PAVmed Inc. Q2 FY2024 Earnings Call

Good morning and welcome to PAVmed's Second Quarter 2024 Business Update Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. 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.

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, please refer to 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 Form 10-Q and subsequent Forms 8-K. Acceptance required by law of PAVmed disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, or circumstances on which 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.

Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. Before proceeding, I'd like to thank our 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 with 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 on multiple fronts toward fulfilling its large commercial potential. PAVmed's two 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 add 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 Contractor 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 in translating test volume growth and #CheckYourFoodTube events into revenue and revenue growth. In Veris Health, our focus has been on our pilot program with the Ohio State James Cancer Center, and we, as we'll discuss later, have onboarded the 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 system, which we will begin once we secure that financing. As I mentioned for the PMX incubator, we're focused on raising capital for PortIO. Just a quick overview for those who might be new to the PAVmed story: Here's our corporate structure. PAVmed operates by offering shared services, an 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, and our incubator, PMX, which was recently launched focusing on one of the products in our portfolio, PortIO. This structure is designed to allow us to bring in other assets and technologies under this umbrella and utilize a 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 and the press release for further details. As you can see here, Lucid's test volume grew to a record level last quarter. Our revenues have held up and remained flat quarter-on-quarter. The numbers show revenue flat quarter-on-quarter, up 500% annually, and test volume up 31% quarter-on-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 secure upfront contracted payments. The key strategic accomplishments, as I emphasized later, really relate to our clinical evidence space. Two studies, the ENVET-BE Clinical Utility Study and the EsoGuard BE-1 Clinical Validation Study, had new data released and are pending peer review publication. Additionally, another critical study, the Cleveland VA Clinical Validation Study, completed peer review publication. Our meeting with the MolDX program was very productive last month, and we look forward to submitting our data and working with the MolDX team to secure Medicare coverage for EsoGuard. So, I will transition now to an overview on Veris Health. Veris Health is a commercial-stage digital health company that we seek to enhance personalized cancer care and consists of two components. One is the Veris Cancer Care Platform, which includes a patient care module and a physician or caretaker module, interfacing with a box of Bluetooth connected devices that provide physiological information to clinicians to improve patient care. 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 mission of the company is to utilize modern remote patient monitoring tools to improve care through early detection of complications and establish longitudinal trends in 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. Our focus has been on large academic center strategic accounts. We have been engaged with Ohio State University under a memorandum of understanding. This past June, we launched our pilot program consistent with that MOU, which 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, demonstrating that our platform's ability to detect signs of clinical deterioration resulted in a patient returning to the hospital for care and avoiding complications. Our plan is, upon completing this pilot study, to transition to a full commercial engagement and seek other potential strategic partnerships with the university. Based on the success of this pilot engagement, we aim to continue our strategy to identify other large academic cancer centers for similar partnerships. I briefly mentioned the Veris implantable monitor, but here's some further details. The goal is to have a monitor that can be implanted in conjunction with a vascular access port. You can see on the right that the purple structure represents a typical vascular access port, and our implantable monitor is designed to be implanted alongside it. It has a variety of key features, can detect continuous cardiac monitoring activity, provide a patient-triggered event monitor, can track temperature and respiratory rate, and includes Bluetooth connectivity for information delivery without requiring patient involvement. It assures 100% compliance with the requirements for billing under remote patient monitoring. We have a clear path to FDA clearance and commercial launch. We've completed multiple meetings with the FDA and are poised to relaunch this development and pursue FDA clearance. We expect to do so shortly once this upcoming financing is closed. We had some final pre-submission meetings with the FDA that went well, and we are already starting the re-engagement process with vendors to plan the relaunch upon completion of this financing. Moving on to our incubator, we talked about this briefly in the last call. The incubator is a partnership between PAVmed and an experienced group in the med tech space called Hatch Medical. We've decided to focus on one product that we had been developing but paused a couple of years ago, and that's PortIO. PortIO is designed for direct long-term access to the bone marrow, which can reduce complications and infection rates as an alternative for venous access. It addresses a substantial unmet need and a diverse target population, including patients with poor venous access and renal failure, and offers a large total addressable market with solid IP protection. It has been successfully used in humans. We've completed our first in-human study and have a clear path to FDA clearance. We are now actively raising capital to fund PortIO and complete the IDE study, as well as to fund the second generation version. We're looking forward to securing that financing and getting this project off the ground again. With that, I'll pass the baton over to Dennis for our financial update.

Thanks, Lishan. Good morning, everyone. Our summary financial results for the second quarter were published last night in our press release. On the next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider these remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q. With regard to the balance sheet, cash at quarter end on June 30th was $25.5 million. During the quarter, we added $11.6 million to that amount with the financing previously announced. The average quarterly burn rate for the trailing four quarters is $11.6 million. We disclosed in the 10-Q that our ability to fund operations beyond one year from today is largely dependent on how revenues ramp over the next four quarters, which in turn depends 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 with the PMX Incubator and Veris Health, particularly concerning the High State University Cancer Care Center, any direct financing into these subsidiaries will help satisfy that threshold. The change in other assets is largely related to the three-year lease renewal for Lucid's Lab in California, which is accompanied by a similar increase in current and long-term liabilities. The sequential decrease in the fair value of the convertible notes is largely due to principal reductions in the Lucid convertible note through conversion notices and issuances of Lucid shares. As mentioned on our Lucid call yesterday, during the quarter, Lucid issued 2.1 million shares in satisfaction of conversion notices. Shares outstanding, including unvested restricted stock awards, as of last week, total 10.3 million. The GAAP shares outstanding of 9.6 million are reflected on the slide, as well as on 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. I trust you'll review the information in my comments in light of the cautionary disclosures on the bottom of the slide regarding supplemental information, especially non-GAAP information. Revenue of approximately $1 million for the second quarter is about even with the previous two quarters and reflects a six-fold increase over the prior year's second quarter. As detailed on our Lucid quarterly call yesterday, Lucid performed nearly 3,200 tests in the quarter, representing about $8 million in billable claims submitted for insurance reimbursement. However, Lucid's cash collections generally limit the amount of recognized revenue from those 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 joining us for the first time, a 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. As we are in the early stages of the reimbursement process, this means that revenue recognition for claims submitted to traditional government or private health insurers will occur when the claim is actually collected, rather than when the patient report is delivered, invoiced, or submitted for reimbursement. As you'll see in our 10-Q, this is termed variable consideration under the GAAP's ASC 606 Revenue Recognition Guidelines, and there is currently insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. For billable amounts contracted directly with employers that are fixed and determinable, we will recognize revenue when our contracted service is delivered, generally meaning when the report is delivered to the referring physician. The second quarter year-over-year reduction in operating expenses of about $2 million is primarily related to non-cash charges in the prior year that flowed through operating expenses, including stock-based compensation expense. About $650,000 of R&D expense is paid in stock. Our non-GAAP loss for the second quarter of $7.7 million reflects a $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, the loss per share was $1.19, with non-cash charges accounting for approximately $0.35 per share in the second quarter, primarily due to convertible debt charges and stock-based compensation expense. Regarding non-GAAP operating expenses, the total non-GAAP operating expense is $12.3 million for the second quarter 2024, which is in line with first quarter levels and year-over-year amounts. Also worth repeating are some reimbursement stats for the first six months of 2024. 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 claims paid were submitted in the current quarter, around 45% from claims submitted in the first quarter, and the balance were submitted last year, with the longest-dated items stemming back about 12 months. Our revenue cycle manager reports increasing turnaround times for the largest payers, and we've seen an uptick in claims being designated as medically unnecessary. The revenue cycle manager has a mitigation plan for both issues, including increasing the speed of follow-up with late payers and proactively soliciting medical records for use in appeals at earlier stages 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. Of the adjudicated claims, about 25% resulted in allowable amounts from the insurance companies, averaging around $1,540 per test. Of those denied, approximately 43% were deemed not medically necessary or required prior authorization, while about 26% were deemed non-coverable. With that, operator, let's open it up for questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Ross Osborn with Cantor Fitzgerald. Please go ahead.

Good morning, Ross.

Good morning, Lishan and Dennis. This is Matthew Park on for Ross today. Thanks for taking the question.

Hey, Matthew.

I was just hoping you could provide more color in terms of the scale of the pilot launch, and I guess your timeline to full launch and when we should start to see revenue coming from the fold?

Yes. So the pilot is progressing as planned. We're about a third of the way through, and it's designed to have 100 patients enrolled on the platform. Everything is going well. The purpose of the pilot was to ensure we're aligned with logistics regarding how they handle calls and incoming notifications, and that part is working exceptionally well. We expect the pilot to conclude in several months, after which we will look to transition not just to a full commercial engagement, but to engage strategically with the institution on various fronts consistent with what we described in the memorandum of understanding. Additionally, we hope to use this as a prototype to engage with other large academic cancer centers along the way.

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?

Yes. We do have a pipeline of about a dozen or so large centers and are actively conversing with several of them. We expect those discussions to move forward and accelerate once we complete this pilot. Veris has been proactive in managing our expenditures and operational costs, focusing on this particular account as a driver for securing financing, restarting the development of the implantable monitor, and so forth. As I have mentioned earlier, our strategy is working, and we are close to securing some additional financing. I believe once we do and upon completing this pilot, we will be able to start securing additional accounts.

Got it. That's helpful. And then, I guess just one more on my end. Turning to the implantable monitor, 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 need to take to get there? Thanks.

Yes, the timeline for submission and the pathway to clearance has been well worked out. We've had multiple discussions with the FDA. We've conducted a variety of preclinical studies at their request. We feel confident about our position, having a predictable path forward. If we can secure that financing soon and relaunch product development, it will take some time, as we need to bring vendors back online and get back to where we left off. But we're looking at mid-next year, 2025, as a reasonable target for FDA submission, and once submitted, we believe the clearance path will be straightforward.

Great. Thanks for taking the questions.

Great. Thanks a lot. Appreciate it.

Thank you. Your next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Good morning, Anthony.

Good morning, Lishan. Good morning, Dennis. I think you may have answered the question, but I just want to clarify. So, when you were talking about the financing, you were referring to Veris, not the incubator, correct?

Well, for both. We mentioned that for both, but the Veris financing is furthest along. And again, just to reiterate, PAVmed operates on a shared services model; we have subsidiaries and are seeking to raise capital into each of them. Obviously, Lucid has executed that well over the last couple of years, and we're looking for the first time to raise capital directly into Veris. The incubator we launched a couple of quarters ago is also designed to raise capital, not just into the incubator itself, but into individual corporate entities that hold individual assets such as PortIO.

Okay, great. And at this point, though, you're not considering a spin-off into an IPO like Lucid, correct?

No, we don't believe the markets are amenable to that right now. We are focusing on where to raise capital to advance these technologies. Our conclusion earlier this year was to leverage PAVmed's shared services model and the existing infrastructure to advance other assets beyond Lucid; hence, each of those assets would need to raise its own capital privately, not in the public markets as it's not currently the right place for these early-stage assets.

Agreed. Yes, that makes sense. So based on your best estimate, do you expect to have Veris funding in place before the end of the year and then submit to the FDA by mid-2025? Is that correct?

Yes, that sounds about right. I believe the financing of that effort is going well. We are hopeful to close on an additional tranche that will allow us to get things off the ground soon. Those broader timelines are reasonable.

Okay, great. Thank you very much. I'll hop back in the queue.

Thanks. Appreciate it.

And your next question comes from the line of Ed Woo with Ascendiant Capital Markets. Please go ahead.

Yes, thank you very much. I had a very general question about valuations. Have you seen valuations change significantly in terms of trying to raise funding for the incubator as well as for Veris?

Yes, I think it certainly depends on the individual asset. Veris is further along, although PortIO has advanced quite far and is just waiting for the launch of the clinical study and IDE study. We've received positive feedback thus far, but these are not closed yet, so I don't want to speak prematurely. Both are strong assets, and we have been pleasantly surprised at the interest and valuations we think we can achieve with these transactions.

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

Yes, thanks Ed.

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

Great. Thank you very much, operator, and I'd like to thank our colleagues for their excellent questions. Again, we're really excited about this important transition point for PAVmed and for subsidiaries, Veris and the incubator in particular, and we look forward to keeping you informed of our progress via news releases or peer articles such as this one. I encourage you to keep up with our updates and events by signing up for email alerts on our PAVmed Investor Relations website and to follow us on social media on Twitter and LinkedIn. Thank you, everybody, and have a great day.

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