PAVmed - Q2 2024

Transcript

Operator (participant)

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. If at any time during this call you require immediate assistance, please press star zero for the operator. 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.

Matt Riley (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 Securities and Exchange Commission.

For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part I, Item 1A, entitled Risk Factors in PAVmed's most recent annual report on Form 10-K filed with the SEC, and any subsequent updates filed in the quarterly reports on Form 10-Q and subsequent Forms 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 Chief Executive Officer of PAVmed. Take it away, Lishan.

Lishan Aklog (Chairman, CEO, and Co-Founder)

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 financiable and well-positioned to leverage PAVmed's shared infrastructure. I'm pleased at the progress we've made on this front. Lucid remains PAVmed's strongest asset. It has been able to independently finance its operations, and as we discussed in yesterday's Lucid earnings call, is making solid progress over multiple fronts towards 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 at 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 Check Your Food Tube event with upfront contracted payments, an important milestone with regard to us being able to translate test line growth and Check Your Food Tube events with revenue and revenue growth. In Veris Health, our focus has been on our pilot program with the Ohio State James Cancer Center, and we have, as we'll discuss later, our 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, which we will begin once we have secured that financing. And as I mentioned, under the PMX Incubator, we're focused on raising capital for PortIO.

Just a quick overview for those of you 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, our incubator, PMX, which was recently launched, which is focusing on one of the products in our portfolio, PortIO. And this structure is designed to allow us to bring in other assets, other technologies under this umbrella, and a shared services model. So let's start with Lucid. Again, I'll be brief here. I'd like... I would really encourage you to refer to the webinar from yesterday, as well as our press release for further details.

As you can see here, Lucid's test volume grew to a record level in the last quarter, and our revenues have held up and remain flat quarter-on-quarter. The numbers are shown here. Revenue flat quarter-on-quarter, up 500% annually. Test volume up 31% quarter-on-quarter and a record quarter, and up 44% annually. As we mentioned yesterday, we held over 50 high-volume health fair events that we refer to as Check Your Food Tube pre-cancer testing events, and we had the first one of those, which allowed us to get upfront contracted payment. The key strategic accomplishments, as I emphasized later, really relate to our clinical evidence base.

Two studies, the NZBE Clinical Utility Study and the ESOGUARD BE-1 Clinical Validation Study, had new data released and are pending peer review publication. Another critical study, the Cleveland VA Clinical Validation Study, completed peer review publication. Our meeting with the MolDX program was very productive until last month, and we look forward to submitting our data and working with the MolDX team to secure Medicare coverage for EsoGuard. I'll transition now to a bit of 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.

This is a software platform which includes a patient care module and a physician or caretaker module, and they interface with a box of connected devices, Bluetooth connected devices, that provide physiologic information for the clinicians to improve the care of the patient. 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, establish longitudinal trends and 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.

As we discussed on previous calls, our focus has been on large academic center strategic accounts. We have been engaged with the Ohio State University under a memorandum of understanding, and this past June, we launched our pilot program consistent with that MOU, was launched in the bone marrow transplant and gynecologic oncology units. Approximately 26 patients have been onboarded to date, and we've had our first patient success story in mid-July that demonstrated that our platform's ability to pick up signs of clinical deterioration resulted in a patient returning to the hospital and getting care and avoiding complications. Our plan is, upon completion of 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 on this engagement, we look to continue our strategy to identify other large academic cancer centers to partner with in a similar fashion. I briefly mentioned the Veris implantable monitor, but here's some further details. The goal here is to have a monitor that can be implanted in conjunction with a vascular access port. You can see on the right there, the purple structure is a typical vascular access port, and our implantable monitor is designed to be implanted in conjunction with that. It has a variety of key features and can detect continuous cardiac monitoring activity, has a patient-triggered event monitor, can track temperature, respiratory rate, and it has Bluetooth connectivity so we can...

It can deliver that information without any involvement of the patient. And assures 100% compliance with the requirements for billing under remote patient monitoring. So we've had a clear path to FDA clearance and commercial launch. We've completed multiple meetings with the FDA, and we have been poised to relaunch this development and pursue FDA clearance, and we expect to do so shortly once this upcoming financing is closed. We did have some final pre-submission meetings with the FDA that went well, and we're already starting the process of reengaging with vendors to plan the relaunch upon the completion of this financing. Moving on to our incubator. We talked about this briefly over the last call.

Well, the incubator is a partnership between PAVmed and an experienced group in the med tech space called Hatch Medical. We've decided within this incubator to focus on one product that we've had been developing but put on pause a couple of years ago, that's PortIO. PortIO is a direct long-term access to the bone marrow that can reduce complications and infection rates as an alternative for venous access. It addresses a very large unmet need and a very diverse target population, including patients with poor venous access and renal failure. A large total addressable market, really solid IP protection, and it's been used in humans. We've successfully completed our first in-human study, and we have a clear path to FDA clearance.

So we are now actively raising capital to fund PortIO and fund the completion of the IDE study, as well as completion of the second generation, 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 to give us our financial update.

Dennis McGrath (President and CFO)

Thanks, Lishan, and good morning, everyone. Our summary financial results for the second quarter were reported in our press release and was published last night. On the next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q. With regard to the balance sheet, cash at quarter end, June 30, was $25.5 million. During the quarter, we added eleven point six million to that amount with the Lucid financing previously announced. The average quarterly burn rate for the trailing four quarters is $11.6 million per quarter.

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 is dependent 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 refinance- refinancing any outstanding debt at the time, can also work to exceed that threshold. Furthermore, as we advance the initiatives, both with PMX Incubator and Veris Health, particularly in connection with the Ohio State University Comprehensive Cancer Center, any direct financing into either of these subsidiaries will further 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 other current and long-term liabilities.

The sequential decrease in the fair value of the convertible notes is largely related to principal reductions in the Lucid convertible note through conversion notices and issuances of Lucid shares and satisfaction of that note. As mentioned on our Lucid call yesterday, during the quarter, Lucid issued 2.1 million shares in satisfaction of conversion notices during the quarter. Shares outstanding included, including unvested, restricted stock awards as of last week, are 10.3 million shares outstanding. The GAAP outstanding shares of 9.6 million are reflected on the slide, as well as the face of 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.

First, you'll review the information and my comments in light of the cautionary disclosure on the bottom of the slide about supplemental information, particularly non-GAAP information. Revenue of approximately $1 million for the second quarter is about even with the previous two quarters and reflects a sixfold 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 approximately $8 million in billable claims submitted for insurance reimbursement. However, Lucid cash collections generally limit the amount of recognized revenue from the amounts 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 that are new to our PAVmed earnings call, a comment on Lucid revenue recognition is worth repeating.

A key determinant in the amount of billable revenue that can be recognized is the probability of customer payment. Therefore, due to the fact that we are in the early stages of the reimbursement process, revenue recognition for claims submitted to traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is delivered, invoiced, and submitted for reimbursement. As you'll see in our 10-Q, this is called variable consideration in the normal jargon of GAAP's ASC 606 revenue recognition guidelines, and presently, there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. For billable amounts contracted directly with employers and that are fixed and determinable, will be recognized as revenue when our contracted service is delivered. Generally, that means when the report is delivered to the referring physician.

The second quarter year-over-year reduction of operating expenses of about $2 million is primarily related to non-cash charges in the prior year, flowing through OpEx, including stock-based compensation expense, and about $650,000 of R&D expenses paid in stock. Our non-GAAP loss for the second quarter of $7.7 million reflects about $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, out of a $1.19 loss per share, non-cash charges accounted for approximately $0.35 per share in the second quarter, and that's largely related to the convertible debt charges and the stock compensation expense.

With regard to non-GAAP operating expenses, on this slide, you'll see a graphic illustration of our operating expenses over time and, of which are also presented in detail in our press release. Total non-GAAP operating expense is $12.3 million for the second quarter 2024, and as you can see, is in line with the first quarter levels and the year-over-year amounts. Also worthy of repeating are some reimbursement stats related to the first six months of 2024, as mentioned on our Lucid call yesterday. 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 976,000 claims paid were from those submitted in the current quarter. About 45% from claims submitted in the first quarter, and the balance of the claims were submitted last year, with the longest dated item from about 12 months ago. Our revenue cycle manager is reporting that turnaround times have been increasing for the largest payers, and we've seen an increase in claims being designated medically not necessary. The revenue cycle manager has a mitigation plan for both issues, including increasing the speed to follow up with late payers and proactively soliciting medical records for use in appeals at an earlier stage 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. Out of the 77% that have been adjudicated, about 25% resulted in an allowable amount by the insurance company, with a weighted average of about $1,540 per test. Of those denied, about 43% are deemed not medically necessary or require a prior authorization. Additionally, about 26% were deemed to be non-covered. With that, operator, let's open it up for questions.

Operator (participant)

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you're using a speakerphone, please pick up your handset before pressing any keys. One moment, please, for your first question. And your first question comes from the line of Ross Osborn with Cantor Fitzgerald. Please go ahead.

Dennis McGrath (President and CFO)

Morning, Ross.

Lishan Aklog (Chairman, CEO, and Co-Founder)

Good morning.

Matthew Park (Analyst)

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

Lishan Aklog (Chairman, CEO, and Co-Founder)

Oh, hey. Good morning, Matt.

Dennis McGrath (President and CFO)

Hey, Matthew.

Matthew Park (Analyst)

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 in full?

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah. So, the pilot's going on pace. We've since we're about a third of the way through. It's designed to follow, to have 100 patients enrolled on the platform, and it's going well. You know, the purpose of the pilot was, so this is a large medical center. They're the third largest cancer center in the country, and it was really about making sure that we're aligned with logistics, with regard to how they handle calls and incoming notifications, and all of that is really going really well.

So, we expect the pilot to wrap up in several months, and then we'll look to, again, based on the success of that transition, to not just a full commercial engagement, but we're really looking forward to finding ways to engage strategically with the institution on a whole variety of fronts, consistent with what we described in the memorandum of understanding, and then, of course, using this as a prototype to engage with other large academic cancer centers along the way.

Matthew Park (Analyst)

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?

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah. We do have a pipeline of about a dozen or so large centers and have active conversations with several of them. We expect those to move forward and accelerate really upon completion of this pilot. You know, Veris has been, you know, we've been careful with our expenditures and our operating expenses to focus on this particular account as a driver to be able to secure financing, to drive to restart the development of the implantable monitor and so forth. As I've mentioned, that strategy is working, and we're close to securing some additional financing. I believe once we do and once we complete this pilot, we'll be able to start securing additional accounts.

Matthew Park (Analyst)

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. Thank you.

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah. The timeline for submission, the pathway to clearance, has all been pretty well worked out. We've had, you know, multiple, as I've said before, we've had multiple meetings with FDA. We've done a variety of preclinical studies that, at their request, and so we feel like we're in pretty good shape, have a pretty, pretty predictable path. And if we are able to secure that financing soon, and to be able to relaunch the development of the product, that'll take some time. It'll take some time to bring vendors back online and to get back to where we left off. But, you know, we're looking at sometime in mid-next year, 2025, as a reasonable target for FDA submission.

Once we're submitted, we believe the clearance path is pretty straightforward.

Matthew Park (Analyst)

Great. Thanks for taking the question.

Lishan Aklog (Chairman, CEO, and Co-Founder)

Great. Thanks a lot. Appreciate it.

Operator (participant)

Thank you. And, once again, if you would like to ask a question, please just, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Anthony Vendetti with Maxim Group. Please go ahead.

Dennis McGrath (President and CFO)

Thank you. Good morning, Anthony.

Anthony Vendetti (Analyst)

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

Lishan Aklog (Chairman, CEO, and Co-Founder)

Well, for both. Yeah, we mentioned that-

Anthony Vendetti (Analyst)

For both.

Lishan Aklog (Chairman, CEO, and Co-Founder)

But the Veris, the Veris one is further, furthest along. And, again, just to maybe use this as an opportunity to reiterate, that's PAVmed's new model, right? We have a shared services model, we have subsidiaries, and we're seeking to raise capital into each of the subsidiaries. Obviously, Lucid has done that well over the past couple of years, and we're looking for the first time, really, to raise capital directly into Veris. And, the incubator that we launched a couple of quarters ago is designed also to raise capital, not just into the incubator itself, but into individual corporate entities that hold individual assets, such as PortIO.

Anthony Vendetti (Analyst)

Okay, great. At this point, though, it's not a spin-off into an IPO like Lucid, correct?

Lishan Aklog (Chairman, CEO, and Co-Founder)

...No, no, we don't think that the markets are really amenable to that right now. This is just simply where do we raise the capital to advance these technologies? And our conclusion earlier this year was that to take advantage of PAVmed Shared Services model and the infrastructure that we've created, and to advance other assets beyond Lucid, that each of those assets would have to raise its own capital privately, but not in the public markets really are not the place right now for these early-stage assets.

Anthony Vendetti (Analyst)

Agreed. Yeah. No, it makes sense. Based on your best estimates, you expect Veris, you expect to have funding for Veris in place before the end of the year and then submit to the FDA by mid-2025. Is that correct?

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah, that sounds about right. I think, as I said, I think the financing is, that effort is going well. We, you know, we're hopeful to, close on an initial tranche that will allow us to get, things off the ground actually pretty soon. So that's, those broad estimates with regard to timeline are reasonable.

Anthony Vendetti (Analyst)

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

Lishan Aklog (Chairman, CEO, and Co-Founder)

Thanks, Anthony. Mm-hmm. Appreciate it.

Operator (participant)

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

Edward Woo (Analyst)

Yeah, thank you very much. I had a very general question about valuations. Have you seen valuations change significantly in terms of when you're going out, trying to, you know, raise funding for the incubator as well as for Veris?

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah, I mean, I think, obviously, it depends on the individual asset. You know, Veris is further along, although PortIO has actually been advanced quite far and was just waiting the launch of the Clinical Study, IDE Study. So, we've been, you know, again, these are not closed yet, so I don't wanna speak prematurely, but, we, you know, they're both strong assets, and we've been pleasantly surprised at the interest and valuations that we believe we can close these transactions at.

Edward Woo (Analyst)

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

Lishan Aklog (Chairman, CEO, and Co-Founder)

Yeah. Thanks, Ed.

Operator (participant)

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

Lishan Aklog (Chairman, CEO, and Co-Founder)

Great. Thank you very much, operator, and I'd like to thank our colleagues for their excellent questions. Again, we're really, really excited about this important transition point for PAVmed and for its subsidiaries, Veris and the incubator in particular. And we look forward to keeping you abreast of our progress via news releases or periodic calls such as this one, and encourage you to keep up with our news 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. So thank you, everybody, and have a great day.

Operator (participant)

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