PAVmed Inc. Q4 FY2023 Earnings Call

Good morning and welcome to PAVmed's Fourth Quarter and Full Year 2023 Business Update Conference Call. This call is being recorded on Wednesday, March 27, 2024. I would now like to turn the conference over to Dennis McGrath, PAVmed President and Chief Financial Officer. Please go ahead, Dennis.

Thank you, operator. Good morning, everyone and thank you for participating in today's fourth quarter 2023 business update call. A press release announcing our business update for the company and financial results for the fourth quarter and full year ended December 31, 2023, is available on the PAVmed website. Please take a moment to read the disclaimer about the 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 a description of these and other important risk factors or risks and uncertainties that may affect future operations, see Part I, Item 1A entitled Risk Factors in PAVmed's most recent annual report on Form 10-K 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 intention 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 now would like to turn it over to Dr. Lishan Aklog, PAVmed's Chairman and CEO. Lishan?

Thank you, Dennis, and good afternoon, everyone. I appreciate you joining our quarterly update call. Before we begin, I want to apologize for my scratchy voice; I'm a bit under the weather. I also want to express my gratitude to our long-term shareholders for your continued support and commitment through challenging times. We are focused on enhancing long-term shareholder value. Lucid remains PAVmed's strongest and most promising asset, and we are pleased with its commercial progress and ability to finance operations despite difficult market conditions. We aim to replicate this model more broadly and have revised PAVmed's overall strategy to enhance shareholder value through independently financed subsidiaries that can leverage PAVmed's shared infrastructure. In line with this strategy, we've updated Veris' commercial approach. We have launched our PMX incubator in collaboration with Hatch Medical and are actively pursuing groundbreaking, independently financeable technologies with significant market opportunities, regardless of center. To highlight some recent developments, starting with Lucid Diagnostics, I want to remind everyone that we had a full presentation about Lucid yesterday, and I encourage you to view that webinar or the transcript for more details. Here are some highlights: Quarterly revenue increased by 33% compared to the previous quarter, and our health fair high-volume CYFT events continue to gain traction. Our out-of-network reimbursement is improving with stable pricing. We've expanded our clinical validity and utility data to support in-network coverage, including Medicare. I will elaborate on this momentarily. For Veris Health, we've adjusted our strategy to focus on large academic and regional cancer centers, with our first engagement expected soon. We successfully held a final FDA pre-submission meeting for the implantable monitor and believe we have a clear path to FDA clearance, contingent on independent financing. Last week, we announced the launch of our wholly owned incubator, PMX, in partnership with Hatch Medical, aimed at completing the development and commercialization of our existing medtech portfolio technologies, starting with PortIO. Given Lucid's success and its ability to independently finance, we are concentrating on driving shareholder value through our investments in independently financed subsidiaries managed under PAVmed's shared services. We will pursue financing opportunities for Veris and our subsidiaries based on the PMX incubator technologies and future subsidiaries. Veris is shifting its focus to large academic centers to enhance its financeability, and the PMX launch will prioritize independently financing PortIO as a subsidiary. We are also actively seeking groundbreaking, independently financeable technologies and have several targets with significant market opportunities, leveraging PAVmed's existing infrastructure. In summary, with PAVmed providing shared services, we have Lucid Diagnostics, Veris Health as our digital health platform, and our medtech products within our privately held incubator, PMX. We are looking to add assets that align with this structure, each being independently financeable. Regarding Lucid, I recommend reviewing further details in our webinar. Our test volume stability is expected to remain in the 2,300 to 2,500 range, pending reimbursement improvements and revenue growth from our direct contracting initiatives. Since taking over and updating our revenue cycle management, we've seen revenue growth driven by out-of-network reimbursement. On the commercial execution side, we are making significant progress with our CYFT health fair testing events, which are fully booked through July. We are increasing our activity with strategic accounts and now have over a dozen large academic medical centers and regional centers. In terms of revenue cycle management, about 50% of our claims are being allowed by commercial payers, with out-of-network payment amounts stabilizing at around $1,800, just below Medicare pricing. We have strengthened Lucid's balance sheet with $18.1 million raised in preferred stock financing, bringing the total capital raised to over $100 million, including the IPO. Our clinical validity and utility data are well-positioned to support broad medical policy coverage for EsoGuard, allowing us to engage with the MolDx Group to work on local coverage determinations for Medicare. We anticipate re-engagement soon following the publication of one of our clinical validity studies. In the last month, we have been meeting with major commercial payers, using our data to request favorable medical policy determinations, and we are optimistic about our direct contracting program, where EsoGuard is offered as a covered benefit. Our team is actively pursuing this initiative, and we have a strong pipeline of employers and self-insured entities collaborating with brokers and third-party administrators to offer EsoGuard. So a bit of an overview on Veris. Veris Health is a commercial-stage digital health company that seeks to enhance personalized cancer care. It has two components: the Veris Cancer Care platform, which has a smartphone app that the patient interacts with and enters patient-reported outcome information; along with a platform that the physicians and other caretakers use to track physiologic parameters collected currently via Bluetooth-connected external devices. The long-term plan is to market an implantable monitor that works with this platform, to be inserted at the time of the implantation of a vascular access port for chemotherapy and immunotherapy, with the goal being to utilize modern remote patient monitoring tools to improve care through early detection of complications, longitudinal trends and risk management. Now about our revised commercial strategy. The goal here is to advance Veris to the point where it can raise its own independent capital. We have strong interest in that regard. We felt that the commercial strategy, targeting large, prestigious academic and regional cancer centers, was the best path to get there. These centers have large staff and a large number of oncologists and patients on infusion therapy — thousands of such patients tend to be concentrated in metropolitan areas and are typically NCI-designated comprehensive cancer centers. Many of them have venture arms, and in our conversations with them, we have had interest from these centers investing directly into Veris, which is something we are pursuing. We have a robust pipeline with over a dozen targets and multiple active discussions. At the beginning, we have one engagement that is in its very late stages, and we expect it to consummate in the near term. Our approach with these is very different than with the smaller oncology practices. These are more comprehensive engagements that start with pilot programs, and involve long-term commercial partnerships as well as other strategic collaborations, including developing care pathways, digital biomarkers, and other innovations on our platform. The Veris implantable monitor is an important future part of this endeavor, and we believe it will play a central role in advancing this technology. It assures 100% compliance with patient requirements for remote patient monitoring billing and is designed to be implanted at the time of a vascular access port insertion. This device has gone through multiple engagements with the FDA. We held our final successful FDA presubmission meeting a few weeks ago, and we believe we have a clear path to FDA clearance and commercial launch. We will push forward once Veris secures independent financing, which we hope to accomplish soon. Next, the final area that we announced recently is our new incubator, PMX. We launched PMX last week to complete development and commercialization of products — existing portfolio technologies, which many long-term PAVmed shareholders will remember. The PortIO implantable intraosseous vascular access device, EsoCure esophageal ablation device which has been licensed to Lucid for commercialization once completed; and the CarpX minimally invasive device for carpal tunnel syndrome. Each of these technologies has advanced quite far, with the CarpX device having been cleared and is undergoing second-generation product development. These had been placed on the back burner during a restructuring about a year ago, and we're excited to have launched these again through a joint venture with Hatch Medical, a very experienced group of medtech veterans who have a long history of advancing medtech technologies and brokering partnerships and strategic acquisitions. We are really looking forward to this. The structure is that we will seek to independently finance a separate subsidiary, the incubator, to develop and commercialize each technology. The first target we're just getting started on seeking financing for is PortIO, the first implantable intraosseous vascular access device. It offers solutions for patients with poor veins or the need to preserve veins for dialysis and eliminates the need for regular maintenance with flushes. It is resistant to occlusion and infections compared to traditional access devices. The estimated market opportunity, excluding the dialysis population, is about $500 million. We’ve completed the first in-human study in Colombia in 2022 with excellent device function and no complications. Using this data, we hope to add to extensive engagement with the FDA, and we believe we now have a clear path to a U.S. IDE or investigational device exemption clinical study, essential for getting a de novo regulatory clearance. We look forward to getting this financed and moving forward to fulfill its commercial potential and then in series or in parallel, pursue similar pathways for EsoCure and CarpX. And with that, I'll pass things over to Dennis to talk about our financial update.

Thanks, Lishan. Our financial results for the fourth quarter and the year were reported in our press release published last night. On the next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our annual report on Form 10-K filed with the SEC Monday afternoon and available on the PAVmed website. Cash of $19.6 million reflects a sequential burn of $11.8 million. We cut our quarterly burn rate by 31% since the beginning of the year 2023. These improvements are related to the cost control initiatives we put in place at the beginning of the year, with continued improvement each successive quarter. Obviously, the cash balance does not reflect the $18.1 million in additional Lucid funding from just two weeks ago. We disclosed in the 10-K that our ability to fund operations beyond one year from today is largely dependent upon how revenues ramp over the next five quarters, which is highly contingent on the reimbursement landscape for both government and private health insurers, along with our corporate finance activities. The change in other assets relates primarily to the normal amortization of certain intangibles, including prepaid insurance and current expenses. Regarding the convertible note, the balance reflects $37.7 million face value principal plus $6.5 million in fair value accounting convention. The principal amount is split between PAVmed and Lucid at approximately $27 million and $11 million, respectively. During the fourth quarter, the face value principal was reduced by about $1 million with the issuance of approximately 387,000 common shares. Other long-term liabilities result from capitalized leases related to our lab and office spaces. Shares outstanding, including unvested restricted stock awards, are 8.8 million. The GAAP outstanding shares of 8.6 million are reflected on the slide and the face of the balance sheet in the 10-K. Slide 17 compares this year's fourth quarter to last year's fourth quarter and similarly for the yearly totals on certain key items. Revenue for the fourth quarter largely reflects Lucid actual cash collections for the quarter for insurance reimbursable claims, along with invoiced EsoGuard tests to the VA and Ancira Auto Group under our direct contract, for a total of approximately $26,000. Testing there just got underway late in the fourth quarter. Lucid recognized revenue of $1,040,000, which represented a 33% increase over the third quarter and aligned with what was previously previewed to the market. Test volume at 2,200 tests for the quarter underlined $5 million in submitted claims for the fourth quarter at our standard ASP of $2,499. Lucid's revenue recognition policy is a key determinant, as the probability of collection necessitates recognizing revenues once actual collections are achieved, owing to the early reimbursement stages. However, contracted billable amounts will be recognized when the contracted service is delivered. Our non-GAAP loss for the year was $42 million, with a quarterly average of $10.5 million and a quarterly high of $10.9 million. The fourth quarter non-GAAP loss was $10.6 million, very much in line with our average for the year. Slide 18 provides a breakdown of our operating expenses detailed in our press release. Noteworthy is that about $850,000 of the expense increase was attributed to certain one-time fourth quarter events, equally split between clinical research, sales costs, and patent expenses. Additionally, there are some reimbursement statistics worth mentioning. Since our new revenue cycle manager, Quadax, took over in mid-June, about 7,800 claims representing almost $20 million in pro forma revenue have been submitted for reimbursement. About 82% of these claims have already been adjudicated. Out of the adjudicated claims, around 46% resulted in an allowable amount by the insurance company with an average of $1,828 allowable per test. About 29% were deemed not covered, and 54% were denied, with 51% of those requiring additional information, deemed not medically necessary, or needing prior authorization. With that, operator, let's open it up for questions.

Your first question comes from Frank Takkinen with Lake Street Capital Markets.

This is Nelson on for Frank. I was hoping you could provide some additional commentary on the biomarker legislation mentioned in yesterday's call. What are the steps to obtain coverage for that? Additionally, how do you view that opportunity affecting your business overall?

Yes. Thanks for the opportunity to elaborate on that a little bit. It's actually a really important and exciting area. As we mentioned, there are 15 states that have some type of biomarker legislation, but they vary from state to state. Each one has a different flavor and language. Generally, they seek to mandate coverage within the state by commercial payers for biomarker tests. Some of them are specific to cancer, some not. The opportunity there is great, but it requires some work regarding looking at each state individually and determining, in consultation with the commercial payers there, the language and making the case that we’re covered under that language. We’re in the early stages of those engagements, but we’re starting to get some traction. We believe that we will determine that EsoGuard, which we believe is a biomarker test for cancer prevention, will be subject to mandatory coverage by payers in that state. So there are steps involved, but the foundational language in these statutes is promising.

Got it. And then maybe switching over to Veris. How should we think about the potential revenue contribution from that in '24 and '25? I understand there's a lot of moving pieces still, but as you shift into those large academic and regional centers, how should we think about that?

Yes. I'll let Dennis maybe chime in a bit. But conceptually and strategically, we're moving away from focusing solely on existing accounts with smaller oncology practices. The cost of acquisition for these accounts was significantly higher, requiring a full sales team. Engaging with strategic accounts has longer lead times due to their nature. The names suggest a strategic dimension, hence the extended timeframes. However, while they require more time, the commercial opportunity and revenue potential are considerably higher. Dennis might have further insights. We don’t have solid projections yet, but engaging these larger accounts represents a substantial opportunity, equivalent to dozens of smaller cancer practices. Typically, we expect to start with pilot programs within cancer centers, targeting higher-risk patients first, and then gradually expanding applications. I will leave it there and see if Dennis has additional insights. We are optimistic about the sustained value creation within Veris and its financeability.

Yes, maybe just a few other data points. As Lishan indicated, these large strategic accounts have extensive patient populations, as suggested with the 10,000 patients highlighted. The top 10 cancer centers in the U.S. operate in similar frameworks with large patient pools. This is a recurring revenue model for us, and reimbursement is not an issue as it is already established. The general notion is that we would collect about $80 per patient per month for each patient on the platform. Lishan already mentioned the reduced selling costs since one person can serve a larger opportunity. Initially, the transition will consist of pilot programs with connected devices, boosting penetration and adoption from there, and ultimately incorporating implantable devices. These larger institutions often have venture arms, influencing decision-making and the financing structure. The smaller cancer centers we've started with attested to our platform's effectiveness and completeness, establishing our monitoring capabilities. It's time to upscale to these larger opportunities for better scaling and recurring revenue. Over the next two years, you will observe more progress, and while the adoption speed remains uncertain, we are optimistic about our prospects in the coming quarters.

Your next question comes from Ross Osborn with Cantor Fitzgerald.

So I understand the switch to larger centers, but I am curious to hear if the biopharma opportunity is still interesting, maybe in the post-market study space?

Yes. We didn't mention that as it’s a core focus we are pursuing with large academic centers. However, we remain engaged in discussions with two major biopharma companies. Just to remind everyone, there’s a related but separate opportunity to apply our platform technology in partnership with biopharma companies launching numerous new cancer therapies, which are often expensive and intensive and can lead to complications, thus benefitting from monitoring. These conversations focus on Phase IV, post-market surveillance studies, where newly launched drugs will be monitored to enhance patient outcomes. Yes, this area remains integral to our strategy.

Okay, great. And then, sticking with Veris, would you provide an update on where you stand in the development work on next-gen PortIO offerings?

For next gen, you mean for PortIO? I just want to make sure I heard you correctly, Ross. So PortIO is a first-generation device from our study, which demonstrated excellent results with no complications. We have a second-generation device in late development that enhances usability and structure. However, the implantable portion remains the same. We’re evaluating whether we’ll proceed directly with the first-generation device for the IDE study or transition to the second-generation midstream. We’re eager to initiate an IDE study, having engaged the FDA previously to fine-tune several preclinical aspects. We believe we are well-positioned to get an approved IDE based on the promising results of our first-in-human study.

Your next question comes from Ed Woo with Ascendiant Capital.

My question is on the recently announced incubator that you guys are developing. What is your exact responsibility? Any financial commitments for the incubator?

The incubator is a wholly owned subsidiary of PAVmed, 100% owned. We’re dropping those assets into the incubator and seeking to secure individual financing for product development and commercialization. This will be on a product-by-product basis, similar to a freestanding incubator. Our partnership with Hatch Medical incentivizes them to assist with that process product by product. However, the incubator itself remains wholly owned by PAVmed. Dennis, do you want to add any color to that?

Yes. We have a joint venture with Hatch where they will provide capital, while we contribute talent, engineering know-how, and market insights. Once a decision is made about full-scale commercialization, we’ll look to partner with commercial entities, with Hatch brokering that transaction as well. This ensures a full-service entity, combining financing, development work, and expertise to enable maximum product success.

One clarification — the entities will be raising the capital while our partnership with Hatch is intended to assist in securing financial partners and involvement in development. They will support us in all aspects, including facilitating introductions to angel networks.

For the incubator, do you plan on being the majority owner of those products spun off from the incubator? Or are you open to having minority stakes in CarpX or any other products?

Our expectation is to have target financings for each of the products that are not huge or dilutive, ensuring PAVmed retains a majority stake. Initially, the capital required for these products is moderate enough to reflect that expectation. Over the long term, we remain open to various transactions that serve our shareholders' best interests, which may include acquisitions by larger strategics. However, for initial financing to relaunch these products, we do not foresee losing majority ownership.

I agree.

Awesome. And then my final question is, how far along are you in securing independent financing for the Veris system to clear the path for FDA submission and 510(k) clearance?

We have interest and discussions with various groups who want to invest. Our strategy includes completing our first contract with a large academic cancer center to establish proof of concept before securing financing rapidly afterward. The path is looking promising. Yes. We have a structured approach based on the outlined criteria targeting NCI centers and others. There are dozens of such centers across the country, with a couple of dozen on our target list. About a dozen are the subject of active inquiries, with five or six in active discussions. One is very late-stage, while others are progressing.

There are no further questions at this time. Please proceed.

Lishan?

Sorry, I was on mute. Thank you all for joining us today and for the great questions. As always, we look forward to keeping you updated on our progress via press releases and conference calls. The best way to keep up with PAVmed or Lucid news, updates, or events is to sign up for our email alerts on both the PAVmed and Lucid Investor Relations websites and follow us on Twitter and LinkedIn. Thank you very much, everybody, and have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.