Earnings Call Transcript - PAVM Q1 2023

Operator, Operator

Welcome to the PAVmed business update and first quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Michael Parks, Vice President of Investor Relations. Mr. Parks, you may begin.

Michael Parks, Vice President of Investor Relations

Thank you, and good morning everyone. Thank you for participating in today’s first quarter 2023 business update call. The press release announcing this business update and the first quarter 2023 financials is available on the PAVmed website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The business update, press release and conference call both include forward-looking statements. 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 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 risks and uncertainties that may affect future operations, see Part 1 Item 1(a) entitled Risk Factors in PAVmed’s most recent annual report on Form 10-Q filed with the SEC, and subsequent updates filed in the quarterly reports on Form 10-Q and any subsequent Form 8-K filing. Except as required by law, PAVmed disclaims any intention or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations or events, conditions or circumstances on which those 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.

Lishan Aklog, Chairman and CEO

Thank you, Mike, and good morning everyone. I appreciate you joining us today for our business update call. I am eager for a productive discussion. I’ll begin by highlighting some recent developments. As long-term investors may be aware, we initiated a restructuring and strategic refocusing earlier this year, concentrating our efforts this half on our two commercial subsidiaries, Veris Health and Lucid. We held a specific call for Lucid yesterday, so today’s content will be more focused. I encourage everyone to visit our website to watch yesterday's webinar for more insights about Lucid. Regarding Veris Health, we’ve had some recent achievements including the launch of our remote patient monitoring platform, Veris Cancer Care. Our commercial footprint is expanding with a strong nationwide pipeline. We have begun collecting subscription payments under our software-as-a-service recurring revenue model, and we have appointed Gary Manning as the new President of Veris to refine our strategy and broaden our commercial reach. For those unfamiliar with PAVmed, we are a diversified company in the medical technology sector, operating across devices, diagnostics, and digital health. Our corporate structure includes two subsidiaries: Veris Health, which focuses on digital health and is privately held, and Lucid Diagnostics, which is publicly traded. Let’s start with Veris. Veris Health is focused on enhancing personalized cancer care. We have developed two products, the Veris Cancer Care platform and an implantable monitor that we plan to commercialize next year. Our mission is to leverage modern remote patient monitoring tools to enhance care through early detection of complications, tracking long-term trends, and managing risks. The Cancer Care platform has two components: a patient smartphone app that allows them to report symptoms, communicate with providers, and establish a permanent connection with their care team, paired with a cloud-based electronic health record that clinicians can use to monitor patient status, vital parameters, and symptom reports. This system includes telehealth features and integration with EHRs, offering a comprehensive view for cancer care specialists. Our business model is advantageous for both us at Veris Health and our customers. We operate on a subscription basis for patients on the platform, utilizing established remote patient monitoring billing codes, with additional revenue streams from enhanced technical and clinical support and the upcoming implantable device. For cancer care centers or oncology practices, the established billing structure can generate approximately $200 per patient monthly, resulting in about $100 net revenue for the practice, while also facilitating participation in value-based payment models, providing further revenue enhancement opportunities. We estimate the total addressable market, based on new cancer diagnoses and treatment, to be around $2 billion. We are pleased to welcome Gary Manning as our new President at Veris Health. With three decades of experience in executive roles and a strong background in medical devices, wearables, and digital health, Gary will focus on accelerating the commercialization of the Cancer Care platform and advancing the implantable monitor’s market launch, alongside developing a comprehensive commercial strategy that could include supporting pharmaceutical research and data monetization. We’ve expanded our commercial footprint, added new accounts, and begun receiving subscription payments under our model, creating an optimistic outlook for the future under Gary's leadership. Our Veris implantable monitor is intended to enhance our platform’s capabilities. This monitor will be implanted during vascular access port placement, integrating seamlessly with our existing system. We have completed one of several chronic animal studies which demonstrated strong performance across multiple metrics, and we are engaged with the FDA, anticipating a submission early next year. A key advantage of our monitor is its ability to ensure full compliance with billing requirements by guaranteeing that patients submit data for 16 days each month. Now turning to Lucid, I encourage you to check yesterday's webinar for more detailed updates, but I want to highlight some key points regarding our EsoGuard testing. We are experiencing significant growth in testing volume, with a 50% increase from the previous quarter and a 245% annual increase, resulting in 1,841 tests performed in the first quarter. We’ve also seen stabilization in referral sources. About two-thirds of patients referred for EsoGuard testing for early detection of esophageal cancer come from primary care physicians, while one-third are referred by specialists or larger institutions. There has been a notable shift in operators as well, with approximately 60% of EsoCheck cell collection procedures now performed by Lucid nurse practitioners, either at our physical test centers or at satellite locations where they work with local physicians. This growing trend, where more than half of test volumes are being conducted by our nurse practitioners, represents a significant increase and holds great potential for our future. Still, about 40% of patients are undergoing the procedure by staff at a physician practice. We announced earlier this year our very first Check Your Food Tube pre-cancer detection event. These are high volume testing events which are scheduled, and so far, all of them have involved firefighters. The first event, as shown in the pictures, took place with the San Antonio firefighter department, where approximately 400 patients underwent the EsoCheck cell collection and testing over two weekends. We continue to expand this program and anticipate that it will make up an increasing portion of our overall volume. You can see that we’ve completed five events of different sizes, and we have a strong pipeline ahead, including nine events that are already scheduled. Now, I’ll hand things over to Dennis for an update on our financials.

Dennis McGrath, CFO

Thanks Lishan. Our summary financial results for the first quarter are reported in our press release that was published last night. Over the next three slides, we’ll emphasize a few key highlights from the quarter. I’d 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 on Monday afternoon and is available on the PAVmed website. On Slide 17, you will see the cash of $49.3 million at the end of the quarter reflects a $9.5 million sequential increase from the year-end balance of $39.7 million. Payables decreased use of cash by $1.5 million sequentially. The convertible note had a net increase of approximately $10.6 million sequentially, reflecting the addition of a convertible debt inside Lucid Diagnostics. Other long-term liabilities are capitalized leases related to our lab and office spaces. The shares outstanding, including unvested restricted stock awards, as of today, is 104.5 million shares. The GAAP outstanding shares of 100.5 million are reflected on the slide, as well as on the face of our balance sheet in the 10-Q. In addition to the Lucid convertible debt in the first quarter, the Lucid board authorized a $20 million preferred offering. We completed the initial closing of the Lucid preferred in the amount of $13.6 million. Both structures keep Lucid’s stock out of the market for long periods of time, likely two years in the case of the preferred, which allows Lucid to complete its work on clinical utility studies and improving reimbursements. Our consolidated runway is elongated into 2024. Combining these financings with the cash at the beginning of the quarter results in pro forma cash of $63.3 million on January 1. With the ending quarter cash balance of $49.2 million, the pro forma burn rate for the first quarter was $14.1 million, which is in line with expected burn rate for the year, which we’d previously indicated would be between $53 million and $55 million for the year. This is particularly achievable since it does not reflect the full effect of the cuts we put in place in the middle of the first quarter, nor does it reflect about $1.2 million in one-time costs incurred for terminating Lucid’s relationship with ResearchDx, severance costs, and the R&D wrap-up costs for paused projects. Furthermore, we have approximately $10 million remaining on the $50 million securities purchase agreement with our convertible debt lender that will serve to elongate our runway further. Slide 18 compares this year’s first quarter to last year’s first quarter on certain key items, and I would encourage you to review the information about this P&L and my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly non-GAAP information. Revenue for the first quarter reflects Lucid's actual cash collections for the quarter. The prior year reflects Lucid’s fixed monthly fee received from the third-party lab that we used before setting up our own lab at the end of last year’s first quarter. The Lucid revenue recognition policy, a key determinant is the probability of collection. The vast majority of Lucid’s patient out-of-network claims submission means revenue recognition occurs when the claim is actually collected versus when the patient report is invoiced and submitted for reimbursement. As you’ll see in our 10-Q, this is called variable consideration, the jargon of GAAP’s ASC 606 revenue recognition guidelines, and presently there is insufficient predictive data to recognize revenue when invoiced. As for Veris revenue, we just started billing our first customer in March and we have not recognized this revenue for March activities for this first customer site as they are helping us customize the system to optimize client and company ROI, which will benefit us as we are onboarding additional clients. We expect that once we are through this initial phase, unlike Lucid’s revenue, we expect to recognize revenue on an as-invoiced basis subject to normal GAAP rules. A couple comments on GAAP and non-GAAP opex and net loss. Our first quarter GAAP opex and GAAP loss is lower sequentially by $3.8 million and $2.5 million respectively. Our first quarter non-GAAP opex and non-GAAP loss is also lower sequentially by $2.5 million and $4.1 million respectively. Our first quarter non-GAAP loss per share is $0.10, a decrease from $0.15 from the fourth quarter. Slide 19 is a graphic illustration of our operating expenses as presented in detail in our press release. First quarter non-GAAP opex decreased significantly by $2.5 million sequentially. The sequential decrease was led approximately by a $2.2 million decrease in R&D and a $1.2 million decrease in sales and marketing. These decreases were offset by an increase in G&A driven by approximately $900,000 to terminate Lucid’s past relationship with ResearchDx, which will save us approximately $2.7 million in future expenses. The cost of revenue primarily consists of lab supplies and fixed lab facility costs. Consistent with recent SEC filings, it is presented in our 10-Q as operating expense, also consistent with practices of other diagnostic companies.

Operator, Operator

We will now begin the question and answer session. The first question comes from Ross Osborn with Cantor Fitzgerald. Please go ahead.

Dennis McGrath, CFO

Morning Ross.

Ross Osborn, Analyst

Hi, good morning. Congrats on the progress. Maybe I’ll focus on Veris. Can you discuss the types of new accounts you have added during the quarter and how many patients, if any, have been on-boarded to date?

Lishan Aklog, Chairman and CEO

Yes, we currently have a total of three accounts, with a couple more close to closing, including one that’s finalizing today. These accounts are medium-sized practices, often with multiple locations; for instance, the first practice has three different sites. We also have a strategy for larger accounts, particularly significant cancer care centers, which tend to take longer to secure. However, we are making progress in those discussions. Regarding the number of patients, we are not yet prepared to report specific figures, but we do have dozens of patients onboarded and are seeing a second wave of patients in our earlier accounts. Typically, when we open an account, they identify their practice focus and pinpoint higher-risk patients who may benefit from our services. As Dennis mentioned, this tool is crucial clinically but also serves as an important operational resource. The integration with their IT systems, understanding the revenue model, and managing billing and time tracking is a collaborative effort between our teams, and so far, it has been going very well.

Ross Osborn, Analyst

Okay, great. Then maybe could you just explain again how the revenue recognition process works? I realize it’s a SaaS model, but maybe just from the time a patient is on-boarded until PAVmed should recognize revenue.

Dennis McGrath, CFO

Yes, so for Veris, when a patient is on the platform, we will bill the client the appropriate fee on the contracted amount, roughly. We measure that around $80 per patient, and we bill that each month that patient is on the platform. The client in turn will bill the patient’s insurance company, which there are existing codes, we don’t have to fight the reimbursement battle here, and the client will turn around and pay us and they’ll collect from the insurance company. Because the collection has high predictive value of collection, we’re able to recognize revenue as the patient or the client is invoiced, so it’s on an as-invoiced basis for Veris, unlike Lucid where we’re presently in this reimbursement evolution where we have to recognize revenue on a cash collection basis.

Ross Osborn, Analyst

Okay, great. Thank you for taking my questions.

Lishan Aklog, Chairman and CEO

Thanks Ross.

Operator, Operator

The next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Lishan Aklog, Chairman and CEO

Anthony, good morning.

Dennis McGrath, CFO

Hi Anthony.

Anthony Vendetti, Analyst

Good morning Dennis, good morning Lishan. How are you?

Lishan Aklog, Chairman and CEO

Great, doing great.

Anthony Vendetti, Analyst

Excellent. Just following up on Veris, can you talk about what the pipeline looks like at this point, any color on that? Then on Lucid, it looks like significantly more tests are being performed outside of the Lucid test centers. Can you comment on that, and would that cause you to pause setting up new centers and focusing more on just driving patients to wherever the physician can perform the procedure? Thanks.

Lishan Aklog, Chairman and CEO

Thanks Anthony. Let’s start with Veris. The pipeline is robust. As with any commercial pipeline, some are in the midst of contractual negotiations, some are at early stages, but the typical process for bringing on a client, a medium to small practice is one of engagement, of demos, of contractual negotiations on the subscription fee, and then ultimately of planning and executing on the integration process for getting the platform onto their IT system. We don’t have concrete numbers, but it’s in the dozens range in terms of the total number of targets, and we expect to start seeing a nice escalating number of those. But as I said, there’s a wide range of practice sizes. There are small practices with a couple of oncologists, all the way up to obviously the major large cancer centers across the country, which aren’t really all of them, and the process for securing those accounts is going to be different and the timelines are going to be different. Let me move onto the Lucid test center question, because that’s a really important one. Again, I said this before but I’ll repeat it for emphasis, that our approach with regard to how we’re expanding access to the test, patient access to the test is a multi-pronged one. It’s an all-of-the-above. The testing events, high volume testing events are supplementing, and so far we’re excited about the opportunity to bring in patients in large chunks through these testing events, but we’re continuing full steam and not tacking or shifting in any way from the traditional model of our reps calling on primary care physicians and specialists to garner physician adoption. You specifically asked about the physical test centers versus the physician practice orientation. That is shifting to, as I showed on the slide, an increasing number of the tests that our nurse practitioners are performing, the cell collection procedures are being performed at these, what we’re referring as satellite test centers in the physicians’ offices, and as I’ve said before, that’s a very attractive aspect of this in that it unmoors them from the physical location. It increases the geographic span and the efficiency of us being able to perform the tests, and it also improves our ability to keep the test front of mind with primary care physicians. We’ve had really good success with adoption, and so a large focus of our effort is reminding the physicians to think about the test as they’re seeing patients, so having the nurse practitioner from Lucid be coming next Thursday is a good impetus for that. We will continue to maintain the test centers. In a sense, the economics of those test centers, which we’ve described before in some detail, are actually somewhat even more efficient right now, because the costs associated with the nurse practitioner that calls that physical location sort of their home, their Lucid home, is now much greater because they can go beyond the physical location. I would encourage you and others to think about the expansion not as we have in the past, in terms of how many test centers, how many cities and so forth. We have kept that fixed for this year, consistent with the number of sales reps as part of the plan that we adopted earlier this year, but as you can see, we continue to grow test volume because of some of the creative angles that we’ve taken with the satellite test centers as well as the high volume testing events.

Anthony Vendetti, Analyst

Okay, great. Thanks, that’s very helpful. I’ll hop back in the queue.

Lishan Aklog, Chairman and CEO

Thanks Anthony.

Operator, Operator

As a reminder, if you would like to ask a question, please press star then one to enter the question queue. The next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Ed Woo, Analyst

Thank you for taking my question. My question is once you get an account signed up for Veris, how quickly can you get from signing a contract to getting everything up and running? I know it’s still pretty early, but as things are progressing, how quickly do you think it could be?

Lishan Aklog, Chairman and CEO

Yes, as you said, it’s early, so we’re progressing and we’re learning jointly with the practices, and of course it depends a bit on the complexity of the practice and the size of the practice. One thing that we’ve learned in this early experience with the first several clients is that we can actually get them up and running, where the patients are on the system and generating data, even as we’re working on the integration with their electronic health record, which as you might imagine has some additional complexities to do so. That time is shortening. I would think over time with more experience, that we could have that down from contract to first patient on the system down to a few weeks, but that’s still a learning process for us as we’re still relatively early in our launch.

Ed Woo, Analyst

Great, then my last question is on the pipeline that you have, or the contracts that you already have signed. Is there a geographic area or region of the country that you guys are focusing on first?

Lishan Aklog, Chairman and CEO

Yes, we’re not like in the Lucid case, where we did consciously focus on areas in the west, here we’re not. We have our commercial team targeting the entire country. It has turned out that several of the first accounts happened to be in the northeast - it was Jersey and Pennsylvania, but we’re active in Florida, in the southeast as well as in the west, so we’re not targeting any particular geography right now. We’re looking at any opportunity across the country.

Ed Woo, Analyst

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

Lishan Aklog, Chairman and CEO

Yes, thanks a lot, Ed.

Operator, Operator

This concludes our question and answer session. I would like to turn the conference back over to Dr. Aklog for any closing remarks.

Lishan Aklog, Chairman and CEO

Thank you Operator, and thank you all for taking the time this morning, joining us on this call. I would encourage you to, for further information, to go to our website, follow us on social media, and of course feel free to contact Mike Parks with any questions. His email address is mep@pavmed.com. Thanks again and have a great day.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.