% and quarterly revenue growth increased 376%. Our revenue cycle management upgrades has demonstrated solid progress in the first full quarter reporting. Clinical utility studies with near-perfect results have had their results released and two of them have been accepted for peer review publication, one is pending. Our direct contracting initiative has netted its first employer contract and our new VP of employer markets is offering EsoGuard as a benefit to employers. And finally, as we announced this week, EsoGuard 2.0 is launched with clear benefits in performance as well as in the per sample assay costs. Let's now proceed to a deeper update on Veris. Veris Health is a commercial-stage digital health company that seeks to enhance personalized cancer care. We have two features. One is the Veris Cancer Care Platform, which has a patient module that operates from a smartphone and is able to transmit physiologic parameters from connected devices as part of our Veris box. It also includes a clinician portal where that data is presented to clinicians and provides a variety of opportunities for the cancer care team to interface with the patient and enhance their care. We also have an implantable monitor that's in the works, that is designed to be implanted at the same time as a chemotherapy or immunotherapy port. Veris's mission is to utilize modern remote patient monitoring tools to improve care through early detection of complications, longitudinal trends, and risk management. The opportunity to improve patient outcomes, increase workflow efficiency, and lower costs results in a substantial market opportunity. There are millions of hospitalizations for cancer per year, and about two-thirds of them are unplanned admissions with substantial costs to the hospital. And 20% of these unplanned admissions are likely preventable. This results in a total addressable market opportunity of approximately $2 billion. The business model is very attractive. It's a software as a service recurring revenue model that leverages established remote patient monitoring codes. It also provides Veris with additional revenue opportunities through enhanced technical support and charging for clinical integration, as well as revenue opportunities directly derived from the implantable device. It allows the clinical cancer care practice to leverage value-based models, such as the Enhancing Oncology Model that CMS provides. A few updates on our commercial execution. We remain focused on several early adopters, which are small to medium oncology practices, and we spent the last several months focused on really ironing out the custom integration and customer support, engaging with patients, making sure that patients are able to report their data to streamline that process for practice operations and billing. Much of the feedback that we've received from these early adopters and early engagements have been incorporated into our next generation 2.0 version of the Veris Cancer Care platform, which is completing its development and is expected to launch this quarter. As I mentioned earlier, we've undergone a significant restructuring and expansion of our commercial team under Gary Manning's leadership since he took over several months ago. We recently hired two new market development managers with experience in this area that are now actively calling on cancer care practices across the country to expand the number of accounts that we have under our belt, now that we have the next generation product that incorporates the feedback from our early adopters. We are, as I mentioned, in active strategic discussions with large academic cancer centers. The pathway for engaging with them is rather different and it always takes longer. We're very excited about a couple of leads here which we hope to consummate into active accounts in the near term. As we introduced in our last call, there's a separate opportunity, the Bio Pharma opportunity that we're very excited about and we are aggressively pursuing. The goal here is for the Veris platform to act as a companion solution for post-market surveillance of novel oncology drugs. The numbers are quite impressive. It costs about $40 million per study to execute a Phase 4 post-marketing surveillance study for clinical study for oncology therapeutics and essentially all clear drugs are required to undergo that. Every day on the market costs about $2.7 million for a $1 billion blockbuster drug. The goal here is to use the platform to create value for both the biopharma companies and the oncology practice through certified clinics to administer new therapies. It allows drugs to move up the chain of therapy. So, for example, if it's initially cleared as a third or fourth line drug to move as a second and first line drug with dramatic economic impact to the company and to increase patient adherence to care pathways that are well-defined during the post-market surveillance period. So we have active discussions with several large pharma companies to see if we can engage them to have the Veris Health platform and the biopharma module serve in this role. We previously talked about the full spectrum of opportunities, both in the drug development phase, around the time of FDA submission. But our initial focus right now, where we believe the greatest opportunity for near-term commercial impact is in the post-FDA approval phase, where during this market surveillance. And that can include existing drugs that are working their way up the chain of therapy, as I previously explained. As we have previously announced, we are also transitioning the Veris platforms from its current status within the regulatory framework as a medical device data system, which is only displaying medical data for clinicians without modification into a software as a medical device, which under FDA regulations is intended for use in diagnosing or treating patients. The upgrades of this platform to an FDA cleared software as a medical device will provide us with unlimited potential to grow into a full-fledged clinical decision support tool. Beyond just being a remote patient monitoring tool that transmits information, we'll be able to provide patient threshold alarms, alerts, notifications, triage, and digital biomarkers based on AI and machine learning models for patient risk profiling. So that process is progressing for an FDA 510K submission as software as a medical device in 2024. I am very excited with the solid progress we are making on the Veris implantable monitor. This monitor is designed to have physiological monitoring capabilities, which can be implanted in conjunction with an implantable vascular access port, which approximately 50% of cancer patients receive to deliver their chemotherapy or immunotherapy. The key features will include continuous cardiac monitoring, activity monitoring, temperature, respiratory rate, and Bluetooth connectivity that will supplement the existing external connected devices. We have had multiple successful FDA pre-submission meetings, seeking feedback on various design features, and those have all gone extremely well. We are progressing towards FDA submission and commercial launch next year. Once we have this in place, it will be a game changer for the platform as it assures 100% patient compliance with remote patient monitoring billing requirements and provides substantial added value on clinical care and economics for the medical practice and institution. As I stated, I'll keep the overview of Lucid's business to some highlights from the third quarter. These were again covered in substantially greater detail on yesterday's Lucid call. On the commercial execution side, we performed 2,575 EsoGuard tests, which is a 17% quarter-on-quarter growth and 137% annual growth. Revenue of $784,000, reflects nearly 400% quarterly growth and nearly double on an annual basis. We have strong contributions from our satellite Lucid test centers and our high-volume testing events, and we're gaining traction with several important strategic accounts. Other strategic accomplishments are that we recently upgraded our revenue cycle management infrastructure and processes and the early results of that have continued and are delivering solid results with EsoGuard claims processing and payments. We've had a substantial boost to our clinical utility data to support in-network payer coverage engagement. We have over 1,500 patients across three studies released, and two of these have been accepted for peer review publication with one pending. We are accelerating activity and direct contracting with employers to offer EsoGuard as a benefit. Our first contract is signed, testing has begun and our new VP of Employment Markets is hired and will be starting this week. As we announced this week, our EsoGuard 2.0 assay has been launched in our laboratory in Orange County, California, with improved performance and lower costs. I'll just point out the steady test volume growth, which represents eight consecutive quarters or two full years of quarter-on-quarter growth to 2,575 and indicates substantial laboratory manufacturing capacity, which is currently over 10,000 tests per quarter.

Thank you, Lishan. Good morning, everyone. Our summary financial results for the third quarter were reported in our press release published last night. On the next three slides, I'll emphasize a few key highlights from the quarter. I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q that was filed with the SEC and is available on our PAVmed website. Our balance sheet demonstrates cash of $26.4 million, reflecting a sequential burn rate of $10.7 million. We have successfully cut our burn rate in each of the first three quarters of this year, reflecting a quarterly burn rate reduction of more than $6 million since the fourth quarter of last year for an average reduction of $2 million in each successive quarter. These improvements are related to the cost control initiatives we put in place at the beginning of the year with continued improvement in each successive quarter. The cash balance does not reflect the $5 million in additional Lucid funding shortly after the end of the quarter, nor the remaining $10 million draw available to us under the Securities Purchase Agreement signed in March of 2022, nor other resources available at the PAVmed and Lucid entity levels. On a pro forma basis, including the remainder of the securities purchase agreement, and assuming the net burn rate is sustained at this level, our runway is about a year. Furthermore, as cash collections continue to accelerate, as we will talk about in a second, this can further throttle the burn rate for the upcoming quarters. Vendor payables can vary by quarter based on the timing of receipt of vendor invoices. Although accounts payable is up sequentially, the balance sheet and the 10-Q reflects a decrease from the beginning of the year. Other current liabilities of $1.6 million increased, primarily due to accrual for certain insurance renewals that get paid over the next year and have an offsetting amount in current assets as prepaid amounts. Convertible debt shows a net sequential increase of $2 million, largely related to an increase in the non-cash charge in fair value adjustments, offset by debt repayments via conversions to common stock during the quarter. Other long-term liabilities are from capitalized leases related to our lab and office spaces. Shares outstanding include unvested restricted stock awards as of today, which equals 120.8 million shares. The GAAP outstanding shares of 119.7 million are reflected on the slide as well as on the face of the balance sheet in the 10-Q. Slide 17 compares this year's third quarter to last year's third quarter, and similarly for the nine-month totals on certain key items. Revenue for the third quarter largely reflects Lucid actual cash collections for the quarter for insurance reimbursement claims, plus invoiced EsoGuard to the Veterans Administration, plus invoiced amounts for the Veris Cancer Care Platform. Integral to our financial strategy, we highlighted the major change and upgrade we made to Lucid's Revenue Cycle Management Company. Recognized Lucid revenue of $783,000 substantially reflects cash collections in the quarter compared to the pro forma revenue of about $5 million for submitted claims of nearly 2,600 tests. As mentioned in the Lucid call yesterday, fourth quarter collections so far are trending 33% higher than the average for the entire prior quarter. The third quarter Veris revenue reflects the initial onboarding of patients across the first two onboarded cancer care centers during initial customer acceptance processes that included validation, customization, and integration with the respective EHR systems. Both clients are reporting they are quickly cash flow positive on the platform. The key determinant for Lucid revenue recognition is the probability of collection. Therefore, due to the early stages of our reimbursement process, revenue recognition occurs when the claim is collected versus when the report is invoiced and submitted for reimbursement. As for the Veris revenue, we expect to continue recognizing revenue on an incurred and invoiced basis subject to normal GAAP rules. I'll make some comments on GAAP and non-GAAP operating expenses, as well as net loss. The presentation shows year-over-year comparisons and includes sequential changes, which are more indicative of where we are heading in the upcoming quarters. Our third quarter sequential operating expenses are flat across both GAAP and non-GAAP metrics. The year-over-year operating expense comparison shows an improvement of about 30% for both GAAP and non-GAAP measures, a direct result of the cost controls established at the beginning of the year. Our third quarter non-GAAP loss per share is $0.09, a decrease of $0.01 from the second quarter and an improvement from the loss of $0.17 in the prior year third quarter. On a GAAP EPS basis, non-cash charges accounted for approximately $0.7 per share in the quarter, which included approximately $0.5 per share related to expenses from the convertible debt. If you were to normalize the loss by adding back the effect of the net convertible debt expenses, the GAAP EPS improved by $0.2 year-over-year for the quarter and improved by $0.27 year-over-year for the year to date. Slide 18 illustrates our operating expenses as presented in detail in our press release. Other than the comments already mentioned about operating expenses being relatively flat and reducing year-over-year, there is nothing remarkable in the sequential piece parts of operating expenses. It is worth noting that the pro forma marginal cost of revenue validates the model of nearly 90% Lucid margins for the next patient test. Since the new revenue cycle manager to Quadax took over in mid-June, 5,000 claims representing approximately $10 million in pro forma revenue have been submitted for reimbursement. About 70% have been adjudicated, and 30% are pending. Of the 70% adjudicated, about 39% resulted in an allowable amount by the insurance company with a mean average of $1,863 per test, nearly equivalent to the Medicare rate. Regarding denials, about 58% require either additional information or are deemed not medically necessary, or they require prior authorization. About 36% were deemed to be non-covered. With that, operator, let's open it up for questions.

We will now begin the question-and-answer session. Our first question today will come from Frank Takkinen with Lake Street. Please go ahead.

Good morning, Frank.

Hi, Frank.

Good morning. Can you guys hear me now?

Yes, we can.

I apologize. Maybe just to start on the commercial side on Veris, you mentioned a couple of comments. Obviously, there's new leadership there, a couple new market development managers. Maybe dive a little deeper into what we should expect for commercial investments related to Veris over the next couple of years or quarters?

Sure. Yes, I think the last couple of quarters have been focused on the model and the processes around getting a practice up and running. There are significant logistics involved with getting patients on the platform, including getting them their boxes and devices, integrating with the clinician portal, etc. A lot of those kinks have now been worked out, and we've had great feedback from the two practices that are heavily engaged in this process. We wanted to ensure that integration aspects operate smoothly and that the practice can effectively bill, which we have confirmed is happening. We've made a substantial amount of progress in that area, and Dennis mentioned that the practices report they are now cash flow positive. Our focus is to drive patient enrollment within existing sites and to increase engagement at those sites. We've also just hired two experienced market development managers who are now actively pursuing new accounts across the country. You should see results from these efforts in the coming quarters.

Yes, that's good color. And my second question was going to be on the pharma side of the Veris platforms. So maybe I'll continue with that thought process.

Yeah, sure.

Maybe talk about when we could see some first partnerships across the goal line? And then I know I heard your comment about focusing mostly on the post-FDA approval phase. Maybe discuss why you think that's the most logical area of development to focus on. And if there is still opportunity to work into some of the clinical trials as well in maybe Phase 2 or Phase 3 timeframes.

Right. So there’s been an evolution in our strategy regarding this as we've engaged deeper. Our initial focus was pre-submission involvement during clinical trials in the Phase 2 and Phase 3 sides, and we still see big opportunities there. However, the logistics are more complex, and the timeline for seeing potential commercial value is longer. Nevertheless, we’ve noticed there's an immediate opportunity in the post-market surveillance side. These drugs are already approved, so we’re not waiting for that process. Many drugs, particularly in oncology, are looking to demonstrate their safety profiles in real-world use, and there is a strong motivation commercially for them to collect that data quickly. Timing-wise, we are currently in active discussions with several large pharma companies that you would recognize, and we hope to finalize one or more partnerships in the near future.

Okay, that's good color. I'll stop there. Thanks for taking the question and congrats on all the progress.

Thanks, Frank.

Our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Yes, congratulations on all the progress. You mentioned that for Veris, a big opportunity in the pharma is post-FDA approval. How big is that opportunity versus drugs that are in clinical trials?

I think it's a large opportunity, if not larger, but it's most importantly a more immediate opportunity compared to the longer timelines for commercial traction in the pre-submission phase. There’s a significant push with recent breakthroughs in oncology therapeutics that are working their way into real world practice. Thus, I would say the opportunity is great, if not greater compared to drugs in clinical trials, but the timelines to commercial engagement and value are substantially shorter in the post-market phase.

For some of those who are not as familiar with this sector, typically for drugs that are therapeutics that are approved, how intensive is the monitoring post-FDA approval?

Very intensive. These approvals are conditional. They've demonstrated effectiveness in their trials, yet they have stringent requirements for post-market surveillance where data must be collected to show safety profiles replicated in actual practice. This leads to a considerable amount of data being collected and scrutinized. The manner in which these drugs are delivered is also strictly defined. All of this is conducive to a digital health companion platform, which we seek to capitalize on. The real opportunity lies in moving these drugs up the chain of therapy, which increases market potential significantly. Therefore, it is indeed a tremendous opportunity for us with our platform.

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you.

Thanks, Ed. I appreciate it.

And our next question will come from Anthony Vendetti with Maxim Group. Please go ahead.

Good morning, Anthony.

Good morning, Dennis. Good morning, Lishan.

Anthony, how are you? Good. How are you? So, just to follow up on the major academic cancer centers. Obviously, that sales cycle is probably fairly lengthy. Would it be accurate to say it's probably somewhere in the six to twelve month range? Could it be longer? Yes, I think — I'm sorry. Go ahead.

Yes, and then I know you said a number of centers that you're speaking with. How many total centers are you having conversations with? And would you qualify those as part of a qualified pipeline or are some of them early stage in various forms? Maybe just a little more color on that.

Yes, several active discussions are ongoing with some of the largest cancer care centers in the country. You are correct that lead times can be long, especially for the first one. There's an advantage in being the first one, but there's also more effort required to get the initial buy-in. I would describe this as a qualified pipeline. There are leads where we've made substantial progress, and we feel good about consummating contracts there. There are others that are earlier in the discussions. Once one commits and can showcase their platform, it may induce competitiveness among other centers. We’re optimistic about securing some near-term wins and we will continue to develop other discussions in the meantime.

Okay. And then just switching to the device. You provided a lot of detail on the opportunity to integrate the Veris platform in clinical trials as well as in the actual post-marketing of these new drugs that are in various stages of coming to market. Maybe just discuss the device itself, the software; there are concerns about cybersecurity. Could you comment on your development process and the security of that and HIPAA compliance at this stage?

I'm glad you brought that up. Let me provide you with a deeper dive on the device itself and how we've been engaging with the FDA. Our device is conceptually similar to implantable cardiac monitors that have been around for years. We're effectively following that established path with regard to FDA standards. What our device adds is that it includes, in addition to cardiac monitoring, other physiological aspects that we’ve outlined earlier, and it has a form function allowing it to be implanted with a vascular access port. We've partnered with top firms that have extensive experience in developing similar devices to ensure that the development of the software and any security aspects are addressed responsibly. The FDA has stringent standards on data collection and transmission. We’re in our last stages of pre-submission meetings with the FDA regarding various design features. We take cybersecurity and privacy extremely seriously in our device design process, which includes multiple layers of compliance. We have a robust compliance infrastructure along with dedicated cybersecurity consultants overseeing ours across all companies, ensuring that HIPAA compliance is addressed as we go.

Excellent. That's great color. And then maybe just switching briefly to Lucid. I know you did the call yesterday. You have a new revenue cycle management firm that seems to be producing the results that you're looking for. I guess on the call, Dennis you mentioned that based on the trends and where you're at, fourth quarter could be on track for $1 million or a little bit north of $1 million. Was that accurate? I didn't know if I heard that correctly, but maybe summarize that a little bit for me. Thanks.

Yes, that's correct. For the first six weeks of the quarter, the average weekly collections are about 33% higher than the average for the entire prior quarter. So just doing the simple math, you're correct. It's trending to over $1 million in collections for the fourth quarter.

Okay, excellent. Thanks very much. I appreciate it. I'll hop back into the queue.

Thanks, Anthony.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to now turn the conference back over to management for any closing remarks.

All right, great. Hey, thank you everyone for your time. Thank you for the excellent questions. We are really excited about this past quarter for PAVmed and its subsidiaries, particularly the strong quarter that Lucid achieved. We look forward to continuing that progress. We will continue to update you through quarterly calls and press releases, but in the interim, feel free to contact us with any questions. You can contact Mike Parks at mep@pavmed.com. So thank you for your time and attention, and have a great day.

This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.