Earnings Call Transcript - PAVM Q1 2025

Operator, Operator

Good morning, and welcome to PAVmed's First Quarter 2025 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's Senior Director of Investor Relations. Please go ahead.

Matt Riley, Senior Director of Investor Relations

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 SEC. For a list and a 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 SEC and any subsequent updates filed in quarterly reports on Form 10-Q and subsequent Form 8-K. Except as required by law, PAVmed disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which the expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of PAVmed. Lishan?

Lishan Aklog, Chairman and CEO

Thank you Matt, and good morning everyone, and thank you all for joining our quarterly update call. As always, I'd like to thank our long-term shareholders for your ongoing support and commitment. We'll be delving into some of our operational highlights, but let's start with a few high-level comments. As we've talked about before, following the series of critical steps that we took to stabilize our corporate structure and balance sheet, PAVmed is really well positioned to operate as a diversified commercial life science company with multiple independently financed subsidiaries that operate under a shared services model. PAVmed is structured to be a parent company that delivers innovative medical technologies and addresses unmet clinical needs. As our subsidiaries such as Lucid succeed, PAVmed will also succeed. Lucid, of course, is our publicly traded diagnostic company. It's our strongest and most advanced asset that's on the cusp of key milestones including Medicare coverage, making commercial progress along certain new sales channels, and I'm very focused on securing broad coverage. We have plenty of runway and are well positioned to accelerate our commercialization once we secure Medicare coverage. Veris is our digital health company that offers a Cancer Care Platform that enhances personalized cancer care. We have financing secure to restart development of a critical implantable monitor, and we're excited to update you on those developments shortly. PMX is our incubator that has several promising technologies that we're seeking to advance. We're focused right now on PortIO, which is an implantable intraosseous device, and we're getting traction with some potential strategic partners as we'll discuss further. As I've talked about before, we're always looking for other assets and other opportunities to diversify. We have a history of starting in medical devices and expanding into diagnostics and digital health, and an area that we are focusing on right now is expanding into the biopharma space. We have credibility as a partner here based on our track record of advancing our subsidiaries and performing clinical trials, and we have a partnership with one of our directors where we've been able to review some very attractive biopharma assets that fit within our shared services business structure, and we are looking forward to see if we can consummate those in the near future. Regarding Lucid, I encourage you to listen to yesterday's Lucid Business update call for greater detail on each of these areas. I'll try to focus on some of the main takeaways. Lucid is now in a better position than ever to capitalize on e-cigars, a very large political and market opportunity. We reported revenue of $800,000 this last quarter and a test volume of 3,034, which is at the upper end of our target range of 2,500 to 3,000 tests per quarter. The key development this quarter was that we significantly strengthened our balance sheet with an underwritten public offering that netted $16.1 million, which really bolstered our balance sheet. Lucid had $40 million in pro forma cash at the end of Q1, extending our runway well into 2026 and past some key upcoming milestones. We continue to await a response from the MolDX program regarding Medicare coverage for e-cigar, which we continue to believe is imminent. Moving on to Veris Health, we have completed financing recently, successfully restarting the development of the key implantable physiologic monitor, and we have re-engaged with the FDA. We had a recent engagement with them that was so favorable that we did not need to follow up with an in-person meeting. We expect the work to continue through this year with an FDA filing targeted for the first half of 2026. Our pilot program with OSU is complete, and we are very close to finalizing our long-term commercial and strategic partnership. The commercial agreement will start once we complete the process of integrating the Veris platform with the electronic health record at OSU, and once that launches, we expect to enroll at least 1,000 patients in the first year and 300 Veris implants once it's cleared. We are looking forward to getting rolling on that. Regarding the incubator, we are focused on seeking direct financing with PortIO and engaging with strategics. That process is actually accelerating, with discussions ongoing with around a dozen strategics who have expressed interest in our active space, and we look forward to hopefully securing a strategic partnership that includes a strategic investment to allow us to relaunch PortIO and initiate the clinical trial. So, with that, I'll pass the call to Dennis.

Dennis McGrath, Chief Financial Officer

Thanks, Lishan, and good morning everyone. A summary of financial results for the first quarter was reported in our press release that has been distributed. On the next three slides, I'll emphasize a few key highlights from the first quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q as filed with the SEC. A couple of reminders regarding our financials, particularly the income statement with year-over-year comparisons will, for the next couple of quarters, illustrate periods before September 10, 2024. With Lucid's operating results being consolidated into the PAVmed results versus the 2025 periods, which will be without Lucid's operating results. This is all related to the consolidation and deconsolidation of the PAVmed financials. We do present some supplementary information in footnote 4 of the 10-Q that should help with some of the comparisons. With regard to the balance sheet, you will recall from our last two calls in November 2024 and March of this year that the company is engaged in a multi-step process to gain compliance with NASDAQ listing standards for minimum equity, which it did in February and also positioned the company for long-term financial stability. The two key components were deconsolidating Lucid from PAVmed’s consolidated financial statements and restructuring our debt whereby we exchanged about 80% of our outstanding debt for new Series C preferred equity. The slide reflects the balance sheets for both the first quarter and the fourth quarter, both after deconsolidation, which occurred on September 10, 2024, but now, the first quarter shows the impact of the debt exchange, which occurred after December 31, notably, a liability reduction of about $25 million coming in part from a significant reduction in the convertible notes, about $23 million, and a $2 million reduction in accrued expenses in exchange for an increase of approximately $25 million in preferred stock. A couple of key points to mention on each of these balance sheets, cash does not include any Lucid cash. The equity method investment balance of almost $47 million on March 31 reflects the 31.3 million Lucid shares marked to market, a $21 million gain since deconsolidation representing an 82% increase in the Lucid stock price between the periods. This amount was previously eliminated from PAVmed's balance sheet before deconsolidation. PAVmed continues to be the single largest shareholder of Lucid diagnostics with ownership of approximately 29% of the common shares outstanding. Although PAVmed no longer has voting control of Lucid, PAVmed, its board, and management still have significant influence over Lucid with a more than 27% voting interest. Additionally, if they were converted at their conversion price of $1.07 per share, would represent an increase of approximately 23 million common shares. Next slide, please. Similar to the past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year quarterly and annual comparisons. As mentioned earlier, there are significant differences in how the information is compiled between the comparative periods, given the changes in PAVmed’s financial control of Lucid. Importantly, the GAAP construct for deconsolidating Lucid on September 10 of last year somewhat blurs the historical understanding of the information of PAVmed as a standalone entity. Although, there is supplemental information in the footnotes of the financial statements in the 10-Q. On a pro forma basis and purely for illustrative purposes on this slide only, the Veris revenue and the Lucid management fee income are combined, collectively over $3 million per quarter to visually align PAVmed’s income sources versus its operating expenses. For SEC reporting purposes, the MSA income is presented below the line item. The large GAAP net income of $18.6 million before NCI and preferred dividends results in GAAP positive primary EPS of $1.28 per share and a positive diluted EPS of $0.34 per share. I'm happy to answer any detailed questions from the slide in the Q&A. But I think it's more informative to look at the first quarter standalone information presented in this slide, and the full first quarter information presented in our press release. It shows a company baseline operating at cash flow break-even and incurring incremental PAVmed expenses for development activities that are offset by dedicated funding. For the first quarter, there is a non-GAAP loss of $910,000, which has been funded in part by the NIH grant proceeds of $900,000 in the fourth quarter and PAVmed Veris $2.4 million financing during the quarter. Operating expenses for the first quarter were approximately $5.4 million, which include stock-based compensation expenses of $1 million and deal expenses of $200,000. Next slide, please. With regard to the non-GAAP operating expenses, you see a graphic illustration of our operating expenses over time presented in more detail in the press release. Total non-GAAP OpEx is $4.4 million for the first quarter of 2025, which is almost the exact same amount incurred in the fourth quarter after accounting for $200,000 of deal expenses in the first quarter. The decrease is related to the impact of the deconsolidation and the fact that the combined OpEx ignoring deconsolidation for PAVmed and Lucid would have been in line with the previous quarters anyway. With that, operator, let's open it up for questions.

Operator, Operator

Your first question comes from Jeremy Pearlman of Maxim Group. Please go ahead.

Jeremy Pearlman, Analyst

Hi, thanks for taking my question.

Lishan Aklog, Chairman and CEO

Hi, Jeremy.

Jeremy Pearlman, Analyst

How are you doing?

Lishan Aklog, Chairman and CEO

Great.

Jeremy Pearlman, Analyst

So maybe now that the pilot program is complete, is there any metrics or feedback information you could share from the physicians and the patients? Has that feedback influenced any changes you are going to make in the platform before you fully commercialize it?

Lishan Aklog, Chairman and CEO

Great question. And the answer is yes, we've had excellent feedback. This is a formal pilot program that included pre-specified metrics, performance metrics, and patient satisfaction demonstrating clinical success and outcomes, logging anecdotal clinical success stories where the monitoring of the patient led to improved outcomes. All of those pre-specified performance metrics were met, and there's really a lot of enthusiasm. Big academic medical centers can move slowly, and the speed with which the desire and the demand for this technology across the cancer center has been really encouraging. It hasn't required, and we don't expect there to be, any immediate changes to the platform. The platform works. People are very excited, and what's driving some of that enthusiasm is the opportunity to add the implantable monitor in the not-too-distant future, so everyone's looking forward to that, and frankly they're looking forward to being the first site to do the first implant. Part of the proposed strategic partnership includes a registry for the implantable which we're looking forward to. We have learned some lessons on how to implement this. Our goal was to focus on OSU, as it's the third-largest cancer hospital in the country, to learn how to implement this more broadly. We learned lessons on how to utilize their call center, which has a sophisticated process for triaging calls and customizing alerts based on individual needs. Process-wise we've learned a lot, but the core software platform was very well received and fulfilled all metrics.

Jeremy Pearlman, Analyst

Okay, great. Is there a mix? I don't think there is, but just remind us if they have an exclusive right to the Veris platform, or are you still in negotiations to cut talks with other large centers?

Lishan Aklog, Chairman and CEO

There are some local rights to advance it locally, but that does not limit our broader ability to move forward. We expect this to be a commercial agreement that includes a registry for both patients enrolled on the platform, as well as when the implantable starts. We committed to letting them be the first implantable, which is natural since they will likely start first. We expect a minimum of 1,000 commercial patients in the first year, and they'll be well into that by the time the implantable is FDA cleared and ready to go. The broader vision is to strengthen our relationship with top cancer centers to work out a template that can be replicated at dozens of other MCIs designated cancer centers across the country.

Jeremy Pearlman, Analyst

Okay, great. Just one last question shifting to the new year. You mentioned your expansion goals into the biopharma segment. Can you provide a bit more information around the rationale for this and how it's aligned with your existing portfolio with Lucid, Veris, and PortIO? Will the financing be similar to the incubator style where you look for external financing before procuring a potential asset or will this be financed within PAVmed itself?

Lishan Aklog, Chairman and CEO

This is a great question. The way I would like you to think of this is that we've spent a good amount of time getting our corporate structure right and adjusting our balance sheet. All the moves we made over the last 6 to 8 months really put us in a position to put PAVmed back to its roots, designed to be nimble and seek shareholder value wherever it might be. We believe that we have a substantial near-term opportunity for our shareholders with Lucid because we were willing to pounce on that when it became available. This principle is also true with Veris. We added digital health as an area where we saw opportunities; similarly, the biopharma segment has been on our radar. We engaged with a biotech investor on our board, Dr. Sundeep Agrawal, who has extensive experience in this space. He believes PAVmed's infrastructure, management services structure, and history of public capital access makes the independent financing subsidiaries model attractive. Earlier stage assets are struggling to raise private capital through traditional means, especially those with interesting assets outside the U.S. Our clinical research team has proven success at getting studies across the finish line with minimal internal resource needs. Financing models for individual subsidiaries will remain, and we are actively pursuing attractive opportunities in the biopharma space without concerns about bandwidth affecting our other endeavors.

Jeremy Pearlman, Analyst

Okay, great. Thank you for all that information, and I wish you a nice day.

Lishan Aklog, Chairman and CEO

Thank you, Jeremy.

Operator, Operator

Your next question comes from Edward Woo of Ascendiant Capital. Please go ahead.

Edward Woo, Analyst

Yeah, thanks for answering my questions. Has the volatility in the market affected your ability to raise capital? Are you experiencing wide fluctuations when trying to raise money?

Lishan Aklog, Chairman and CEO

I'd like Dennis to answer that. The answer is no. We've been fortunate to have supportive investors who buy into our vision, but I'll let Dennis provide a bit more detail.

Dennis McGrath, Chief Financial Officer

Well said. As evidenced by the financing we did in the first quarter, we had a combination with PAVmed and Veris equities indicating the implicit value of Veris was done at a pre-money valuation of $35 million. We have access to investors who align with our vision, and we believe that the additional tranches needed for Veris will be available when needed. Given the assets we are narrowing down on in the biopharma sector, we believe we will also have access to both private and public capital when the time is right to sign those agreements.

Edward Woo, Analyst

Great. Thanks for answering my questions and I wish you good luck.

Dennis McGrath, Chief Financial Officer

Thanks, Ed.

Operator, Operator

Thank you, ladies and gentlemen. That concludes our question-and-answer session. I will now turn the conference back over to Dr. Lishan Aklog. Please go ahead.

Lishan Aklog, Chairman and CEO

Thank you, operator, and thank you all for joining today and for the great questions. PAVmed is really well positioned as I just articulated in additional detail, and we are going to aggressively execute on the strategic vision that I just outlined. Lucid and Veris are well capitalized through key upcoming milestones, and we believe they'll be value creators in the near term. We are excited to pursue the significant opportunities we have to leverage our model and our infrastructure and further diversify into a new sector, and we hope to make progress on that in the very near future. I encourage you to stay connected with our progress through news releases, these calls, sign up for email alerts on our website, and follow us on social media. Thank you so much, and everyone have a great day.

Operator, Operator

This concludes today's conference. Thank you for attending. You may now disconnect your lines.