Earnings Call Transcript - PAVM Q2 2020

Operator, Operator

Greetings and welcome to the PAVmed Incorporated Business Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Havrilla, Director of Investor Relations for PAVmed. Thank you, Mr. Havrilla. You may begin.

Mike Havrilla, Director of Investor Relations

Thanks, operator. Good afternoon, everyone. This is Mike Havrilla, PAVmed's Director of Investor Relations. Thanks for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer; and Dennis McGrath, President and Chief Financial Officer. Before we begin, I'd like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of PAVmed. I encourage you to review the company's filings with the Securities and Exchange Commission, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Factors that may affect the company's results include, but are not limited to, the uncertainties inherent in research and development, including the costs and time required to advance products to regulatory submission; whether and when products are cleared by regulatory authorities; market acceptance of products once cleared and commercialized; the company's ability to raise additional capital; and the competitive environment. PAVmed has not yet received clearance from the FDA or other regulatory bodies to market many of its products. PAVmed has been monitoring the COVID-19 pandemic and its impact on our business. PAVmed expects the significance of the COVID-19 pandemic, including the extent of its effect on financial and operational results to be dictated by, among other things, the success of efforts to contain it and the impact of actions taken in response. New risks and uncertainties may arise from time-to-time that are difficult to predict. All these factors are difficult or impossible to predict accurately. Many of them are beyond the company's control. For a further list and description of these and other important risks and uncertainties that may affect future operations, see Part I, Item IA, entitled Risk Factors in PAVmed's most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates filed in quarterly reports on Form 10-Q. Except as required by law, PAVmed disclaims any intention or obligation to publicly update or revise any forward-looking statement to reflect changes in expectations or in 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. With that said, I would like to turn the call over to Lishan Aklog. Dr. Aklog?

Lishan Aklog, Chairman and CEO

Thank you, Mike. Good afternoon, everyone, and thank you for joining us on this quarterly call to update you on our business and discuss our recent financial results. Although I always look forward to coming before you each quarter to provide a detailed overview of our business activities, this time is somewhat special because, as I noted in today's press release, the second quarter and subsequent weeks have really been unprecedented for this company in terms of major accomplishments. Any emerging commercial space company’s CEO would be proud to highlight any one of a preliminary CMS payment determination or an FDA clearance and a commercial launch, or a consummation of corporate partnership agreements, and a quarterly update. I am in the enviable position of being able to highlight all three along with solid steady progress and multiple other successes as we advance PAVmed and its majority-owned subsidiary Lucid Diagnostics as a commercial stage company. I'm also blessed to work with an expanding team of the most talented professionals, along with the best and most accomplished consultants, advisors, and corporate partners in the industry. Armed with a strong balance sheet from two recent financings, the extended PAVmed and Lucid family is poised to deliver on important upcoming milestones in the coming months. I'll begin with a shorter summary of COVID-19 pandemic related challenges than in the last two calls because, quite frankly, we have fully and successfully incorporated COVID-19 mitigation strategies in all aspects of our business. Although the pandemic continues to exact a heavy human toll in the United States, with concerns for a second wave in the fall synergizing with flu season, the healthcare system and the life sciences industry, of which we're a part, are beginning to come out of a several month hibernation during which non-emergency, non-COVID-19 related care has come to a standstill. The system is gradually learning how to reopen for necessary but non-emergency care through enhanced PPE, scheduling modifications, training regimens, and other changes. We expect these changes to continue. Thanks to our business model and dedicated teamwork, our product development, regulatory, financial, and administrative activities have been entirely unaffected by COVID-19. All of our team professionals and partners continue to push full steam ahead on all fronts. As previously mentioned, we encountered COVID-19 related challenges in two primary areas, which I will describe in more detail during my overview of the individual business divisions and products, but briefly, the first CarpX commercial launch was delayed by the backorder of a pressure sensor used in ventilators. That supply chain problem has been addressed. Second, although we managed to maintain EsoGuard and EsoCheck commercial activities through remote sales and training during the late spring through mid-summer shutdown of non-emergency procedures, our customers and clinical researchers were not able to perform actual procedures or enroll patients as that has begun to change; commercial and clinical trial procedures have notably picked up over the last 6 weeks. Before more detailed updates on our individual lead products, let me start by, as usual, highlighting important recent accomplishments. As those of you who read the press release, there are many. I'll follow that up with some upcoming key activities and milestones. In June, the U.S. Center for Medicare and Medicaid Services or CMS, published its preliminary gapfill payment determination for our EsoGuard Esophageal DNA Test with an expected blended payment rate over $2,000. In April, the U.S. Food and Drug Administration granted us 510(k) marketing clearance for our CarpX minimally invasive carpal tunnel device. This week, we are commercially launching CarpX for clinical use in the U.S., after successfully addressing the COVID-19 related supply chain issue described above. During this period, we expanded our commercial management team to seven professionals and our independent sales team organization to 35 professionals. 50 clinical sites have ordered and stocked our EsoGuard and EsoCheck products, and this month we will resume in-person EsoCheck training. During this period, we also activated 27 sites for the EsoGuard BE-1 and BE-2 clinical trials. We enrolled the first patient in the clinical trial evaluating EsoCheck in Eosinophilic Esophagitis or EOE performed at the University of Pennsylvania. We successfully completed the European Union notified body stage 1 audits of our quality management system, which was required for CE Mark submission of our products. We successfully completed a feasibility animal study of our EsoCure Esophageal Ablation Device with outstanding results. We successfully completed preliminary human testing of the Solys laser-based non-invasive blood glucose device, demonstrating testing with very good accuracy in normal human volunteers. The U.S. Patent and Trademark Office granted us a patent for EsoCheck and the proprietary technology underlying EsoCure, and the Chinese patent office granted us a patent for CarpX. In June, diagnostics industry titan Stanley Lapidus, Founder and former Chairman and CEO of $12 billion market cap Exact Sciences, joined our team as a Lucid Strategic Advisor. Finally, we strengthened our balance sheet through two convertible note financing transactions, generating $10.6 million in net proceeds. We have many key upcoming activities and milestones to look forward to in the coming months, but here are a few highlights. We will accelerate and expand EsoGuard and EsoCheck commercial activities as elective clinical procedures continue to resume from COVID-19 limitations. We will accelerate and expand our EsoGuard educational and marketing activities, targeting physicians and consumers. We will begin CarpX commercial activities focusing on key opinion leaders and innovators capable of serving as CarpX trainers, proctors, and educators. We expect to receive CMS coverage determination for EsoGuard and will extend payment and coverage process discussions to private payors. We expect to successfully complete stage 2 audits of PAVmed and Lucid’s quality management systems, which will allow us to submit EsoCheck, EsoGuard, CarpX, and PortIO for European Union CE Mark regulatory clearance. We expect to activate the remaining 27 U.S. and European clinical trial sites for EsoGuard BE-1 and BE-2 and accelerate clinical trial enrollment as elective clinical procedures continue to resume from COVID-19 limitations. We expect to complete the EsoCheck trial at the University of Pennsylvania and launch the EsoCheck BE progression marker trial at the Fred Hutchinson Cancer Research Center, as well as multiple other Lucid-sponsored clinical trials for our commercial activity. We expect to close an M&A deal for one NextFlo application and submit NextFlo for 510(k) clearance for a broader application. We hope to secure FDA IDE or Investigational Device Exemption clearance to begin a PortIO clinical safety study in the U.S. and launch once and for all a long-term PortIO study in Columbia, South America. Finally, we hope to demonstrate Solys' accuracy across the full range of glucose required by FDA and ISO standards. Now, let's proceed with our division updates, starting with our GI Health. To start with a little bit of background, our GI Health Division is building a portfolio of complementary products designed to diagnose and treat conditions of the esophagus, including a spectrum of conditions arising from gastroesophageal reflux disease or chronic heartburn, as well as a prevalent inflammatory condition called eosinophilic esophagitis. Let's start with EsoGuard and EsoCheck. EsoGuard and EsoCheck are designed to facilitate early detection of conditions leading to esophageal cancer in patients with GERD. It is important to understand that these conditions lie on a spectrum. Chronic heartburn can lead to benign changes in the surface cells of the lower esophagus known as Barrett’s Esophagus, which can transform into precancerous changes called dysplasia, which then can lead to the highly lethal esophageal cancer. EsoCheck is an FDA cleared cell collection device, which can perform targeted and protective sampling of cells from the lining of the lower esophagus as part of a five-minute non-invasive office-based procedure. It serves as an alternative to invasive upper endoscopy performed under anesthesia in a hospital or dedicated endoscopy center. EsoGuard is a highly accurate next-generation sequencing diagnostic assay, which detects methylation changes at 31 sites on two genes, changes that occur in patients along with Barrett's Esophagus and the esophageal cancer spectrum. EsoGuard is performed on samples collected with EsoCheck and is commercially available as a laboratory-developed test or LDT. Although professionals' practice guidelines recommend screening in over 10 million high-risk GERD patients to detect and treat Barrett's before it progresses to cancer, fewer than 10% actually undergo screening using existing upper endoscopy. Tragically, the vast majority of patients diagnosed with esophageal cancer are not aware that they have underlying Barrett's and that the progression to cancer could have been prevented through careful monitoring and treatment if Barrett's had been diagnosed earlier. Over 80% of these esophageal cancer patients will die within five years of diagnosis. Based on very modest penetration of U.S. GERD patients currently recommended for Barrett's esophageal screening, we believe that the estimated addressable domestic market opportunity for these products is several billion dollars. We are commercializing EsoGuard using a hybrid model, with internal sales management and marketing, and professional education working closely with independent sales representatives led by our Chief Commercial Officer, Shaun O'Neil. The sales team now consists of three sales managers supervising 35 independent sales professionals with long-standing relationships with gastroenterologists in their territory. They are supported by a marketing team which now includes two professionals. Despite the COVID-19 shutdown, the sales team is currently actively engaged with over 500 customers in the United States; approximately 50 clinical sites now stock EsoCheck and EsoGuard specimen kits, and we resumed in-person training this month at several sites in the northeast, expecting commercial procedures to resume shortly. We also continue aggressive marketing, with an aggressive campaign in professional journals and social media targeting physicians and patients to strengthen EsoGuard and EsoCheck brand recognition, generate awareness of the underlying conditions, and support the sales process. One upcoming highlight will be an outstanding Access Health segment that is set to air next month on the Lifetime network, which highlights the issues with esophageal conditions, as well as the benefits of EsoGuard and EsoCheck. We're very pleased to report that our hard work and engagement with Medicare contractor Palmetto GBA and its molecular diagnostics program MolDx was approved in June. We were granted gapfill preliminary determination for EsoGuard of $1,938 in 38 states and $2,690 in 12 states, including three large states: Florida, New Jersey, and Pennsylvania, as well as two U.S. Territories. The expected blended payment average of over $2,000 gives us an excellent opportunity to build a strong business with a solid contribution margin. We expect the preliminary determination to be finalized in the fall, which will allow the payment determination to go live on January 1. Our plan is to continue to hold off on submitting bills until the payment determination is active to avoid precedent-setting denials. In the meantime, we will proceed with private payer payment discussions. We expect to receive CMS coverage determination later this year, which will strengthen our ability to secure payment for EsoGuard procedures in 2021. There are many additional exciting developments and future activities in our GI Division. We're excited about the progress we've made on our EsoCure Esophageal Ablation Device. EsoCure is a disposable single-use thermal balloon ablation catheter designed to advance through the working channel of a standard endoscope, which uses our patented Caldus Technology to ablate esophageal tissue. Once cleared and commercialized, EsoCure would allow clinicians to treat Barrett's Esophagus before it can progress to cancer, and to do so without the need for complex and expensive capital equipment, such as current technologies used by Medtronic and others. We completed a preclinical feasibility animal study, which showed excellent results on both growth and microscopic pathologic examination. We demonstrated clean circumferential ablation of the targeted esophageal mucosa to a titrated depth using very short ablation times compared to existing technology. Testing will continue after additional development work. Our goal is to complete development and FDA 510(k) submission of EsoCure in the first half of 2021 and hope to have it commercialized later that year. As previously noted, we have launched two international multicenter clinical trials, EsoGuard BE-1 and BE-2, to support future PMA submissions for FDA registration of EsoGuard and EsoCheck as FDA registered In-Vitro Diagnostic devices or IVDs. One study is a screening study of high-risk patients, and the other is a case-control study of patients with known disease and a control group. We have 60 sites in the U.S. and Europe, 27 sites are active, and we expect the remainder to be activated in the third quarter. Clinical trial enrollment shut down between the months of March and June, but has since started back up. We have now enrolled eight patients in the BE-1 study, six since the reopening, and expect enrollment to accelerate in the coming months. Our initial goal of completing enrollment in 2021 remains unchanged despite the COVID delay. We have multiple other Lucid-sponsored clinical trials that are at various stages. Two trials seek to expand the application of EsoCheck. One at the Fred Hutchinson Cancer Center in Seattle is looking at the role of EsoCheck and biomarkers to detect progression from non-dysplastic to dysplastic Barrett's, which could greatly facilitate the surveillance of various Barrett's patients so they can be treated prior to the development of cancer, and we have an exclusive option to license these biomarkers if they prove effective. We expect that study to start enrolling this quarter. The trial at the University of Pennsylvania looks at the role of EsoCheck in monitoring treatment in patients with Eosinophilic Esophagitis, which, as I mentioned, is a very common but underappreciated allergy mediated condition that currently requires multiple invasive endoscopies during the course of treatment. The pilot study enrolled its first patient this month, ensuring it’s a complete enrollment before the end of the year. There are additional studies we are planning to launch, including an EsoGuard registry, and we look forward to getting those off the ground in the coming months. Let's now move from GI Health to Minimally Invasive Interventions, which includes CarpX. CarpX is our patented single-use disposable minimally invasive device designed to treat Carpal Tunnel Syndrome while reducing recovery time. The balloon catheter device is inserted under the scarred ligament, tensioning it while pushing the nerve and tendons away. When activated, bipolar radiofrequency electrodes precisely cut the ligament from the inside out in a matter of seconds. We believe CarpX will dramatically reduce recovery times compared to traditional open surgery, targeting an estimated $1 billion in the immediate addressable domestic market opportunity. We were very pleased to report that the U.S. FDA granted CarpX 510(k) marketing clearance in late April. Since then we've been addressing the previously mentioned COVID-19 related supply chain issue involving a pressure sensor on the control circuit board. That problem was successfully addressed, and we now have sufficient inventory to commercially launch CarpX to the fleet. CarpX is registered with the FDA as a commercial device and is listed in its GUDID database. Our third-party logistics and warehousing partner HealthLink is ready to fulfill the orders. Our CarpX commercial strategy is focused on a controlled launch with key opinion leaders. It is critical that we build a cohort of surgeon champions who are well versed in the procedure on the device and can serve as trainers, proctors, and educators, as well as our all-around ambassadors for the technology as we expand beyond this. Our CarpX financial sales manager is actively recruiting these key opinion leaders and we have one who has agreed to be the first, and we expect to start training soon. Next, some brief highlights from our infusion therapy division, which includes PortIO and NextFlo. PortIO is our implantable intraosseous vascular access device, which allows direct access to the bone marrow to deliver medication, fluid, and other substances, addressing an estimated $750 million market opportunity based on patients with poor veins and those with renal failure whose veins must be carefully preserved for current or future hemodialysis. We are seeking an initial short-term implanted duration indication through the FDA’s de novo pathway. In January, we participated in a successful pre-submission meeting with the FDA focused on a clinical protocol for a small single-center clinical safety study in New Zealand, and the target population of our proposed lab. As a result of COVID-19 travel restrictions, we decided to switch to a U.S. Investigational Device Exemption or IDE study and recently held another pre-submission meeting with the FDA to discuss it. The follow-up discussions from that meeting are going well, and we hope to secure IDE clearance and initiate this clinical safety study. The long-term study we plan to perform in Columbia, South America remains on hold due to COVID related travel restrictions, and we're continuing the necessary administrative work so we can proceed immediately to training and enrollment once things open up. Moving on to the NextFlo, our NextFlo infusion system which delivers highly accurate gravity-driven infusions independent of the height of the IV bag seeks to eliminate the need for complex and expensive electronic infusion pumps for most of the estimated 1 million infusions delivered in the United States every year. We are successfully advancing the NextFlo infusion system through design control, development, and testing and we are on target for a 510(k) submission to the FDA later this year. We are also deep in active M&A discussions with several strategic partners focused on licensing the NextFlo technology for disposable infusion. Those discussions are going very well, and we hope to consummate a transaction for this application. As always, I wish I had more time to update you on the exciting projects we're working on in our Emerging Innovations division; let me provide just a few brief highlights. Our DisappEAR pediatric ear tube to manufacture from proprietary aqueous silk seeks to revolutionize the care of an estimated one million children who undergo bilateral ear tube replacement every year. We recently entered into a definitive agreement with global manufacturer Canon Inc.’s U.S. manufacturing and technology center, Canon Virginia, Inc. to develop and utilize Canon Virginia’s commercial-grade aqueous silk molding process to manufacture our DisappEAR pediatric ear tubes. Canon has already begun work on this process and we look forward to receiving devices for testing. The research and development plan for our non-invasive laser-based blood glucose monitoring technology, licensed by our subsidiary Solys Diagnostics, has made excellent progress during this period. We successfully completed preliminary human testing, demonstrating accuracy within established FDA and ISO standards in normal human volunteers with moderately elevated blood glucose after high-sugar meals. We hope to advance Solys' development to achieve FDA and ISO accuracy standards for the full range of blood glucose required by the standards in the coming months. Our Emerging Innovations team also continues to make progress on several exciting products, including an ECMO cardiopulmonary support device as well as a novel ventilator, both of which are highly relevant for treating COVID-19 patients and other respiratory conditions. With that, I'll pass it on to Dennis.

Dennis McGrath, President and CFO

Thanks, Lishan, and good afternoon, everyone. I'll be brief as our financial results for the quarter ended June 30 were reported in our press releases published earlier this afternoon. Our quarterly report on Form 10-Q is available at sec.gov, as well as on our website. With regard to the financial results for the quarter, research and development expenses for the second quarter were $2.1 million, up from about $1.4 million for the same period in 2019, but about $500,000 lower sequentially. The year-over-year increase largely reflects the incremental clinical trial costs for Lucid Diagnostics and product development costs for Solys Diagnostics, as well as some increased personnel costs. As you might expect, the sequential decrease is primarily related to the delayed clinical trial costs due to the pandemic closure of GI clinics for most of the last several months. General and administrative expenses were $2.9 million for the second quarter, compared with $1.9 million for the same period in 2018 and were higher by about $250,000 sequentially. The year-over-year increase reflects approximately $500,000 increase in sales staffing levels and other sales-related costs, along with an increase of approximately $400,000 in consulting services related to patents, regulatory compliance, financing costs, and public company expenses. There was also an increase of approximately $100,000 in general business expenses. The sequential increase reflects compensation-related costs and primarily approximately $130,000 in non-cash stock-based compensation costs. PAVmed reported a net loss attributable to common stockholders of $5.6 million or a loss of $0.12 per common share. Our press release provides substantially more detail related to the non-cash charges occurring in the current and prior periods. The press release also provides a table entitled non-GAAP measures, which highlights these amounts along with interest expense and other non-cash charges, mainly depreciation, stock-based compensation, and financing-related costs, to enable better understanding of our company's financial performance. You'll notice from the table that after adjusting the GAAP loss by approximately $1.4 million for these types of non-cash or financing-related charges, the company reported a non-GAAP adjusted loss for the three months ended June 30 of $4.2 million or $0.09 per common share. PAVmed had cash of $7.1 million as of June 30, but as you know, subsequent to the quarter end, just about two weeks ago, the company received additional net proceeds of approximately $7 million from the sale of convertible notes at a conversion price of $5 per share. On a pro forma basis, had the financing closed at the end of June, cash would have been over $14 million. So with that operator, we can now open it up the call to any questions.

Operator, Operator

Thank you. [Operator Instructions] Our first question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

Lishan Aklog, Chairman and CEO

Good afternoon, Anthony.

Anthony Vendetti, Analyst

Good afternoon, Dennis. Good afternoon, Lishan.

Dennis McGrath, President and CFO

Hi, Anthony.

Anthony Vendetti, Analyst

Just a little more color on COVID-19 and any delays you're seeing, whether it's on the commercialization side with CarpX and EsoGuard/EsoCheck or on the regulatory timeline? You know, are you seeing any delays with the FDA? And then I'll have a follow-up on scheduling trends for non-emergency procedures.

Lishan Aklog, Chairman and CEO

Sure. Let's start with the latter. We've had no issues with regulatory issues. We've, as you know, CarpX was recently cleared in approximately 45 days for submission. We've been able to get our pre-submission meeting scheduled, and I know others have suggested that we haven’t experienced any delays on the regulatory front. On the commercial front, I can expand on what I was mentioning, which is that we always knew that, while COVID is still with us and there's still concerns about it spiking in the fall, we can only delay non-emergent procedures for so long. Non-emergent procedures still need to be done. People still need to be screened for cancer, and they still need to undergo other procedures, which may not be deemed as an absolute emergency. What we have found after a three-month hibernation, from March to June, is that the system is waking up and that despite ongoing COVID concerns, clinical entities, hospitals, practices, and otherwise are figuring out how to get back on track with necessary elective procedures. Although I don’t like the word elective, because it implies that you can do without them and that's not the case. Our clinical trial enrollment and engagement with clinicians on the commercial side have notably increased over the last four to six weeks. While it's hard to predict how long it will take us to get back to full steam, I believe we're in the early stages of this recovery, and I mentioned the statistics outlining our engagement with hundreds of customers and the desire to get commercial procedures back on track as quickly as possible.

Anthony Vendetti, Analyst

Okay, great. Just in terms of the initial payment determination, I know we still need a decision before the end of the year, and somewhere between probably $2,000 and $2,600 is what you're saying is probably where it's going to be. Do you think that range is favorable? Can you expand upon why gastroenterologists would use this procedure instead of an endoscopy? If they perform this procedure, which doesn't require anesthesia, would they then follow up with an endoscopy depending on what they find?

Lishan Aklog, Chairman and CEO

There’s a lot to unpack there. Let me first take this opportunity to elaborate on the reimbursement process, which can be complicated. We received preliminary payment determination by CMS; we have every reason to believe that the final number will reflect that. The transition between preliminary and final is mainly an opportunity for appeals, and we fully expect those to be finalized numbers. Our lack of any appeal should indicate that we find them to be quite favorable. If you do the math, we genuinely believe we can capture this market opportunity with a nice contribution margin with a blended payment of $2,000. That will become active on January 1 for CMS patients, allowing us to begin the process with private payors in the coming months. It's important to emphasize that payment is not necessarily guaranteed and we expect to hear about coverage determination before the end of the year; we believe we submitted compelling evidence based on existing professional society guidelines. The next question regarding the gastroenterologists is really essential: we decided to target them because many patients who need screening for Barrett's are not getting screened even though the guidelines recommend it. The opportunity lies where the gastroenterologists recognize there are potentially many patients in their practices who qualify for screening but are not being screened. The aim is to work collaboratively with these practitioners to expand their screening funnel. For every patient they currently see, there are potentially ten more who never undergo screening. When we work with gastroenterologists and educate them about our product, we assure them that it won't cannibalize their existing business but rather enhance it, providing an additional revenue source with better patient outcomes and regular monitoring through EsoCheck and EsoGuard.

Anthony Vendetti, Analyst

And one last question regarding EsoCure - what's your best guess as to the timeline for that in terms of going through the FDA and eventual approval, maybe best case?

Lishan Aklog, Chairman and CEO

Yes. We're really optimistic about EsoCure. The animal study produced fantastic results. There are GI consultants who are working with us who were blown away by how effectively the ablation occurred. We are still working on development, particularly in terms of titrating the dose to ensure we accurately ablate the required tissue depth. Best-case scenario would see us completing that work and preparing for FDA submission in the first half of next year. We currently assess this as a 510(k) submission, hoping to have the product on the market by the end of next year.

Anthony Vendetti, Analyst

Okay. And just an update from you on the commercial progress with CarpX. Given the need for procedures after delays, do you see the pipeline starting to build as we move closer to the end of the year?

Lishan Aklog, Chairman and CEO

I want to emphasize that, with CarpX, it’s important to differentiate it from EsoGuard. EsoGuard is a straightforward procedure done by a nurse, while CarpX requires a surgeon's skill to execute well. Key to a successful launch is ensuring that people are well-trained. We’re focused on building a network of initial adopters, early adopters, and key opinion leaders, ensuring we train them correctly before rapidly expanding. I don’t want to suggest we're going to flood the market immediately; we’ll do this carefully to ensure successful outcomes for patients. While I can’t quantify this pipeline growth yet, it’s crucial to highlight this strategic approach as we see some recovery in procedures.

Anthony Vendetti, Analyst

Lastly, with a full product portfolio and various initiatives ongoing, should we expect R&D spending to rebound in Q3 and Q4 closer to Q1 levels?

Lishan Aklog, Chairman and CEO

Yes, I think that’s correct. Dennis can elaborate, but the answer related to actual product development work will be 'no' when considering the clinical research activities. The costs of enrollment in our EsoGuard trials will re-enter the budget in the second half of this year. Dennis, anything to add?

Dennis McGrath, President and CFO

That’s exactly right. The balance will shift back towards clinical trial work for EsoGuard IBD as enrollment begins. The decrease in Q2 was essentially due to the clinics being closed and clinical trial activities paused. We are efficient with our bench-top and animal research R&D work, so those projects continue to move forward effectively.

Anthony Vendetti, Analyst

Okay, perfect. Thanks. I’ll hop back in the queue. I appreciate it.

Lishan Aklog, Chairman and CEO

Thanks, Anthony. Great questions.

Operator, Operator

Thank you. [Operator Instructions] Our next question comes from Robert Wellman, a Private Investor. Please proceed with your question.

Lishan Aklog, Chairman and CEO

Good afternoon, Robert.

Dennis McGrath, President and CFO

Hi, Robert.

Unidentified Analyst, Analyst

Hi, Dr. Aklog. Thanks for taking my question. It's with respect to NextFlo M&A. As we approach the timeframe that you expect to submit to the FDA for clearance, is it a good assumption that interested parties that may participate in an M&A with us will want to see their investment de-risked by actually getting cleared before completing an M&A deal, or is that not necessarily the case?

Lishan Aklog, Chairman and CEO

That's a great question, Robert, and I appreciate the opportunity to elaborate on NextFlo. The answer to your question is 'no'. Our discussions regarding M&A and licensing incorporate expectations regarding milestones for FDA submission. So, it's vital to articulate the distinction between what we're pursuing for licensing M&A and what we’re pursuing directly with our FDA submission. We'll be moving forward independently with the original application for in-patient infusion in hospitals. This application has huge market potential, and we're prepared to maximize value by pursuing FDA submission ourselves. If a compelling offer arises for this application, we remain open to it. Our present M&A discussions focus on disposable infusion pumps for post-surgery pain relief and for local anesthetics. The regulatory hurdles for these applications are minimal, mostly requiring bench-top work rather than clinical studies, meaning interested parties won't wait for FDA clearance before pursuing those discussions. Larger companies appreciate smaller companies like PAVmed for being more agile in navigating regulatory processes efficiently, so FDA risk de-risking won’t be a significant part of M&A discussions.

Unidentified Analyst, Analyst

Okay. Is the regulatory timeframe for those two applications the same, or is it different?

Lishan Aklog, Chairman and CEO

The straightforward response is that we are continuing our FDA submission process for the infusion application independently. The regulatory timelines for the other disposable infusion pump applications are generally aligned to our efforts. However, we will get through the necessary steps for the infusion application ourselves while evaluating these discussions' outcomes for the disposable pump applications.

Robert Wellman, Private Investor

Great, thanks.

Lishan Aklog, Chairman and CEO

Thank you, Robert.

Operator, Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing remarks you may have.

Lishan Aklog, Chairman and CEO

Thank you, everybody for your attention. As always, we appreciate the great questions, and we look forward to keeping you abreast of our progress via news releases and updates such as this one. As always, I just like to remind you that the best way to keep up with PAVmed news updates and events is to sign up for our email alerts on our Investor Relations website. You can follow us on Twitter, LinkedIn, and YouTube, as well as on our main PAVmed website and the Lucid website as well. Feel free to contact Mike directly with any questions at JMH@PAVmed.com. Have a great day. Thank you very much.

Operator, Operator

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.